"

CASE DIGESTS
TAXATION 1
ATTY. DY

REAL PROPERTY TAXATION

CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL
BOARD OF ASSESSMENT APPEALS and CITY
ASSESSOR OF PASAY, respondents.
G.R. No. L-50466
May 31, 1982

FACTS:

The machines and equipment consists of underground tanks,
elevated tank, elevated water tanks, water tanks, gasoline
pumps, computing pumps, water pumps, car washer, car
hoists, truck hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery

The said machines and equipment are loaned by Caltex to
gas station operators under an appropriate lease agreement
or receipt.

The lessor of the land, where the gas station is located, does
not become the owner of the machines and equipment
installed therein. Caltex retains the ownership thereof during
the term of the lease.

The city assessor of Pasay City characterized the said items
of gas station equipment and machinery as taxable realty.

The city board of tax appeals ruled that they are personalty.
The assessor appealed to the Central Board of Assessment
Appeals.

BOARD: said machines and equipment are real property
within the meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree No. 464, which took
effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of
the Civil Code are not applicable to this case.

ISSUE: whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax

RULING: TAXABLE AS REALTY

Improvements is a valuable addition made to property or
an amelioration in its condition, amounting to more than
mere repairs or replacement of waste, costing labor or
capital and intended to enhance its value, beauty or utility or
to adapt it for new or further purposes.
Machinery shall embrace machines, mechanical
contrivances, instruments, appliances and apparatus
attached to the real estate. It includes the physical facilities
available for production, as well as the installations and
appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing,
industrial or agricultural purposes

REASON: For without them the gas station would be useless,
and which have been attached or affixed permanently to the
gas station site or embedded therein.

Improvements on land are commonly taxed as realty even
though for some purposes they might be considered
personalty

DISTINGUISHABLE:
1. Board of Assessment Appeals vs. Manila Electric
Co - Meralco's steel towers were considered poles
within the meaning of paragraph 9 of its franchise
which exempts its poles from taxation. The steel
towers were considered personalty because they
were attached to square metal frames by means
of bolts and could be moved from place to place
when unscrewed and dismantled.
2. Mindanao Bus Co. vs. City Assessor - Nor are
Caltex's gas station equipment and machinery the
same as tools and equipment in the repair shop of
a bus company which were held to be personal
property not subject to realty tax

LUNG CENTER OF THE PHILIPPINES, petitioner, vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City, respondents.
G.R. No. 144104
June 29, 2004
FACTS:
Lung Center of the Philippines is a non-stock and non-profit
entity established on January 16, 1981 by virtue of
Presidential Decree No. 1823. It is the registered owner of a
parcel of land. Located at Quezon Avenue corner Elliptical
Road, Central District, Quezon City.
Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines.
A big space at the ground floor is being leased to private
parties, for canteen and small store spaces, and to medical
or professional practitioners who use the same as their
private clinics for their patients whom they charge for their
professional services.
Almost one-half of the entire area on the left side of the
building along Quezon Avenue is vacant and idle, while a big
portion on the right side, at the corner of Quezon Avenue
and Elliptical Road, is being leased for commercial purposes
to a private enterprise known as the Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying
and non-paying. Aside from its income from paying
patients, the petitioner receives annual subsidies from the
government.
Both the land and the hospital building of the petitioner were
assessed for real property taxes.
Petitioner filed a Claim for Exemption, claim that it is a
charitable institution.
Petitioners request was denied, and a petition was,
thereafter, filed before the Local Board of Assessment
Appeals of Quezon City
PETITIONERS CONTENTION: Under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt
#
from real property taxes. It averred that a minimum of 60%
of its hospital beds are exclusively used for charity patients
and that the major thrust of its hospital operation is to serve
charity patients.
LBAA: Liable

CBAA: Affirmed LBAA
- Petitioner was not a charitable institution and that
its real properties were not actually, directly and
exclusively used for charitable purposes

CA: Affirmed CBAA

PETITIONERS CONTENTION:
- It asserts that its character as a charitable
institution is not altered by the fact that it admits
paying patients and renders medical services to
them, leases portions of the land to private
parties, and rents out portions of the hospital to
private medical practitioners from which it derives
income to be used for operational expenses.
- Years 1995 to 1999, 100% of its out-patients were
charity patients and of the hospitals 282-bed
capacity, 60% thereof, or 170 beds, is allotted to
charity patients. It asserts that the fact that it
receives subsidies from the government attests to
its character as a charitable institution.
- It contends that the exclusivity required in the
Constitution does not necessarily mean solely.
- Even if P.D. No. 1823 does not exempt it from the
payment of real estate taxes, it is not precluded
from seeking tax exemption under the 1987
Constitution.

RESPODENTS CONTENTION: because it failed to prove that
it is a charitable institution and that the said property is
actually, directly and exclusively used for charitable
purposes.
- the proprietress of the Elliptical Orchids and
Garden Center, for entering into a lease contract
over 7,663.13 square meters of the property in
1990 for only P20,000 a month, when the monthly
rental should be P357,000 a month as determined
by the Commission on Audit;
- and that instead of complying with the directive of
the COA for the cancellation of the contract for
being grossly prejudicial to the government, the
petitioner renewed the same on March 13, 1995
for a monthly rental of only P24,000.
- petitioner failed to adduce substantial evidence
that 100% of its out-patients and 170 beds in the
hospital are reserved for indigent patients.
- That even if a patient is living below the poverty
line, he is charged with high hospital bills. And,
without these bills being first settled, the poor
patient cannot be allowed to leave the hospital or
be discharged without first paying the hospital bills
or issue a promissory note guaranteed and
indorsed by an influential agency or person known
only to the Center; that even the remains of
deceased poor patients suffered the same fate.

ISSUES:
(a) whether the petitioner is a charitable institution within
the context of Presidential Decree No. 1823 and the 1973
and 1987 Constitutions and Section 234(b) of Republic Act
No. 7160; and
(b) whether the real properties of the petitioner are exempt
from real property taxes.
RULING: PARTIALLY GRANTED
1
ST
: IT IS A CHARITABLE INSTITUTION
ELEMENTS:
1. the statute creating the enterprise
2. its corporate purposes
3. its constitution and by-laws
4. the methods of administration
5. the nature of the actual work performed
6. the character of the services rendered
7. the indefiniteness of the beneficiaries and
8. the use and occupation of the properties.
The word charitable is not restricted to relief of the poor or
sick.
The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law
as charitable or whether it is maintained for gain, profit, or
private advantage.
PD 1823: It was organized for the welfare and benefit of the
Filipino people principally to help combat the high incidence
of lung and pulmonary diseases in the Philippines.
The medical services of the petitioner are to be rendered to
the public in general in any and all walks of life including
those who are poor and the needy without
discrimination. After all, any person, the rich as well as the
poor, may fall sick or be injured or wounded and become a
subject of charity
As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies
from the government, so long as the money received is
devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.

Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation is in
the form of subsidies granted by the government.

2
ND
: Those portions of its real property that are
leased to private entities are not exempt from real
property taxes as these are not actually, directly and
exclusively used for charitable purposes.

RULE: Laws granting exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor of
the taxing power.
- Taxation is the rule and exemption is the
exception.
- The effect of an exemption is equivalent to an
appropriation.
- Hence, a claim for exemption from tax payments
must be clearly shown and based on language in
the law too plain to be mistaken.

It is plain as day that under the decree, the petitioner does
not enjoy any property tax exemption privileges for its real
$
properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been
among the enumeration of tax exempt privileges under
Section 2

The rule of expressio unius est exclusio alterius is formulated
in a number of ways. One variation of the rule is principle
that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a
statute, by its terms, is expressly limited to certain matters,
it may not, by interpretation or construction, be extended to
other matters.

The exemption must not be so enlarged by construction
since the reasonable presumption is that the State has
granted in express terms all it intended to grant at all, and
that unless the privilege is limited to the very terms of the
statute the favor would be intended beyond what was
meant.

SEC 28 (3), Art 6, 1987 Constitution: The tax exemption
under this constitutional provision covers property taxes
only.

REQUISITES:
(a) it is a charitable institution; and
(b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes.

Exclusive is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or
enjoyment; and exclusively is defined,
in a manner to exclude; as enjoying a privilege
exclusively.

If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted
purposes but is subject to taxation.

The words dominant use or principal use cannot be
substituted for the words used exclusively without doing
violence to the Constitutions and the law.

Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes
for which the charitable institution is organized. It is not the
use of the income from the real property that is
determinative of whether the property is used for tax-
exempt purposes

While portions of the hospital are used for the treatment of
patients and the dispensation of medical services to them,
whether paying or non-paying, other portions thereof are
being leased to private individuals for their clinics and a
canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the
business name Elliptical Orchids and Garden Center.

SC: Portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are
not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of
the hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.

MANILA INTERNATIONAL AIRPORT AUTHORITY,
petitioner, vs. COURT OF APPEALS, CITY OF
PARAAQUE, et al, respondents
G.R. No. 155650
July 20, 2006

FACTS:

Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Complex in Paraaque City under Executive Order No. 903

As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA
Complex.

The MIAA Charter transferred to MIAA approximately 600
hectares of land,

including the runways and then under the
Bureau of Air Transportation.


The MIAA Charter further provides that no portion of the
land transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the President
of the Philippines.

Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061
- Opined that the Local Government Code of 1991
withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with respondent
City of Paraaque to pay the real estate tax
imposed by the City. MIAA then paid some of the
real estate tax already due.

City of Paraaque, through its City Treasurer, issued notices
of levy and warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Paraaque threatened to
sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency
- Section 206 of the Local Government Code
requires persons exempt from real estate tax to
show proof of exemption

MIAA filed with the Court of Appeals an original petition for
prohibition and injunction

The Court of Appeals dismissed the petition because MIAA
filed it beyond the 60-day reglementary period.

A day before the public auction, or on 6 February 2003, at
5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte
and Reiteratory Motion for the Issuance of a Temporary
Restraining Order.

This Court issued a temporary restraining order (TRO)
effective immediately. The Court ordered respondents to
cease and desist from selling at public auction the Airport
Lands and Buildings. Respondents received the TRO on the
same day that the Court issued it.

However, respondents received the TRO only at 1:25 p.m. or
three hours after the conclusion of the public auction.

This Court issued a Resolution confirming nunc pro tunc the
TRO

PETITIONERS CONTENTION:
%
- MIAA points out that it cannot claim ownership
over these properties since the real owner of the
Airport Lands and Buildings is the Republic of the
Philippines.
- Since the Airport Lands and Buildings are devoted
to public use and public service, the ownership of
these properties remains with the State.
- The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax
by local governments.

RESPONDENTS CONTENTION:
- invoke Section 193 of the Local Government Code,
which expressly withdrew the tax exemption
privileges of "government-owned and-
controlled corporations" upon the effectivity of
the Local Government Code. Respondents also
argue that a basic rule of statutory construction is
that the express mention of one person, thing, or
act excludes all others.
- An international airport is not among the
exceptions mentioned in Section 193 of the Local
Government Code.
- In Mactan International Airport v. Marcos
8

where we held that the Local Government Code
has withdrawn the exemption from real estate tax
granted to international airports. Respondents
further argue that since MIAA has already paid
some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and
Buildings are exempt from real estate tax.

ISSUES:
(a) whether the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing
laws.
(b) If so exempt, then the real estate tax
assessments issued by the City of Paraaque, and
all proceedings taken pursuant to such
assessments, are void

RULING: TAX EXEMPT

First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local taxation.

Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent
of its capital stock

A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA
is not organized as a stock or non-stock corporation. MIAA is
not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting
shares

Clearly, under its Charter, MIAA does not have capital stock
that is divided into shares.

A stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock
corporation.

non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even
if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock
corporation.

MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested
with corporate powers

When the law makes a government instrumentality
operationally autonomous, the instrumentality remains
part of the National Government machinery although not
integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a
"separate and autonomous body"

will make its operation
more "financially viable."

Many government instrumentalities are vested with
corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan
International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng
Pilipinas.

BASIS: SEC 133 (o), LGC

Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments
may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."

When local governments invoke the power to tax on national
government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is
never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to
tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national
government instrumentality from local taxation, such
exemption is construed liberally in favor of the national
government instrumentality.

This doctrine emanates from the "supremacy" of the
National Government over local governments.

no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them."

&
Cannot be allowed to defeat an instrumentality or creation of
the very entity which has the inherent power to wield it.

Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real
estate tax.

a. Airport Lands and Buildings are of Public
Dominion

The Airport Lands and Buildings of MIAA are property of
public dominion and therefore owned by the State or
the Republic of the Philippines. (Civil Code)

The MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the
Philippines.

The Airport Lands and Buildings are devoted to public use
because they are used by the public for international
and domestic travel and transportation. The fact that
the MIAA collects terminal fees and other charges from the
public does not remove the character of the Airport Lands
and Buildings as properties for public use.

The charging of fees to the public does not determine the
character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public
dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of
fees, the limitation on the kind of vehicles that can use the
road, the speed restrictions and other conditions for the use
of the road do not affect the public character of the road.

As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the
Commerce of Man

The Civil Code, article 1271, prescribes that everything which
is not outside the commerce of man may be the object of a
contract, and plazas and streets are outside of this
commerce, as was decided by the supreme court of Spain
in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they
are by their very nature outside of commerce are
those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc."

They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private
parties.

The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject
of an auction sale

Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being
contrary to public policy.

Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and
are inalienable.

Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private
Domain of the Government. (1) The President shall have
the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by
law or proclamation

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and
Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real
properties owned by the Republic,

d. Transfer to MIAA was Meant to Implement a
Reorganization

The transfer of the Airport Lands and Buildings from the
Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a
separate and autonomous body. The Republic remains
the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims
any ownership rights over MIAA's assets adverse to the
Republic.

e. Real Property Owned by the Republic is Not
Taxable

The real properties owned by the Republic are titled either in
the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The
Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be
exempt from real estate tax.

It is evident from the quoted provisions of the Local
Government Code that the withdrawn exemptions from
realty tax cover not just GOCCs, but all persons. To repeat,
the provisions lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all persons.
The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of
persons recognized under our laws, natural and juridical
persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but
whether MIAA is a juridical person at all

As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only
if the Local Government Code expressly so provides.
'

The minority assumes that there is an irreconcilable conflict
between Section 133 on one hand, and Sections 193 and
234 on the other. No one has urged that there is such a
conflict, much less has any one presenteda persuasive
argument that there is such a conflict. The minority's
assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133
and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section
193 states "[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of other
provisions of the Local Government Code that limit the
exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on
certain matters, there is no conflict between the grant of
power and the withholding of power. The grantee of the
power simply cannot exercise the power on matters withheld
from its power.
Second, Section 133 is entitled "Common Limitations on the
Taxing Powers of Local Government Units." Section 133
limits the grant to local governments of the power to tax,
and not merely the exercise of a delegated power to tax.
Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of tax
on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing
power than this.

The Constitution expressly authorizes the legislature to
create "government-owned or controlled corporations"
through special charters only if these entities are required to
meet the twin conditions of common good and economic
viability. In other words, Congress has no power to create
government-owned or controlled corporations with special
charters unless they are made to comply with the two
conditions of common good and economic viability. The test
of economic viability applies only to government-owned or
controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common
good meaning for economic development purposes
these government-owned or controlled corporations with
special charters are usually organized as stock corporations
just like ordinary private corporations.
In contrast, government instrumentalities vested with
corporate powers and performing governmental or public
functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the
common good, services that every modern State must
provide its citizens. These instrumentalities need not be
economically viable since the government may even
subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers
provided these instrumentalities perform essential
government functions or public services. However, when the
legislature creates through special charters corporations that
perform economic or commercial activities, such entities
known as "government-owned or controlled corporations"
must meet the test of economic viability because they
compete in the market place.
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and
performing essential public services. The State is obligated
to render essential public services regardless of the
economic viability of providing such service. The non-
economic viability of rendering such essential public service
does not excuse the State from withholding such essential
services from the public.

The MIAA need not meet the test of economic viability
because the legislature did not create MIAA to compete in
the market place. MIAA does not compete in the market
place because there is no competing international airport
operated by the private sector. MIAA performs an essential
public service as the primary domestic and international
airport of the Philippines.

PETITION GRANTED.

CITY ASSESSOR OF CEBU CITY, petitioner vs.
ASSOCIATION OF BENEVOLA DE CEBU INC, respondent
G.R. No. 152904
June 8, 2007

FACTS:

Respondent Association of Benevola de Cebu, Inc. is a non-
stock, non-profit organization organized under the laws of
the Republic of the Philippines and is the owner of Chong
Hua Hospital (CHH) in Cebu City.

Respondent constructed the CHH Medical Arts Center
(CHHMAC). Thereafter, an April 17, 1998 Certificate of
Occupancy was issued to the center with a classification of
Commercial Clinic.

Petitioner City Assessor of Cebu City assessed the CHHMAC
building as commercial

Respondent filed its September 15, 1998 letter-petition with
the Cebu City LBAA for reconsideration asserting that
CHHMAC is part of CHH and ought to be imposed the same
special assessment level of 10% with that of CHH

LBAA directed petitioner to conduct an ocular inspection of
the subject property and to submit a report on the scheduled
date of hearing.

PETITIONERS CONTENTION:
- CHHMAC is a newly constructed five-storey
building situated about 100 meters away from
CHH and, based on actual inspection, was
ascertained that it is not a part of the CHH
building but a separate building which is actually
used as commercial clinic/room spaces for renting
out to physicians and, thus, classified as
commercial.
- medical specialists in CHHMAC charge consultation
fees for patients who consult for diagnosis and
relief of bodily ailment together with the ancillary
(or support) services which include the areas of
anesthesia, radiology, pathology, and more.
(

RESPONDENTS CONTENTION:
- CHHMAC building is actually, directly, and
exclusively part of CHH and should have a special
assessment level of 10% as provided under City
Tax Ordinance LXX
- similarly situated as the buildings of CHH, housing
its Dietary and Records Departments, are
completely separate from the main CHH building
- nonetheless incidental and reasonably necessary
to CHHs operations

LBAA: Reversed City Assessor
- respondents Dietary and Records Departments
which are housed in separate buildings were
similarly imposed with CHH the special assessment
level of 10%, ratiocinating in turn that there is no
reason therefore why a higher level would be
imposed for CHHMAC as it is similarly situated with
the Dietary and Records Departments of the CHH.

CBAA: affirming in toto the LBAA Decision
- he fact that the subject building is detached from
the main hospital building is of no consequence as
the exemption in favor of property used
exclusively for charitable or educational purposes
is not only limited to property actually
indispensable to the hospital, but also extends to
facilities which are incidental and reasonably
necessary for the accomplishment of such
purposes.

CA: facilities and utilities of CHHMAC are undoubtedly
necessary and indispensable for the CHH to achieve its
ultimate purpose.
- CHHMAC being an integral part of CHH is not
commercial but special and should be imposed the
10% special assessment, the same as CHH,
instead of the 35% for commercial establishments.

ISSUE: Is a medical arts center built by a hospital to house
its doctors a separate commercial establishment or an
appurtenant to the hospital?

RULING: PETITION IS DEVOID OF MERIT

Compels us to affirm the assailed CA Decision as we find no
reversible error for us to reverse or alter it.

Chong Hua Hospital Medical Arts Center is an integral
part of Chong Hua Hospital

It is undisputed that the doctors and medical specialists
holding clinics in CHHMAC are those duly accredited by CHH,
that is, they are consultants of the hospital and the ones
who can treat CHHs patients confined in it.

The fact that they are holding office in a separate building,
like at CHHMAC, does not take away the essence and nature
of their services vis--vis the over-all operation of the
hospital and the benefits to the hospitals patients. Given
what the law requires, it is clear that CHHMAC is an integral
part of CHH.

Conversely, it would have been different if CHHMAC was also
open for non-accredited physicians, that is, any medical
practitioner, for then respondent would be running a
commercial building for lease only to doctors which would
indeed subject the CHHMAC to the commercial level of 35%
assessment.

COOLEY: The exemption in favor of property used
exclusively for charitable or educational purposes is not
limited to property actually indispensable therefore but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such
as, in the case of hospitals, a school for training nurses, a
nurses home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for
student nurses, interns and residents such as athletic
fields, including a farm used for the inmates of the
institution

The CHHMAC facility is definitely incidental to and
reasonably necessary for the operations of Chong
Hua Hospital

The CHHMAC facility is primarily used by the hospitals
accredited physicians to perform medical check-up,
diagnosis, treatment, and care of patients. For another, it
also serves as a specialized outpatient department of the
hospital.

Charging rentals for the offices used by its accredited
physicians cannot be equated to a commercial
venture

- First, CHHMAC is only for its consultants or
accredited doctors and medical specialists.
- Second, the charging of rentals is a practical
necessity: (1) to recoup the investment cost of
the building, (2) to cover the rentals for the lot
CHHMAC is built on, and (3) to maintain the
CHHMAC building and its facilities.
- Third, as correctly pointed out by respondent, it
pays the proper taxes for its rental income.
- And, fourth, if there is indeed any net income from
the lease income of CHHMAC, such does not inure
to any private or individual person as it will be
used for respondents other charitable projects.

SC: The 10% special assessment should be imposed for the
CHHMAC building which should be classified as special.

TARIFF AND CUSTOMS LAW

HON. EXECUTIVE SECRETARY, et al, petitioners vs.
SOUTHWING HEAVY INDUSTRIES, et al, respondents

HON. EXECUTIVE SECRETARY, et al, petitioners vs.
SUBIC INTEGRATED MACRO VENTURES CORP,
respondents

HON. EXECUTIVE SECRETARY, et al, petitioners vs.
MOTOR VEHICLE IMPORTERS ASSOCIATION OF
SUBIC BAY FREEPORT, INC., respondents

February 20, 2006

FACTS:

President Gloria Macapagal-Arroyo, through Executive
Secretary Alberto G. Romulo, issued EO 156, entitled
"Providing for a comprehensive industrial policy and
)
directions for the motor vehicle development program and
its implementing guidelines."

3.1 The importation into the country, inclusive of the
Freeport, of all types of used motor vehicles is
prohibited, except for the following

The issuance of EO 156 spawned three separate actions for
declaratory relief

The cases were filed by herein respondent entities, who or
whose members, are classified as Subic Bay Freeport
Enterprises and engaged in the business of, among others,
importing and/or trading used motor vehicles.

RTC:
1. On May 24, 2004, a summary judgment was
rendered declaring that Article 2, Section 3.1 of EO
156 constitutes an unlawful usurpation of
legislative power vested by the Constitution with
Congress. The trial court further held that the
proviso is contrary to the mandate of Republic Act
No. 7227 (RA 7227) or the Bases Conversion and
Development Act of 1992 which allows the free
flow of goods and capital within the Freeport.
2. Holding that Article 2, Section 3.1 of EO 156, is
repugnant to the constitution
3. Executive Order 156 [Article 2, Section] 3.1 for
being unconstitutional and illegal; directing
respondents Collector of Customs based at SBMA
to allow the importation and entry of used motor
vehicles pursuant to the mandate of RA 7227;
directing respondent Chief of the Land
Transportation Office and its subordinates inside
the Subic Special Economic Zone or SBMA to
process the registration of imported used motor
vehicles; directing the respondent Chairman of the
SBMA to allow the entry

Petitioners are now before this Court contending that Article
2, Section 3.1 of EO 156 is valid and applicable to the entire
country, including the Freeeport

ISSUES:

(a) whether there is statutory basis for the issuance of EO
156; and
(b) if the answer is in the affirmative, whether the
application of Article 2, Section 3.1 of EO 156, reasonable
and within the scope provided by law.

RULING:

Police power is inherent in a government to enact laws,
within constitutional limits, to promote the order, safety,
health, morals, and general welfare of society. It is lodged
primarily with the legislature. By virtue of a valid delegation
of legislative power, it may also be exercised by the
President and administrative boards, as well as the
lawmaking bodies on all municipal levels, including the
barangay.
16
Such delegation confers upon the President
quasi-legislative power which may be defined as the
authority delegated by the law-making body to the
administrative body to adopt rules and regulations intended
to carry out the provisions of the law and implement
legislative policy.
The Freeport was designed to ensure free flow or movement
of goods and capital within a portion of the Philippine
territory in order to attract investors to invest their capital in
a business climate with the least governmental intervention.

GUINGONA: This delineates the activities that would have
the least of government intervention, and the running of the
affairs of the special economic zone would be run principally
by the investors themselves, similar to a housing subdivision,
where the subdivision owners elect their representatives to
run the affairs of the subdivision, to set the policies, to set
the guidelines.
We would like to see Subic area converted into a little Hong
Kong, Mr. President, where there is a hub of free port and
free entry, free duties and activities to a maximum spur
generation of investment and jobs.
ENRILE: My understanding of a "free port" is, we are in
effect carving out a part of our territory and make it as if it
were foreign territory for purposes of our customs laws, and
that people can come, bring their goods, store them there
and bring them out again, as long as they do not come into
the domestic commerce of the Republic.
SC: The minimum interference policy of the government on
the Freeport extends to the kind of business that investors
may embark on and the articles which they may import or
export into and out of the zone. A contrary interpretation
would defeat the very purpose of the Freeport and drive
away investors.
It does not mean, however, that the right of Freeport
enterprises to import all types of goods and article is
absolute. Such right is of course subject to the limitation that
articles absolutely prohibited by law cannot be imported into
the Freeport.


Nevertheless, in determining whether the prohibition would
apply to the Freeport, resort to the purpose of the
prohibition is necessary.

To address the same, the President issued the questioned
EO to prevent further erosion of the already depressed
market base of the local motor vehicle industry and to curtail
the harmful effects of the increase in the importation of used
motor vehicles


To be valid, an administrative issuance, such as an
executive order, must comply with the following
requisites:
(1) Its promulgation must be authorized by the
legislature;

Section 28(2) of Article VI of the Constitution. It
provides:
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.
*

Sec. 401. Flexible Clause.
a. In the interest of national economy,
general welfare and/or national
security, and subject to the limitations
herein prescribed, the President, upon
recommendation of the National
Economic and Development Authority
(hereinafter referred to as NEDA), is
hereby empowered: x x x (2) to
establish import quota or to ban
imports of any commodity, as may be
necessary

(2) It must be promulgated in accordance with the
prescribed procedure;

As in the enactment of laws, the general rule is
that, the promulgation of administrative issuances
requires previous notice and hearing, the only
exception being where the legislature itself
requires it and mandates that the regulation shall
be based on certain facts as determined at an
appropriate investigation

This exception pertains to the issuance of
legislative rules as distinguished from
interpretative rules which give no real
consequence more than what the law itself has
already prescribed;

and are designed merely to
provide guidelines to the law which the
administrative agency is in charge of enforcing.

A
legislative rule, on the other hand, is in the
nature of subordinate legislation, crafted to
implement a primary legislation.

In the instant case, EO 156 is obviously a
legislative rule as it seeks to implement or
execute primary legislative enactments intended
to protect the domestic industry by imposing a
ban on the importation of a specified product not
previously subject to such prohibition. The due
process requirements in the issuance thereof are
embodied in Section 401

of the Tariff and
Customs Code and Sections 5 and 9 of the SMA

which essentially mandate the conduct of
investigation and public hearings before the
regulatory measure or importation ban may be
issued.

(3) It must be within the scope of the authority
given by the legislature; and

We hold that the importation ban runs afoul the
third requisite for a valid administrative order.
To be valid, an administrative issuance must not
be ultra vires or beyond the limits of the authority
conferred. It must not supplant or modify the
Constitution, its enabling statute and other
existing laws, for such is the sole function of the
legislature which the other branches of the
government cannot usurp

In the instant case, the subject matter of the laws
authorizing the President to regulate or forbid
importation of used motor vehicles, is the
domestic industry. EO 156, however, exceeded
the scope of its application by extending the
prohibition on the importation of used cars to the
Freeport, which RA 7227, considers to some
extent, a foreign territory. The domestic
industry which the EO seeks to protect is
actually the "customs territory" which is
defined under the Rules and Regulations
Implementing RA 7227, as follows:
"the portion of the Philippines outside the
Subic Bay Freeport where the Tariff and
Customs Code of the Philippines and other
national tariff and customs laws are in force
and effect.

(4) It must be reasonable.

It is an axiom in administrative law that
administrative authorities should not act
arbitrarily and capriciously in the issuance of rules
and regulations. To be valid, such rules and
regulations must be reasonable and fairly adapted
to secure the end in view. If shown to bear no
reasonable relation to the purposes for which
they were authorized to be issued, then they
must be held to be invalid

The problem, however, lies with respect to the
application of the importation ban to the
Freeport. The Court finds no logic in the all
encompassing application of the assailed
provision to the Freeport which is outside the
customs territory. As long as the used motor
vehicles do not enter the customs territory, the
injury or harm sought to be prevented or
remedied will not arise.

The application of the law should be consistent
with the purpose of and reason for the law.
Ratione cessat lex, et cessat lex. When the
reason for the law ceases, the law ceases. It is
not the letter alone but the spirit of the law also
that gives it life.

To apply the proscription to the Freeport would
not serve the purpose of the EO. Instead of
improving the general economy of the country,
the application of the importation ban in the
Freeport would subvert the avowed purpose of
RA 7227 which is to create a market that would
draw investors and ultimately boost the national
economy.

EO 156, Section 3.1 is declared valid insofar as it applies to
the customs territory or the Philippine territory outside the
presently secured fenced-in former Subic Naval Base area as
stated in Section 1.1 of EO 97-A.

Hence, used motor vehicles that come into the Philippine
territory via the secured fenced-in former Subic Naval Base
area may be stored, used or traded therein, or exported out
of the Philippine territory, but they cannot be imported into
the Philippine territory outside of the secured fenced-in
former Subic Naval Base area.

PARTIALLY GRANTED
"+

TRANSGLOBE INTERNATIONAL, INC., petitioner,
vs. COURT OF APPEALS and COMMISSIONER OF
CUSTOMS, respondents.
G.R. No. 126634
January 25, 1999

FACTS:

On 27 April 1992 a shipment from Hongkong arrived in the
Port of Manila on board the "S/S Sea Dragon." Its Inward
Foreign Manifest indicated that the shipment contained
1,054 pieces of various hand tools.
Acting on information that the shipment violated certain
provisions of the Tariff and Customs Code as amended,
agents of the Economic Intelligence and Investigation
Bureau (EIIB) seized the shipment while in transit to the
Trans Orient container yard-container freight station. An
examination thereof yielded significant results
1. The 40 ft. van was made to appear as a
consolidation shipment consisting of 232
packages with Translink Int'l. Freight Forwarder
as shipper and Transglobe Int'l., Inc. as
consignee;
2. There were eight (8) shippers and eight (8)
consignees declared as co-loaders and co-
owners of the contents of the van, when in
truth the entire shipment belongs to only one
entity;
3. Not one of the items declared as the contents
of the van, i.e., various hand tools, water
cooling tower g-clamps compressors, bright
roping wire and knitting machine was found in
the van. Instead the van was fully stuffed with
textile piece goods.

Constitute a violation of Sec. 2503 in relation to Sec. 2530,
pars. (f) and (m), subpars. 3, 4 and 5, of the Tariff and
Customs Code, the EIIB recommended seizure of the entire
shipment

District Collector of Customs Emma M. Rosqueta issued the
corresponding warrant of seizure and detention.

Petitioner Transglobe International, Inc., or its duly
authorized representative, failed to appear despite due
notice.

District Collector Rosqueta decreed the forfeiture of the
shipment in favor of the government to be disposed of in
accordance with law.

Petitioner filed a petition for redemption of the shipment.

Recommended that the petition be given due course and
that petitioner be allowed to effect the release of the
shipment

Respondent Commissioner Parayno Jr. instructed the Auction
and Cargo Disposal Division of the Port of Manila to include
the shipment in the next public auction.

The forfeiture of the shipment and denial of the request for
redemption were affirmed by respondent Commissioner
Parayno Jr

CTA: since no fraud was found on the part of the
redemptioner, the CTA directed on 27 June 1995 that
petitioner be allowed to redeem the shipment upon payment
of its computed domestic market value.

ISSUE: Whether petitioner should be allowed to redeem the
forfeited shipment.

RULING: Court of Appeals committed reversible error in
rendering the assailed decision.

The findings of respondent Commissioner of Customs which
provided the bases for denying petitioner's offer of
redemption were his own, not of the EIIB, and were merely
stated in his 1st Indorsement with no evidence whatsoever
to substantiate them.

LAWS INVOLVED:
Sec. 2530. Property Subject to Forfeiture Under Tariff
and Customs Law. Any vehicle, vessel or aircraft, cargo,
article and other objects shall, under the following conditions
be subject to forfeiture
f. Any article the importation or exportation of which is
effected or attempted contrary to law, or any article of
prohibited importation or exportation, and all other articles
which, in the opinion of the Collector, have been used, are
or were entered to be used as instruments in the importation
or exportation of the former . . . .
m. Any article sought to be imported or exported . . . .
(3) On the strength of a false declaration or affidavit
executed by the owner, importer, exporter or consignee
concerning the importation of such article;
(4) On the strength of a false invoice or other document
executed by the owner, importer, exporter or consignee
concerning the importation or exportation of such article;
and
(5) Through any other practice or device contrary to law by
means of which such article was entered through a
customhouse to the prejudice of the government.

Sec. 2307. Settlement of Case by Payment of Fine or
Redemption of Forfeited Property. Subject to
approval of the Commissioner, the District Collector may,
while the case is still pending except when there is fraud,
accept the settlement of any seizure case provided that the
owner, importer, exporter, or consignee or his agent shall
offer to pay to the collector a fine imposed by him upon the
property, or in case of forfeiture, the owner, exporter,
importer or consignee or his agent shall offer to pay for the
domestic market value of the seized article. The
Commissioner may accept the settlement of any seizure case
on appeal in the same manner (emphasis supplied) . . .
Settlement of any seizure case by payment of the fine or
redemption of forfeited property shall not be allowed in any
case where the importation is absolutely prohibited or where
the release of the property would be contrary to law.

As a means of settlement, redemption of forfeited property
is unavailing in three (3) instances, namely:
1. when there is fraud
""
2. where the importation is absolutely prohibited, or
3. where the release of the property would be
contrary to law.

In Aznar, as reiterated in Farolan, we clarified that the fraud
contemplated by law must be actual and not constructive. It
must be intentional, consisting of deception willfully and
deliberately done or resorted to in order to induce another to
give up some right. The misdeclarations in the manifest and
rider cannot be ascribed to petitioner as consignee since it
was not the one that prepared them. As we said in Farolan,
if at all, the wrongful making or falsity of the documents can
only be attributed to the foreign suppliers or shippers.

Taking into consideration the circumstances obtaining in the
present case, namely, the absence of fraud, the importation
is not absolutely prohibited and the release of the property
would not be contrary to law, the Court deems it proper to
allow the redemption of the forfeited shipment by petitioner
upon payment of its computed domestic market value. Doing
so is definitely in keeping with the two-way intent of E. O.
No. 38, to wit, to expedite the collection of revenues and
hasten the release of cargoes under seizure proceedings to
the end that importers and exporters will benefit in the form
of reduction in expenditures and assurance of return of their
investments that have been tied up with their importations.

Finally, one may be tempted to argue that for failure to
appear in the forfeiture proceedings despite due notice,
petitioner was in default and deemed to have admitted its
violation of Sec. 2503, in relation to Sec. 2530, pars. (f) and
(m), as found by District Collector of Customs Rosqueta,
interpreted by the Court of Appeals as "badges of fraud,"
and, as a consequence, petitioner is now estopped from
claiming that in the proceedings for redemption there was
no fraud on its part.

Forfeiture of seized goods in the Bureau of Customs
is a proceeding against the goods and not against the
owner. It is in the nature of a proceeding in rem, i.e.,
directed against the res or imported articles and
entails a determination of the legality of
their importation

The issue here is limited to whether the imported goods
should be forfeited and disposed of in accordance with law
for violation of the Tariff and Customs Code.

Hence, the ruling of District Collector Rosqueta in the
forfeiture case, insofar as the aspect of fraud is concerned,
is not conclusive; nor does it preclude petitioner from
invoking absence of fraud in the redemption proceedings.

Significantly, while District Collector Rosqueta decreed the
forfeiture of the subject goods for violation of the Tariff and
Customs Code, she nevertheless recommended the approval
of petitioner's offer of redemption, and categorically
acknowledged that as consignee there was no fraud on its
part.

PETITION GRANTED.

NARCISO O. JAO and BERNARDO M. EMPEYNADO,
petitioners, vs. COURT OF APPEALS; COMMISSIONER
OF CUSTOMS, et al respondents

NARCISO O. JAO and BERNARDO M. EMPEYNADO,
petitioners, vs. THE HONORABLE OMBUDSMAN
CONRADO M. VASQUEZ, et al, respondents

October 6, 1995

FACTS:

The Office of the Director, Enforcement and Security
Services (ESS), Bureau of Customs, received information
regarding the presence of allegedly untaxed vehicles and
parts in the premises owned by a certain Pat Hao located
along Quirino Avenue, Paranaque and Honduras St., Makati.
After conducting a surveillance of the two places

Respondent Major Jaime Maglipon, Chief of Operations and
Intelligence of the ESS, recommended the issuance of
warrants of seizure and detention against the articles stored
in the premises.

District Collector of Customs Titus Villanueva issued the
warrants of seizure and detention.
Respondent Maglipon coordinated with the local police
substations to assist them in the execution of the respective
warrants of seizure and detention

The team searched the two premises.

In Makati, they were barred from entering the place, but
some members of the team were able to force themselves
inside. They were able to inspect the premises and noted
that some articles were present which were not included in
the list contained in the warrant

Customs personnel started hauling the articles pursuant to
the amended warrants.

Petitioners Narciso Jao and Bernardo Empeynado to file a
case for Injunction and Damages

The trial court issued a Temporary Restraining Order.

Respondents filed a Motion to Dismiss on the ground that
the Regional Trial Court has no jurisdiction over the subject
matter of the complaint, claiming that it was the Bureau of
Customs that had exclusive jurisdiction over it.

Petitioners' application for preliminary prohibitory and
mandatory injunction was granted conditioned upon the
filing of a one million peso bond.

The Court also prohibited respondents from seizing,
detaining, transporting and selling at public auction
petitioners' vehicles, spare parts, accessories and other
properties

The Court of Appeals set aside the questioned orders of the
trial court and enjoined it from further proceeding with Civil
Case No. 90-2382. The appellate court also dismissed the
said civil case.

Petitioners filed criminal charges against respondents, other
officers and employees of the Bureau of Customs and
members of the Makati Police before the Office of the
Ombudsman for Robbery, Violation of Domicile and Violation
of Republic Act No. 3019

Respondents claimed in their consolidated and verified
comment that they are not liable for violation of domicile
because the places entered and searched by them appear
"#
not to be the residences of the complainants but only their
warehouses.

ISSUES:
Petitioners contend: (1) that the Court of Appeals erred in
not holding that the Collector of Customs could no longer
order the seizure for the second time of items previously
seized and released after amnesty payments of duties and
taxes; (2) that the Bureau of Customs has lost jurisdiction to
order the seizure of the items because the importation had
ceased; (3) that the seizure of the items deprived the
petitioners of their properties without due process of law;
and (4) that there is no need to exhaust administrative
remedies.

RULING: NO MERIT IN PETITIONERS CONTENTION

SC: We find the petition in G.R. No. 111223 devoid of merit.
The Court, recognizing the investigatory and prosecutory
powers granted by the Constitution to the Office of the
Ombudsman and for reasons of practicality, declared, in an
En Banc resolution

G.R. No. 104604

The Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and determine
all questions touching on the seizure and forfeiture of
dutiable goods. The Regional Trial Courts are precluded from
assuming cognizance over such matters even through
petitions of certiorari, prohibition or mandamus.

Even if the seizure by the Collector of Customs were illegal,
which has yet to be proven, we have said that such act does
not deprive the Bureau of Customs of jurisdiction thereon.

Respondents assert that respondent Judge could entertain
the replevin suit as the seizure is illegal, allegedly because
the warrant issued is invalid and the seizing officer likewise
was devoid of authority. This is to lose sight of the
distinction between the existence of the power and the
regularity of the proceeding taken under it. The
governmental agency concerned, the Bureau of Customs, is
vested with exclusive authority.
Even if it be assumed that in the exercise of such exclusive
competence a taint of illegality may be correctly imputed,
the most that can be said is that under certain circumstances
the grave abuse of discretion conferred may oust it of such
jurisdiction. It does not mean however that correspondingly
a court of first instance is vested with competence when
clearly in the light of the decisions the law has not seen fit to
do so.
The allegations of petitioners regarding the propriety of the
seizure should properly be ventilated before the Collector of
Customs

BOTH CASES DISMISSED.

ACTING COMMISSIONER OF CUSTOMS, petitioner,
vs. COURT OF TAX APPEALS and CHARLES
ANDRULIS, respondents.
G.R. No. L-62636
April 27, 1984

FACTS:

Andrulis representing himself as an American businessman
"on joint ventures with his Filipino counterparts", arrived in
Manila and checked in at the Century Park Sheraton Hotel.
Two days later, or on 22 February 1980, he left the hotel
surreptitiously without paying for his bills in the amount of
P2,000.00. Col. Felix Zerrudo, Chief Security Officer of the
Hotel, timely discovered the scheduled departure of Andrulis
on that same day, and immediately tipped-off the Customs
authorities on Andrulis' intention to abscond.
At the Manila International Airport (MIA), the Customs
authorities looked for Andrulis from among the passengers
who were already on board Philippine Airlines Flight No. 501
bound for Singapore. Apprehensive, Andrulis locked himself
inside the airplane's comfort room. In the course of
negotiations for him to come out, he slipped through an
opening bills worth US$300.00. Andrulis finally yielded to the
authorities and surrendered the luggage he was carrying
which, when opened by the authorities, contained various
foreign currencies consisting of US$59,639.00; 53,100
Indonesian Rupiah, and Singapore $308.00.
A criminal charge was filed before the Office of the City
Fiscal, Pasay City, for violation of CB Circular No. 534 in
relation to RA 265, the Central Bank Charter. On 10 March
1980, the Assistant City Fiscal dismissed the charge on the
rationalization that the Government had failed to present
evidence that the currencies were not brought in by
Andrulis.

Proceedings for the seizure of the foreign currencies were
also commenced at the Customs Office

During the hearing, Andrulis submitted the case for
resolution on the basis of the following documentary
evidence:t.hqw
1. Sworn Affidavit of Charles Joseph Andrulis, stating
that the foreign exchange in question are owned
by claimant;
2. Resolution of the City Fiscal of Pasay City in I.S.
No. 80-94112, entitled MIA Customhouse vs.
Charles Joseph Andrulis, dismissing the alleged
charge of violation of Central Bank Circular No.
534, in relation to Central Bank Circular No. 265,
to show that there was no violation as charged.

The prosecution submitted the case on the basis of the
following:t.hqw
A. Affidavit of Col. Felix A. Zerrudo (Ret.) Chief
Security Officer of the Century Park Sheraton-
Manila Hotel, executed on February 29, 1980;
B. Certification issued by Col. Felix A. Zerrudo (Ret.)
dated February 29, 1980;
C. Certification of Mr. Domingo J. Galicia, Acting Credit
Manager of the Manila Hotel dated February 28,
1980;
D. Letter of Demand dated July 9, 1979 issued by
Robert L. Maniquiz, Credit and Collection Manager
of the Resort Hotels Corporation addressed to Mr.
Charles Andrulis;
E. Sworn statement dated February 22, 1980 of Mr.
Ramonchito Liongson, a Customs Officer, who
apprehended the various foreign currencies herein
subject to seizure."
"$

Acting District Collector of Customs rendered a Decision,
which found Andrulis to have violated Central Bank Circular
No. 534

Andrulis appealed to the Acting Commissioner of Customs,
who affirmed the same.

Section 2530. Property Subject to Forfeiture Under Tariff and
Customs Law. Any vehicle, vessel or aircraft, cargo, article
and other objects shall, under the following condition be
subject to forfeiture;
xxx xxx xxxt.hqw
(f) Any article the importation or exportation of which is
effected or attempted contrary to law, or any article of
prohibited importation or exportation, and au other articles
which, in the opinion of the Collector, have been used, are
or were entered to be used as instruments in the importation
or exportation of the former

PRIVATE RESPONDENTS CONTENTION: exception in the
aforequoted CB Circular No. 534 giving tourists the right to
take out of the Philippines their own foreign exchange
brought in by them.

ISSUE: who has the burden of proof in seizure or forfeiture
proceedings?

RULING:

SEC. 2535. Burden of Proof in Seizure and/or Forfeiture.
In all proceedings taken for the seizure and/or forfeiture of
any vehicle, vessel, aircraft, beast or articles under the
provisions of the tariff and customs laws, the burden of
proof shall lie upon the claimant: Provided, That probable
cause shall be first shown for the institution of such
proceedings and that seizure and/or forfeiture was made
under the circumstances and in the manner described in the
preceding sections of this Code

The requirement of the law that the existence of probable
cause should first be shown before firing of the forfeiture
proceedings, had been fully met. When Andrulis was
apprehended at the MIA and was found to have in his
possession the various foreign currencies, he could not
produce the required Central Bank authorization allowing
him to bring them out of the country.

This constituted prima facie evidence of infringement of the
provisions of CB Circular No. 534 and provided sufficient
basis for the seizure 'of the said foreign exchange. Probable
cause having been shown, the burden of proof was upon
Andrulis to establish that he fell within the purview of the
exception prescribed in the second paragraph of the
aforequoted Section 3 of CB Circular No. 534 in that he
actually brought into the country the foreign currencies and
was just taking them out.


This burden, Andrulis had failed to satisfactorily discharge.
The legal presumption in Section 5(j), Rule 131 of the Rules
of Court and Article 541 of the Civil Code, relied upon by
respondent Court, are of a general character and cannot
prevail over the specific provisions of the Tariff and Customs
Code.

Andrulis' acquittal in the criminal charge before the City
Fiscal's Office does not operate as res judicata in a seizure or
forfeiture proceeding. A distinction exists between the
proceedings before the Fiscal which are in personam since
they are directed against the owner or holder of the thing,
whereas, a forfeiture proceeding is one in rem directed
against the thing itself.t


However, tourists are not precluded from submitting proof,
other than a currency declaration, to show the legitimate
source of the currency in their possession. Besides,
Resolution No. 594 must be deemed superseded by
Resolution No. 1412, dated 16 July 1976, which requires that
persons taking or transmitting or attempting to take or
transmit foreign exchange out of the Philippines must have
authorization from the Central Bank allowing them to do so.

CTA REVSERSED

ALFREDO DE LA FUENTE, as Collector of Customs,
Port of Sua, et al, petitioners vs. HON. JESUS DE
VEYRA, et al, respondents
G.R. No. L-35385
January 31, 1983

FACTS:

6:00 o'clock in the afternoon, the crew of a Q-boat of the
Philippine Coast Guard spotted a vessel, the M/V Lucky Star
I, owned by the private respondent Lucky Star Shipping Co.,
unloading cargo to several small watercrafts alongside the
vessel off the coast of Zambales approximately thirty (30)
nautical miles east of Scarborough Shoal or twenty-three
(23) miles east of the International Treaty Limits.

As the Q-boat was approaching the M/V Lucky Star I, it was
met by gunfire from the smaller watercrafts which
immediately fled from the scene. Only the M/V Lucky Star I
was apprehended.

Upon boarding the vessel, the Philippine Coast Guard officers
discovered 3,400 cases of foreign made "Champion,
menthol, filter-tipped, king-size cigarettes" allegedly owned
by Teng Bee Enterprises Co. (HK) Ltd., co-respondent
herein. The coast guard officers, also saw on board a certain
Deogracias Labrador, Filipino Captain of the domestic
watercraft, M/L Sangbay, one of the boats seen alongside
the M/V Lucky Star I.

The captain of the Lucky Star I, Li Tak Sin, was not able to
present documents or papers for the "Champion" cigarettes.
He and the crew were arrested for smuggling. The boarding
officers also seized the Lucky Star I and ordered its
complement, including Labrador, to proceed to Manila on
board said vessel.

Labrador gave a statement before the personnel at the
Philippine Navy Headquarters to the effect that his presence
on board the Lucky Star I was because of an attempt to
smuggle blue seal cigarettes into the country.
Warrant of seizure and detention was issued by the Collector
of Customs of the Port of Sual-Dagupan

Acting Provincial Fiscal filed before the Court of First
Instance of Zambales, Branch II, an information against Li
Tak Sin, the crew of Lucky Star I, Deogracias Labrador, and
"%
other persons for violation of Section 101 of the Tariff and
Customs Code and penalized under Section 3601 of Republic
Act 1937, as amended by Republic Act 4712

The petitioners asked for a reconsideration of the
aforequoted order insofar as it required them to inform the
respondent court of the maximum fine that may be the basis
for a bond that would entitle the private respondents to
repossess the vessel.

The petitioners contended that the court had no jurisdiction
over the subject matter of the, complaint inasmuch as the
M/V Lucky Star I was being subjected to forfeiture under
Section 2530-A of the Tariff and Customs Code. It was
further contended that the court was devoid of jurisdiction to
issue a writ of replevin or release order for goods under the
custody of the Bureau of Customs.

ISSUE: whether or not the Court of First Instance has
jurisdiction to take cognizance of the complaint filed by the
private respondents for the release of the vessel M/V Lucky
Star I, which is the subject of a seizure and forfeiture
proceedings before the Collector of Customs of the port of
Sual-Dagupan.

RULING: FOR THE PETITIONERS

It is well-settled that the exclusive jurisdiction over seizure
and forfeiture cases vested in the Collector of Customs
precludes a Court of First Instance from assuming
cognizance over such cases. We, therefore, set aside the
assailed orders of the respondent judge.

- 'Republic Act No. 1125, Section 7, effective June
16, 1954 gave the Court of Tax Appeals exclusive
appellate jurisdiction to review an appeal decisions
of the Commissioner of Customs, involving
'seizure, detention or release of property affected
* * * or other matter arising under the Customs
Law or other law administered by the Bureau of
Customs'.
- it was held that the law affords the Collector of
Customs sufficient latitude in determining whether
or not a certain article is subject to seizure or
forfeiture and his decision on the matter is
appealable to the Commissioner of Customs and
then to the Court of Tax Appeals, not to the Court
of First Instance. The fundamental reason is that
the Collector of Customs constitutes a tribunal
when sitting in forfeiture proceedings
- the Court of First Instance should yield to the
jurisdiction of the Collector of
Customs.1wph1.t The Jurisdiction of the
Collector of Customs is provided for in Republic
Act 1937 which took effect on July 1, 1957, much
later than the Judiciary Act of 1948. It, is
axiomatic that a later law prevails over a prior
statute.
- Moreover, on grounds of public policy, it is more
reasonable to conclude that the legislators
intended to divest the Court of First Instance of
the prerogative to replevin a property which is a
subject of a seizure and forfeiture proceedings for
violation of the Tariff and Customs Code.
- Otherwise, actions for forfeiture of property for
violation of Customs laws could easily be
undermined by the simple device of replevin.'
- The judicial recourse of the owner of a personal
property which has been the subject of a seizure
and forfeiture proceedings before the Collector of
Customs is not in the Court of First Instance but in
the Court of Tax Appeals, and only after
exhausting administrative remedies in the Bureau
of Customs.
- The Court of Tax Appeals exercises exclusive
appellate jurisdiction to review the ruling of the
Commissioner in seizure and confiscation cases.
and that power is to the exclusion of the Court of
First Instance, which may not interfere with the
Commissioner's decisions even in the form of
proceedings for certiorari, prohibition or
mandamus, which are in reality, attempts to
review the Commissioner's actuations.
- The customs authorities possess such competence
with an appeal to the Court of Tax Appeals. In
appropriate cases, there may be further judicial
review by this Court in the exercise of its certiorari
jurisdiction. The jurisdictional limits thus defined
and apportioned, according to the Constitution,
must be respected. Respondent judges clearly did
not do so. No deference was paid to a host of
cases that left no doubt as to their lack of
authority to assume jurisdiction.

To sustain the assailed orders of the respondent judge, the
private respondents would impress upon this Court that
the seizure of the M/V Lucky Star I was illegal and against
the accepted principles of international law for the following
reasons:
1) the M/V Lucky Star I is a foreign vessel registered
under the laws of the Republic of Panama and flies
the Panamian flag;
2) the crew of said vessel is composed of aliens; and
3) the M/V Lucky Star I was seized by the Philippine
Coast Guard at a distance of eighty-five (85) miles
to the nearest land point along the western coast
of Luzon.

It is contended that inasmuch as the eighty five (85) mile
distance where the Lucky Star I was seized is outside the
territorial jurisdiction of the Philippines, the Bureau of
Customs is without power to enforce the Philippine Customs
law.

Consequently, it is argued that the proper forum for the
private respondents to obtain relief for the release of the
vessel is the ordinary court, more specifically, the Court of
First Instance

The petitioners contend, on the other hand, that the M/V
Lucky Star I was apprehended at a point 23 miles east of the
International Treaty Limits, well within the territory of the
Philippines as defined in Article I of the 1935 Constitution,
the Treaty of Paris, and Republic Act No. 3046. The
petitioners state that the vessel was caught in the act of
smuggling.

Deogracias Labrador, left behind by the boat M/L Sangbay of
which he was captain, stated he was instructed by Paquito
Bacolod of Capipisa, Cavite to meet the Lucky Star I, unload
from it cases of blue seal Champion cigarettes together with
two other small boats-Pagdila and Nanding-owned Avelino
Bocalan.

He admitted that on an earlier date, he had unloaded from
the Lucky Star 1,500 cases of blue seal cigarettes which he
brought to Capipisa.

"&
SC: The contentions of the private respondents are
untenable.

The Collector of Customs when sitting in forfeiture
proceedings constitutes a tribunal expressly vested by law
with jurisdiction to hear and determine the subject matter of
such proceedings without any interference from the Court of
First Instance.

The Collector of Customs of Sual-Dagupan constituted itself
as a tribunal to hear and determine among other things, the
question of whether or not the M/V Lucky Star I was seized
within the territorial waters of the Philippines.

If the private respondents believe that the seizure was made
outside the territorial jurisdiction of the Philippines, it should
raise the same as a defense before the Collector of Customs
and if not satisfied, follow the correct appellate procedures.
A separate action before the Court of First Instance is not
the remedy.

PETITION GRANTED

NIRC REMEDIES

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. ISABELA CULTURAL CORPORATION, Respondent.
G.R. No. 172231
February 12, 2007

FACTS:

ICC, a domestic corporation, received from the BIR
Assessment Notice No. FAS-1-86-90-000680 for deficiency
income tax

1. BIRs disallowance of ICCs claimed expense deductions
for professional and security services billed to and paid by
ICC in 1986

(a) Expenses for the auditing services of SGV & Co
(b) Expenses for the legal
(c) Expense for security services

2. The alleged understatement of ICCs interest income on
the three promissory notes due from Realty Investment, Inc.

ICC sought a reconsideration of the subject assessments.

It received a final notice before seizure demanding payment
of the amounts stated in the said notices.

Hence, it brought the case to the CTA which held that the
petition is premature because the final notice of assessment
cannot be considered as a final decision appealable to the
tax court.

This was reversed by the Court of Appeals holding that a
demand letter of the BIR reiterating the payment of
deficiency tax, amounts to a final decision on the protested
assessment and may therefore be questioned before the
CTA.

The case was thus remanded to the CTA for further
proceedings.

CTA rendered a decision canceling and setting aside the
assessment notices issued against ICC.

Petitioner filed a petition for review with the Court of
Appeals, which affirmed the CTA decision
- although the professional services (legal and
auditing services) were rendered to ICC in 1984
and 1985, the cost of the services was not yet
determinable at that time, hence, it could be
considered as deductible expenses only in 1986
when ICC received the billing statements for said
services.

ISSUES:
Whether the Court of Appeals correctly: (1) sustained the
deduction of the expenses for professional and security
services from ICCs gross income; and (2) held that ICC did
not understate its interest income from the promissory notes
of Realty Investment, Inc; and that ICC withheld the
required 1% withholding tax from the deductions for security
services.

RULING:

Requisites for the deductibility of ordinary and necessary
trade, business, or professional expenses, like expenses paid
for legal and auditing services, are:
(a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the
taxable year;
(c) it must have been paid or incurred in carrying on
the trade or business of the taxpayer; and
(d) it must be supported by receipts, records or other
pertinent papers.

For a taxpayer using the accrual method, the determinative
question is, when do the facts present themselves in such a
manner that the taxpayer must recognize income or
expense? The accrual of income and expense is permitted
when the all-events test has been met. This test requires:
(1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such
income or liability.
The all-events test requires the right to income or liability be
fixed, and the amount of such income or liability be
determined with reasonable accuracy. However, the test
does not demand that the amount of income or liability be
known absolutely, only that a taxpayer has at his disposal
the information necessary to compute the amount with
reasonable accuracy. The all-events test is satisfied where
computation remains uncertain, if its basis is unchangeable;
the test is satisfied where a computation may be unknown,
but is not as much as unknowable, within the taxable year.
The amount of liability does not have to be
determined exactly; it must be determined with
"reasonable accuracy." Accordingly, the term
"reasonable accuracy" implies something less than
an exact or completely accurate amount

The propriety of an accrual must be judged by the
facts that a taxpayer knew, or could reasonably be
expected to have known, at the closing of its books
for the taxable year

As previously stated, the accrual method presents largely a
question of fact and that the taxpayer bears the burden of
establishing the accrual of an expense or income.

However, ICC failed to discharge this burden. As to when
the firms performance of its services in connection with the
"'
1984 tax problems were completed, or whether ICC
exercised reasonable diligence to inquire about the amount
of its liability, or whether it does or does not possess the
information necessary to compute the amount of said liability
with reasonable accuracy, are questions of fact which ICC
never established.

In sum, Assessment Notice No. FAS-1-86-90-000680 in the
amount of P333,196.86 for deficiency income tax should be
cancelled and set aside but only insofar as the claimed
deductions of ICC for security services. Said Assessment is
valid as to the BIRs disallowance of ICCs expenses for
professional services. The Court of Appeals cancellation of
Assessment Notice No. FAS-1-86-90-000681 in the amount
of P4,897.79 for deficiency expanded withholding tax, is
sustained.

PARTIALLY GRANTED.

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. UNION SHIPPING CORPORATION and THE
COURT OF TAX APPEALS, respondents.
G.R. No. L-66160
May 21, 1990

FACTS:

Petitioner Commissioner of Internal Revenue assessed
against Yee Fong Hong, Ltd. and/or herein private
respondent Union Shipping Corporation, the total sum of
P583,155.22 as deficiency income taxes due for the years
1971 and 1972

Said letter was received on January 4, 1975, and in a letter
dated January 10, 1975 (Exhibit "B"), received by petitioner
on January 13, 1975, private respondent protested the
assessment.

Petitioner, without ruling on the protest, issued a Warrant of
Distraint and Levy, which was served on private
respondent's counsel, Clemente Celso, on November 25,
1976.

Private respondent reiterated its request for reinvestigation
of the assessment and for the reconsideration of the
summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for
reinvestigation and reconsideration of the Warrant of
Distraint and Levy, filed a collection suit

Private respondent filed with respondent court its Petition for
Review of the petitioner's assessment of its deficiency
income taxes in a letter

CTA: Ruled in favor of respondents

PETITIONERS CONTENTION:
- that the warrant of distraint and levy was issued
after respondent corporation filed a request for
reconsideration of subject assessment, thus
constituting petitioner's final decision in the
disputed assessments
- the period to appeal to the Court of Tax Appeals
commenced to run from receipt of said warrant on
November 25, 1976, so that on January 10, 1979
when respondent corporation sought redress from
the Tax Court, petitioner's decision has long
become final and executory.


ISSUES:
On the procedural aspect, whether or not the Court of Tax
Appeals has jurisdiction over this case and

RULING:

Commissioner should always indicate to the taxpayer in clear
and unequivocal language what constitutes his final
determination of the disputed assessment.
On the basis of this statement indubitably showing that the
Commissioner's communicated action is his final decision on
the contested assessment, the aggrieved taxpayer would
then be able to take recourse to the tax court at the
opportune time.

Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
This rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually delay
the finality of the assessment and, consequently, the
collection of the amount demanded as taxes by repeated
requests for recomputation and reconsideration.

The reviewable decision of the Bureau of Internal Revenue is
that contained in the letter of its Commissioner, that such
constitutes the final decision on the matter which may be
appealed to the Court of Tax Appeals and not the warrants
of distraint

SC: The Commissioner of Internal Revenue, not having
clearly signified his final action on the disputed assessment,
legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received
the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the
period to appeal commenced to run.

PETITION DISMISSED

CIR, petitioner, vs. METRO STAR SUPERAMA, INC,
respondent
G.R. No. 185371
December 8, 2010

FACTS:

Petitioner is a domestic corporation duly organized and
existing by virtue of the laws of the Republic of the
Philippines

On January 26, 2001, the Regional Director of Revenue
Region No. 10, Legazpi City, issued Letter of Authority No.
00006561 for Revenue Officer Daisy G. Justiniana to
examine petitioners books of accounts and other accounting
records for income tax and other internal revenue taxes for
the taxable year 1999. Said Letter of Authority was
revalidated on August 10, 2001 by Regional Director
Leonardo Sacamos.

For petitioners failure to comply with several requests for
the presentation of records and Subpoena Duces Tecum,
[the] OIC of BIR Legal Division issued an Indorsement dated
September 26, 2001 informing Revenue District Officer of
Revenue Region No. 67, Legazpi City to proceed with the
"(
investigation based on the best evidence obtainable
preparatory to the issuance of assessment notice.

On November 8, 2001, Revenue District Officer Socorro O.
Ramos-Lafuente issued a Preliminary 15-day Letter, which
petitioner received on November 9, 2001. The said letter
stated that a post audit review was held and it was
ascertained that there was deficiency value-added and
withholding taxes due from petitioner in the amount of P
292,874.16.

On April 11, 2002, petitioner received a Formal Letter of
Demand dated April 3, 2002 from Revenue District No. 67,
Legazpi City, assessing petitioner the amount of Two
Hundred Ninety Two Thousand Eight Hundred Seventy Four
Pesos and Sixteen Centavos (P292,874.16.) for deficiency
value-added and withholding taxes for the taxable year
1999.

Revenue District Office No. 67 sent a copy of the Final Notice
of Seizure dated May 12, 2003, which petitioner received on
May 15, 2003, giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from receipt
thereof, otherwise respondent BIR shall be constrained to
serve and execute the Warrants of Distraint and/or Levy and
Garnishment to enforce collection.

On February 6, 2004, petitioner received from Revenue
District Office No. 67 a Warrant of Distraint

On July 30, 2004, petitioner filed with the Office of
respondent Commissioner a Motion for Reconsideration

On February 8, 2005, respondent Commissioner issued a
Decision denying petitioners Motion for Reconsideration.
Petitioner, through counsel received said Decision on
February 18, 2005.

Denying that it received a Preliminary Assessment Notice
(PAN) and claiming that it was not accorded due process,
Metro Star filed a petition for review with the CTA

ISSUE: Whether the respondent complied with the due
process requirement as provided under the National Internal
Revenue Code and Revenue Regulations No. 12-99 with
regard to the issuance of a deficiency tax assessment

CTA DIVISION: Found merit

while there is a disputable presumption that a mailed letter
is deemed received by the addressee in the ordinary course
of mail, a direct denial of the receipt of mail shifts the
burden upon the party favored by the presumption to prove
that the mailed letter was indeed received by the addressee.

CIR FILED PETITION FOR REVIEW WITH THE CTA EN BANC
- This petition was dismissed after a determination
that no new matters were raised

The general rule is that the Court will not lightly set aside
the conclusions reached by the CTA which, by the very
nature of its functions, has accordingly developed an
exclusive expertise on the resolution unless there has been
an abuse or improvident exercise of authority.

RULING:

The Court agrees with the CTA that the CIR failed to
discharge its duty and present any evidence to show that
Metro Star indeed received the PAN dated January 16, 2002.
It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but
failed. Neither did it offer any explanation on why it failed to
comply with the requirement of service of the PAN. It merely
accepted the letter of Metro Stars chairman dated April 29,
2002, that stated that he had received the FAN dated April
3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify
some matters with the hope of lessening its tax liability.

ISSUE: Is the failure to strictly comply with notice
requirements prescribed under Section 228 of the National
Internal Revenue Code of 1997 and Revenue Regulations
(R.R.) No. 12-99 tantamount to a denial of due process?

Specifically, are the requirements of due process satisfied if
only the FAN stating the computation of tax liabilities and a
demand to pay within the prescribed period was sent to the
taxpayer?

RULING:

SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: provided,
however, that a preassessment notice shall not be required
in the following cases:

(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of
the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not
been paid; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made;
otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest,
all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission
")
of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said decision, or
from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and
demandable.


Indeed, Section 228 of the Tax Code clearly requires that
the taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present
their case and adduce supporting evidence.

From the provision quoted above, it is clear that the sending
of a PAN to taxpayer to inform him of the assessment made
is but part of the due process requirement in the issuance
of a deficiency tax assessment, the absence of which
renders nugatory any assessment made by the tax
authorities. The use of the word shall in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches
bothsubstantial and procedural rights and the failure of the
CIR to strictly comply with the requirements laid down by
law and its own rules is a denial of Metro Stars right to due
process.

Thus, for its failure to send the PAN stating the facts and the
law on which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by the
CIR is void.

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

PETITION DENIED.

LASCONA LAND CO., INC., petitioner vs. CIR, respondent
G.R. No. 171251
March 5, 2012

FACTS:

Commissioner of Internal Revenue (CIR) issued Assessment
Notice against Lascona Land Co., Inc. (Lascona) informing
the latter of its alleged deficiency income tax for the year
1993

April 20, 1998, Lascona filed a letter protest, but was denied
by Norberto R. Odulio, Officer-in-Charge (OIC), Regional
Director, Bureau of Internal Revenue, Revenue Region No.
8, Makati City

we cannot give due course to your request to cancel
or set aside the assessment notice issued to your
client for the reason that the case was not elevated
to the Court of Tax Appeals as mandated by the
provisions of the last paragraph of Section 228 of the
Tax Code.

On April 12, 1999, Lascona appealed the decision before the
CTA. Lascona alleged that the Regional Director erred in
ruling that the failure to appeal to the CTA within thirty (30)
days from the lapse of the 180-day period rendered the
assessment final and executory.

The CIR, however, maintained that Lascona's failure to
timely file an appeal with the CTA after the lapse of the 180-
day reglementary period provided under Section 228 of the
National Internal Revenue Code (NIRC) resulted to the
finality of the assessment.

CTA: nullified the subject assessment.
- It held that in cases of inaction by the CIR on the
protested assessment, Section 228 of the NIRC
provided two options for the taxpayer: (1) appeal
to the CTA within thirty (30) days from the lapse
of the one hundred eighty (180)-day period, or (2)
wait until the Commissioner decides on his protest
before he elevates the case.

CIR filed an appeal before the CA

CA: granted CIR

PETITIONERS CONTENTION: option to either: (1) appeal to
the CTA within 30 days from the lapse of the 180-day
period; or (2) await the final decision of the Commissioner
on the disputed assessment even beyond the 180-day period
! in which case, the taxpayer may appeal such final decision
within 30 days from the receipt of the said decision.

Corollarily, petitioner posits that when the Commissioner
failed to act on its protest within the 180-day period, it had
the option to await for the final decision of the Commissioner
on the protest, which it did.

ISSUE: Whether the subject assessment has become final,
executory and demandable due to the failure of petitioner to
file an appeal before the CTA within thirty (30) days from
the lapse of the One Hundred Eighty (180)-day period
pursuant to Section 228 of the NIRC.

RULING: Petition meritorious

In arguing that the assessment became final and executory
by the sole reason that petitioner failed to appeal the
inaction of the Commissioner within 30 days after the 180-
day reglementary period, respondent, in effect, limited the
remedy of Lascona, as a taxpayer, under Section 228 of the
NIRC to just one, that is - to appeal the inaction of the
Commissioner on its protested assessment after the lapse of
the 180-day period. This is incorrect.

Where a taxpayer questions an assessment and asks the
Collector to reconsider or cancel the same because he (the
taxpayer) believes he is not liable therefor, the assessment
becomes a "disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the Court of Tax
Appeals only upon receipt of the decision of the Collector on
the disputed assessment

Therefore, as in Section 228, when the law provided for the
remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing of an appeal after the
lapse of the 180-day prescribed period. Precisely, when a
"*
taxpayer protested an assessment, he naturally expects the
CIR to decide either positively or negatively. A taxpayer
cannot be prejudiced if he chooses to wait for the final
decision of the CIR on the protested assessment. More so,
because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the
protested assessment.

It must be emphasized, however, that in case of the inaction
of the CIR on the protested assessment, while we reiterate
! the taxpayer has two options, either: (1) file a petition for
review with the CTA within 30 days after the expiration of
the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and appeal such
final decision to the CTA within 30 days after the receipt of a
copy of such decision, these options are mutually
exclusive and resort to one bars the application of
the other.

Accordingly, considering that Lascona opted to await the
final decision of the Commissioner on the protested
assessment, it then has the right to appeal such final
decision to the Court by filing a petition for review within
thirty days after receipt of a copy of such decision or ruling,
even after the expiration of the 180-day period fixed by law
for the Commissioner of Internal Revenue to act on the
disputed assessments.

Finally, the CIR should be reminded that taxpayers cannot
be left in quandary by its inaction on the protested
assessment.

Even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the
prescribed procedure.

PETITION GRANTED.