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FIRST DIVISION

[ G.R. No. 209289, July 09, 2018 ]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, V. THE

SECRETARY OF JUSTICE AND METROPOLITAN CEBU WATER
DISTRICT (MCWD), RESPONDENTS.

DECISION

TIJAM, J.:

Before Us is a Petition for Review on Certiorari[1] filed by petitioner Commissioner of

Internal Revenue (CIR), assailing the Decision[2] dated January 23, 2013 and
Resolution[3] dated August 29, 2013 of the Court of Appeals (CA) in CA-G.R. SP No.
117577 dismissing the petition for certiorari filed by CIR.

The Antecedent Facts

Metropolitan Cebu Water District (respondent) received a Preliminary Assessment

Notice from the Bureau of Internal Revenue (BIR) for alleged . tax deficiencies for the
year 2000 in the total amount of P70,660,389.00, representing alleged deficiency
income, franchise and value added taxes with surcharge and interest, as well as
compromise penalties.[4]

Respondent filed a formal protest with the Regional Director, BIR Revenue Region No.
13. The CIR however failed to act on the protest within 180 days from submission of
the supporting documents. Thus, respondent filed a Petition for Review before the
Court of Tax Appeals (CTA). The CIR however opposed the said petition on the ground
that the Secretary of Justice (SOJ) has jurisdiction over the dispute considering that
respondent is a government-owned or controlled corporation (GOCC). As such, the CTA
dismissed the petition.[5]

Respondent then filed a Petition for Arbitration before the SOJ. In a complete
turnaround, the CIR claimed that the SOJ has no jurisdiction over the case since the
issue in dispute is the validity of the tax assessment against respondent.[6]

The case proceeded and the SOJ rendered its Decision[7] dated April 23, 2010
disposing as follows:

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WHEREFORE, premises considered, MCWD is declared (a) exempt from

payment of income tax from gross income pursuant to Section 32(B)(7)(b)
of the National Internal Revenue Code of 1997, (b) liable for franchise tax
of two percent (2%) of its gross receipts, (c) exempt from value-added tax,
and (d) not liable to pay surcharge, interest, and compromise penalty on
the deficiency taxes.

No cost.

SO ORDERED.[8]

The motion for reconsideration of the CIR was likewise denied by the SOJ in the Order
dated August 20, 2010.[9]

Aggrieved, the CIR filed a Petition for Certiorari before the CA imputing grave abuse of
discretion on the SOJ for assuming jurisdiction over the case.

The CA, in its Decision[10] dated January 23, 2013, dismissed the petition for certiorari.
The motion for reconsideration was also denied in the CA Resolution[11] dated August
29, 2013.

Thus, the CIR comes before Us claiming that the SOJ has no jurisdiction to decide the
Petition for Arbitration filed by respondent which assails the tax assessment issued by
the BIR.

Ruling of the Court

The petition is denied.

At the outset, We must emphasize that the decision of the SOJ was reviewed by the CA
through a petition for certiorari under Rule 65 of the Rules of Court. As such, the CA
must resolve the question of whether the SOJ committed grave abuse of discretion
amounting to lack of excess of jurisdiction necessitating the reversal of the same.
Necessarily, when the CA Decision is brought before Us through a petition for review on
certiorari under Rule 45 of the Rules of Court, We must determine whether the CA
erred in not finding any grave abuse of discretion on the part of the SOJ in rendering
the assailed decision.

We hold that the CA correctly ruled that the SOJ did not commit any grave abuse of
discretion in holding that the dispute between the CIR and the respondent is properly
within the jurisdiction of the SOJ.

The SOJ has jurisdiction to decide the case

Here, respondent filed a protest with the CIR to assail the tax assessment issued to

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respondent. For failure of the CIR to act within 180 days from submission of the
supporting documents, respondent filed a petition for review before the CTA.
Interestingly, the CIR filed a motion to dismiss the petition for review on the ground
that the CTA has no jurisdiction to resolve the said matter since the SOJ has exclusive
jurisdiction over all disputes between the government and GOCCs pursuant to Section
66[12] and 67,[13] Chapter 14, Book IV of the Administrative Code of 1987. As a result,
the CTA dismissed the petition. When the SOJ assumed jurisdiction over the petition for
arbitration filed by the respondent, the CIR, completely changed its stand and claimed
that the SOJ has no jurisdiction over the case.

This turnaround by the CIR cannot be countenanced. The CIR cannot invoke
jurisdiction of the SOJ and then completely reject the same. "A party cannot invoke
jurisdiction at one time and reject it at another time in the same controversy to suit its
interests and convenience."[14] Jurisdiction is conferred by law and cannot be made
dependent on the whims and caprices of a party.[15] "Jurisdiction, once acquired,
continues until the case is finally terminated."[16] Thus, the SOJ having acquired
jurisdiction over the dispute between the CIR and the respondent, continues to
exercise the same until the termination of the case.

Nevertheless, the SOJ's jurisdiction over tax disputes between the government and
government-owned and controlled corporations has been finally settled by this Court in
the recent case of Power Sector Assets and Liabilities Management Corporation v.
Commissioner of Internal Revenue,[17] to wit:

The primary issue in this case is whether the DOJ Secretary has jurisdiction
over OSJ Case No. 2007-3 which involves the resolution of whether the sale
of the Pantabangan-Masiway Plant and Magat Plant is subject to VAT.

We agree with the Court of Appeals that jurisdiction over the subject matter
is vested by the Constitution or by law, and not by the parties to an action.
Jurisdiction cannot be conferred by consent or acquiescence of the parties
or by erroneous belief of the court, quasi-judicial office or government
agency that it exists.

However, contrary to the ruling of the Court of Appeals, we find that the
DOJ is vested by law with jurisdiction over this case. This case involves a
dispute between PSALM and NPC, which are both wholly government owned
corporations, and the BIR, a government office, over the imposition of VAT
on the sale of the two power plants. There is no question that original
jurisdiction is with the CIR, who issues the preliminary and the final tax
assessments. However, if the government entity disputes the tax
assessment, the dispute is already between the BIR (represented by the
CIR) and another government entity, in this case, the petitioner PSALM.

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Under Presidential Decree No. 242 (PD 242), all disputes and claims
solely between government agencies and offices, including
government-owned or controlled corporations, shall be
administratively settled or adjudicated by the Secretary of Justice,
the Solicitor General, or the Government Corporate Counsel,
depending on the issues and government agencies involved. As
regards cases involving only questions of law, it is the Secretary of Justice
who has jurisdiction. Sections 1, 2, and 3 of PD 242 read:

Section 1. Provisions of law to the contrary

notwithstanding, all disputes, claims and controversies
solely between or among the departments, bureaus,
offices, agencies and instrumentalities of the National
Government, including constitutional offices or agencies,
arising from the interpretation and application of
statutes, contracts or agreements, shall henceforth be
administratively settled or adjudicated as provided
hereinafter: Provided, That, this shall not apply to cases
already pending in court at the time of the effectivity of this
decree.

Section 2. In all cases involving only questions of law, the

same shall be submitted to and settled or adjudicated by
the Secretary of Justice, as Attorney General and ex officio
adviser of all government owned or controlled corporations and
entities, in consonance with Section 83 of the Revised
Administrative Code. His ruling or determination of the
question in each case shall be conclusive and binding
upon all the parties concerned.

Section 3. Cases involving mixed questions of law and of fact or

only factual issues shall be submitted to and settled or
adjudicated by:

(a) The Solicitor General, with respect to disputes or

claims [or] controversies between or among the
departments, bureaus, offices and other agencies of
the National Government;
(b) The Government Corporate Counsel, with respect
to disputes or claims or controversies between or
among the government-owned or controlled
corporations or entities being served by the Office of
the Government Corporate Counsel; and

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(c) The Secretary of Justice, with respect to all other

disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a)
and (b). x x x

The use of the word "shall" in a statute connotes a mandatory order or an

imperative obligation. Its use rendered the provisions mandatory and not
merely permissive, and unless PD 242 is declared unconstitutional, its
provisions must be followed. The use of the word "shall” means that
administrative settlement or adjudication of disputes and claims between
government agencies and offices, including government-owned or controlled
corporations, is not merely permissive but mandatory and imperative. Thus,
under PD 242, it is mandatory that disputes and claims "solely" between
government agencies and offices, including government-owned or controlled
corporations, involving only questions of law, be submitted to and settled or
adjudicated by the Secretary of Justice.

The law is clear and covers "all disputes, claims and controversies
solely between or among the departments, bureaus, offices,
agencies and instrumentalities of the National Government,
including constitutional offices or agencies arising from the
interpretation and application of statutes, contracts or
agreements." When the law says "all disputes, claims and controversies
solely" among government agencies, the law means all, without exception.
Only those cases already pending in court at the time of the effectivity of
PD 242 are not covered by the law.

The purpose of PD 242 is to provide for a speedy and efficient

administrative settlement or adjudication of disputes between
government offices or agencies under the Executive branch, as well
as to filter cases to lessen the clogged dockets of the courts. As
explained by the Court in Philippine Veterans Investment Development
Corp. (PHIVIDEC) v. Judge Velez:

Contrary to the opinion of the lower court, P.D. No. 242 is not
unconstitutional. It does not diminish the jurisdiction of [the]
courts but only prescribes an administrative procedure for the
settlement of certain types of disputes between or among
departments, bureaus, offices, agencies, and instrumentalities of
the National Government, including government-owned or
controlled corporations, so that they need not always repair to
the courts for the settlement of controversies arising from the
interpretation and application of statutes, contracts or

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agreements. The procedure is not much different, and no less

desirable, than the arbitration procedures provided in Republic
Act No. 876 (Arbitration Law) and in Section 26, R.A. 6715 (The
Labor Code). It is an alternative to, or a substitute for,
traditional litigation in court with the added advantage of
avoiding the delays, vexations and expense of court
proceedings. Or, as P.D. No. 242 itself explains, its purpose is
"the elimination of needless clogging of court dockets to prevent
the waste of time and energies not only of the government
lawyers but also of the courts, and eliminates expenses incurred
in the filing and prosecution of judicial actions."

PD 242 is only applicable to disputes, claims, and controversies

solely between or among the departments, bureaus, offices,
agencies and instrumentalities of the National Government,
including government-owned or controlled corporations, and
where no private party is involved. In other words, PD 242
will only apply when all the parties involved are purely
government offices and government-owned or controlled
corporations.

x x x.[18] (Emphasis in the original)

P.D. No. 242[19] is now embodied in Chapter 14, Book IV of Executive Order (E.O.) No.
292, otherwise known as the Administrative Code of 1987. The pertinent provisions of
which provides:

SEC. 66. How Settled. - All disputes, claims and controversies, solely
between or among the departments, bureaus, offices, agencies and
instrumentalities of the National Government, including
government-owned or controlled corporations, such as those
arising from the interpretation and application of statutes, contracts
or agreements, shall be administratively settled or adjudicated in
the manner provided in this Chapter. This Chapter shall, however, not
apply to disputes involving the Congress, the Supreme Court, the
Constitutional Commissions, and local governments.

SEC. 67. Disputes Involving Questions of Law. - All cases involving only
questions of law shall be submitted to and settled or adjudicated by
the Secretary of Justice as Attorney-General of the National Government
and as ex officio legal adviser of all government-owned or controlled
corporations. His ruling or decision thereon shall be conclusive and binding
on all the parties concerned. (Emphasis ours)

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SEC. 68. Disputes Involving Questions of Fact and Law. - Cases involving
mixed questions of law and of fact or only factual issues shall be submitted
to and settled or adjudicated by:

(1) The Solicitor General, if the dispute, claim or controversy

involves only departments, bureaus, offices and other agencies
of the National Government as well as government-owned or
controlled corporations or entities of whom he is the principal
law officer or general counsel; and

(2) The Secretary of Justice, in all other cases not falling under
paragraph (1). (Emphasis ours)

Since this case is a dispute between the CIR and respondent, a local water district,
which is a GOCC pursuant to P.D. No. 198,[20] also known as the Provincial Water
Utilities Act of 1973, clearly, the SOJ has jurisdiction to decide over the case.

The petition should be dismissed

for failure of the CIR to exhaust
administrative remedies

In the case of Power Sector Assets and Liabilities Management Corporation,[21] this
Court held that:

Furthermore, under the doctrine of exhaustion of administrative

remedies, it is mandated that where a remedy before an
administrative body is provided by statute, relief must be sought by
exhausting this remedy prior to bringing an action in court in order
to give the administrative body every opportunity to decide a
matter that comes within its jurisdiction. A litigant cannot go to court
without first pursuing his administrative remedies; otherwise, his action is
premature and his case is not ripe for judicial determination. PD 242 (now
Chapter 14, Book IV of Executive Order No. 292), provides for such
administrative remedy. Thus, only after the President has decided the
dispute between government offices and agencies can the losing party
resort to the courts, if it so desires. Otherwise, a resort to the courts would
be premature for failure to exhaust administrative remedies. Non-
observance of the doctrine of exhaustion of administrative remedies would
result in lack of cause of action, which is one of the grounds for the
dismissal of a complaint.[22] (Citations omitted and emphasis in the
original)

Under Section 70,[23] Chapter 14, Book IV of the Administrative Code of 1987, it is

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provided that where the amount of the claim exceeds, one million pesos, the decision
of the SOJ should be appealed to the Office of the President (OP). Here, the value
subject of the case is P70,660,389.00. As such, the CIR should have first appealed the
decision of the SOJ to the OP rather than to file a Petition for Certiorari to the CA.

In the case of Samar II Electric Cooperative Inc. (SAMELCO), et al. v. Seludo, Jr.,[24]
this Court discussed the importance of exhausting administrative remedies, thus:

The Court, in a long line of cases, has held that before a party is allowed to
seek the intervention of the courts, it is a pre-condition that he avail himself
of all administrative processes afforded him. Hence, if a remedy within the
administrative machinery can be resorted to by giving the administrative
officer every opportunity to decide on a matter that comes within his
jurisdiction, then such remedy must be exhausted first before the court's
power of judicial review can be sought. The premature resort to the court is
fatal to one's cause of action. Accordingly, absent any finding of waiver or
estoppel, the case may be dismissed for lack of cause of action.[25]
(Citations omitted)

Also, the petition for certiorari filed by the CIR before the CA is dismissible on the
ground that the same is not a plain, speedy, and adequate remedy granted to the CIR.

It is well settled that a petition for certiorari can be availed of when a tribunal, board or
officer exercising judicial or quasi-judicial functions has acted without or in excess its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law.[26] As such, the same "may be resorted to only in the absence
of appeal or any plain, speedy and adequate remedy in the ordinary course of law."[27]

In the present case, there is a plain, speedy and adequate remedy in the ordinary
course of law which is available to the CIR, which is an appeal to the OP. The CIR,
however, failed to avail the same through its own fault.

WHEREFORE, the petition is DENIED. The Decision dated January 23, 2013 and
Resolution dated August 29, 2013 of the Court of Appeals in CA-G.R. SP No. 117577
are hereby AFFIRMED.

SO ORDERED.

Leonardo-De Castro,[*] Peralta,[**] Del Castillo, and Gesmundo,[***] JJ., concur.

[*] Designated as Acting Chairperson per Special Order No. 2559 dated May 11, 2018.

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[**] Designated as Additional Member per Raffle dated April 10, 2017 vice Associate

Justice Francis H. Jardeleza.

[***] Designated as Acting Member per Special Order No. 2560 dated May 11, 2018.

[1] Rollo, pp. 10-32.

[2] Penned by Associate Justice Eduardo B. Peralta, Jr, concurred in by Associate

Justices Vicente S.E. Veloso and Jane Aurora C. Lantion; id. at 35-47.

[3] Id. at 48-49.

[4] Id. at 36.

[5] Id.

[6] Id. at 36-37.

[7] Id. at 84-94.

[8] Id. at 93.

[9] Id. at 37.

[10] Id. at 35-47.

[11] Id. at 48-49.

[12] SEC. 66. How Settled. — All disputes, claims and controversies, solely between or

among the departments, bureaus, offices, agencies and instrumentalities of the

National Government, including government-owned or controlled corporations, such as
those arising from the interpretation and application of statutes, contracts or
agreements, shall be administratively settled or adjudicated in the manner provided in
this Chapter. This Chapter shall, however, not apply to disputes involving the Congress,
the Supreme Court, the Constitutional Commissions, and local governments.

[13] SEC. 67. Disputes Involving Questions of Law. — All cases involving only

questions of law shall be submitted to and settled or adjudicated by the Secretary of

Justice as Attorney-General of the National Government and as ex officio legal adviser
of all government-owned or controlled corporations. His ruling or decision thereon shall
be conclusive and binding on all the parties concerned.

[14] Saulog Transit, Inc. v. Hon. Lazaro, etc., 213 Phil. 529, 539 (1984).

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[15] See Georg Grotjahn GMBH and Co. v. Judge Isnani, 305 Phil. 231 (1994).

[16] Ando v. Campo, et al., 658 Phil. 636, 645 (2011).

[17] G.R. No. 198146, August 8, 2017.

[18] Id.

[19] PRESCRIBING THE PROCEDURE FOR ADMINISTRATIVE SETTLEMENT OR

ADJUDICATION OF DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN OR AMONG
GOVERNMENT OFFICES, AGENCIES AND INSTRUMENTALITIES, INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS, AND FOR OTHER PURPOSES.

[20] DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION AND CONTROL OF

WATER SYSTEMS; AUTHORIZING THE FORMATION OF LOCAL WATER DISTRICTS AND

PROVIDING FOR THE GOVERNMENT AND ADMINISTRATION OF SUCH DISTRICTS;
CHARTERING A NATIONAL ADMINISTRATION TO FACILITATE IMPROVEMENT OF LOCAL
WATER UTILITIES; GRANTING SAID ADMINISTRATION SUCH POWERS AS ARE
NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER UTILITY OPERATIONS, AND
FOR OTHER PURPOSES.

[21] Supra note 17.

[22] Id.

[23] Sec. 70. Appeals. - The decision of the Secretary of Justice as well as that of the

Solicitor General, when approved by the Secretary of Justice, shall be final and binding
upon the parties involved. Appeals may, however, be taken to the President where the
amount of the claim or the value of the property exceeds one million pesos. The
decision of the President shall be final.

[24] 686 Phil. 786 (2012).

[25] Id. at 796.

[26] Section 1 of Rule 65 of the Rules of Court

Sec. 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial
or quasi-judicial functions has acted without or in excess its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the

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proceedings of such tribunal, board or officer, and granting such incidental reliefs as
law and justice may require.

[27] Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC, et al., 716 Phil. 500, 512

(2013).

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