A.

INHERENT POWER TO TAX

Pepsi Cola vs. Municipality of Tanaun

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-

appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR,
ET AL., defendant-appellees.
G.R. No. L-31156 February 27, 1976
"Legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies
the power to tax.”
FACTS:
1. On February 14, 1963, plaintiff-appellant Pepsi-Cola Bottling Company
commenced a complaint with preliminary injunction before CFI-Leyte to
declare Sec. 2 of R.A. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinance Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte,
null and void.
a. Ordinance No. 23 levies and collects “from soft drinks producers and
manufacturers a tax of 1/16 of a centavo for every bottle of soft drink
corked.”
b. Ordinance No. 27 levies and collects “on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a
tax of one centavo (P0.01) on each gallon of volume capacity.”
c. The tax imposed in both ordinances is denominated as “Municipal
Production Tax.”
2. On Oct. 7, 1963, the CFI-Leyte dismissed the complaint and upheld the
constitutionality of R.A. 2264 as well as the municipal ordinances, and ordered
the plaintiff to pay the taxes due.
3. On appeal, the CA elevated the case to the Supreme Court pursuant to Sec. 31 of
the Judiciary Act of 1948, as amended.

ISSUES:
1. Is Sec. 2 of R.A. 2264 an undue delegation of power, confiscatory and
oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage
or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
RULING:
1. No, Sec. 2 of R.A. 2264 is not an undue delegation of power, confiscatory and
oppressive.
The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of
powers.
The exception, however, lies in the case of municipal corporations, to which,
said theory does not apply. Legislative powers may be delegated to local governments
in respect of matters of local concern. By necessary implication, the legislative power
to create political corporations for purposes of local self-government carries with it
the power to confer on such local government agencies the power to tax.
Sec. 5, Art. XI provides: “Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as may be
provided by law.” Withal, it cannot be said that Section 2 of R.A. 2264 emanated from
beyond the sphere of legislative power to enact and vest in local governments the
power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant’s pretense,would not suffice to invalidate the said law as confiscatory and
oppressive.

2. No, there is no double taxation.

The difference between the two ordinances clearly lies in the tax rate of the soft
drinks produced. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect.
Furthermore, Ordinance No. 27 neither purports as a sales tax nor a
specific/percentage tax.
First, the tax is based on the produce (whether sold or not) and not on the sales.
Second, soft drink is not one of those specified under the law which tax levied may be
treated as specific tax. Specific taxes are those imposed on specified articles only, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel
oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs. (Secs. 123-148, NIRC, R.A. No. 953, otherwise known as the
Narcotic Drugs Law).
Moreover, double taxation, in general is not forbidden by our fundamental law,
since we have not adopted as part thereof the injunction against double taxation
found in the Constitution of the United States and some states of the Union. Double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of
the same governmental entity or by the same jurisdiction for the same purpose, but
not in a case where one tax is imposed by the State and the other by the city or
municipality.

3. No, not just and unfair.

An increase in tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion in
determining the rates of imposable taxes. This is in line with the constitutional policy
of according the widest possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax Code (PD No. 231).
 B. LIFEBLOOD DOCTRINCE

1. Commissioner v. Algue, 158 SCRA 9

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE
COURT OF TAX APPEALS, respondents.
G.R. No. L-28896 February 17, 1988
FACTS:
1. Private respondent Algue, Inc. is a domestic corporation engaged in engineering,
construction and other allied activities.
2. On January 14, 1965, it received a letter from the Petitioner CIR assessing it in
the total amount of P83,183.85 as delinquency income taxes for the years 1958
and 1959.
3. On January 18, 1965, Algue filed a letter of protest or request for
reconsideration. On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Guevarra, Jr.,
who refused to receive it on the ground of the pending protest.
4. On April 7, 1965, Atty. Guevarra was informed that the BIR was not taking any
action on the protest and it was only then that he accepted the warrant of
distraint and levy.
5. Sixteen days later, on April 23, 1965, Algue filed a petition for review of the
decision of the CIR with the CA.
6. The petitioner contends that the claimed deduction of P75,000 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. However, the CTA agreed with Algue on this issue, holding that said
amount had been legitimately paid by it for actual services rendered (paid in the
form of promotional fees).
a. The petitioner originally claimed these promotional fees to be personal
holding company income. However, it was discovered that Algue acted as
an agent regarding the sale of the Philippine Sugar Estate Development
Company’s properties.
b. Pursuant to such authority, certain individuals worked for the formation
of the Vegetable Oil Investment Corporation and convinced other persons
to invest in it. Ultimately, after its incorporation largely through the
promotion of said individuals, the new corporation purchased PSEDC.
c. As a result of it having acted as an agent, Algue received a commission of
P126,000, and it was from this commission that the P75,000 promotional
fees were paid to the aforementioned individuals.
d. The payees duly reported their respective shares of the fees in their ITRs
and paid the corresponding taxes thereon. No distribution of dividends
was also involved.
 7. The petitioner claims that the payments are ficticious because most of the payees
are members of the same family in control of Algue. It is argued that no
indication was made as to how such payments were made, whether by check or
in cash, and there is not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction.
a. Regarding the allegation of tax evasion, the SC was convinced that such was
not committed. The private respondent testified, through its President and
Accountant, that the payments were not made in one lump sum but
periodically and in different amounts as each payee’s need arose.
b. Since this was a family corporation, strict business procedures were not
applied and immediate issuance of receipts was not required. Even so, at the
end of the year, when the books were to be closed, each payee made an
accounting of the fees received by him or her, to make up a total of P75,000.

ISSUE:
WON the P75,000 professional fees paid can be claimed as an ordinary
reasonable or necessary business expense.

RULING:
Yes, said professional fees can be claimed as ordinary reasonable or necessary
business expense.
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 the inevitability and indispensability of taxation is admitted, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with prescribed procedure.
In this case, the private respondent 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.
 2. CIR v. Pineda, 21 SCRA 105].
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA,
as one of the heirs of deceased ATANASIO PINEDA, respondent.
G.R. No. L-22734 September 15, 1967
FACTS:
1. On May 23, 1945, Atanasio Pineda died, survived by his wife, Felicisima Bagtas
and 15 children, the eldest of whom is respondent Manual Pineda, a lawyer.
Estate proceedings were had in CFI-Manila. The estate was divided and awarded
to the heirs, and the proceedings terminated on June 8, 1948.
2. Manuel Pineda’s share amounted to about P2,500.
3. After the estate proceedings were closed, the BIR investigated the income tax
liability of the estate for the years 1945-1948 and it found that the
corresponding income tax returns were not filed. As such, the tax delinquency
was assessed.
4. Respondent Manuel, who received the assessment, contested the same and
appealed to the CTA alleging that he was appealing “only that proportionate part
or portion pertaining to him as one of the heirs.”
5. After hearing, the CTA rendered judgment reversing the decision of the CIR on
the ground that his right to assess and collect tax has prescribed.
6. The petitioner appealed to the SC and the SC affirmed the findings of the CTA
with respect to the prescribed action on the 1947 unpaid taxes.
a. Since the return for taxable year 1947 was filed on March 1948 and the
assessment was made on Oct. 19, 1953, more than five years from the date the
return was filed, the right to assess income tax had prescribed.
b. For the returns for 1945 and 1946, since the returns were filed on August 24,
1953 and assessments were made within five years therefrom or on Oct. 19,
1953, the action to collect tax was filed within five years from the latter date,
on August 7, 1957, the action has not yet prescribed.
c. The case was remanded to the Tax Court for further proceedings, where it
held Manuel Pineda liable for his share in the payment of the tax deficiency
for years 1945, 1946 and the real estate dealer’s fixed tax for the 4th quarter of
1946 and whole of 1947 — in sum of P760.80.
7. The CIR appealed to the SC and proposed that Manuel be held liable for the
payment of all taxes found by the Tax Court to be due from the estate (P760.80)
instead of only for the amount of taxes corresponding to his share in the estate.
8. Manuel opposed the proposition and invoked the ruling in the Gov’t of the
Philippine Islands vs. Pamintuan wherein the SC held that “after the partition of
an estate, heirs and distributees are liable individually for the payment of all
lawful outstanding claims agains the estate in proportion to the amount or value
of the property they have respectively received from the estate.”
ISSUE:
WON the respondent Manuel may be held liable for the entire taxes due from
the estate.

RULING:
Yes, respondent Manuel may be held liable for the entire taxes due from the
estate.
The Government has two ways of collecting the tax in question:
(1) By going after all the heirs and collecting from each one of them the amount
of the tax proportionate to the inheritance received, as adopted in Gov’t of the Phil.
Islands vs. Pamintuan, and
(2) Pursuant to the lien created by Sec. 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, by subjecting
said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate.
The BIR should be given, in instances like the present case, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be
envisioned by the Tax Code, because taxes are the lifeblood of government and their
prompt and certain availability is an imperious need.
 3. CIR v. CTA, 234 SCRA 348].
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS,
CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS,
respondents.
G.R. No. 106611 July 21, 1994
FACTS:
1. In a letter dated August 26, 1986, herein private respondent Citytrust filed a
claim for refund with the BIR in the amount of P19,971,745 representing the
alleged aggregate of the excess of its carried-over total quarterly payments over
the actual income tax due, plus carried-over withholding tax payments on
government securities and rental income, as computed in its final income tax
return for the calendar year ending December 31, 1985.
2. In order to interrupt the running of the prescriptive period, Citytrust filed a
petition with the CTA two days later, claiming the refund of its income tax
overpayments for the years 1983-1985.
3. In the answer filed by the OSG, it was asserted that mere averment that
Citytrust incurred a net loss in 1985 does not ipso facto merit a refund; that the
amounts claimed as income tax overpayment, taxes withheld on proceeds of
government securities as well as rental income are not properly document; that
assuming that petitioner is entitled to refund, the right to claim the same has
prescribed since the petition was filed only on August 28, 1986.
4. On June 24, 1991, the petitioner BIR filed with the tax court a manifestation and
motion praying for the suspension of the proceedings on the ground that the
claim for Citytrust for tax refund was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only awaiting the
submission by Citytrust of the required confirmation receipts which would
show whether or not the aforesaid amount was actually paid and remitted to the
BIR.
5. Citytrust filed an opposition thereto, contending that since the CTA already
acquired jurisdiction, it could no longer be divested of the same.
6. The tax court denied the motion to suspend proceedings, and ruled that
Citytrust is entitled to a refund.
7. Its motion for reconsideration having been denied, CIR filed a petition for
review with the CA. The latter court affirmed the judgment of the CTA.
8. Thus, the instant petition.

ISSUE:
WON the Citytrust can claim a refund considering the Petitioner’s contention that:
1. Private respondent failed to prove and substantiate its claim for such refund, and
 2. the bureau’s findings of deficiency income and business tax liabilities against
private respondent for the year 1984 bars such payment.

RULING:
The SC decided to remand the case to the CTA for further proceedings.
It is a long and firmly settled rule of law that the Government is not bound by
the errors committed by its agents. Nowhere is the aforestated rule more true in the
field of taxation. It is axiomatic that the Government cannot and must not be
estopped particularly in matters involving taxes for it is the lifeblood of the nation
through which the government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents.
In this case, the BIR was denied its day in court by reason of the mistakes and/or
negligence of its officials and employees. Records show that when it was herein
petitioner’s turn to present evidence, several postponements were sought by its
counsel, the OSG, due to the unavailability of the necessary records which were not
transmitted by the Refund Audit Division of the BIR to said counsel, as well as the
investigation report made by the Banks/ Financing and Insurance Division of the said
bureau despite repeated requests.
It was under such a predicament and in deference to the tax court that
ultimately, siad records being still unavailable, herein petitioner’s counsel was
constrained to submit the case for decision on Feb. 20, 1991 without presenting any
evidence.
 4. Marcos II v. CA, 273 SCRA 47
June 5, 1997 | Torres, Jr. J. | Rule 75 | Settlement of Estate of Deceased Persons
SUMMARY: The BIR issued several tax deficiency assessments against the estate of
Marcos and then levied on several properties to satisfy said tax deficiencies. Marcos
seeks to nullify the assessments and levy saying that the same was done without the
cognition of the probate court. He further alleges that any claim against the estate
should be brought to the probate court who should order the payment of the taxes
to the administrator.
DOCTRINE: The approval of the court, sitting in probate or as a settlement tribunal
over the deceased is not a mandatory requirement in the collection of estate taxes.

FACTS:
1. Marcos died on September 1989.
2. In June 1990, a special tax audit team was created for the purpose of conducting
investigations and examinations of tax liabilities of former president Marcos.
a. Upon the conclusion of their investigation, they issued a memorandum in
1991 stating that the Marcoses failed to file several tax returns from 1982-86
and a written notice of death in violation of the National Internal Revenue
Code.
3. Criminal charges were filed against Imelda Marcos and the Commission on
Internal Revenue (CIR) caused the preparation of the Income Tax Return of the
Marcoses. The BIR then issued several deficiency tax assessments.
a. The CIR claimed that these were personally and constructively received
delivered to the Marcoses but these that the deficiency tax assessments were
not protested administratively within the 30 days following receipt of
assessments.
4. From February to May 19993, the BIR issued numerous notices of levy on real
properties of the Marcoses.
5. Ferdinand Marcos II, eldest son of former President Marcos filed a petition for
certiorari and prohibition with an application for writ of preliminary injunction,
questioning the actuations of the Commission on Internal Revenue in assessing
and collecting through the summary remedy of Levy on Real Properties, estate
and income tax delinquencies upon the estate and properties of former President
Marcos despite the pendency of the probate proceedings on the will of the
former’s father.
a. He prayed for the (1) annulment and setting aside of notices on levy of real
property (2) enjoining the Head Revenue Executive Assistant from
proceeding with the auction of the real properties covered by the said notices.
CA: Denied the petition as the deficiency assessments on the sale have become final
and unappealable, therefore enforceable by the summary remedy of levy.

Arguments of the Petitioner (Marcos II):

(1) The notices of levy, notices of sale, and subsequent sale of properties of the
late President Marcos effected by the BIR are null and void for disregarding the
established procedure for the enforcement of taxes due upon the estate of the
deceased which was for the claimant to present the claim before the probate
court so that the court may order the administrator to pay.
(2) "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the
total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and sale are premature and
oppressive."
Argument of BIR:
(1) The state’s authority to collect internal revenue taxes is paramount. Thus,
the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate
taxes over the same.
Issues:
1. Whether or not the BIR has authority to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased. YES.

RATIO:
The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. There is
nothing in the tax code, and in the pertinent remedial laws that implies the necessity
of the probate or estate settlement court’s approval of the state’s claim for the estate
taxes, before the same can be enforced and collected. If there is any issue as to the
validity of the BIR’s decision to assess the estate taxes, this should have been pursued
through the proper administrative and judicial avenues provided for by law.
Even an assessment based on the estimate is prima facie valid and lawful where it
does not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is erroneous.

Moreover, the payment and assessment of inheritance tax does not directly involve
the administration of the decedent’s estate although it may be viewed as an incident
to the complete settlement of an estate, and under some statutes, it is made the duty
of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor it is
a claim against the estate as much, but it is against the interest or property right
which the heir has in the property formerly held by decedent.

Petition denied and CA decision is affirmed.

 5. Philex Mining Corporation v. CIR, 294 SCRA 687
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS,
respondents.
G.R. No. 125704 August 28, 1998
FACTS:
1. On Aug. 5, 1992, the BIR sent a letter to petitioner Philex asking it to settle its
tax liabilities from the 2nd quarter of 1991 to the 2nd quarter of 1992 in the total
amount of P123,821,982.52 representing excise taxes.
2. In its letter dated Aug. 20, 1992, Philex protested the demand for payment of the
tax liabilities stating that it has pending claims for VAT input credit/refund for
the taxes it paid from 1989 to 1991 amounting to P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing the case of CIR vs. Itogon-Suyoc Mines, Inc.
3. In reply, BIR stated that Philex’s pending claims have not yet been established
or determined with certainty, thus no legal compensation can take place.
4. Consequently, Philex raised the issue to the CTA on Nov. 6, 1992.
a. In the course of the proceedings, the BIR issued Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total tax
liabilities of Philex of P123,821,982.52, effectively lowered its tax obligation
to P110,677,688.52.
5. Despite the reduction, the CTA still ordered Philex to pay the remaining balance
because for legal compensation to take place, both obligations must be liquidated
and demandable. Since Petitioner’s claims for VAT refund is still pending
litigation, it is not yet liquidated or determined. Moreover, the CTA ruled that
taxes cannot be subject to set-off on compensation since claim for taxes is not a
debt or contract.
6. On appeal, the CA affirmed the CTA observation. Its motion for reconsideration
was likewise denied.
a. However, a few days after the denial of its MR, Philex was able to obtain its
VAT input credit/refund for the taxable years 1989 to 1994, which
computation is as follows:
- 1994 (2nd quarter), P25,317,534.01
- 1994 (4th quarter), P21,791,020.61
- 1989, P37,322,799.19
- 1990-1991, P84,662,787.46
- 1992 (1st-3rd quarter), P36,501,147.95
7. In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities since both had already become
“due and demandable, as well as fully liquidated;” hence, legal compensation can
properly take place.

ISSUE:
WON Philex is correct in its assertion that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was
unjustified.

Philex posits the theory that it had no obligation to pay the excise tax liabilities
within the prescribed period since, after all, it still has pending claims for VAT input
credit/refund with BIR.

RULING:
No, Philex is not correct.
Supreme Court: “We fail to see the logic of Philex’s claim for this is an outright
disregard of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex’s whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.”
 6. Mactan Cebu Int’l. Airport Authority v. Marcos, 330 Phil. 392 (1996)).
Public Corporation, Taxation, Local Government Code, Realty Tax,
OCTOBER 30, 2017
FACTS:
1. Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act 6958.
a. Since the time of its creation, MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter.
b. However on 11 October 1994, the Office of the Treasurer of Cebu,
demanded for the payment of realty taxes on several parcels of land
belonging to the petitioner.
2. Petitioner objected to such demand for payment as baseless and unjustified and
asserted that it is an instrumentality of the government performing
governmental functions, which puts limitations on the taxing powers of local
government units.
3. The City refused to cancel and set aside petitioner’s realty tax account, insisting
that the MCIAA is a government controlled corporation whose tax exemption
privilege has been withdrawn by virtue of Sections 193 and 234 of the Local
Government Code (LGC), and not an instrumentality of the government but
merely a government owned corporation performing proprietary functions.
MCIAA paid its tax account “under protest” when City is about to issue a
warrant of levy against the MCIAA’s properties.
4. MCIAA filed a Petition of Declaratory Relief with the RTC contending that the
taxing power of local government units do not extend to the levy of taxes or fees
on an instrumentality of the national government.
a. It contends that by the nature of its powers and functions, it has the
footing of an agency or instrumentality of the national government; which
claim the City rejects.
5. The trial court dismissed the petition, citing that close reading of the LGC
provides the express cancellation and withdrawal of tax exemptions of
Government Owned and Controlled Corporations.
 
ISSUE: Whether the MCIAA is exempted from realty taxes.
 
RULING:
Tax statutes are construed strictly against the government and liberally in favor
of the taxpayer. But since taxes are paid 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 taxpayer and liberally in
favor of the taxing authority.
A claim of exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken. Taxation is the rule, exemption
therefrom is the exception. However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does not apply because
the practical effect of the exemption is merely to reduce the amount of money that
has to be handled by the government in the course of its operations.
Further, since taxation is the rule and exemption therefrom the exception, the
exemption may be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private parties based on
material consideration of a mutual nature, which then becomes contractual and is
thus covered by the non-impairment clause of the Constitution.
MCIAA is a “taxable person” under its Charter (RA 6958), and was only
exempted from the payment of real property taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax.
Since Republic Act 7160 or the Local Government Code (LGC) expressly
provides that “All general and special laws, acts, city charters, decrees [sic], executive
orders, proclamations and administrative regulations, or part of parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.”
With that repealing clause in the LGC, the tax exemption provided for in RA
6958 had been expressly repealed by the provisions of the LGC. Therefore, MCIAA
has to pay the assessed realty tax of its properties effective after January 1, 1992 until
the present.
 7. Proton Pilipinas Corp. v. Republic of the Philippines, G.R. No. 165027, October
16, 2006, citing Province of Tarlac v. Alcantara, 216 SCRA 790, 798 (1992)).
PROTON PILIPINAS CORPORATION, petitioner, vs. REPUBLIC OF THE
PHILIPPINES, represented by the BUREAU OF CUSTOMS, respondent.
G.R. No. 165027 October 12, 2006
FACTS:
1. Petitioner Proton is a corporation duly organized and existing under Philippine
laws and duly registered with the Board of Investments. It is engaged in teh
business of importing, manufacturing, and selling vehicles.
2. Sometime in 1997, Devmark Textile Industries, Inc., a corporation duly
regustered with the SEC and with BOI, engaged in the business of spinning,
knitting, weaving, dyeing, and finishing all types of textile, yarns, and fabrics,
together with Taxasia, Inc., expressed the intention to purchase various vehicles
distributed and marketed by petitioner.
a. In payment thereof, the above named companies offered petitioner their Tax
Credit Certificates (TCCs) worth P30,817,191, and guaranteed that said TCCs
were valid, genuine, and subsisting.
b. They further assured the petitioner that said TCCs were a safe and a valid
mode of payment for import duties and taxes as they were issued by the
Department of Finance (DOF) and duly honored and accepted by the Bureau
of Customs.
c. Consequently, the TCCs, as well as their transfers, were submitted to the DOF
for evaluation and approval. Thereafter, the DOF cleared said TCCs for
transaction and approved them for transfer.
d. As a result, petitioner delivered 13 vehicles with a total value of P10,778,500
and PDCs worth P10,592,618 in exchange for the said TCCs to Devmark and
Texasia.
e. In turn, petitioner used the TCCs for payment of its customs duties and taxes
to the BOC.
3. In the interim, the Office of the Ombudsman under Hon. Desierto began
conducting an investigation on the alleged “P60 Billion DOF Tax Credit Scam.”
As revealed in the Report, all the pertinent documents submitted by Devmark in
support of its application for the TCCs were fake and spurious. As a
consequence, the transfers of the subject TCCs to petitioner and their
subsequent use of the same was declared invalid and illegal.
4. Certain public officers suspected to be involved in the credit scam were filed
with criminal cases before the Sandiganbayan for violation of the Anti-Graft and
Corrupt Practices Act.
5. Petitioner filed a criminal case for Estafa against the officers of Devmark with
the OCP-Mandaluyong.
 6. On the other hand, the BOC filed a civil case against petitioner before the RTC
for the collection of taxes and customs duties, which remain unpaid because the
subject TCCs had been cancelled.
7. Petitioner then filed a Motion to Dismiss on the civil case on the grounds of lack
of jurisdiction, prematurity of action, and litis pendentia.
a. The said motion was denied by the RTC as well as its motion for
reconsideration.
b. On appeal, the CA dismissed the petition for certiorari under Rule 65 for lack
of merit, as well as its corresponding motion for reconsideration.
8. Hence, the instant petition.

ISSUE:
WON the determination of the validity or invalidity of the TCCs is a prejudicial
issue that must first be resolved with finality in the criminal cases filed before the
Sandiganbayan.

RULING:
No, it is not a prejudicial issue.
While it is true that according to R.A. 8249, the institution of the criminal
action automatically carries with it the institution of the civil action for the recovery
of civil liability, however, in this case, the civil case for the collection of unpaid
customs duties and taxes cannot be simultaneously instituted and determined in the
same proceedings as the criminal cases before the Sandiganbayan, as it cannot be
made the civil aspect of the criminal cases filed before it. It should be borne in mind
that the tax and the obligation to pay the same are all created by statute; so are its
collection and payment governed by statute. The payment of taxes is a duty which the
law requires to be paid. Said obligation is not a consequence of the felonious acts
charged in the criminal proceeding nor is it a mere civil liability arising from the
crime that could be wiped out by the judicial declaration of non-existence of the
criminal acts charged.
Hence, the payment and collection of customs duties and taxes in itself creates
civil liability on the part of the taxpayer. Such civil liability to pay taxes arises from
the fact, for instance, that one has engaged himself in business, and not because of any
criminal act committed by him.
It is also settled that taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need. So then, the determination of the
validity or invalidity of the TCCs cannot be regarded as a prejudicial issue that must
be resolved with finality in the criminal cases filed before the Sandiganbayan.
 The Government should not and must not await the result of the criminal
proceedings in the Sandiganbayan before it can collect the outstanding customs duties
and taxes of the petitioner for such will unduly restrain the Government of its
functions.
The machineries of the Government will not be able to function well if the
collection of taxes will be delayed so much so if its collection will depend on the
outcome of any criminal proceedings on the guise that the issue of collection of taxes
is a prejudicial issue that need to be first resolved before enforcing its collection.
 C. NECESSITY THEORY
1. Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775]
G.R. No. L-22074 April 30, 1965
Respondents: THE COMMISSIONER OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS
FACTS:
Reinsurance Agreement
1. The Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts with foreign insurance companies not doing business in
the Philippines namely: Imperio Compañia de Seguros, La Union y El Fenix
Español, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros
Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd.,
Swiss Reinsurance Company and Tariff Reinsurance Limited.
2. Philippine Guaranty Co., Inc., agreed to cede to the foreign reinsurers a portion
of the premiums on insurance it has originally underwritten in the Philippines,
in consideration for the assumption by the latter of liability on an equivalent
portion of the risks insured.
a. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc.
in Manila and by the foreign reinsurers outside the Philippines, except the
contract with Swiss Reinsurance Company, which was signed by both
parties in Switzerland.
b. The reinsurance contracts made the commencement of the reinsurers'
liability simultaneous with that of Philippine Guaranty Co., Inc. under the
original insurance.
3. Philippine Guaranty Co., Inc. was required to keep a register in Manila where
the risks ceded to the foreign reinsurers were entered, and entry therein was
binding upon the reinsurers.
4. The foreign reinsurers further agreed, in consideration for managing or
administering their affairs in the Philippines, to compensate the Philippine
Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums.
5. Conflicts and/or differences between the parties under the reinsurance contracts
were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss
Reinsurance Company stipulated that their contract shall be construed by the
laws of the Philippines.
Phil. Guaranty did not withhold taxes
6. Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the following
premiums: 1953 - P842,466.71, 1954 -P721,471.85. Said premiums were
 excluded by Philippine Guaranty Co., Inc. from its gross income when it filed its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay
tax on them.
7. Consequently, the Commissioner of Internal Revenue assessed against
Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance
premiums.
a. Philippine Guaranty Co., Inc., protested the assessment on the ground that
reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are not subject to withholding tax. Its protest was denied and it
appealed to the Court of Tax Appeals.
b. The Court of Tax Appeals ordered petitioner Philippine Guaranty to pay to
the withholding income taxes for the years 1953 and 1954, plus the
statutory delinquency penalties.

ISSUE:
W/N Philippine Guaranty Co, Inc. should pay the withholding tax on the
reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers. - YES

RATIO:
Income is from sources within the Philippines
 Petitioner maintain that the reinsurance premiums in question did not
constitute income from sources within the Philippines because the foreign
reinsurers did not engage in business in the Philippines, nor did they have office
here.
 The reinsurance contracts, however, show that the transactions or activities that
constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against
loses arising from the original insurances in the Philippines were performed in
the Philippines.
 Section 24 of the Tax Code subjects foreign corporations to tax on their income
from sources within the Philippines.
 The word "sources" has been interpreted as the activity, property or service
giving rise to the income.
 The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against
liability for loss under original insurances. Such undertaking, as explained
above, took place in the Philippines. These insurance premiums, therefore, came
 from sources within the Philippines and, hence, are subject to corporate income
tax.
Place of activity is controlling not the place of business
 The foreign insurers' place of business should not be confused with their place of
activity. Business should be continuity and progression of transactions while
activity may consist of only a single transaction. An activity may occur outside
the place of business.
 Section 24 of the Tax Code does not require a foreign corporation to engage in
business in the Philippines in subjecting its income to tax. It suffices that the
activity creating the income is performed or done in the Philippines.
 Petitioner further contends that the reinsurance premiums are not income from
sources within the Philippines because they are not specifically mentioned in
Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it
merely directs that the kinds of income mentioned therein should be treated as
income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise. (Di ko mahanap yung Tax
Code nung time nito)
 In addition, the reinsurance premiums in question were afforded protection by
the government and the recipient foreign reinsurers exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and reinsurers
should share the burden of maintaining the state.

Are the premiums subject to withholding taxes? Yes.

 In respect to the question of whether or not reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are subject to
withholding tax under Section 53 and 54 of the Tax Code, suffice it to state that
this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co.,
Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the sums of
P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax
for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid
within 30 days from the date this judgement becomes final, there shall be collected a
surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from
the date of delinquency to the date of payment, provided that the maximum amount
that may be collected as interest shall not exceed the amount corresponding to a
period of three (3) years. With costs againsts petitioner.
 2. NPC v. City of Cabanatuan, 449 Phil. 233 (2003)).
FACTS:
1. NAPOCOR, the petitioner, is a GOCC created under Commonwealth Act 120. It
is tasked to undertake the “development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal, and other sources, as
well as, the transmission of electric power on a nationwide basis.”
2. For many years now, NAPOCOR sells electric power to the resident Cabanatuan
City, posting a gross income of P107,814,187.96 in 1992. Pursuant to Section 37
of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax
amounting to P808,606.41, representing 75% of 1% of the former’s gross receipts
for the preceding year.
3. Petitioner, whose capital stock was subscribed and wholly paid by the
Philippine Government, refused to pay the tax assessment. It argued that the
respondent has no authority to impose tax on government entities. Petitioner
also contend that as a non-profit organization, it is exempted from the payment
of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA
6395, as amended.
4. The respondent filed a collection suit in the RTC of Cabanatuan City,
demanding that petitioner pay the assessed tax, plus surcharge equivalent to 25%
of the amount of tax and 2% monthly interest. Respondent alleged that
petitioner’s exemption from local taxes has been repealed by Sec. 193 of RA
7160 (LGC), which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.”
5. The RTC upheld NPC’s tax exemption and dismissed the case. On appeal the CA
reversed the trial court’s Order on the ground that section 193, in relation to
sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to
the petitioner.

ISSUE: W/N respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on “businesses enjoying a franchise
HELD: YES.
Taxes are the lifeblood of the government, for without taxes, the government
can neither exist nor endure. A principal attribute of sovereignty, the exercise of
taxing power derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common good. 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.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax
“notwithstanding any exemption granted by any law or other special law.” This
particular provision of the LGC does not admit any exception. In City Government of
San Pablo, Laguna v. Reyes,74 MERALCO’s exemption from the payment of franchise
taxes was brought as an issue before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor
of the local government in both instances, we ruled that the franchise tax in question
is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on provisions of Sections 137 and
193 of the LGC to support their position that MERALCO’s tax exemption has been
withdrawn. The explicit language of section 137 which authorizes the province to
impose franchise tax ‘notwithstanding any exemption granted by any law or other
special law’ is all-encompassing and clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals
and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. It is a
basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio
unius est exclusio alterius. In the absence of any provision of the Code to the
contrary, and we find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the
LGC the local government unit may now impose a local tax at a rate not exceeding
50% of 1% of the gross annual receipts for the preceding calendar based on the
incoming receipts realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is clearly manifested by
the language used on (sic) Sections 137 and 193 categorically withdrawing such
exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for an express, albeit general,
withdrawal of such exemptions or privileges. No more unequivocal language could
have been used.”
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
 D. CONCEPT OF FISCAL ADEQUACY
Chavez v. Ongpin, 186 SCRA 331
Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz,
G.R. No. 76778. June 6, 1990
FACTS:
1. 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.
a. The revised assessment shall be the basis for the computation of real
property taxes for the five succeeding years.
b. On the strength of the aforementioned law, the general revision of
assessments was completed in 1984.
c. 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.
2. 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.
a. Thus, it effectively repealed Executive Order No. 1019.
3. Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality
of Executive Order No. 73.
a. He alleges that it will bring unreasonable increase in real property taxes.
b. 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:
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.
 E. BENEFITS RECEIVED PRINCIPLE
Lorenzo v. Posadas
Lorenzo v. Posadas, G.R. No. L-43082 (64 PHIL 353) June 18, 1937
 Facts: 
1. Herein petitioner Lorenzo, in his capacity as trustee of the estate of a certain
Thomas Hanley, deceased, brought an action against respondent Posadas,
Collector of Internal Revenue.
a. Petitioner alleges the respondent to have exceeded in its tax collection,
which, as assessed by the former, should only be in the amount of
PhP1,434.24 instead of PhP2,052.74.
2. Disregarding the allegation, respondent filed a motion in the CFI of Zamboanga
praying that the trustee be made to pay such tax.
a. The motion was granted.
3. Petitioner paid the amount in protest, however notified the respondent that
until a refund is prompted, suit would be bought for its recovery.
4. Respondent overruled the protest. Hence, the case at bar.
 
Issue: Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to
the taxpayer be given retroactive effect?
 
Held and Reasoning: No.
The respondent levied and assessed the inheritance tax collected from the
petitioner under the provisions of section 1544 of the Revised Administrative Code as
amended by Act No. 3606. However, the latter only enacted in 1930 – not the law in
force when the testator died in 1922. Laws cannot be applied retroactively. The Court
states that it is a well-settled principle that inheritance taxation is governed by the
statue in force at the time of the death of the decendent. The Court also emphasized
that “a statute should be considered as prospective in its operation, unless the
language of the statute clearly demands or expresses that it shall have retroactive
effect…”  Act No. 3606 does not contain any provisions indicating a legislative intent
to give it a retroactive effect. Therefore, the provisions of Act No. 3606 cannot be
applied to the case at bar.
 F. DOCTRINE OF SYMBIOTIC RELATIONSHIP
Commissioner v. Algue, 158 SCRA 9
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
1. Algue Inc. is a domestic corp engaged in engineering, construction and other
allied activities
2. On Jan. 14, 1965, the corp received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85
3. A letter of protest or reconsideration was filed by Algue Inc on Jan 18
4. On March 12, a warrant of distraint and levy was presented to Algue Inc. thru
its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest
5. Since the protest was not found on the records, a file copy from the corp was
produced and given to BIR Agent Reyes, who deferred service of the warrant
6. On April 7, Atty. Guevara was informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint and
levy earlier sought to be served
7. On April 23, Algue filed a petition for review of the decision of the CIR with the
Court of Tax Appeals
CIR contentions:
 the claimed deduction of P75,000.00 was properly disallowed because it was not
an ordinary reasonable or necessary business expense
 payments are fictitious because most of the payees are members of the same
family in control of Algue and that there is not enough substantiation of such
payments
CTA:
 75K had been legitimately paid by Algue Inc. for actual services rendered in the
form of promotional fees.
 These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent
purchase of the properties of the Philippine Sugar Estate Development
Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00

deduction claimed by Algue as legitimate business expenses in its income tax returns
Ruling:
 Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance, made in accordance with law.
 RA 1125: the appeal may be made within thirty days after receipt of the decision
or ruling challenged
 During the intervening period, the warrant was premature and could therefore
not be served.
 Originally, CIR claimed that the 75K promotional fees to be personal holding
company income, but later on conformed to the decision of CTA
 There is no dispute that the payees duly reported their respective shares of the
fees in their income tax returns and paid the corresponding taxes thereon. CTA
also found, after examining the evidence, that no distribution of dividends was
involved
 CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction
 Algue Inc. was a family corporation where strict business procedures were not
applied and immediate issuance of receipts was not required. at the end of the
year, when the books were to be closed, each payee made an accounting of all of
the fees received by him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close relationship among the
persons in the family corporation
 The amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K.
After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate
properties.
 Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses -  All
the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries
or other compensation for personal services actually rendered xxx
 the burden is on the taxpayer to prove the validity of the claimed deduction
 In this case, Algue Inc. 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.
 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
 Taxation must 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

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction by
Algue Inc. was permitted under the Internal Revenue Code and should therefore not
have been disallowed by the CIR
 G. SCOPE OF POWER TO TAX
1. Sison v. Ancheta 130 SCRA 654
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner,
Bureau of Internal Revenue
Summary:
Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison,
as taxpayer, alleges that "he would be unduly discriminated against by the imposition
of higher rates of tax upon his income arising from the exercise of his profession vis-
a-vis those which are imposed upon fixed income or salaried individual taxpayers. He
characterizes said provision as arbitrary amounting to class legislation, oppressive and
capricious in character. It therefore violates both the equal protection and due process
clauses of the Constitution as well asof the rule requiring uniformity in taxation.
Facts:
1. Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg.
135. It amended Section 21 of the National Internal Revenue Code of 1977.
2. Petitioner as taxpayer alleged that "he would be unduly discriminated against by
the imposition of higher rates of tax upon his income arising from the exercise of
his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers." He characterizes the above section as arbitrary
amounting to class legislation, oppressive and capricious in character.
3. For petitioner, therefore, there is a transgression of both the equal
protection and due process clauses of the Constitution as well as of the rule
requiring uniformity in taxation.
4. The OSG prayed for dismissal of the petition due to lack of merit.

Issue:
Whether or not B.P.135 is a valid exercise of the power to tax.

Ruling:
Yes. B.P.135 is a valid exercise of the power to tax.
It is manifest that the field of state activity has assumed a much wider scope, The
reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas
which used to be left to private enterprise and initiative and which the government
was called upon to enter optionally, and only 'because it was better equipped to
administer for the public welfare than is any private individual or group of
individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times."
 Hence the need for more revenues. The power to tax, an inherent prerogative,
has to be availed of to assure the performance of vital state functions. It is the source
of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood
of the government, their prompt and certain availability is of the essence.

Just In Case Notes

If it will be asked, taxes are based on the capacity to pay not in the literal sense
of uniformity.
On the matter that the rule of taxation shall be uniform and equitable - this
requirement is met when the tax operates with the same force and effect in every
place where the subject may be found." Also, :the rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly unattainable." When the
problem of classification became of issue, the Court said: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be
taxed the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation..." As provided by this Court, where
"the differentation" complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this clause and is therefore
uniform."

Held: Negative. The petition is without merit.

 The SC ruled against Sison. 
 The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds.
To paraphrase a recent decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence.
 On due process: it is undoubted that it may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is
where it can be shown to amount to the confiscation of property from abuse of
power. Petitioner alleges arbitrariness but his mere allegation does not suffice
and there must be a factual foundation of such unconstitutional taint.
 On equal protection: it is suffices that the laws operate equally and uniformly on
all persons under similar circumstances, both in the privileges conferred and the
liabilities imposed.
 On the matter that the rule of taxation shall be uniform and equitable- this
requirement is met when the tax operates with the same force and effect in
every place where the subject may be found.
 “Also, the rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable.”
  "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation.”
 The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. Where “the differentiation” complained
of “conforms to the practical dictates of justice and equity” it “is not
discriminatory within the meaning of this clause and is therefore uniform.”
There is quite a similarity then to the standard of equal protection for all that is
required is that the tax “applies equally to all persons, firms and corporations
placed in similar situation.
WHEREFORE, the petition is dismissed. Costs against petitioner.
 2. Roxas v. CTA, 23 SCRA 276
Facts:
1. Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their
grandchildren by hereditary succession their properties.
2. To manage the said properties, the Roxas brothers created a partnership called
“Roxas y Compania”. - Tenants who have been tilling the lands expressed their
desire to purchase from Roxas y Cia, the parcels which they actually occupied.
3. The govt, in line with the constitutional mandate to acquire big landed estates
and apportion them among landless tenants-farmers, persuaded the Roxas
brothers to part with their landholdings.
4. The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K
survey and subdivision expenses.
5. Unfortunately, the government had no funds at that time so Roxas y Compania
shouldered the burden and sold the land to the tenants. To that end, BIR
collected real estate dealer’s tax from Roxas saying that the sale of the land is
100% taxable.
Issue:
Whether or not the gain derived from the sale of the Nasugbu farm lands an
ordinary gain, hence 100% taxable in accordance to the power to tax.

Ruling:
Yes. It is taxable and within the valid exercise of the taxing powers of the
government.

It should be borne in mind that the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in consonance with, but more
in obedience to the request and pursuant to the policy of our Government to allocate
lands to the landless. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms and prices.
However, the Government could not comply with its duty for lack of funds.
Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
and sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself. For this magnanimous
act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.

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. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to
penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in
question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers
are capital assets, and the gain derived from the sale thereof is capital gain, taxable
only to the extent of 50%.
 H. Taxes are enforced contribution
Vera v. Fernandez, L-31364, March,30, 1979
Facts:
Petitioner, a Commissioner of Internal Revenue, filed a motion of allowance of
claim against testate of Tongoy for tax deficiency. The testate administrator opposed
the motion on the grounds that the claim cannot anymore prosper as it was barred
under the proceedings of the Rules of Court. Respondent judge dismissed the motion.
Hence the petition.

Issue:
Whether or not the petition will prosper considering that tax collection should
be enforced and considering further that the Rules of Court allegedly barred the
allowance of said claim.

Ruling:
The claim was not barred by the Rules Of Court. The doctrine of “Tax as an
enforced contribution” prevailed.

Section 5, Rule 86 of the Rules of Curt makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different
character from the claims enumerated, such as “all claims for money against the
decedent arising from contract, express or implied, whether the same be due, or
contingent, all claim for funeral expenses and expenses for the last sickness of the
decedent and judgment for money against the decedent.” Under the familiar rule of
statutory construction, the mention of one thing implies the exclusion of another
thing not mentioned.

Realization (NOT SURE IF CORRECT)

Tax claims cannot be barred because it is an enforced contribution.

 I. Taxation considered as an implement of police power
1. Walter Lutz v. J. Antonio Araneta, 98 Phil 148
Facts:
Walter Lutz, as the Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from J. Antonio Araneta, the Collector of Internal
Revenue, the sum of money paid by the estate as taxes, pursuant to the Sugar
Adjustment Act. Under Section 3 of said Act, taxes are levied on the owners or
persons in control of the lands devoted to the cultivation of sugar cane. Furthermore,
Section 6 states all the collections made under said Act shall be for aid and support of
the sugar industry exclusively. Lutz contends that such purpose is not a matter of
public concern hence making the tax levied for that cause unconstitutional and void.
The Court of First Instance dismissed his petition, thus this appeal before the Supreme
Court.

Issue:
Whether or not the Sugar Adjustment Act is constitutional.

Ruling:
Yes. The Sugar Adjustment Act is unconstitutional.

The tax levied under the Sugar Adjustment Act is constitutional. The tax under
said Act is levied with a regulatory purpose, to provide means for the rehabilitation
and stabilization of the threatened sugar industry. Since sugar production is one of the
great industries of our nation, its promotion, protection, and advancement, therefore
redounds greatly to the general welfare. Hence, said objectives of the Act is a public
concern and is therefore constitutional. It follows that the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its
promotion. If objectives and methods are alike constitutionally valid, no reason is
seen why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made with the implement of the state’s police power. In
addition, it is only rational that the taxes be obtained from those that will directly
benefit from it. Therefore, the tax levied under the Sugar Adjustment Act is held to be
constitutional.
 2. Tio v. Videogram Regulatory Board, 151 SCRA  208
Facts:
1. The case is a petition filed by petitioner on behalf of videogram operators
adversely affected by Presidential Decree No. 1987, “An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry.
2. A month after the promulgation of the said Presidential Decree, the amended
the National Internal Revenue Code provided that:
"SEC. 134. Video Tapes. — There shall be collected on each processed
video-tape cassette, ready for playback, regardless of length, an annual tax
of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax."

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

Notwithstanding any provision of law to the contrary, the province shall
collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue
to the province, and the other fifty percent (50%) shall accrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.”

3. The rationale behind the tax provision is to curb the proliferation and
unregulated circulation of videograms including, among others, videotapes,
discs, cassettes or any technical improvement or variation thereof, have greatly
prejudiced the operations of movie houses and theaters. Such unregulated
circulation have caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales, contractor's
specific, amusement and other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government revenues.
4. Videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and these earnings have not
been subjected to tax, thereby depriving the Government of approximately P180
Million in taxes each year.

Issue:
 Whether or not the tax imposed by said decree is a valid exercise of police
power.
Ruling:

Taxation has been made the implement of the state's police power. The levy of
the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the proliferation of pornographic
video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in

pronouncing Presidential Decree No. 1987 as unconstitutional and void. While the
underlying objective of the DECREE is to protect the moribund movie industry, there
is no question that public welfare is at bottom of its enactment, considering "the
unfair competition posed by rampant film piracy; the erosion of the moral fiber of the
viewing public brought about by the availability of unclassified and unreviewed video
tapes containing pornographic films and films with brutally violent sequences; and
losses in government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually untaxed since
mere payment of Mayor's permit and municipal license fees are required to engage in
business.”
 J. Non-revenue or regulatory or SUMPTUARY Purpose
1. PAL v. Edu, 164 SCRA 320     
PAL, plaintiff-appellant, vs. ROMEO F. EDU in his capacity as Land Transportation
Commissioner, and UBALDO CARBONELL, in his capacity as National Treasurer,
defendants-appellee.

G.R. No. L-41383 August 15, 1988

Summary:

PAL is engaged in air transportation business under a legislative franchise

wherein it is exempt from tax payment. PAL has not been paying motor vehicle
registration since1956. The Land Registration Commissioner required all tax exempt
entities including PAL to pay motor vehicle registration fees.

FACTS:

1. PAL is a corporation organized and existing under the laws of the Philippines
and engaged in the air transportation business under a legislative franchise, Act
No. 42739, as amended by RA Nos. 25 and 269.
a. Under its franchise, PAL is exempt from the payment of taxes.
2. Sometime in 1971, Commissioner Romeo Elevate issued a regulation requiring
all tax exempt entities, among them PAL, to pay motor vehicle registration fees.
a. The regulation was issued pursuant to Sec. 8 of R.A. No. 4136, otherwise
known as the Land Transportation and Traffic Code.
b. Despite PAL’s protests, the appellee refused to register the appellant’s
motor vehicles unless the amounts imposed were paid.
c. The appellant thus paid, under protest, the amount of P19,529.75 as
registration fees.
3. After paying under protest, PAL wrote a letter to defendant Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang vs.
Lorenzo where it was held that motor vehicle registration fees are in reality
taxes, the payment of which PAL is exempt by virtue of its legislative franchise.
a. Appellee Edu denied the request for refund basing his action in Republic
vs. Phil. Rabbit Bus Lines, Inc. to the effect that motor vehicle registration
fees are regulatory exceptional, and not revenue measures and, therefore,
do not come within the exemption granted to PAL under its franchise.
4. Consequently, PAL filed a complaint against Edu and National Treasurer Ubaldo
with CFI-Rizal, Br. 18.
 a. Defendants filed a motion to dismiss alleging that the complaint states no
cause of action.
b. The CFI dismissed the appellant’s complaint moved by the later ruling laid
down in the case of Republic vs. Phil. Rabbit Bus Lines.
5. PAL appealed to the CA, which certified the case to the SC.

ISSUE:

Whether or not registration fees as to motor vehicles are taxes to which PAL is
exempted.

HELD:

Taxes are for revenue whereas fees are exactions for purposes of regulation and
inspection, and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. It is the object of the charge, and not
the name, that determines whether a charge is a tax or a fee. The money collected
under Motor Vehicle Law is not intended for the expenditures of the MV Office but
accrues to the funds for the construction and maintenance of public roads, streets and
bridges. As fees are not collected for regulatory purposes as an incident to the
enforcement of regulations governing the operation of motor vehicles on public
highways but to provide revenue with which the Government is to construct and
maintain public highways for everyone’s use, they are veritable taxes, not merely fees.
PAL is thus exempt from paying such fees, except for the period between June 27,
1968 to April 9, 1979 where its tax exemption in the franchise was repealed.

ALTERNATIVE ISSUE:

WON the motor vehicle registration fees exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues.

RULING:

Yes, the motor vehicle registration fees are taxes intended for additional
revenues of the government, even if one-fifth or less of the amount collected is set
aside for the operating expenses of the agency administering the program.
 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.

It is apparent that vehicle registration fees were originally simple exceptional,

intended only for rigidly purposes in the exercise of the State’s police powers. Over
the years, however, as vehicular traffic exploded in number and motor vehicles
became absolute necessities without which modern life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising
much needed revenues. Without changing the earlier deputy of registration payments
as “fees,” their nature has become that of “taxes.”

In the Philippine Rabbit case, the reason why the registration fees were as such
and not tax is because it has been repeatedly stated in the body of the Revised Motor
Vehicle Law that it is made of the “fee for registration.”

In the Calalang case, however, the fees are not collected for regulatory purposes
because their express object is to provide revenue with which the Government is to
discharge one of its principal functions — the construction and maintenance of public
highways for everybody’s use.

ADDITIONAL POINTS/ISSUES RAISED:

A. May the respondent administrative agency be required to refund the amounts

stated in the complaint of PAL? No refund.

The claim for refund is made for payments given in 1971. It is not clear from the
records as to what payments were made in succeeding years. The Supreme Court has
ruled that Sec. 24 of R.A. 5448 dated June 27, 1968 repealed all earlier tax exemptions
of corporate taxpayers found in legislative franchises similar to that invoked by PAL
in this case.

B. What then is the decision of the Supreme Court in this case?

The petition is PARTIALLY granted.

The prayer for refund of registration fees paid in 1971 is DENIED, but the Land
Transportation Franchising and Regulatory Board (LTFRB) is enjoined from collecting
any tax, fee, or other charge on the registration and licensing of the petitioner’s motor
vehicles from April 9, 1979, as provided in P.D. No. 1590.
 2. Tio v. Videogram, 151 SCRA 208
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES,
petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA,
respondents.
G.R. No. L-75697 June 18, 1987

"The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another."

Summary:

The petitioner assails the validity of PD 1987 entitled an "Act creating the
Videogram Regulatory Board," citing especially Section 10 thereof, which imposes a
tax of 30% on the gross receipts payable to the local government. Petitioner contends
that aside from its being a rider and not germane to the subject matter thereof, and
such imposition was being harsh, confiscatory, oppressive and/or unlawfully restraints
trade in violation of the due process clause of the Constitution.

FACTS:

1. P.D. 1987 entitled “An Act Creating the Videogram Regulatory Board” took
effect on April 10, 1986.
2. Petitioner attacks the constitutionality of the Decree because, in relation to
taxation, the tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution.
a. The tax imposed is 30% on the gross receipts payable to the local government
(Sec. 10 of the Decree).

ISSUE:

WON the tax imposition is valid.

RULING:

Yes, the tax imposition is valid.

 In US vs. Sanchez, the Court ruled that a tax does not cease to be valid merely
because it regulates, discourages or even definitely deters the activities taxed.

Moreover, the power to impose taxes is one so unlimited in force and so

searching in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation.

In this case, the tax imposed by the Decree is not only a regulatory but also a
revenue measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected to tax,
thereby depriving the Government of an additional source of revenue.

It is an end-user tax, imposed on retailers for every videogram they make

available for public viewing. It is similar to the 30% amusement tax imposed or borne
by the movie industry which the theater-owners pay to the government, but which is
passed on to the entire cost of the admission ticket, thus shifting the tax burden on
the buying or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.

It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that “inequities which reuslt from a singling
out of one particular class for taxation or exemption infringe no constitutional
limitation.” Taxation has been made the implement of the state’s police power.

At bottom, the rate of tax is a matter better addressed to the taxing legislature.
 3. Caltex v. Commissioner, 208 SCRA 755
CALTEX (PHILIPPINES), INC., petitioner-appellant, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent-appellee.
G.R. No. L-20462 June 30, 1965
FACTS:
1. Petitioner is a domestic corporation and holder of a petroleum refining
concession under R.A. 387. On several occasions in 1958 and 1959, Petitioner
imported from abroad various items of machinery, equipment, accessories, and
spare parts for use of its depots and installations and in the gasoline service
stations.
a. The Collector of Customs of Manila levied and collected in the aforesaid
importations the special import tax imposed by R.A. No. 1394, and included
said tax in landed costs of the imported merchandise for the purpose of
computing the compensating tax due thereon under Sec. 190 of the NIRC and
for which the Petitioner paid the corresponding special import tax and
compensating tax.
2. Petitioner contends that the importations were not subject to special import tax
because Sec. 6 of R.A. 1394 exempts from said tax “machinery, equipment,
accessories and spare parts for the use of industries,” and that the inclusion and
imposition of said special import tax in the landed costs of the imported
merchandise for purposes of computing the compensating tax due was
erroneous.
a. As a result thereof, Petitioner overpaid compensating taxes in the total sum of
P5,781.68.
3. Petitioner claimed for refund with the respondent CIR.
a. At the hearing, petitioner submitted evidence that it filed protests with the
Collector of Customs Manila.
b. However, when the petition for review was commenced in the Tax Court,
there had been no action yet by the Collector of Customs-Manila on the
protests of petitioner, nor has there been any decision on its claim for refund.
4. The Court of Tax Appeals (lower Tax Court) dismissed the petition for review,
without prejudice, reasoning out that the question regarding the special import
tax has not yet been finally resolved by the customs authorities.
5. Thus, the issue on the legality or correctness of the compensating tax collected
on said merchandise cannot be determined.
a. Its motion for reconsideration was also denied.
6. Hence, the present appeal.

ISSUE:
WON the the claim for refund of taxes should be lodged with the CIR.
 Petitioner contends that the special import tax imposed by R.A. 1394 is an
internal revenue tax, and as such, a claim for refund of taxes so erroneously or
illegally levied and collected by the Collector of Customs pursuant to said law should
be lodged with the CIR and not with the Commissioner of Customs.

RULING:
No, the claim for refund of taxes should be lodged with the Bureau of Customs.
Sec. 4 of R.A. 1394, otherwise known as the Special Import Tax Law, provides
that the special import tax shall be paid by the importer to the Bureau of Customs in
accordance with the regulations to be promulgated by the Department of Finance and
prior to the release of the imported goods, articles or products from customs custody.
Thus, it is undisputed that R.A. 1394 is one of the laws being administered by
the Bureau of Customs. It is evident should be considered as customs law, to which
the section of Customs Admin. Order No. 226 (invoked by Caltex) does not apply,
since the section, by its terms, refers only to internal revenue taxes. (Admin. Order
No. 226 states that protest against the payment of internal revenue taxes on imported
merchandise shall, if filed with the Collector of Customs, be transmitted directly to
the CIR for action in accordance with the provisions of the NIRC).

Addt’l Notes:
Issue:
Whether the amounts due from Caltex to the OPSF may be offsetted 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 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.
 K. PIVOTAL DISTINCTION BETWEEN THE POWER TO TAX AND POLICE
POWER
Progressive Dev. Corp. v. Quezon City, G.R. No. 36081, April 24, 1989, 172 SCRA
629;
FACTS:

1. On Dec. 24, 1969, the City Council of respondent Quezon City adopted
Ordinance No. 7997, otherwise known as the Market Code of Quezon City,
which provides for the monthly Supervision Fee imposed on Privately owned
and operated public markets amounting to 10% of the gross receipts from stall
rentals. Failure to pay such shall subject the operator to the penalties provided
by the Code, including revocation of permit to operate.
2. On March 23, 1972, the Market Code was amended by Ordinance No. 9236
which imposed a 5% tax on gross receipts on rentals or lease of space in
privately-owned public markets in Quezon City; in case of failure to pay the
percentage tax for three (3) consecutive months, the City shall revoke its permit
to operate.
3. On July 15, 1972, petitioner Progressive Development Corporation, owner and
operator of a public market known as the “Farmers Market & Shopping Center”
filed a Petition for Prohibition with Preliminary Injunction against respondent
before CFI-Rizal.
1. Ground: that the supervision fee or license tax is in reality a tax on income
which respondent may not impose, being expressly prohibited by R.A.
2264, otherwise known as the Local Autonomy Act.
2. In its answer, respondent maintained that such is not a tax on income.
3. The OSG also filed an Answer arguing that petitioner, not having paid the
10% supervision fee prescribed by Ordinance No. 7997, had no personality
to question such; that the tax on gross receipts was not a tax on income but
one imposed for the enjoyment of the privilege to engage in a particular
trade or business which was within the power of respondent to impose.
4. In its Supplemental Petition, petitioner alleged that it paid under protest
the 5% tax under Ordinance No. 9236 for the months of June to September
1972.
4. CFI-Rizal dismissed the petition, ruled that the questioned imposition is not a
tax on income, but rather a privilege tax or license fee.
 5. Having failed to obtain reconsideration of said decision, petitioner filed to the
Supreme Court the present Petition for Review.

ISSUE:

Whether the tax imposed by respondent on gross receipts of stall rentals is properly
characterized as partaking of the nature of an income tax, or alternatively, of a license
fee.

RULING:

The tax imposed is a license fee.

In City of Iloilo vs. Villanueva, the Supreme Court ruled that to be considered a
license fee, the imposition questioned must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition
must also bear a reasonable relation to the probable expenses of regulation, taking
into account not only the costs of direct regulation but also its incidental
consequences as well.

In Manila Electric Company vs. El Auditor General y La Comision de Servicios

Publicos, the Court ruled that when an activity, occupation or profession is of such a
character that inspection or supervision by public officials is reasonably necessary for
the safeguarding and furtherance of public health, morals and safety, or the general
welfare, the legislature may provide that such inspection or supervision or other form
of regulation shall be carried out at the expense of the persons engaged in such
occupation or performing such activity, and that no one shall engage in the
occupation or carry out the activity until a fee or charge sufficient to cover the cost of
the inspection or supervision has been paid.

In this case, the Farmers Market & Shopping Center was built by virtue of
Resolution No. 7350 by respondent’s local legislative body authorizing petitioner to
establish and operate a market with a permit to sell fresh meat, fish, poultry and other
foodstuffs. Being a public market in the sense of a market open to and inviting the
patronage of the general public, even though privately owned, petitioner’s operation
thereof required a license issued by the respondent City, the issuance of which,
applying the standards set forth above, was done principally in the exercise of the
respondent’s police power.

OTHER IMPORTANT POINTS:

A. The term “tax” frequently applies to all kinds of exactions of monies which
become public funds. It is often loosely used to include levies of revenue as well
as levies for regulatory purposes such that license are frequently called taxes
although license fee is a legal concept distinguishable from tax; the former is
imposed in the exercise of police power primarily for purposes of regulation,
while the latter is imposed under the taxing power primarily for purposes of
raising revenues. (Compania General de Tabacos Filipinas vs. City of Manila, 118
Phil. 383)
B. Thus, if the generating 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 incidentally revenue is also obtained does not make the
imposition a tax. (Manila Electric Company vs. El Auditor General y la Comision
de Servicios Publicos)
C. The use of the gross amount of stall rentals as basis for determining the
collectible amount of license tax, does not by itself, upon the one hand, convert
or render the license tax into a prohibited city tax on income. Upon the other
hand, it has not been suggested that such basis has no reasonable relationship to
the probable costs of regulation and supervision of the petitioner’s kind of
business. For, ordinarily, the higher the amount of stall rentals, the higher the
aggregate volume of foodstuffs and related items sold in petitioner’s privately
owned market; and the higher the volume of goods sold in such private market,
the greater the extent and frequency of inspection and supervision that may be
reasonably required in the interest of the buying public.
Gerochi, et al. v. Dept. of Energy, et al., G.R. No. 159769, July 17, 2007,
G.R. No. 159796 July 17, 2007

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST

CONSUMERS NETWORK, INC. (ECN), petitioners. vs. DEPARTMENT OF ENERGY
(DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL POWER
CORPORATION (NPC), ET AL., respondents.

FACTS:

1. Congress enacted the Electric Power Industry Reform Act of 2001 (EPIRA) on
June 8, 2001; on June 26, 2001, it took effect.
a. Sec. 34 (b) of EPIRA provides that within one year from the effectivity of
the Act, a universal charge to be determined, fixed and approved by the
Energy Regulatory Commission (ERC), shall be imposed on all electricity
end-users for missionary electrification.
2. On April 5, 2002, respondent NPC-Strategic Power Utilities Group (SPUG) filed
with respondent ERC a petition for the availment of the universal charge of its
share for Missionary Electrification, docketed as ERC Case No. 2002-165.
3. On May 7, 2002, NPC filed another petition with ERC, praying that the
proposed share from the Universal Charge for the Environmental charge of
P0.0025 per kWh, or a total of P119,488,847.59, be approved for withdrawal
from the Special Trust Fund (STF) managed by respondent Power Sector Assets
and Liabilities Management Group (PSALM) for the rehabilitation and
management of watershed areas, docketed as ERC Case No. 2002-194.
4. On December 20, 2002, the ERC issued an Order in ERC Case No. 2002-165
provisionally approving the computed amount of P0.0168/kWh.
5. On June 26, 2003, however, the ERC rendered its decision modifying its Dec. 20,
2002 order and stated that an additional amount of P0.0205/kWh be added to
the P0.0168, or a total amount of P0.0373/kWh.
a. Relative thereto, TRANSCO and Dus are directed to collect the Universal
Charge for Missionary Electrification (UC-ME) in said amount and remit
the same to PSALM.
6. On the basis of the said ERC decisions, respondent Panay Electric Company, Inc.
(PECO) charged petitioner Gerochi and all other end-users with the Universal
Charge as reflected in their respective electric bills starting from the month of
July 2003.
 7. Hence, this original action (complaint before the Supreme Court challenging the
constitutionality of Rule 18 of the IRR which seeks to implement the collection
of Universal Charge provided in EPIRA).

ISSUE:

WON the Universal Charge imposed under Sec. 34 of the EPIRA is a tax.

Petitioners: contend that the Universal Charge 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. The assailed provision clearly provides that the UC is to be determined,
fixed and approved by the ERC, hence leaving to the latter complete discretionary
legislative authority.

RULING:

No, the Universal Charge imposed is not a tax.

In Progressive Development Corp. vs. Quezon City, the Court stated that the
conservative and pivotal distinction between the power to tax and police power rests
in the purpose for which the charge is made. 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.

In this case, the regulatory purpose for the enactment of EPIRA is to promote
public welfare as can be gleaned in Sec. 2 of the law. This feature of the Universal
Charge further boosts the position that the same is an exaction imposed primarily in
pursuit of the State’s police objectives. The STF reasonably serves and assures the
attainment and perpetuity of the purposes for which the Universal Charge is imposed,
i.e., to ensure the viability of the country’s electric power industry.

ADDITIONAL POINTS/ISSUES RAISED:

A. The present original action is a complaint challenging the constitutionality

of the law before the Supreme Court.
The SC discussed that in assailing the constitutionality of a law, it has concurrent
jurisdiction with the CA and the regional trial courts. Pursuant to the doctrine of
hierarchy of courts, the petitioners should have filed their complaint first with the
lower court.

However, in the public interest and to avoid unnecessary delay, the Court decided to
render its ruling now.

B. WON there is undue delegation of legislative power to tax on the part of the
ERC.
No undue delegation of legislative power to the ERC.

Two tests: completeness test and sufficient standard test.

Completeness test - the law must be complete in all its terms and conditions when it
leaves the legislature such that when it reaches the delegate, the only thing he will
have to do is to enforce it.

Sufficient standard test - mandates adequate guidelines or limitations in the law to

determine the boundaries of the delegate’s authority and prevent the delegation from
running riot.

In this case, although Sec. 34 of EPIRA merely provides that “within one (1) year
from the effectivity thereof, a Universal Charge to be determined, fixed and approved
by the ERC, shall be imposed on all electricity end-users,” and therefore, does not
state the specific amount to be paid as UC, the amount nevertheless is made certain by
the legislative parameters provided in the law itself such as found in Sec. 43(b)(ii) of
EPIRA.
 L. SET OFF OR COMPENSATION OF DEBTS – General Rule
Francia v. IAC, 162 SCRA 754
FACTS:
1. Petitioner Francia is the registered owner of a 328-square meter residential
lot and a two-story house built upon it situated at District of Sta. Clara, Pasay
City, Metro Manila. The lot is described and covered by TCT No. 4739 of the
RoD-Pasay City.
2. On October 15, 1977, 125 square meters of said residential lot was
expropriated by the Republic of the Philippines for P4,166.
5. The amount was deposited by the government with the PNB.
3. Since 1963 up to 1977, Francia failed to pay his real property taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City
Treasurer of Pasay City pursuant to the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.
6. Ho Fernandez was the highest bidder.
7. Francia was not present during the auction sale since he was in Iligan City
at that time helping his uncle ship bananas.
4. On March 3, 1979, Francia received a notice of hearing regarding a petition
filed by Ho Fernandez seeking the cancellation of TCT No. 4739 and the
issuance in his name of a new certificate of title. Upon verification through
his lawyer, Francia discovered that a Final Bill of Sale had been issued in
favor of Ho Fernandez by the City Treasurer on December 11, 1978.
5. On March 20, 1979, Francia filed a complaint to annul the auction sale.
8. The lower court ruled against Francia and ordered the RoD-Pasay to issue a
new TCT in favor of Fernandez.
9. The IAC affirmed the decision of the lower court in toto.
10. Hence, this petition for review.

ISSUE:
WON the respondent IAC committed a grave error of law in not holding
Petitioner’s obligation to pay P2,400 for supposed tax delinquency was set-off by the
amount of P4,116 which the government is indebted to the former.

RULING:
No, the respondent IAC did not commit a grave error of law.

Art. 1278 of the Civil Code provides that legal compensation may occur
provided that each one of the obligors be bound principally and that he be at the same
time a principal creditor of the other, and that the two debts are due. In the case of
Republic vs. Mambulao Lumber Co., the Court ruled that Internal Revenue Taxes
cannot be subject of set-off or compensation because taxes are not in the nature of
contracts between the parties but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which the personal consent of individual
taxpayers is not required.

In Corders vs. Gonda, it was ruled that the government and taxpayer are not
mutually creditors and debtors of each other.

In addition, the tax was due to the city government while the expropriation was
effected by the national government. The amount of P4,116 paid by the national
government was deposited with the PNB long before the sale at public auction of his
remaining property. Notice of deposit dated Sept. 28, 1977 was received by him on
Sept. 30, 1977. The petitioner even admitted that he knew about the P4,116 deposited
with the bank but he did not withdraw it. It would have been an easy matter to
withdraw P2,400 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction.

Petitioner also had one year within which to redeem his property. He claimed
that he pocketed the notice of the auction sale without reading it, which is
inexcusable negligence on his part.
 Republic v. Mambulao Lumber, 4 SCRA 622
FACTS:
1. The CFI-Manila ordered the defendants to pay the plaintiff a sum pf P4,802.37
with 6% interest from the date of the filing of the complaint, plus costs.
a. Under the first cause of action, for forest charges covering from Sept. 10,
1952 to May 24, 1953, the defendants admitted joint and several liability
of P587.37.
b. Under the second cause of action, forest charges amounting to P296.70.
c. Under the second cause of action, forest charges amounting to
P3,928.30.
2. The defendants interposed that it paid reforestation charges with a total amount
of P9,127.50. And since the Republic of the Philippines has not made use of said
reforestation charges for reforesting the denuded area of the land covered by its
license, the Republic should refund said amount, or, if it cannot be refunded, at
least it should be compensated with what the defendants owed the Republic for
reforestation charges.
a. The defendants paid P8,200.52 for reforestation charges from July 31,
1948 to Dec. 29, 1956.
b. From April 30, 1947 to June 24, 1948, said defendant paid P927.08.
c. These reforestation were paid to the plaintiff in pursuance of Sec. 1 of
R.A. 115 which provides that there shall be collected, in addition to the
regular forest charges under Sec. 264 of Commonwealth Act 466 known
as the Nat’l Internal Revenue Code, the amount of P0.50 on each cubic
meter of timber cut out and removed from any public forest for
commercial purposes.

ISSUE:
WON the sum of P9,127.50 paid by defendant-appellant company to plaintiff-
appellee as reforestation charges from 1947 to 1956 may be set off or applied to the
payment of the sum of P4,802.37 as forest charges due and owing from appellant to
appellee.

RULING:
No, the sum of P9,127.50 paid by defendant-appellant company as reforestation
charges may not be set off or applied to the payment of the sum of P4,802.37 as forest
charges due and owing from appellant to appellee.

The general rule, based on grounds of public policy is well-settled that no set-off
is admissible against demands for taxes levied for general or local governmental
purposes, because taxes are not in the nature of contracts between the party and party
but grow out of a duty to, and are the positive acts of the government, to the making
and enforcing which, the personal consent of individual taxpayers is not required.

Under Sec. 1 of R.A. 115, the amount collected as reforestation charges from a
timber licensee or concessionaire shall constitute a fund to be known as the
Reforestation Fund, and that the same shall be expended by the Director of Forestry,
with the approval of the Secretary of Agriculture and Natural Resources for the
reforestation or afforestation, among others, of denuded areas which, upon
investigation, are found to be needing reforestation or afforestation. Thus, the amount
paid by a licensee as reforestation charges is in the nature of a tax which forms a part
of the Reforestation Fund, payable by him irrespective of whether the area covered
by his license is reforested or not.
 Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS,
respondents.
G.R. No. 125704 August 28, 1998

FACTS:
1. On Aug. 5, 1992, the BIR sent a letter to petitioner Philex asking it to settle its
tax liabilities from the 2nd quarter of 1991 to the 2nd quarter of 1992 in the total
amount of P123,821,982.52 representing excise taxes.
2. In its letter dated Aug. 20, 1992, Philex protested the demand for payment of the
tax liabilities stating that it has pending claims for VAT input credit/refund for
the taxes it paid from 1989 to 1991 amounting to P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing the case of CIR vs. Itogon-Suyoc Mines, Inc.
3. In reply, BIR stated that Philex’s pending claims have not yet been established
or determined with certainty, thus no legal compensation can take place.
4. Consequently, Philex raised the issue to the CTA on Nov. 6, 1992.
a. In the course of the proceedings, the BIR issued Tax Credit Certificate
SN 001795 in the amount of P13,144,313.88 which, applied to the total
tax liabilities of Philex of P123,821,982.52, effectively lowered its tax
obligation to P110,677,688.52.
5. Despite the reduction, the CTA still ordered Philex to pay the remaining balance
because for legal compensation to take place, both obligations must be liquidated
and demandable. Since Petitioner’s claims for VAT refund is still pending
litigation, it is not yet liquidated or determined. Moreover, the CTA ruled that
taxes cannot be subject to set-off on compensation since claim for taxes is not a
debt or contract.
6. On appeal, the CA affirmed the CTA observation. Its motion for reconsideration
was likewise denied.
a. However, a few days after the denial of its MR, Philex was able to obtain
its VAT input credit/refund for the taxable years 1989 to 1994, which
computation is as follows:
- 1994 (2nd quarter), P25,317,534.01
- 1994 (4th quarter), P21,791,020.61
- 1989, P37,322,799.19
- 1990-1991, P84,662,787.46
- 1992 (1st-3rd quarter), P36,501,147.95
 7. In view of the grant of its VAT input credit/refund, Philex now contends that
the same should, ipso jure, off-set its excise tax liabilities since both had already
become “due and demandable, as well as fully liquidated;” hence, legal
compensation can properly take place.

ISSUE:
WON legal compensation can take place. (Can there be an off-setting between
the tax liabilities vis-a-vis claims of tax refund of the petitioner?)

RULING:
No, legal compensation cannot take place.

In Francia vs. IAC, the Court categorically held that taxes cannot be subject to
set-off or compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not a debt, demand,
contract or judgment as is allowed to be set-off.

Further, Philex’s reliance in CIR vs. Itogon-Suyoc Mines, Inc. is no longer

without any support in statutory law because Sec. 51(d) of the National Revenue Code
of 1939, upon which the Itogon-Suyoc pronouncement was based, was omitted when
the National Internal Revenue Code of 1977 was enacted.

Philex cannot refuse the payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is compulsory
rather than a matter of bargain. Hence, a tax does not depend upon the consent of the
taxpayer.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund
with the government is immaterial for the imposition of charges and penalties
prescribed under Sections 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the
collection thereof.

OTHERS:
Philex asserts that the BIR violated Sec. 106 (e) of the NIRC of 1977, which
requires the refund of input taxes within 60 days, when it took five years for the latter
to grant its claim for VAT input credit/refund.

On this, the Court agreed with Philex. However, it ruled that the remedy of the
taxpayer against public servants or employees is to file an administrative case. It is a
settled rule that in the performance of governmental function, the State is not bound
by the neglect of its agents and officers.
In Roxas vs. Court of Tax Appeals:
“The power of taxation is sometimes called also the power to destroy. Therefore,
it should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the “hen that lays the golden egg” and in order to maintain the general public’s trust
and confidence in the Government, this power must be used justly and not
treacherously.
 Exception: Domingo v. Garlitos 8 SCRA 443
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs.
HON.LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance
of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late
Walter Scott Price, respondents.
G.R. No. L-18994 June 29, 1963
FACTS:
1. In Domingo vs. Hon. Judge Moscoso, G.R. No. L-14674, the Supreme Court
declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55,
issued by the CFI-Leyte in special proceeding No. 14 entitled “In the matter of
the Intestate Estate of the Late Walter Scott Price.”
2. In order to enforce said claims against the estate, the fiscal presented a petition
dated June 21, 1961, to CFILeyte for the execution of the judgment.
3. However, CFI-Leyte denied the petition holding that execution is not justifiable
as the Government is indebted to the estate under administration in the amount
of P262,200.
a. In the decision, the court ordered that the payment of inheritance taxes in
the sum of P40,058.55 due the Collector of Internal Revenue be deducted
from the amount of P262,200 due and payable to the Administatrix Simeona
K. Price, in the estate, the balance to be paid by the Government to her
without
delay.
b. The CFI further stated that it is only fair for the Government, as a debtor, to
its accounts to its citizenscreditors before it can insist in the prompt payment
of the latter’s account to it, specially taking into consideration that the
amount due to the Government draws interest while the credit due to the
present state does not accrue any interest.
4. Thus, the instant petition to set aside the orders of the CFI-Leyte and for the
execution of the claim of the Government against the estate.

ISSUE:
WON the instant petition should be granted.

RULING:
No, the petition to set aside the orders of the CFI-Leyte and for the execution of
the claim of the Government against the estate should not be granted (denied for lack
of merit).
 Under Art. 1200 of the Civil Code, when all the requisites mentioned in article
1279 are present, compensation takes effect by operation of law, and extinguished
both debts to the concurrent amount, even though the creditors and debtors are not
aware of the compensation.

In this case, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation, therefore, takes place by
operation of law.

OTHERS:
In Aldamiz vs. Judge of CFI-Mindoro, a writ of execution is not the proper
procedure allowed by the Rules of Court for the payment of debts and expenses of
administration.
The ordinary procedure by which to settle the claims of indebtedness against the
estate of a deceased person, as an inheritance tax, is for the claimant to present a claim
before the probate court so that said court may order the administrator to pay the
amount thereof.
Tax Cases Part II
1. Marshall Doctrine: (The power to tax is the power to destroy)

U.S case, McCulloch v. Maryland

Facts. Congress chartered the Second Bank of the United States. Branches were
established in many states, including one in Baltimore, Maryland. In response, the
Maryland legislature adopted an Act imposing a tax on all banks in the state not
chartered by the state legislature. James McCulloch, a cashier for the Baltimore
branch of the United States Bank, was sued for violating this Act. McCulloch
admitted he was not complying with the Maryland law. McCulloch lost in the
Baltimore County Court and that court’s decision was affirmed by the Maryland
Court of Appeals. The case was then taken by writ of error to the United States
Supreme Court (Supreme Court).

Issue. Does Congress have the authority to establish a Bank of the United States under
the Constitution?

Held. Yes. Judgment reversed.

Counsel for the state of Maryland claimed that because the Constitution was
enacted by the independent states, it should be exercised in subordination to the
states. However, the states ratified the Constitution by a two-thirds vote of their
citizens, not by a decision of the state legislature. Therefore, although limited in its
powers, the Constitution is supreme over the laws of the states.

There is no enumerated power within the Constitution allowing for the creation
of a bank. But, Congress is granted the power of making “all laws which shall be
necessary and proper for carrying into execution the foregoing powers.” The Supreme
Court determines through Constitutional construction that “necessary” is not a
limitation, but rather applies to any means with a legitimate end within the scope of
the Constitution.

Because the Constitution is supreme over state laws, the states cannot apply
taxes, which would in effect destroy federal legislative law. Therefore, Maryland’s
state tax on the United States Bank is unconstitutional.
 Roxas, et al. v. CTA
ANTONIO ROXAS, ET. AL., petitioners, vs. CTA and CIR, respondents.

G.R. No. L-25043 | April 26, 1968

FACTS:

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the
Roxas y Compania, inherited from their grandparents several properties which
included farmlands. The tenants expressed their desire to purchase the farmland. The
tenants, however, did not have enough funds, so the Roxases agreed to a purchase by
installment. Subsequently, the CIR demanded from the brothers the payment of
deficiency income taxes resulting from the sale, 100% of the profits derived therefrom
was taxed. The brothers protested the assessment but the same was denied. On appeal,
the Court of Tax Appeals sustained the assessment. Hence, this petition.

ISSUE:

WON the Roxases is liable.

RULING:

NO.

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”.

It should be borne in mind that the sale of the farmlands to the very farmers
who tilled them for generations was not only in consonance with, but more in
obedience to the request and pursuant to the policy of our Government to allocate
lands to the landless. The act of subdividing a farm land and selling them to the
farmers-occupants on installment in response to the Government’s policy to allocate
lands to the landless is not subject to real estate dealer’s tax. The business activity of
the landowner in selling the land involves an isolated transaction with its peculiar
circumstances and not to be considered as an act of a dealer even though there were
hundreds of vendees.

In order to maintain the general public’s trust and confidence in the

Government this power must be used justly and not treacherously. It does not
conform with the sense of justice for the Government to persuade the taxpayer to
lend it a helping hand and later on penalize him for duly answering the urgent call.
 In fine, Roxas cannot be considered a real estate dealer and is not liable for 100%
of the sale. Pursuant to Section 34 of the Tax Code, the lands sold to the farmers are
capital assets and the gain derived from the sale thereof is capital gain, taxable only to
the extent of 50%.
2. Tax Laws Construed
Philippine Health Care vs. Commissioner

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner, vs. CIR, respondent.

G.R. No. 167330 | June 12, 2008

FACTS:

The petitioner is a prepaid health-care organization offering benefits to its

members.

The CIR found that the organization had a deficiency in the payment of the
Documentary Stamp Tax (DST) under Section 185 of the 1997 Tax Code which
stipulated its implementation:

“On all policies of insurance or bonds or obligations of the nature of indemnity for
loss, damage, or liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employer's liability, plate,
glass, steam  boiler,  burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance).”

The CIR sent a demand for the payment of deficiency taxes, including
surcharges and interest, for 1996-1997 in the total amount of P224,702,641.18.

The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the
company had to go to the CTA. The latter declared judgment against them and
reduced the taxes. It ordered them to pay 22 million pesos for deficiency VAT for
1997 and 31 million deficiency VAT for 1996.

CA denied the company’s appeal and increased taxes to 55 and 68 million for
1996 to 1997.

ISSUE:

WON a health care agreement in the nature of an insurance contract is subject

to the DST imposed under Section 185 of Republic Act 8424 (Tax Code of 1997).

RULING:

YES.

The DST is levied on the exercise by persons of certain privileges conferred by

law for the creation, revision, or termination of specific legal relationships through
the execution of specific instruments. It is an excise upon the privilege, opportunity,
or facility offered at exchanges for the transaction of the business. In particular, the
DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or
renewing any policy of insurance (except life, marine, inland and fire insurance),
bond or obligation in the nature of indemnity for loss, damage, or liability.

A health care agreement is in the nature of a non-life insurance policy. Under

the law, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. The event insured against must be designated in the
contract and must either be unknown or contingent. Petitioner’s health care
agreement is primarily a contract of indemnity. And in the recent case of Blue Cross
Healthcare, Inc. v. Olivares, 544 SCRA 580 (2008), this Court ruled that a health care
agreement is in the nature of a non-life insurance policy.

Contrary to petitioner’s claim, its health care agreement is not a contract for the
provision of medical services. Petitioner does not actually provide medical or hospital
services but merely arranges for the same and pays for them up to the stipulated
maximum amount of coverage. It is also incorrect to say that the health care
agreement is not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital, medical and
related expenses (such as professional fees of physicians). The term “loss or damage” is
broad enough to cover the monetary expense or liability a member will incur in case
of illness or injury.
Republic vs Caguioa
REPUBLIC OF THE PHILIPPINES, represented by The Hon. Secretary of Finance, et.
al., petitioners, vs. HON. RAMON S. CAGUIOA, et. al., respondents.

G.R. No. 168584

October 15, 2007

FACTS:

Congress enacted Republic Act (R.A) No. 7227 or the Bases Conversion and
Development Act of 1992 which created the Subic Special Economic and Freeport
Zone (SBF) and the Subic Bay Metropolitan Authority (SBMA). Section 12 of R.A No.
7227 of the law provides that no taxes, local and national, shall be imposed within the
Subic Special Economic Zone. Pursuant to the law, Indigo Distribution Corporation,
et al., which are all domestic corporations doing business at the SBF, applied for and
were granted Certificates of Registration and Tax Exemption by the SBMA.

Congress subsequently passed R.A. No. 9334, which provides that all applicable
taxes, duties, charges, including excise taxes due thereon shall be applied to cigars and
cigarettes, distilled spirits, fermented liquors and wines brought directly into the
duly chartered or legislated freeports of the Subic Economic Freeport Zone. On the
basis of Section 6 of R.A. No. 9334, SBMA issued a Memorandum declaring that, all
importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into
the SBF, shall be treated as ordinary importations subject to all applicable taxes, duties
and charges, including excise taxes.

Upon its implementation, Indigo et al., sought for a reconsideration of the

directives on the imposition of duties and taxes, particularly excise taxes by
the Collector of Customs and the SBMA Administrator. Their request was
subsequently denied prompting them to file with the RTC of Olongapo City a special
civil action for declaratory relief to have certain provisions of R.A. No. 9334 declared
as unconstitutional. They prayed for the issuance of a writ of preliminary injunction
and/or Temporary Restraining Order (TRO) and preliminary mandatory injunction.
The same was subsequently granted by Judge Ramon Caguioa. The injunction bond
was approved at One Million pesos (P1,000,000).

ISSUE:
 WON the writ of preliminary injunction and TRO issued by the Respondent
Judge is proper considering the effectivity of R.A. No. 9334.

RULING:

NO.

It is beyond cavil that R.A. No. 7227 granted private respondents exemption
from local and national taxes, including excise taxes, on their importations of general
merchandise, for which reason they enjoyed tax-exempt status until the effectivity of
R.A. No. 9334.

By subsequently enacting R.A. No. 9334, however, Congress expressed its

intention to withdraw private respondents’ tax exemption privilege on their
importations of cigars, cigarettes, distilled spirits, fermented liquors and wines.

Every presumption must be indulged in favor of the constitutionality of a

statute. The burden of proving the unconstitutionality of a law rests on the party
assailing the law. In passing upon the validity of an act of a co- equal and coordinate
branch of the government, courts must ever be mindful of the time-honored principle
that a statute is presumed to be valid.

There is no vested right in a tax exemption, more so when the latest expression
of legislative intent renders its continuance doubtful. Being a mere statutory privilege,
a tax exemption may be modified or withdrawn at will by the granting authority. To
state otherwise is to limit the taxing power of the State, which is unlimited, plenary,
comprehensive and supreme. The power to impose taxes is one so unlimited in
force and so searching in extent, it is subject only to restrictions which rest on the
discretion of the authority exercising it.

As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon
the party claiming exemption to prove that it is in fact covered by the exemption so
claimed. In case of doubt, non- exemption is favored.
3. Scope of the legislative taxing power
CIR v. Santos
CIR and COMISSIONER OF CUSTOMS, petitioners, vs. HON. APOLINARIO B.
SANTOS of RTC-Pasig, ANTONIO MARCO, JEWELRY BY MARCO & CO., INC.,
and GUILD OF PHILIPPINE JEWELLERS, INC., respondents.

G.R. No. 119252

August 18, 1997

FACTS:

Petitioner in this case, the Commissioner of Internal Revenue and the

Commissioner of Customs jointly seek the reversal of the Decision of herein public
respondent, Hon. Apolinario B. Santos, Presiding Judge of RTC Pasig City, declaring
Section 150(a) of Executive Order No. 273 inoperative and without force and effect
insofar as petitioners are concerned. This EO subjected jewelry to a 20% excise tax in
addition to a 10% value-added tax under the old law.

Private respondent Guild of Philippine Jewelers, Inc., is an association of

Filipino jewelers engaged in the manufacture of jewelries and allied undertakings,
with private respondent Antonio M. Marco is the President of the Guild.

Some of the members of the Guild of Philippine Jewelers were given a Mission
Order not to sell the jewelries and other articles displayed in their respective
establishments until it can be proven that the necessary taxes thereon have been paid.
In response, Private Respondent prayed that Regional Trial Court declare Sections
126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg. No.
71.01, 71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the
Philippines unconstitutional and void, and that the Commissioner of Internal
Revenue and Customs be prevented or enjoined from issuing mission orders and other
orders of similar nature.

ISSUE:

WON the law subjecting the jewelry industry to said taxes is valid, considering the
Respondents’ contention that such tax rates are oppressive and confiscatory.
RULING:

YES, valid.

It is inherent in the power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that “inequalities which result from a
singling out of one particular class for taxation, or exemption, infringe no
constitutional limitation.

The respondents presented an exhaustive study on the tax rates on jewelry

levied by different Asian countries. This is meant to convince us that compared to
other countries, the tax rates imposed on said industry in the Philippines is oppressive
and confiscatory. This Court, however, cannot subscribe to the theory that the tax
rates of other countries should be used as a yardstick in determining what may be the
proper subjects of taxation in our own country. It should be pointed out that in
imposing the aforementioned taxes and duties, the State, acting through the
legislative and executive branches, is exercising its sovereign prerogative. It is
inherent in the power to tax that the State be free to select the subjects of taxation,
and it has been repeatedly held that “inequalities which result from a singling out of
one particular class for taxation, or exemption, infringe no constitutional limitation.”
 Ferrer, Jr. vs. Bautista
JOSE J. FERRER, JR., petitioner, vs. CITY MAYOR HERBERT BAUTISTA, City
Council of Quezon City, City Treasurer of Quezon City, and City Assessor of Quezon
City, respondents.

G.R. No. 210551 June 30, 2015

DOCTRINE:

The enactment by the Quezon City Council of Ordinance No. SP-2095, S-2011,
or the Socialized Housing Tax of Quezon City was done in the exercise of its
legislative, not judicial or quasi-judicial function. Under R.A. 7160, or the Local
Government Code of 1991, local legislative power shall be exercised by the
Sangguniang Panlungsod for the city. Said law likewise is specific in providing that
the power to impose a tax, fee, or charge, or to generate revenue shall be exercised by
the sanggunian of the local government unit concerned through an appropriate
ordinance.

FACTS:

Respondent Quezon City Council enacted an ordinance, Socialized Housing Tax

of Quezon City, which will collect 0.5% on the assessed value of land in excess of Php
100,000.00. This shall accrue to the Socialized Housing Programs of the Quezon City
Government. The special assessment shall go to the General Fund under a special
account to be established for the purpose. On the other hand, Ordinance No. SP-2235
and S-2013 was enacted collecting garbage fees on residential properties which shall
be deposited solely and exclusively in an earmarked special account under the general
fund to be utilized for garbage collections. Petitioner, a Quezon City property owner,
questions the validity of the said ordinances.

ISSUES:

1. WON the Socialized Housing Tax is valid.

2. WON the Ordinance on Garbage Fee violates the rule on double taxation.

RULING:
1. YES, the SHT is valid. The tax is within the power of Quezon City Government to
impose. LGUs may be considered as having properly exercised their police power only
if there is a lawful subject and a lawful method. Herein, the tax is not a pure exercise
of taxing power or merely to raise revenue; it is levied with a regulatory purpose. The
levy is primarily in the exercise of the police power for the general welfare of the
entire city. It is greatly imbued with public interest. On the question of inequality,
the disparities between a real property owner and an informal settler as two distinct
classes are too obvious and need not be discussed at length. The differentiation
conforms to the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution. Notably, the public purpose of a tax may
legally exist even if the motive which impelled the legislature to impose the tax was
to favor one over another. Further, the reasonableness of Ordinance No. SP-2095
cannot be disputed. It is not confiscatory or oppressive since the tax being imposed
therein is below what the UDHA actually allows. Even better, on certain conditions,
the ordinance grants a tax credit.

2. NO. Pursuant to Section 16 of the LGC and in the proper exercise of its corporate
powers under Section 22 of the same, the Sangguniang Panlungsod of Quezon City,
like other local legislative bodies, is empowered to enact ordinances, approve
resolutions, and appropriate funds for the general welfare of the city and its
inhabitants. In this regard, the LGUs shall share with the national government the
responsibility in the management and maintenance of ecological balance within their
territorial jurisdiction. The Ecological Solid Waste Management Act of 2000, affirms
this authority as it expresses that the LGUs shall be primarily responsible for the
implementation and enforcement of its provisions. Necessarily, LGUs are statutorily
sanctioned to impose and collect such reasonable fees and charges for services
rendered. The fee imposed for garbage collections under Ordinance No. SP-2235 is a
charge fixed for the regulation of an activity as provided by the same. As opposed to
petitioner’s opinion, the garbage fee is not a tax. Hence, not being a tax, the
contention that the garbage fee under Ordinance No. SP-2235 violates the rule on
double taxation must necessarily fail.

ADDITIONAL NOTES:

 LGUs have no inherent power to tax except to the extent that such power might
be delegated to them either by the basic law or by the statute. The fundamental
 law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government
units (LGUs) are being strengthened and made more autonomous, the legislature
must still see to it that (a) the taxpayer will not be overburdened or saddled with
multiple and unreasonable impositions; (b) each local government unit will have
its fair share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform, and
just.
 Subject to the provisions of the Local Government Code (LGC) and consistent
with the basic policy of local autonomy, every Local Government Unit (LGU) is
now empowered and authorized to create its own sources of revenue and to levy
taxes, fees, and charges which shall accrue exclusively to the LGU as well as to
apply its resources and assets for productive, developmental, or welfare
purposes, in the exercise or furtherance of their governmental or proprietary
powers and functions.
 Manila Electric Co vs. Province of Laguna
MANILA ELECTRIC COMPANY, petitioner, vs. PROVINCE OF LAGUNA and
BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.

G.R. No. 131359

May 5, 1999

FACTS:

Manila Electric Company (MERALCO) was granted franchise by certain munici
palities of the Province of Laguna and the National Electrification Administration for 
the supply of electric light, heat and power within their concerned areas.

Upon enactment of the Local Government Code, the province enacted an ordina
nce imposing a tax on businesses enjoying a franchise. MERALCO paid under protest 
and later claimed for refund as it contravened Sec 1 of PD 551 imposing a franchise ta
x of 2% of gross receipts notwithstanding any provision of law or local ordinance to t
he contrary.

ISSUE:

WON the withdrawal of tax exemption to Meralco by the local government unit
(province) violates the non-impairment clause of the Constitution?

RULING:

NO.

The Local Government Code of 1991 has incorporated and adopted, by and
large, the provisions of the now repealed Local Tax Code (PD 231 pursuant to Section
2, Article XI, 1973 Constitution; in effect since 1 July 1973). The 1991 Code explicitly
authorizes provincial governments, notwithstanding “any exemption granted by any
law or other special law to impose a tax on businesses enjoying a franchise (Section
137).

Indicative of the legislative intent to carry out the Constitutional mandate of

vesting broad tax powers to local government units, the Local Government Code has
effectively withdrawn tax exemptions or incentives theretofore enjoyed by certain
entities (Section 193). While tax exemptions contained in special franchises are in the
nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless are far from being strictly contractual in nature. 

Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by
the taxing authority in contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be revoked
without impairing the obligations of contracts.

These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions
in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation
of a public utility shall be granted except under the condition that such privilege shall
be subject to amendment, alteration or repeal by Congress as and when the common
good so requires. Indeed, Article XII, Section 11, of the 1987 Constitution is explicit
that no franchise for the operation of a public utility shall be granted except under
the condition that such privilege shall be subject to amendment, alteration or repeal
by Congress as and when the common good so requires.
 Batangas Power vs. Batangas City
BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY and
NATIONAL POWER CORPORATION, respondents.

G.R. No. 152675

April 28, 2004

FACTS:

In the early 1990’s, power outages lasted 8-12 hours daily and power generation
was badly needed. 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 through the NPC’s assumption of payment of their taxes
in the Build Operate and Transfer (BOT) Agreement.

On June 29, 1992, Enron Power Development Corporation (Enron) and

petitioner NPC entered into a Fast Track BOT Project. Enron agreed to supply a
power station to NPC and transfer its plant to the latter after ten (10) years of
operation. Section 11.02 of the BOT Agreement provided that NPC shall be
responsible for the payment of all taxes that may be imposed on the power station,
except income taxes and permit fees. Subsequently, Enron assigned its obligation
under the BOT Agreement to petitioner 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 for a period of six (6) years. On October
12, 1998, Batangas City sent a letter to BPC demanding payment of business taxes and
penalties, commencing from the year 1994, BPC refused to pay, citing its tax-exempt
status as a pioneer enterprise for six (6) years under Section 133 (g) of the Local
Government Code (LGC). The city’s tax claim was modified and demanded payment
of business taxes from BPC only for the years 1998-1999. BPC still refused to pay the
tax. It insisted that its 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.

In the alternative, BPC asserted that the city should collect the tax from the
NPC as the latter assumed responsibility for its payment under their BOT Agreement.
On August 26, 1999, the NPC intervened. While admitting assumption of BPC’s tax
obligations under their BOT Agreement, NPC 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 relief12 with the Makati RTC against
Batangas City and NPC. It alleged that under the BOT Agreement, NPC is responsible
for the payment of such taxes but as NPC is exempt from taxes, both the BPC and
NPC are not liable for its payment.

Makati RTC dismissed the petition and held that: (1) BPC is liable to pay
business taxes to the city; (2) NPC’s tax exemption was withdrawn with the passage of
R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday granted
to pioneer business enterprises starts on the date of registration with the BOI as
provided in Section 133 (g) of R.A. No. 7160, and not on the date of its actual business
operations.

Issue:

Whether or not NPC’s tax exemption privileges under its Charter were withdrawn by
Section 193 of the Local Government Code (LGC).

Ruling:

Yes. The effect of the LGC on the tax exemption privileges of the NPC has
already been extensively discussed and settled in the recent case of National Power
Corporation v. City of Cabanatuan. In said case, this Court recognized the removal of
the blanket exclusion of government instrumentalities from local taxation as one of
the most significant provisions of the 1991 LGC. Specifically, we stressed that Section
193 of the LGC, an express and general repeal of all statutes granting exemptions from
local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC
under its Charter.

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 pursuant to
Article X, section 5 of the 1987 Constitution. The LGC is considered as the most
revolutionary piece of legislation on local autonomy, the LGC effectively deals with
the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws.
 Neither can the NPC successfully rely on the Basco case as this was decided
prior to the effectivity of the LGC, when there was still no law empowering local
government units to tax instrumentalities of the national government.

Thus, while BPC remains to be the entity doing business in said city, it is the
NPC that is ultimately liable to pay said taxes under the provisions of both the 1992
BOT Agreement and the 1991 Local Government Code.

Other Issue: Whether BPC’s 6-year tax holiday commenced on the date of its BOI
registration as a pioneer enterprise or on the date of its actual commercial operation
as certified by the BOI.

Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from
levying taxes on BOI-certified pioneer enterprises for a period of  six years from the
date of registration, applies specifically to taxes imposed by the local government, like
the business tax imposed by Batangas City on BPC in the case at bar.  The 6-year tax
exemption of BPC should thus commence from the date of BPC’s registration with
the BOI.
4. Power of the President to impose taxes
ART. VI, SEC 28 (2) of the Constitution

SECTION 28.

(2) The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government.
 SOUTHERN CROSS vs. CEMENT MANUFACTURERS
SOUTHERN CROSS CEMENT CORPORATION, vs. CEMENT
petitioner,
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, DTI SECRETARY, DOF
SECRETARY, and COMMISSIONER OF CUSTOMS, respondents.

FACTS:

The case centers on the interpretation of 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 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.

Philippine Cement Manufacturer’s Assoc. filed a petition seeking the imposition

of safeguard measures on grey Portland cement with the DTI. The DTI Secretary then
issued a provisional safeguard measure and referred the petition to the Tariff
Commission.

After the Tariff Commission’s investigation, it reported that there is no need for
definitive safeguard measures. The DTI Secretary then denied Philcemor’s petition
but expressed his opinion that he disagreed with the Tariff Commission’s findings.

Philcemor challenged the decision of the CA.The CA ruled that the DTI
secretary was not bound by the Tariff Commision’s report since it was merely
recommendatory. Based on this decision, the DTI Secretary then imposed a definitve
safeguard measure on importation of gray Portland cement for 3 years. Southern cross
challenges the CA decision and the safeguard by the DTI Secretary.

Issue: Whether or not the CA has jurisdiction over the case which is concerned with
imposition of safeguard measures

Held:

NO. It is not the CA, but the CTA has jurisdiction. Under Section 29 of the
SMA, there are three requisites to enable the CTA to acquire jurisdiction over the
petition for review contemplated therein: (i) there must be a ruling by the DTI
Secretary; (ii) the petition must be filed by an interested party adversely affected by
the ruling; and (iii) such ruling must be in connection with the imposition of a
safeguard measure. The first two requisites are clearly present. The third requisite
deserves closer scrutiny.

Contrary to the stance of the public respondents and Philcemcor, in this case
where the DTI Secretary decides not to impose a safeguard measure, it is the CTA
which has jurisdiction to review his decision. The reasons are as follows:

First. Split jurisdiction is abhorred. The law expressly confers on the CTA, the
tribunal with the specialized competence over tax and tariff matters, the role of
judicial review without mention of any other court that may exercise corollary or
ancillary jurisdiction in relation to the SMA.

Second. The interpretation of the provisions of the SMA favors vesting

untrammeled appellate jurisdiction on the CTA. A plain reading of Section 29 of the
SMA reveals that Congress did not expressly bar the CTA from reviewing a negative
determination by the DTI Secretary nor conferred on the Court of Appeals such
review authority. Respondents note, on the other hand, that neither did the law
expressly grant to the CTA the power to review a negative determination. However,
under the clear text of the law, the CTA is vested with jurisdiction to review the
ruling of the DTI Secretary in connection with the imposition of a safeguard measure.
Had the law been couched instead to incorporate the phrase the ruling imposing a
safeguard measure, then respondents claim would have indisputable merit.
Undoubtedly, the phrase in connection with not only qualifies but clarifies the
succeeding phrase imposition of a safeguard measure. As expounded later, the phrase
also encompasses the opposite or converse ruling which is the non-imposition of a
safeguard measure.

Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur

Inconveniens Et Absurdum. Even assuming arguendo that Section 29 has not
expressly granted the CTA jurisdiction to review a negative ruling of the DTI
Secretary, the Court is precluded from favoring an interpretation that would cause
inconvenience and absurdity. Adopting the respondents position favoring the CTAs
minimal jurisdiction would unnecessarily lead to illogical and onerous results.
 ABAKADA VS. ERMITA
ABAKADA GURO PARTY LIST, et. al., petitioners, vs. THE HON. EXECUTIVE
SECRETARY EDUARDO ERMITA, et. al.,

G.R. No. 168056

September 1, 2005

FACTS:

ABAKADA GURO Party List, et al., filed a petition for prohibition o 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 provisions contain a provision which 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.

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 of
the Constitution.

RULING:

1. NO, 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. NO, 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. In this case, it is not a delegation of legislative power but
a delegation of ascertainment of facts upon which enforcement and
administration of the increased rate under the law is contingent.

3. NO, 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.
5. Extent of administrative agencies power to tax
CIR VS FORTUNE TOBACCO

CIR, petitioner, vs. FORTUNE TOBACCO CORPORATION, respondent.

G.R. Nos. 167274-75 | July 21, 2008

FACTS:

Prior to the effectivity of R.A. 7654, cigarette brands Hope Luxury, Premium
More and Champion were considered local brands subjected to an ad valorem tax at
the rate of 20-45%. However, on July 1, 1993 or two (2) days before R.A. 7654 took
effect, petitioner CIR issued RMC 37-93 reclassifying “Hope, More and Champion
being manufactured by the Fortne Tobacco Corporation. . . B (as) locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes.” A copy of RMC 37-93 was sent to Fortune Tobacco via telefax, but it was
addressed to no one in particular.

On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified Xerox
copy of RMC 37-93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-

93 but was forthwith denied by the Appellate Division of the BIR. As a consequence,
on July 30, 1993, private respondent was assessed an ad valorem tax deficiency.
Respondent corporation went to the CTA on a petition for review.

The CTA held that petitioner Commissioner of Internal Revenue failed to

observe due process of law in issuing RMC 37-93 as there was no prior notice and
hearing.

ISSUE:

WON the CTA is correct in ruling that the CIR failed to observe due process of
law.

RULING:

YES.

The Supreme Court upheld the CTA, holding that when an administrative rule
is merely interpretative in nature, its applicability needs nothing further than the
bare issuance for it gives no real consequence more than what the law itself has
already prescribed.
 When, upon the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of those
governed, as in the case at bar, it behooves the agency to accord at least those directly
affected chance to be heard, and thereafter to be duly informed before that new
issuance is given the force and effect of law.
Tax Cases – Part 3

1. Planters Product V. Fertiphil Corp. (2008) G.R. No. 166006 March 14, 2008
(Locu Standi)

FACTS:
President Ferdinand Marcos, exercising his legislative powers, issued LOI No.
1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers which resulted in
having Fertiphil paying P 10/bag sold to the Fertilizer and Perticide Authority (FPA).

FPA remits its collection to Far East Bank and Trust Company who applies to
the payment of corporate debts of Planters Products Inc. (PPI).

After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10
levy.  Upon return of democracy, Fertiphil demanded a refund but PPI refused. 
Fertiphil filed a complaint for collection and damages against FPA and PPI with the
RTC on the ground that LOI No. 1465 is unjust, unreaonable oppressive, invalid and
unlawful resulting to denial of due process of law.  

FPA answered that it is a valid exercise of the police power of the state in
ensuring the stability of the fertilizing industry in the country and that Fertiphil did
NOT sustain damages since the burden imposed fell on the ultimate consumers.

RTC and CA favored Fertiphil holding that it is an exercise of the power of

taxation ad is as such because it  is NOT for public purpose as PPI is a private
corporation.

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

Held:
1. Yes.  In private suits, locus standi requires a litigant to be a "real party in interest"
or party who stands to be benefited or injured by the judgment in the suit.  In public
suits, there is the right of the ordinary citizen to petition the courts to be freed from
unlawful government intrusion and illegal official action subject to the  direct injury
test or where there must be personal and substantial interest in the case such that he
has sustained or will sustain direct injury as a result.  Being a mere procedural
technicality, it has also been held that locus standi may be waived in the public
interest such as cases of transcendental importance or with far-reaching implications
whether  private or public suit, Fertiphil has locus standi.

As a seller, it bore the ultimate burden of paying the levy which made its
products more expensive and harm its business.  It is also of paramount public
importance since it involves the constitutionality of a tax law and use of taxes for
public purpose.

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

In this case, it is for purpose of revenue.  But it is a robbery for the State to tax
the citizen and use the funds generation for a private purpose.  Public purpose does
NOT only pertain to those purpose which are traditionally viewed as essentially
governmental function such as  building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost housing and urban or
agrarian reform.
 2. PAMBANSANG KOALISYON v. EXECUTIVE SECRETARY GR 147036-37, 685
Phil. 295, April 10, 2012
(Coco-Levy Fund)
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 Macapagal-Arroyo
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: Are the coco-levy funds public funds?

HELD: YES, Coco-levy funds are 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 its public 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, the pertinent laws used the term levy, which means to tax, in describing
the exaction.
R.A. 6260 and P.D. 276 did not raise money to boost the governments general
funds but to 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.
 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.
 3. REPUBLIC v. BACOLOD-MURCIA MILLING, ET AL. GR L-19824-26, July 9,
1966 En Banc (Special Assessment- Tax or Regulation)
FACTS:

Joint appeal by three sugar centrals, respondents herein. from a decision of the
Court of First Instance of Manila finding them liable for special assessments under
Section 15 of Republic Act No. 632.

The appellants' thesis is simply to the effect that the "10 centavos per picul of
sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment.
As such, the proceeds thereof may be devoted only to the specific purpose for which
the assessment was authorized, a special assessment being a levy upon property
predicated on the doctrine that the property against which it is levied derives some
special benefit from the improvement. It is not a tax measure intended to raise
revenues for the Government.

ISSUE: Is the imposition of special assessment an exercise of the taxing power

RULING:

The Court deemed it relevant to discuss its holding in Lutz v. Araneta. For in
this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment
Act, all collections made thereunder "shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be
paid out only for any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law." Analysis of the Act, and particularly
Section 6, will show that the tax is levied with a regulatory purpose, to provide means
for the rehabilitation and stabilization of the threatened sugar industry. In other
words, the act is primarily an exercise of the police power.'

On the authority of the above case, then, We hold that the special assessment at
bar may be considered as similarly as the above, that is, that the levy for the Philsugin
Fund is not so much an exercise of the power of taxation, nor the imposition of a
special assessment, but, the exercise of the police power for the general welfare of the
entire country. It is, therefore, an exercise of a sovereign power which no private
citizen may lawfully resist.
 4. GEROCHI v. DEPARTMENT OF ENERGY GR 159796, July 17, 2007, En Banc
(Universal Charge – Tax or Regulation/Police Power)

FACTS:

On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act
of 2001. Petitioners Romeo P. Gerochi and company assail the validity of Section 34
of the EPIRA Law for being an undue delegation of the power of taxation. Section 34
provides for the imposition of a “Universal Charge” to all electricity end users after a
period of (1) one year after the effectively of the EPIRA Law.

The universal charge to be collected would serve as payment for government

debts, missionary electrification, equalization of taxes and royalties applied to
renewable energy and imported energy, environmental charge and for a charge to
account for all forms of cross subsidies for a period not exceeding three years. The
universal charge shall be collected by the ERC on a monthly basis from all end users
and will then be managed by the PSALM Corp. through the creation of a special trust
fund.

ISSUE: Whether or not there is an undue delegation of the power to tax on the part of
the ERC

HELD:

No, the universal charge as provided for in section 34 is not a tax but an exaction
of the regulatory power (police power) of the state. The universal charge under
section 34 is incidental to the regulatory duties of the ERC, hence the provision
assailed is not for generation of revenue and therefore it cannot be considered as tax,
but an execution of the states police power thru regulation.

Moreover, the amount collected is not made certain by the ERC, but by the
legislative parameters provided for in the law (RA 9136) itself, it therefore cannot be
understood as a rule solely coming from the ERC. The ERC in this case is only a
specialized administrative agency which is tasked of executing a subordinate
legislation issued by congress; which before execution must pass both the
completeness test and the sufficiency of standard test. The court in appreciating
Section 34 of RA 9136 in its entirety finds the said law and the assailed portions free
from any constitutional defect and thus deemed complete and sufficient in form.
 5. JOSE J. FERRER v. MAYOR BAUTISTA G.R. No. 210551, June 30, 2015
(Socialized Housing Tax –both power to tax/police power and Garbage fees)

Facts:

 The City of Quezon passed two ordinances namely.

 The first one was the Socialized Housing Tax of QC allowing the imposition of
special assessment (1/2 of the assessed valued of land in excess of P100k)
 The second one was Ordinance No. SP-2235, S-2013 on Garbage Collection Fees
imposing fees depending on the amount of the land or floor area).
 Jose Ferrer, as a property in Quezon City questioned the validity of the city
ordinances.
 According to Ferrer:
 The city has no power to impose the tax.
 The SHT violates the rule on equality because it burdens real property
owners with expenses to provide funds for the housing of informal settlers.
 The SHT is confiscatory or oppressive.
 Also, he assails the validity of the garbage fees imposition because:
 It violates the rule on double taxation.
 It violates the rule on equality because the fees are collected from only
domestic households and not from restaurants, food courts, fast food chains,
and other commercial dining places that spew garbage much more than
residential property owners.

Issue: WON the ordinances were valid.

Held: 

1st ordinance: Socialized Housing Tax of Quezon City is valid.

Cities have the power to tax

It must be noted that local government units such as cities has the power to tax.
The collection for the socialized housing tax is valid. It must be noted that the
collections were made to accrue to the socialized housing programs and projects of
the city. 

The imposition was for a public purpose (exercise of power of taxation + police
power)

In this case, there was both an exercise of the power to tax (primary) and police
power (incidental). Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property
owners as well. 

The situation will improve the value of the their property investments, fully
enjoying the same in view of an orderly, secure, and safe community, and will
enhance the quality of life of the poor, making them law-abiding constituents and
better consumers of business products.

There is no violation of the rule on equality

Note: There is a substantial distinction between: real property owner and an informal
settler. In fact, the Supreme Court said that the disparity is so obvious. It is inherent
in the power to tax that a State is free to select the subjects of taxation. Inequities
which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation.

All these requisites are complied with: An ordinance based on reasonable

classification does not violate the constitutional guaranty of the equal protection of
the law. The requirements for a valid and reasonable classification are: (1) it must rest
on substantial distinctions; (2) it must be germane to the purpose of the law; (3) it
must not be limited to existing conditions only; and (4) it must apply equally to all
members of the same class.

The ordinance is not oppressive or confiscatory

The ordinance is also not oppressive since the tax rate being imposed is
consistent with the UDHA (Urban Development and Housing Act of 1992). While the
law authorizes LGUs to collect SHT on properties with an assessed value of more than
P50,000.00, the questioned ordinance only covers properties with an assessed value
exceeding P100,000.00. As well, the ordinance provides for a tax credit equivalent to
the total amount of the special assessment paid by the property owner beginning in
the sixth (6th) year of the effectivity of the ordinance.

2nd ordinance: The imposition of garbage fee is invalid.

Note: There was no violation of double taxation but there was a violation of the rule
on equity.
There is no violation of double taxation: the garbage fees are not taxes

In Progressive Development Corporation v. Quezon City, the Court declared that:

"if the generating 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 incidentally revenue is also obtained does not make the imposition a tax."

Contention of Ferrer: that the imposition of garbage fee is tantamount to double

taxation because garbage collection is a basic and essential public service that should
be paid out from property tax, business tax, transfer tax, amusement tax, community
tax certificate, other taxes, and the IRA of the Quezon City Government. All these are
valid taxes. The garbage fees are license fees

Footnote: In order to constitute double taxation in the objectionable or prohibited

sense the same property must be taxed twice when it should be taxed but once; both
taxes must be imposed on the same property or subject-matter, for the same purpose,
by the same State, Government, or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or
character of tax.

There is a violation of the rule on equality: no substantial distinction

There is no substantial distinction between an occupant of a lot, on one hand,

and an occupant of a unit in a condominium, socialized housing project or apartment,
on the other hand. 

Most likely, garbage output produced by these types of occupants is uniform and
does not vary to a large degree; thus, a similar schedule of fee is both just and
equitable.

The garbage fees or rates are unjust and inequitable

A resident of a 200 sq. m. unit in a condominium or socialized housing project

has to pay twice the amount than a resident of a lot similar in size; unlike unit
occupants, all occupants of a lot with an area of 200 sq. m. and less have to pay a fixed
rate of Php100.00; and the same amount of garbage fee is imposed regardless of
whether the resident is from a condominium or from a socialized housing project.

The classifications are not germane to the purpose of the ordinance

The declared purpose is: "promoting shared responsibility with the residents to
attack their common mindless attitude in over-consuming the present resources and
in generating waste."

Instead of simplistically categorizing the payee into land or floor occupant of a

lot or unit of a condominium, socialized housing project or apartment, respondent
City Council should have considered factors that could truly measure the amount of
wastes generated and the appropriate fee for its collection. Factors include, among
others, household age and size, accessibility to waste collection, population density of
the barangay or district, capacity to pay, and actual occupancy of the property.

SC: 

→ Validity of Socialized Housing Tax of Quezon City is upheld. 

→ Ordinance No. SP-2235, S-2013, which collects an annual garbage fee on all
domestic households in Quezon City, is unconstitutional and illegal.
 6. Victorias Milling v. Municipality of Victoria (Presumption when the law is
silent – Is it a Tax or Exaction)

FACTS:
Ordinance 1 was approved by the municipal Council of Victorias on September
22, 1956 by way of an amendment to two municipal ordinances separately imposing
license taxes on operators of sugar centrals   and sugar refineries. The changes were:
with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar
refineries, by increasing the rates of license taxes as well as the range of graduated
schedule of annual output capacity.

Plaintiff Victorias Milling Co. filed a suit to ask for judgment declaring the said
Ordinance null and void as it is discriminatory since it singles out plaintiff which is
the only operator of a sugar central and a sugar refinery within the jurisdiction of
defendant municipality; and that it constitutes double taxation.

ISSUES:
1) Whether Ordinance 1 is discriminatory.
2) Whether Ordinance 1 constitutes double taxation.

RULING:

1) No. The ordinance does not single out Victorias as the only object of the ordinance.
Said ordinance is made to apply to any sugar central or sugar refinery which may
happen to operate in the municipality. The fact that plaintiff is actually the sole
operator of a sugar central and a sugar refinery does not make the ordinance
discriminatory. Not even the name of plaintiff herein was ever mentioned in the
ordinance now disputed.

2) No. First, the two taxes cover two different objects. Section 1 of the ordinance taxes
a person operating sugar centrals or engaged in the manufacture of centrifugal sugar.
While under Section 2, those taxed are the operators of sugar refinery mills. One
occupation or business is different from the other. Second, the disputed taxes are
imposed on occupation or business. Both taxes are not on sugar. The amount thereof
depends on the annual output capacity of the mills concerned, regardless of the actual
sugar milled. Plaintiff's argument perhaps could make out a point if the object of
taxation here were the sugar it produces, not the business of producing it.

Notes:

We accordingly say that the designation given by the municipal authorities does
not decide whether the imposition is properly a license tax or a license fee. The
determining factors are the purpose and effect of the imposition as may be apparent
from the provisions of the ordinance. Thus, "[w]hen no police inspection, supervision,
or regulation is provided, nor any standard set for the applicant 23 to establish, or that
he agrees to attain or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a license on payment
of the stipulated sum will issue, to do business, subject to no prescribed rule of
conduct and under no guardian eye, but according to the unrestrained judgment or
fancy of the applicant and licensee, the presumption is strong that the power of
taxation, and not the police power, is being exercised."
 7. CHEVRON PHILIPPINES v. BCDA G.R. No. 173863, September 15, 2010
(Royalty Fees- Is it a Tax or Regulation/Police Power)

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.

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”.

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.
PRINCIPAL PURPOSE TEST (Bar Question) – If the principal purpose is to raise
income, it is an exercise of power to tax. And if your principal purpose is to
regulate, the fact that there is a corresponding income is immaterial , it is an
exercise of police power.
PART 4

1. COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R.

NO. 154068,
August 03, 2007 (Prospective application of Tax Laws)

Lessons Applicable: Refund in the nature of tax exemption, exhaustion of

administrative remedy, prospectivity of tax laws

FACTS:
 Rosemary Acosta, an employee of Intel Manufacturing Phils. Inc. assigned in a
foreign country filed on March 21, 1977 for a period of January 1, 1996-
December 31, 1996, a Joint Individual Income Tax Return with her husband on
October 8, 1997, she filed an amended return indicating an overpayment of P
358,274 due to the income taxes withheld and paid by Intel.  
 April 15, 1999: She filed a petition for review with the CTA who dismissed her
petition for failing to file a written claim for refund required under Sec. 230 of
the old tax code.  Also, the omission of the date of filing the final adjustment
return deprived the court of its jurisdiction over the subject matter of the case.
 CA: reversed the CTA holding that the filing of an amended return indicating an
overpayment was sufficient compliance with the requirement of a written claim
for refund. 
 Applying sec. 204 (c) of the 1997 NIRC, the CIR sought reconsideration but was
denied so it elevated the matter with the SC

ISSUES:
1. W/N the amended return is sufficient compliance of written claim
2. W/N the 1997 tax reform can be applied retrospectively

HELD:  Granted.
1. NO.  The requirements under Section 230 for refund claims are as follows
o a.  A written claim for refund or tax credit must be filed by the taxpayer
with the Commissioner;
o b. The claim for refund must be a categorical demand for reimbursement; 
o c. The claim for refund or tax credit must be filed, or the suit or proceeding
therefor must be commenced in court within 2 years from date of payment
of the tax or penalty regardless of any supervening cause  
 o It is intended to afford the CIR an opportunity to correct the action of its
subordinate officers and to be notified.  Tax refunds are in the nature of tax
exemptions which are construed  strictissimi juris  against the taxpayer and
liberally in favor of the government
o As tax refund involve a return of revenue from the government, the
claimant must show the specific provision of law as basis of her right

      2.  NO.  Tax laws are prospective in operation, unless the language of the statute
clearly provides otherwise. Moreover, a party seeking an administrative remedy must
not merely initiate the prescribed administrative procedure to obtain relief, but also
pursue it to its appropriate conclusion before seeking judicial intervention in order to
give the administrative agency an opportunity to decide the matter itself correctly
and prevent unnecessary and premature resort to court action.  Revenue statutes are
substantive laws and in no sense must their application be equated with that of
remedial laws which must be faithfully and strictly implemented.