Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 106611 July 21, 1994

COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF
TAX APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:
The judicial proceedings over the present controversy commenced with CTA Case No. 4099,
wherein the Court of Tax Appeals ordered herein petitioner Commissioner of Internal
Revenue to grant a refund to herein private respondent Citytrust Banking Corporation
(Citytrust) in the amount of P13,314,506.14, representing its overpaid income taxes for 1984
and 1985, but denied its claim for the alleged refundable amount reflected in its 1983 income
tax return on the ground of prescription. 1 That judgment of the tax court was affirmed by
respondent
Court
of
Appeals
in
its
judgment
in
CA-G.R.
SP
2
No. 26839. The case was then elevated to us in the present petition for review
on certiorari wherein the latter judgment is impugned and sought to be nullified and/or set
aside.

It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a
claim for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00
representing the alleged aggregate of the excess of its carried-over total quarterly payments
over the actual income tax due, plus carried-over withholding tax payments on government
securities and rental income, as computed in its final income tax return for the calendar year
ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive
period, Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case
No. 4099, claiming the refund of its income tax overpayments for the years 1983, 1984 and
1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment that Citytrust incurred a net
loss in 1985 does not ipso facto merit a refund; that the amounts of P6,611,223.00,
P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax overpayment, taxes
withheld on proceeds of government securities investments, as well as on rental income,
respectively, are not properly documented; that assuming arguendo that petitioner is entitled
to
refund,
the
right
to
claim
the
same
has
prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and
295 of the National Internal Revenue Code of 1977, as amended, since the petition was filed
only on August 28, 1986. 5
On February 20, 1991, the case was submitted for decision based solely on the pleadings and
evidence submitted by herein private respondent Citytrust. Herein petitioner could not present
any evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR
to transmit the records of the case, as well as the investigation report thereon, to the Solicitor
General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and
motion praying for the suspension of the proceedings in the said case on the ground that the
claim of Citytrust for tax refund in the amount of P19,971,745.00 was already being
processed by the Tax Credit/Refund Division of the BIR, and that said bureau was only
awaiting the submission by Citytrust of the required confirmation receipts which would show
whether or not the aforestated amount was actually paid and remitted to the BIR. 7

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already
acquired jurisdiction over the case, it could no longer be divested of the same; and, further,
that the proceedings therein could not be suspended by the mere fact that the claim for refund
was being administratively processed, especially where the case had already been submitted
for
decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2
and Y-3 adduced in the case, which clearly showed that there was an overpayment of income
taxes and for which a tax credit or refund was due to Citytrust. The Foregoing exhibits are
allegedly conclusive proof of and an admission by herein petitioner that there had been an
overpayment of income taxes. 8

1985 Income tax due (loss) P 0

Less: W/T on rentals 36,716.47*

Tax Overpayment (36,716.47)*

Less: FCDU payable 18,874.00

Amount Refundable for 1985 P (17,842.47)

* Note:

The tax court denied the motion to suspend proceedings on the ground that the case had
already been submitted for decision since February 20, 1991. 9

These credits are smaller than the claimed amount

because only the above figures are well supported by the
various exhibits presented during the hearing.

Thereafter, said court rendered its decision in the case, the decretal portion of which declares:

No pronouncement as to costs.

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund

but only for the overpaid taxes incurred in 1984 and 1985. The refundable
amount as shown in its 1983 income tax return is hereby denied on the
ground of prescription. Respondent is hereby ordered to grant a refund to
petitioner Citytrust Banking Corp. in the amount of P13,314,506.14
representing the overpaid income taxes for 1984 and 1985, recomputed as
follows:
1984 Income tax due
Less: 1984 Quarterly payments
1984 Tax Credits
W/T on int. on gov't. sec.1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67

Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00

Amount refundable for 1984 P (13,296,663.67)

P 4,715,533.00
P 16,214,599.00*

SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the
fact of withholding has been established by the statements and certificates of withholding
taxes accomplished by herein private respondent's withholding agents, the authenticity of
which were neither disputed nor controverted by herein petitioner; (2) no evidence was
presented which could effectively dispute the correctness of the income tax return filed by
herein respondent corporation and other material facts stated therein; (3) no deficiency
assessment was issued by herein petitioner; and (4) there was an audit report submitted by the
BIR Assessment Branch, recommending the refund of overpaid taxes for the years concerned
(Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of official
duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General
on the sole ground that the statements and certificates of taxes allegedly withheld are not
conclusive evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A
supplemental motion for reconsideration was thereafter filed, wherein it was contended for the
first time that herein private respondent had outstanding unpaid deficiency income taxes.
Petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund

Division, dated August 8, 1991, he came to know only lately that Citytrust had outstanding
tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and
business taxes covered by Demand/Assessment Notice No. FAS-1-84-003291-003296. 13

despite repeated requests. 17 It was under such a predicament and in deference to the tax court
that ultimately, said records being still unavailable, herein petitioner's counsel was constrained
to submit the case for decision on February 20, 1991 without presenting any evidence.

Oppositions to both the basic and supplemental motions for reconsideration were filed by
private respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of the Tax Code, as implemented by
Revenue
Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received
was declared as part of the gross income, and that the fact of withholding was duly
established. Moreover, with regard to the argument raised in the supplemental motion for
reconsideration anent the deficiency tax assessment against herein petitioner, the tax court
ruled that since that matter was not raised in the pleadings, the same cannot be considered,
invoking therefor the salutary purpose of the omnibus motion rule which is to obviate
multiplicity of motions and to discourage dilatory pleadings. 15

For that matter, the BIR officials and/or employees concerned also failed to heed the order of
the Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules
of the Court of Tax Appeals which provides that the Commissioner of Internal Revenue and
the Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within
ten days after filing his answer, all the records of the case in his possession, with the pages
duly numbered, and if the records are in separate folders, then the folders shall also be
numbered.

As indicated at the outset, a petition for review was filed by herein petitioner with respondent
Court of Appeals which in due course promulgated its decision affirming the judgment of the
Court of Tax Appeals. Petitioner eventually elevated the case to this Court, maintaining that
said respondent court erred in affirming the grant of the claim for refund of Citytrust,
considering that, firstly, said private respondent failed to prove and substantiate its claim for
such refund; and, secondly, the bureau's findings of deficiency income and business tax
liabilities against private respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this
case, the ends of substantial justice and public interest would be better subserved by the
remand of this case to the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of
Internal Revenue, was denied its day in court by reason of the mistakes and/or negligence of
its officials and employees. It can readily be gleaned from the records that when it was herein
petitioner's turn to present evidence, several postponements were sought by its counsel, the
Solicitor General, due to the unavailability of the necessary records which were not
transmitted by the Refund Audit Division of the BIR to said counsel, as well as the
investigation report made by the Banks/Financing and Insurance Division of the said bureau/

The aforestated impass came about due to the fact that, despite the filing of the
aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the
Tax Refund Division of the BIR still continued to act administratively on the claim for refund
previously filed therein, instead of forwarding the records of the case to the Court of Tax
Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents.19 In the performance of its governmental functions, the State cannot
be estopped by the neglect of its agent and officers. Although the Government may generally
be estopped through the affirmative acts of public officers acting within their authority, their
neglect or omission of public duties as exemplified in this case will not and should not
produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that
the Government cannot and must not be estopped particularly in matters involving taxes.
Taxes are the lifeblood of the nation through which the government agencies continue to
operate and with which the State effects its functions for the welfare of its constituents. 21The
errors of certain administrative officers should never be allowed to jeopardize the
Government's financial position, 22especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's
supplemental motion for reconsideration alleging bringing to said court's attention the
existence of the deficiency income and business tax assessment against Citytrust. The fact of
such deficiency assessment is intimately related to and inextricably intertwined with the right
of respondent bank to claim for a tax refund for the same year. To award such refund despite
the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects.
Herein private respondent cannot be entitled to refund and at the same time be liable for a tax
deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts
stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be the basis for the grant
of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the
applicable law when the claim of Citytrust was filed, provides that "(w)hen an assessment is
made in case of any list, statement, or return, which in the opinion of the Commissioner of
Internal Revenue was false or fraudulent or contained any understatement or undervaluation,
no tax collected under such assessment shall be recovered by any suits unless it is proved that
the said list, statement, or return was not false nor fraudulent and did not contain any
understatement or undervaluation; but this provision shall not apply to statements or returns
made or to be made in good faith regarding annual depreciation of oil or gas wells and
mines."
Moreover, to grant the refund without determination of the proper assessment and the tax due
would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment
should subsequently be upheld, the Government will be forced to institute anew a proceeding
for the recovery of erroneously refunded taxes which recourse must be filed within the
prescriptive period of ten years after discovery of the falsity, fraud or omission in the false or
fraudulent return involved. 23 This would necessarily require and entail additional efforts and
expenses on the part of the Government, impose a burden on and a drain of government
funds, and impede or delay the collection of much-needed revenue for governmental
operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both

logically necessary and legally appropriate that the issue of the deficiency tax assessment
against Citytrust be resolved jointly with its claim for tax refund, to determine once and for all
in a single proceeding the true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and
fair that the taxpayer and the Government alike be given equal opportunities to avail of
remedies under the law to defeat each other's claim and to determine all matters of dispute
between them in one single case. It is important to note that in determining whether or not
petitioner is entitled to the refund of the amount paid, it would necessary to determine how
much the Government is entitled to collect as taxes. This would necessarily include the
determination of the correct liability of the taxpayer and, certainly, a determination of this
case would constitute res judicata on both parties as to all the matters subject thereof or
necessarily involved therein.
The Court cannot end this adjudication without observing that what caused the Government to
lose its case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of
officialdom, and not to syndicated intent or corruption. The evidential cul-de-sac in which the
Solicitor General found himself once again gives substance to the public perception and
suspicion that it is another proverbial tip in the iceberg of venality in a government bureau
which is pejoratively rated over the years. What is so distressing, aside from the financial
losses to the Government, is the erosion of trust in a vital institution wherein the reputations
of so many honest and dedicated workers are besmirched by the acts or omissions of a few.
Hence, the liberal view we have here taken pro hac vice, which may give some degree of
assurance that this Court will unhesitatingly react to any bane in the government service, with
a replication of such response being likewise expected by the people from the executive
authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is
hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for
further proceedings and appropriate action, more particularly, the reception of evidence for
petitioner and the corresponding disposition of CTA Case No. 4099 not otherwise inconsistent
with our adjudgment herein.
SO ORDERED.

Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

been filed beyond the reglementary period. The 1986 claim for refund
amounting to P234,077.69 is likewise denied since petitioner has opted and
in all likelihood automatically credited the same to the succeeding year. The
petition for review is dismissed for lack of merit.

SECOND DIVISION
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case.
G.R. No. 112024 January 28, 1999
PHILIPPINE
BANK
OF
COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and
COURT OF APPEALS,respondent.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation

duly organized under Philippine laws, filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The
taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of
Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00
and P1,615,253.00, respectively.

QUISUMBING, J.:

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax
Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of
P14,129,602.00, and thus declared no tax payable for the year.

This petition for review assails the Resolution 1 of the Court of Appeals dated September 22,
1993 affirming the Decision 2 and a Resolution 3 of the Court Of Tax Appeals which denied
the claims of the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is
DENIED due course. The Decision of the Court of Tax Appeals dated May
20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in
toto.
SO ORDERED. 4

But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among
others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and
second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by
their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income
tax for 1985 in the amount of P5,299,749.95 is hereby denied for having

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner

instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals
(CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."

The losses petitioner incurred as per the summary of petitioner's claims for refund and tax
credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986

On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the
same was denied due course for lack of merit. 6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with
the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in
toto the CTA's resolution dated July 20, 1993. Hence this petition now before us.

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

The issues raised by the petitioner are:

Tax Due NIL NIL

Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as
P5,299,749.95. A forty five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the
request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the
ground that it was filed beyond the two-year reglementary period provided for by law. The
petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom against its tax payment in the
succeeding year.

I. Whether taxpayer PBCom which relied in good faith

on the formal assurances of BIR in RMC No. 7-85 and
did not immediately file with the CTA a petition for
review asking for the refund/tax credit of its 1985-86
excess quarterly income tax payments can be
prejudiced by the subsequent BIR rejection, applied
retroactivity, of its assurances in RMC No. 7-85 that the
prescriptive period for the refund/tax credit of excess
quarterly income tax payments is not two years but ten
(10). 7
II. Whether the Court of Appeals seriously erred in
affirming the CTA decision which denied PBCom's claim
for the refund of P234,077.69 income tax overpaid in
1986 on the mere speculation, without proof, that there
were taxes due in 1987 and that PBCom availed of taxcrediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the
plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on
RMC No. 7-85, changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1,
1985. The circular states that overpaid income taxes are not covered by the two-year
prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for

the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the
Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT:
PROCESSING
OF
REFUND OR TAX CREDIT OF
EXCESS CORPORATE INCOME
TAX RESULTING FROM THE
FILING
OF
THE
FINAL
ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue
Regulations Nos. 10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments,
corporations file claims for recovery of overpaid income tax with the Court
of Tax Appeals within the two-year period from the date of payment, in
accordance with sections 292 and 295 of the National Internal Revenue
Code. It is obvious that the filing of the case in court is to preserve the
judicial right of the corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally
paid tax under the provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for
the refund of the overpaid income tax or claim for automatic tax credit. To
insure prompt action on corporate annual income tax returns showing
refundable amounts arising from overpaid quarterly income taxes, this
Office has promulgated Revenue Memorandum Order No. 32-76 dated June
11, 1976, containing the procedure in processing said returns. Under these
procedures, the returns are merely pre-audited which consist mainly of
checking mathematical accuracy of the figures of the return. After which,
the refund or tax credit is granted, and, this procedure was adopted to
facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the
Court of Tax Appeals in order to preserve the right to claim refund or tax
credit the two year period. As already stated, actions hereon by the Bureau
are immediate after only a cursory pre-audit of the income tax returns.
Moreover, a taxpayer may recover from the Bureau of Internal Revenue
excess income tax paid under the provisions of Section 86 of the Tax Code
within 10 years from the date of payment considering that it is an obligation
created by law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its
declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting
Corporation vs. Court of Tax Appeals 10petitioner claims that rulings or circulars promulgated
by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial
to taxpayers, In ABS-CBN case, the Court held that the government is precluded from
adopting a position inconsistent with one previously taken where injustice would result
therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides
for this rules as follows:
Sec. 246 Non-retroactivity of rulings Any revocation, modification or
reversal of any of the rules and regulations promulgated in accordance with
the preceding section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation,

modification or reversal will be prejudicial to the taxpayers except in the

following cases:
a). where the taxpayer deliberately
misstates or omits material facts from
his return or in any document required
of him by the Bureau of Internal
Revenue;
b). where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different from
the facts on which the ruling is based;
c). where the taxpayer acted in bad
faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the
two-year prescriptive period for filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which
is generally done on April 15 following the close of the calendar year. As precedents,
respondent Commissioner cited cases which adhered to this principle, to wit ACCRA
Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal
Revenue vs. TMX Sales, Inc., et al.. 12Respondent Commissioner also states that since the
Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to
be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the
court. Further, respondent Commissioner stresses that when the petitioner filed the case before
the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such
failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is
not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to
generate funds for the State to finance the needs of the citizenry and to advance the common
weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax
cases. This must necessarily be so because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations and it is of utmost importance that the
modes adopted to enforce the collection of taxes levied should be summary and interfered
with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the time
fixed by law because the BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of
1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax
erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of
two years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment;Provided however, That the
Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid. (Emphasis
supplied)

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner
of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be computed from the time of
filing the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this
Court explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only
from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished. In the present case, this date
is April 16, 1984, and two years from this date would be April 16, 1986. . . .
As we have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and
70 18 on Quarterly Corporate Income Tax Payment and Section 321 should
be considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977
NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings
(in the sense of more specific and less general interpretations of tax laws) which are issued
from time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and
will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with
the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not
only inconsistent with but is contrary to the provisions and spirit of Act. No
4003 as amended, because whereas the prohibition prescribed in said
Fisheries Act was for any single period of time not exceeding five years
duration, FAO No 37-1 fixed no period, that is to say, it establishes an
absolute ban for all time. This discrepancy between Act No. 4003 and FAO
No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the
basic Act prevails, for the reason that the regulation or rule issued to
implement a law cannot go beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the offices
of Department Heads who draft rules and regulation is called to the
importance and necessity of closely following the terms and provisions of
the law which they intended to implement, this to avoid any possible
misunderstanding or confusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or
errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of
RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the
express provision of a statute. Hence, his interpretation could not be given weight for to do so
would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after
promulgating RMC No. 7-85, is estopped by the principle of nonretroactively of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation created
by law, was issued by the Acting Commissioner of Internal Revenue. On the
other hand, the decision, stating that the taxpayer should still file a claim for
a refund or tax credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of
limitation on refund from two to ten years would be adverse to public policy
and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling
and judicial interpretation of the Court of Tax Appeals. Estoppel has no

10

application in the case at bar because it was not the Commissioner of

Internal Revenue who denied petitioner's claim of refund or tax credit.
Rather, it was the Court of Tax Appeals who denied (albeit correctly) the
claim and in effect, ruled that the RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an administrative interpretation which
is out of harmony with or contrary to the express provision of a statute
(specifically Sec. 230, NIRC), hence, cannot be given weight for to do so
would in effect amend the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as
part of the legal system of the country. But administrative decisions do not enjoy that level of
recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer
with shield against judicial action. For there are no vested rights to speak of respecting a
wrong construction of the law by the administrative officials and such wrong interpretation
could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the
non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this
case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption and should be construed
in strictissimi juris against the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in
affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986),
based on mere speculation, without proof, that PBCom availed of the automatic tax credit in
1987.

automatic tax credit for the succeeding taxable year. To ease the administration of tax
collection, these remedies are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 the
Court of Tax Appeals, after examining the adjusted final corporate annual
income tax return for taxable year 1986, found out that petitioner opted to
apply for automatic tax credit. This was the basis used (vis-avis the fact that
the 1987 annual corporate tax return was not offered by the petitioner as
evidence) by the CTA in concluding that petitioner had indeed availed of
and applied the automatic tax credit to the succeeding year, hence it can no
longer ask for refund, as to [sic] the two remedies of refund and tax credit
are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977
NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which
we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not
offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by
respondent courts, there being no showing of gross error or abuse on their part to disturb our
reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals
appealed from is AFFIRMED, with COSTS against the petitioner.1wphi1.nt
SO ORDERED.

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the
total quarterly payments over the actual income tax computed in the adjustment or final
corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be
credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option
box provided in the BIR form) its intention, whether to request for a refund or claim for an

11

Republic of the Philippines

SUPREME COURT
Manila

and 10 (July 15, 1960). All these administrative orders were issued with the approval of the
respondent Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:

EN BANC
G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C.
Zaballero and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic
Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts
shall order for the period from August nineteen to September thirty every year the
printing and issue of semi-postal stamps of different denominations with face value
showing the regular postage charge plus the additional amount of five centavos for
the said purpose, and during the said period, no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps: Provided, That no such additional
charge of five centavos shall be imposed on newspapers. The additional proceeds
realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis
Society in carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958),

Such semi-postal stamps could not be made available during the period from August
19 to September 30, 1957, for lack of time. However, two denominations of such
stamps, one at "5 + 5" centavos and another at "10 + 5" centavos, will soon be
released for use by the public on their mails to be posted during the same period
starting with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no
mail matter of whatever class, and whether domestic or foreign, posted at any
Philippine Post Office and addressed for delivery in this country or abroad, shall be
accepted for mailing unless it bears at least one such semi-postal stamp showing the
additional value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or
impressions of postage meters, each piece of such mail shall bear at least one such
semi-postal stamp if posted during the period above stated starting with the year
1958, in addition to being charged the usual postage prescribed by existing
regulations. In the case of business reply envelopes and cards mailed during said
period, such stamp should be collected from the addressees at the time of delivery.
Mails entitled to franking privilege like those from the office of the President,
members of Congress, and other offices to which such privilege has been granted,
shall each also bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or
post-office mail boxes without the required semi-postal stamp, shall be returned to
the sender, if known, with a notation calling for the affixing of such stamp. If the
sender is unknown, the mail matter shall be treated as nonmailable and forwarded to
the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:

12

In the case of the following categories of mail matter and mails entitled to franking
privilege which are not exempted from the payment of the five centavos intended for
the Philippine Tuberculosis Society, such extra charge may be collected in cash, for
which official receipt (General Form No. 13, A) shall be issued, instead of affixing
the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra
charge of five centavos for the Philippine Tuberculosis Society shall be collected on
each separately-addressed piece of second-class mail matter, and the total sum thus
collected shall be entered in the same official receipt to be issued for the postage at
the second-class rate. In making such entry, the total number of pieces of secondclass mail posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . ..
P5.00." The extra charge shall be entered separate from the postage in both of the
official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage
affixed under permits issued by this Bureau shall each be charged the usual postage,
in addition to the five-centavo extra charge intended for said society. The total extra
charge thus received shall be entered in the same official receipt to be issued for the
postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under
metered mail permit issued by this Bureau, the extra charge of five centavos for said
society shall be collected in cash and an official receipt issued for the total sum thus
received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for
said society shall be collected in cash on each reply card or envelope delivered, in
addition to the required postage which may also be paid in cash. An official receipt
shall be issued for the total postage and total extra charge received, in the manner
shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other
persons entitled to the franking privilege under existing laws may pay in cash such
extra charge intended for said society, instead of affixing the semi-postal stamps to
their mails, provided that such mails are presented at the post-office window, where
the five-centavo extra charge for said society shall be collected on each piece of such

mail matter. In such case, an official receipt shall be issued for the total sum thus
collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office
window shall be affixed with the necessary semi-postal stamps. If found in mail
boxes without such stamps, they shall be treated in the same way as herein provided
for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies
and Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm.
Order 3, as amended, exempts "copies of periodical publications received for mailing under
any class of mail matter, including newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the
post office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp
required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of
First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection
clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower
court declared the statute and the orders unconstitutional; hence this appeal by the respondent
postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention
that declaratory relief is unavailing because this suit was filed after the petitioner had
committed a breach of the statute. While conceding that the mailing by the petitioner of a
letter without the additional anti-TB stamp was a violation of Republic Act 1635, as amended,
the trial court nevertheless refused to dismiss the action on the ground that under section 6 of
Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation
of ... a statute ... should take place, the action may thereupon be converted into an ordinary
action."

13

The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section
6 of the same rule, which allows the court to treat an action for declaratory relief as an
ordinary action, applies only if the breach or violation occurs after the filing of the action but
before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the
firing of this action, then indeed the remedy of declaratory relief cannot be availed of, much
less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not
constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in
the mails unless it bears such semi-postal stamps." It does not follow, however, that only
postal authorities can be guilty of violating it by accepting mails without the payment of the
anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are
people who use the mails without paying for the additional anti-TB stamp. Just as in bribery
the mere offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere
attempt to use the mails without the stamp constitutes a violation of the statute. It is not
required that the mail be accepted by postal authorities. That requirement is relevant only for
the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this
suit was filed not only with respect to the letter which he mailed on September 15, 1963, but
also with regard to any other mail that he might send in the future. Thus, in his complaint, the
petitioner prayed that due course be given to "other mails without the semi-postal stamps
which he may deliver for mailing ... if any, during the period covered by Republic Act 1635,
as amended, as well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos prescribed by the
same Republic Act." As one whose mail was returned, the petitioner is certainly interested in a
ruling on the validity of the statute requiring the use of additional stamps.

tax while leaving untaxed the rest of the population and that even among postal patrons the
statute discriminatorily grants exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to offices performing
governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As
such the objections levelled against it must be viewed in the light of applicable principles of
taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.4 This power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. 6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the selection of
mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between
classification made by the legislation and its purpose is undoubtedly true in some
contexts, it has no application to a measure whose sole purpose is to raise revenue ...
So long as the classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to produce revenue or
some other legitimate distinction, equal protection of the law has been afforded. See
Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441;
Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578,
580 (1910).

II.
We now consider the constitutional objections raised against the statute and the implementing
orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More
specifically the claim is made that it constitutes mail users into a class for the purpose of the

We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone the
enjoyment of a privilege, and on administrative convinience. In the allocation of the tax

14

burden, Congress must have concluded that the contribution to the anti-TB fund can be
assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is
now a settled principle of law that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for imposing a tax on a well
recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single
most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post
offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the tax was made almost self-enforcing,
with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class.
Mail users were already a class by themselves even before the enactment of the statue and all
that the legislature did was merely to select their class. Legislation is essentially empiric and
Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr.
Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard
[them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are too common in the law;
they have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted
from the levy the law and administrative officials have sanctioned an invidious discrimination
offensive to the Constitution. The application of the lower courts theory would require all
mail users to be taxed, a conclusion that is hardly tenable in the light of differences in status
of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the
tax in order to foster what it conceives to be a beneficent enterprise. 11 This is the case of
newspapers which, under the amendment introduced by Republic Act 2631, are exempt from
the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent,
being in derogation of its sovereignty, is to be strictly construed. 12 Administrative Order 9 of

the respondent Postmaster General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but a restatement of this wellknown principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to
the exclusion of other diseases which, it is said, are equally a menace to public health. But it is
never a requirement of equal protection that all evils of the same genus be eradicated or none
at all.13 As this Court has had occasion to say, "if the law presumably hits the evil where it is
most felt, it is not to be overthrown because there are other instances to which it might have
been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied
for a public purpose as no special benefits accrue to mail users as taxpayers, and second,
because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer
to say that the only benefit to which the taxpayer is constitutionally entitled is that derived
from his enjoyment of the privileges of living in an organized society, established and
safeguarded by the devotion of taxes to public purposes. Any other view would preclude the
levying of taxes except as they are used to compensate for the burden on those who pay them
and would involve the abandonment of the most fundamental principle of government that
it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent
of the service rendered. We have said that considerations of administrative convenience and
cost afford an adequate ground for classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge for the transaction, operating
equally on all persons within the class regardless of the amount involved. 16 As Mr. Justice
Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two cents on
every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172.
The inequality of the tax, so far as actual values are concerned, is manifest. But, here
again equality in this sense has to yield to practical considerations and usage. There
must be a fixed and indisputable mode of ascertaining a stamp tax. In another sense,
moreover, there is equality. When the taxes on two sales are equal, the same number
of shares is sold in each case; that is to say, the same privilege is used to the same

15

extent. Valuation is not the only thing to be considered. As was pointed out by the
court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of income
or earning capacity, and many others, illustrate the necessity and practice of
sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for
the benefit of the Philippine Tuberculosis Society, a private organization, without
appropriation by law. But as the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in carrying out what is
essentially a public function. The money is treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one of
the grounds on which the lower court invalidated Republic Act 1631, as amended, namely,
that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for
certain classes of mail matters (such as mail permits, metered mails, business reply cards,
etc.), the five-centavo charge may be paid in cash instead of the purchase of the anti-TB
stamp. It further states that mails deposited during the period August 19 to September 30 of
each year in mail boxes without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may be
necessary to prevent a failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally construed, consistent with the
principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would
be to make them pay much more because the cards likewise bear the amount of the regular
postage.
It is likewise true that the statute does not provide for the disposition of mails which do not
bear the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that such mail matter is

nonmailable within the meaning of section 1952 of the Administrative Code. Administrative
Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal
officials and employees. As for Administrative Order 9, we have already said that in listing
the offices and entities of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established principle, namely, that the
Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.

Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as
amended by Republic Act No. 2631 and the majority opinion expounded with Justice Castro's
usual vigor and lucidity subject to one qualification. With all due recognition of its inherently
persuasive character, it would seem to me that the same result could be achieved if reliance be
had on police power rather than the attribute of taxation, as the constitutional basis for the
challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the
performance of the public service. I refer of course to the government postal function, one of
respectable and ancient lineage. The United States Constitution of 1787 vests in the federal
government acting through Congress the power to establish post offices. 1 The first act
providing for the organization of government departments in the Philippines, approved Sept.
6, 1901, provided for the Bureau of Post Offices in the Department of Commerce and
Police.2 Its creation is thus a manifestation of one of the many services in which the
government may engage for public convenience and public interest. Such being the case, it
seems that any legislation that in effect would require increase cost of postage is well within
the discretionary authority of the government.

16

It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use
of the mails, the broad discretion that it enjoys is undeniable. In that sense, the principle
announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not
precisely controlling furnishes for me more than ample support for the validity of the
challenged legislation. Thus: "Certain exactions, imposable under an authority other than
police power, are not subject, however, to qualification as to the amount chargeable, unless
the Constitution or the pertinent laws provide otherwise. For instance, the rates of taxes,
whether national or municipal, need not be reasonable, in the absence of such constitutional or
statutory limitation. Similarly, when a municipal corporation fixes the fees for the use of its
properties, such as public markets, it does not wield the police power, or even the power of
taxation. Neither does it assert governmental authority. It exercises merely a proprietary
function. And, like any private owner, it is in the absence of the aforementioned limitation,
which does not exist in the Charter of Cabanatuan City (Republic Act No. 526) free to
charge such sums as it may deem best, regardless of the reasonableness of the amount fixed,
for the prospective lessees are free to enter into the corresponding contract of lease, if they are
agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the "delicate and
awesome" power of passing on the validity of a statute would not be inappropriate. "The
Constitution is the supreme law, and statutes are written and enforced in submission to its
commands."4 It is likewise common place in constitutional law that a party adversely affected
could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened,
the judgment of the courts."5
Since the power of judicial review flows logically from the judicial function of ascertaining
the facts and applying the law and since obviously the Constitution is the highest law before
which statutes must bend, then inferior tribunals can, in the discharge of their judicial
functions, nullify legislative acts. As a matter of fact, in clear cases, such is not only their
power but their duty. In the language of the present Chief Justice: "In fact, whenever the
conflicting claims of the parties to a litigation cannot properly be settled without inquiring
into the validity of an act of Congress or of either House thereof, the courts have, not only
jurisdiction to pass upon said issue but, also, theduty to do so, which cannot be
evaded without violating the fundamental law and paving the way to its eventual
destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be
kept in mind. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment,

will shrink from exercising in any case where he can conscientiously and with due regard to
duty and official oath decline the responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such should not be the
case, to paraphrase Freund, when the challenged legislation imperils freedom of the mind and
of the person, for given such an undesirable situation, "it is freedom that commands a
momentum of respect." Here then, fidelity to the great ideal of liberty enshrined in the
Constitution may require the judiciary to take an uncompromising and militant stand. As
phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the
person, the standard of its validity of governmental acts is much more rigorous and
exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the
controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as
found in the majority opinion. It may not be amiss to recall to mind, however, the language of
Justice Laurel in the leading case ofPeople v. Vera,9 to the effect that the basic individual right
of equal protection "is a restraint on all the three grand departments of our government and on
the subordinate instrumentalities and subdivisions thereof, and on many constitutional
powers, like the police power, taxation and eminent domain." 10 Nonetheless, no jurist was
more careful in avoiding the dire consequences to what the legislative body might have
deemed necessary to promote the ends of public welfare if the equal protection guaranty were
made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident
from the various citations from his pen found in the majority opinion. For him, it would be a
misreading of the equal protection clause to ignore actual conditions and settled practices. Not
for him the at times academic and sterile approach to constitutional problems of this sort.
Thus: "It would be a narrow conception of jurisprudence to confine the notion of 'laws' to
what is found written on the statute books, and to disregard the gloss which life has written
upon it. Settled state practice cannot supplant constitutional guaranties, but it can establish
what is state law. The Equal Protection Clause did not write an empty formalism into the
Constitution. Deeply embedded traditional ways of carrying out state policy, such as those of
which petitioner complains, are often tougher and truer law than the dead words of the written
text."11 This too, from the same distinguished jurist: "The Constitution does not require things
which are different in fact or opinion to be treated in law as though they were the same."12

17

Now, as to non-delegation. It is to be admitted that the problem of non-delegation of

legislative power at times occasions difficulties. Its strict view has been announced by Justice
Laurel in the aforecited case of People v. Verain this language. Thus: "In testing whether a
statute constitutes an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature. .... InUnited States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it
held an act of the legislature void in so far as it undertook to authorize the Governor-General,
in his discretion, to issue a proclamation fixing the price of rice and to make the sale of it in
violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation deals not with an administrative function but one
essentially and eminently legislative in character. What could properly be stigmatized though
to quote Justice Cardozo, is delegation of authority that is "unconfined and vagrant, one not
canalized within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not
legislative in character. Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted
that within certain limits, there being a need for coping with the more intricate problems of
society, the principle of "subordinate legislation" has been accepted, not only in the United
States and England, but in practically all modern governments. This view was reiterated by
him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service
Commission.17 Thus: "Accordingly, with the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency toward the delegation of
greater powers by the legislature, and toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal
protection clause and the non-delegation principle, it is apparent how far the lower court
departed from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as
amended. Fortunately, the matter has been set right with the reversal of its decision, the
opinion of the Court, manifesting its fealty to constitutional law precepts, which have been
reiterated time and time again and for the soundest of reasons.

18

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G.
GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR; and
THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First
Instance of Manila, Branch XXX and the FEDERATION OF MANILA MARKET
VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its
approval, or the Local Tax Code (P.D. No. 231), which only demands publication after
approval.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced
Civil Case 96787 before the Court of First Instance of Manila presided over by respondent
Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the
publication requirement under the Revised Charter of the City of Manila has not been
complied with; (b) the Market Committee was not given any participation in the enactment of
the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and
Corrupt Practices Act has been violated; and (d) the ordinance would violate Presidential
Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on
livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction,
respondent Judge issued an order on March 11, 1975, denying the plea for failure of the
respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative remedies
outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of
non-compliance with the requirement of publication under the Revised City Charter.
Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not
published at all in two daily newspapers of general circulation in the City of
Manila before its enactment. Neither was it published in the same manner
after approval, although it was posted in the legislative hall and in all city
public markets and city public libraries. There being no compliance with the
mandatory requirement of publication before and after approval, the
ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a postpublication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES
FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor,
Ramon D. Bagatsing, approved the ordinance on June 15, 1974.

Forthwith, petitioners brought the matter to Us through the present petition for review on
certiorari.

19

We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the Revised Charter
of the City of Manila and the Local Tax Code on the manner of publishing a tax ordinance
enacted by the Municipal Board of Manila. For, while Section 17 of the Revised Charter
provides:
Each proposed ordinance shall be published in two daily newspapers of
general circulation in the city, and shall not be discussed or enacted by the
Board until after the third day following such publication. * * * Each
approved ordinance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its approval; and shall
take effect and be in force on and after the twentieth day following its
publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial,
city, municipal and barrioordinances levying or imposing taxes, fees or
other charges shall be published for three consecutive days in a newspaper
or publication widely circulated within the jurisdiction of the local
government, or posted in the local legislative hall or premises and in two
other conspicuous places within the territorial jurisdiction of the local
government. In either case, copies of all provincial, city, municipal and
barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires
publication before the enactment of the ordinance and after the approval thereof in two daily
newspapers of general circulation in the city, the Local Tax Code only prescribes for
publication after the approval of "ordinances levying or imposing taxes, fees or other charges"
either in a newspaper or publication widely circulated within the jurisdiction of the local
government or by posting the ordinance in the local legislative hall or premises and in two
other conspicuous places within the territorial jurisdiction of the local government.
Petitioners' compliance with the Local Tax Code rather than with the Revised Charter of the
City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it
relates only to the City of Manila, whereas the Local Tax Code is a general law because it

applies universally to all local governments. Blackstone defines general law as a universal
rule affecting the entire community and special law as one relating to particular persons or
things of a class. 1 And the rule commonly said is that a prior special law is not ordinarily
repealed by a subsequent general law. The fact that one is special and the other general creates
a presumption that the special is to be considered as remaining an exception of the general,
one as a general law of the land, the other as the law of a particular case. 2 However, the rule
readily yields to a situation where the special statute refers to a subject in general, which the
general statute treats in particular. The exactly is the circumstance obtaining in the case at
bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general,
i.e., irrespective of the nature and scope thereof,whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the realm
of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local
Tax Code controls. Here, as always, a general provision must give way to a particular
provision. 3 Special provision governs. 4 This is especially true where the law containing the
particular provision was enacted later than the one containing the general provision. The City
Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which
was decreed on June 1, 1973. The law-making power cannot be said to have intended the
establishment of conflicting and hostile systems upon the same subject, or to leave in force
provisions of a prior law by which the new will of the legislating power may be thwarted and
overthrown. Such a result would render legislation a useless and Idle ceremony, and subject
the law to the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of
Manila for damages arising from the injuries he suffered when he fell inside an uncovered and
unlighted catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on
the basis of the City Charter (R.A. 409) exempting the City of Manila from any liability for
damages or injury to persons or property arising from the failure of the city officers to enforce
the provisions of the charter or any other law or ordinance, or from negligence of the City
Mayor, Municipal Board, or other officers while enforcing or attempting to enforce the
provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189
of the Civil Code makes cities liable for damages for the death of, or injury suffered by any
persons by reason of the defective condition of roads, streets, bridges, public buildings, and
other public works under their control or supervision. On review, the Court held the Civil
Code controlling. It is true that, insofar as its territorial application is concerned, the Revised
City Charter is a special law and the subject matter of the two laws, the Revised City Charter
establishes a general rule of liability arising from negligence in general, regardless of the
object thereof, whereas the Civil Code constitutes a particularprescription for liability due to
defective streets in particular. In the same manner, the Revised Charter of the City prescribes

20

a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a
rule for the publication of "ordinance levying or imposing taxes fees or other charges in
particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific
act by a general or broad one. 7 A charter provision may be impliedly modified or superseded
by a later statute, and where a statute is controlling, it must be read into the charter
notwithstanding any particular charter provision. 8 A subsequent general law similarly
applicable to all cities prevails over any conflicting charter provision, for the reason that a
charter must not be inconsistent with the general laws and public policy of the state. 9 A
chartered city is not an independent sovereignty. The state remains supreme in all matters not
purely local. Otherwise stated, a charter must yield to the constitution and general laws of the
state, it is to have read into it that general law which governs the municipal corporation and
which the corporation cannot set aside but to which it must yield. When a city adopts a
charter, it in effect adopts as part of its charter general law of such character. 10

of those sources of revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public markets and
premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and,
also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or
otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said
decree prescribes the collection of other fees and charges thereon "with the exception of antemortem and post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees
as may be authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even
the exception clause of the decree itself permits the collection of the proper fees for livestock.
And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local
governments may collect fees for the slaughter of animals and the use of corrals * * * "

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as

having been violated by private respondent in bringing a direct suit in court. This is because
Section 47 of the Local Tax Code provides that any question or issue raised against the
legality of any tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal
in the case of tax ordinance of a city. The opinion of the city fiscal is appealable to the
Secretary of Justice, whose decision shall be final and executory unless contested before a
competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the
Revised Charter of the City of Manila or the Local Tax Code that should govern the
publication of the tax ordinance. In other words, the dispute is sharply focused on the
applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not
on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question
litigated upon is purely a legal one, the rule does not apply. 11 The principle may also be
disregarded when it does not provide a plain, speedy and adequate remedy. It may and should
be relaxed when its application may cause great and irreparable damage. 12

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of
Manila, providing that "the market committee shall formulate, recommend and adopt, subject
to the ratification of the municipal board, and approval of the mayor, policies and rules or
regulation repealing or maneding existing provisions of the market code" does not infect the
ordinance with any germ of invalidity. 17 The function of the committee is purely
recommendatory as the underscored phrase suggests, its recommendation is without binding
effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or
proposed city ordinance is not a condition sine qua non before the Municipal Board could
enact such ordinance. The native power of the Municipal Board to legislate remains
undisturbed even in the slightest degree. It can move in its own initiative and the Market
Committee cannot demur. At most, the Market Committee may serve as a legislative aide of
the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain
words, in the gathering of the necessary data, studies and the collection of consensus for the
proposal of ordinances regarding city markets. Much less could it be said that Republic Act
6039 intended to delegate to the Market Committee the adoption of regulatory measures for
the operation and administration of the city markets. Potestas delegata non delegare potest.

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance,"
because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing
power but a revenue-raising function, so that the procedure for publication under the Local
Tax Code finds no application. The pretense bears its own marks of fallacy. Precisely, the
raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New
Constitution, "Each local government unit shall have the power to create its own sources of
revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And one

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection
of said fees had been let by the City of Manila to the said corporation in a "Management and
Operating Contract." The assumption is of course saddled on erroneous premise. The fees
collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was
not made for the corporation but for the purpose of raising revenues for the city. That is the
object it serves. The entrusting of the collection of the fees does not destroy the public

21

purpose of the ordinance. So long as the purpose is public, it does not matter whether the
agency through which the money is dispensed is public or private. The right to tax depends
upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on
the nature or character of the person or corporation whose intermediate agency is to be used in
applying it. The people may be taxed for a public purpose, although it be under the direction
of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and
Corrupt Practices Act because the increased rates of market stall fees as levied by the
ordinance will necessarily inure to the unwarranted benefit and advantage of the
corporation. 19 We are concerned only with the issue whether the ordinance in question is intra
vires. Once determined in the affirmative, the measure may not be invalidated because of
consequences that may arise from its enforcement. 20

Separate Opinions
FERNANDO, J., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance
No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly
enacted. No. costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ.,
concur.
Teehankee, J., reserves his vote.

Separate Opinions

FERNANDO, J., concurring:

But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."

22

Judge 1

Republic of the Philippines

SUPREME COURT
Manila

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. 2

EN BANC
G.R. No. L-29646 November 10, 1978

City Ordinance No. 6537 is entitled:

MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT

A CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE
OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA
WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM
THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent
Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No.
72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and
against the respondents, declaring Ordinance No. 6 37 of the City of Manila
null and void. The preliminary injunction is made permanent. No
pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila
and paying the permit fee of P50.00 except persons employed in the diplomatic or consular
missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households,
and members of religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3)
months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both
such fine and imprisonment, upon conviction.5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila,
filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil
Case No. 72797, praying for the issuance of the writ of preliminary injunction and restraining
order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void. 6

(SGD

23

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and violative of the rule of the
uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and
non-useful occupations, imposing a fixed P50.00 employment permit,
which is out of proportion to the cost of registration and that it fails to
prescribe any standard to guide and/or limit the action of the Mayor, thus,
violating the fundamental principle on illegal delegation of legislative
powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens
who are thus, deprived of their rights to life, liberty and property and
therefore, violates the due process and equal protection clauses of the
Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on
September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and
making permanent the writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed
the present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND

PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF
LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND
PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void
on the ground that it violated the rule on uniformity of taxation because the rule on uniformity
of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not
a tax or revenue measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves the
exercise of discretion and judgment in the processing and approval or disapproval of
applications for employment permits and therefore is regulatory in character the second part
which requires the payment of P50.00 as employee's fee is not regulatory but a revenue
measure. There is no logic or justification in exacting P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of the ordinance is to raise money
under the guise of regulation.

I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT
ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider
valid substantial differences in situation among individual aliens who are required to pay it.
Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same amount of P50.00 is
being collected from every employed alien whether he is casual or permanent, part time or
full time or whether he is a lowly employee or a highly paid executive

24

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to
state any policy or to set up any standard to guide or limit the mayor's action, expresses no
purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal,
and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power
to grant or deny the issuance of building permits, such ordinance is invalid, being an
undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to

costs.
SO ORDERED.
Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.
Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the
Supreme Court ruled against the interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is
not uncontrolled discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to
guide the mayor in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the
people in the Philippines to engage in a means of livelihood. While it is true that the
Philippines as a State is not obliged to admit aliens within its territory, once an alien is
admitted, he cannot be deprived of life without due process of law. This guarantee includes
the means of livelihood. The shelter of protection under the due process and equal protection
clause is given to all persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.

Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's
judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason
that the employment of aliens within the country is a matter of national policy and regulation,
which properly pertain to the national government officials and agencies concerned and not to
local governments, such as the City of Manila, which after all are mere creations of the
national government.
The national policy on the matter has been determined in the statutes enacted by the
legislature, viz, the various Philippine nationalization laws which on the whole recognize the
right of aliens to obtain gainful employment in the country with the exception of certain
specific fields and areas. Such national policies may not be interfered with, thwarted or in any
manner negated by any local government or its officials since they are not separate from and
independent of the national government.

25

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil.
129: "The City of Manila is a subordinate body to the Insular (National Government ...).
When the Insular (National) Government adopts a policy, a municipality is without legal
authority to nullify and set at naught the action of the superior authority." Indeed, "not only
must all municipal powers be exercised within the limits of the organic laws, but they must be
consistent with the general law and public policy of the particular state ..." (I McQuillin,
Municipal Corporations, 2nd sec. 367, P. 1011).

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil.
129: "The City of Manila is a subordinate body to the Insular (National Government ...).
When the Insular (National) Government adopts a policy, a municipality is without legal
authority to nullify and set at naught the action of the superior authority." Indeed, "not only
must all municipal powers be exercised within the limits of the organic laws, but they must be
consistent with the general law and public policy of the particular state ..." (I McQuillin,
Municipal Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve
our foreign relations with other countries and their nationals who have been lawfully admitted
here, since in such matters the views and decisions of the Chief of State and of the legislature
must prevail over those of subordinate and local governments and officials who have no
authority whatever to take official acts to the contrary.

With more reason are such national policies binding on local governments when they involve
our foreign relations with other countries and their nationals who have been lawfully admitted
here, since in such matters the views and decisions of the Chief of State and of the legislature
must prevail over those of subordinate and local governments and officials who have no
authority whatever to take official acts to the contrary.

Separate Opinions
TEEHANKEE, J., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's
judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason
that the employment of aliens within the country is a matter of national policy and regulation,
which properly pertain to the national government officials and agencies concerned and not to
local governments, such as the City of Manila, which after all are mere creations of the
national government.
The national policy on the matter has been determined in the statutes enacted by the
legislature, viz, the various Philippine nationalization laws which on the whole recognize the
right of aliens to obtain gainful employment in the country with the exception of certain
specific fields and areas. Such national policies may not be interfered with, thwarted or in any
manner negated by any local government or its officials since they are not separate from and
independent of the national government.

26

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 51593 November 5, 1992

NATIONAL
DEVELOPMENT
COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.

BELLOSILLO, J.:
Is a public land reserved by the President for warehousing purposes in favor of a governmentowned or controlled corporation, 1 as well as the warehouse subsequently erected thereon,
exempt from real property tax?
Petitioner National Development Company (NDC), a government-owned or controlled
corporation (GOCC) existing by virtue of C.A. 182 2 and E.O. 399, 3 is authorized to engage
in commercial, industrial, mining, agricultural and other enterprises necessary or contributory
to economic development or important to public interest. It also operates, in furtherance of its
objectives, subsidiary corporations one of which is the now defucnt National Warehousing
Corporation (NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4,
Reclamation Area No. 4, of Cebu City, consisting of 4,599 square meters, for warehousing
purposes under the administration of NWC. 6 Subsequently, in 1940, a warehouse with a floor
area of 1,940 square meters more or less, was constructed thereon. 7

On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and
functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on
the land and the warehouse thereon. 10 By the first quarter of 1970, a total of P100,316.31 was
paid by NDC 11 of which only P3,895.06 was under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate
taxes paid to CEBU claiming that the land and the warehouse standing thereon belonged to
the Republic and therefore exempt from taxation. 13 CEBU did not acquiesce in the demand,
hence, the present suit filed 25 October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a
decision 14 the dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of Cebu,
thru the Treasurer of said City, to refund to the plaintiff, National
Development Company, the real estate taxes paid by it for the parcel of land
covered by Presidential Proclamation No. 430 of August 10, 1939, and the
warehouse erected thereon from and after October 25, 1966, with interests
thereon at the legal rate from the date of the filing of the complaint and the
costs of the suit.
The defendants appealed to the Court of Appeals which however certified the case to Us as
one involving pure questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be
synopsized into whether NDC is exempted from payment of the real estate taxes on the land
reserved by the President for warehousing purposes as well as the warehouse constructed
thereon, and in the affirmative, whether NDC may recover in refund unprotested real estate
taxes it paid from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that no
law grants NDC exemption from real estate taxes, and that NDC, as recipient of the land
reserved by the President pursuant to Sec. 83 of the Public Land Act, 16 is liable for payment

27

or ordinary (real estate) taxes under Sec. 115 therefore. CEBU contends that the properties
have ceased to be tax exempt under the Assessment Law. 17 when the government disposed of
them in favor of NDC, and even assuming that title to the land remains with the government
(ownership being the basis for real estate taxability under the Assessment Law), the Supreme
Court rulings establish increasing rather than "ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts
properties owned by the Republic from real estate tax, includes subject properties in the
exemption. It invokes the ruling in Board of Assessment Appeals vs. CTA & NWSA 18 which
held that properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3 of
the Assessment Law applied to all government properties whether held in governmental or
proprietary capacity. NDC rejects the applicability of Sec. 115 of the Public Land Act to the
subject land, claiming that provision contemplates dispositions of public land with eventual
transfer of title. In addition, NDC believes that it is neither a grantee of a public land nor an
applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a
provision of the Assessment Law, the precursor of the then Real Property Tax Code and the
Local Government Code, where "ownership" of the property and not "use" is the test of tax
liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption,
provides
Section 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by the United States of America, the Commonwealth of
the Philippines, any province, city, municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of
Nueva Ecija 20 where We held that its properties were not comprehended in Sec. 3, par (a), of
the Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no provision
exempting it from the payment of real estate tax on properties it may
acquire . . . There is justification in the contention of plaintiff-appellee that .

. . [I]t is undeniable that to any municipality the principal source of revenue

with which it would defray its operation will came from real property taxes.
If the National Development Company would be exempt from paying real
property taxes over these properties, the town of Gabaldon will bee
deprived of much needed revenues with which it will maintain itself and
finance the compelling needs of its inhabitants (p. 6, Brief of PlaintiffAppellee).
2. Defendant-appellant NDC does not come under classification of
municipal or public corporation in the sense that it may sue and be sued in
the same manner as any other private corporations, and in this sense, it is an
entity different from the government, defendant corporation may be sued
without its consent, and is subject to taxation. In the case NDC vs. Jose Yulo
Tobias, 7 SCRA 692, it was held that . . . plaintiff is neither the Government
of the Republic nor a branch or subdivision thereof, but a government
owned and controlled corporation which cannot be said to exercise a
sovereign function (Association Cooperativa de Credito Agricola de Miagao
vs. Monteclaro, 74 Phil. 281). it is a business corporation, and as such, its
causes of action are subject to the statute of limitations. . . . That plaintiff
herein does not exercise sovereign powers and, hence, cannot invoke the
exemptions thereof but is an agency for the performance of purely
corporate, proprietary or business functions, is apparent from its Organic
Act (Commonwealth Act 182, as amended by Commonwealth Act 311)
pursuant to Section 3 of which it "shall be subject to the provisions of the
Corporation Law insofar as they are not inconsistent" with the provisions of
said Commonwealth Act, "and shall have the general powers mentioned in
said" Corporation Law, and, hence, "may engage in commercial, industrial,
mining, agricultural, and other enterprises which may be necessary or
contributory to the economic development of the country, or important in
the public interest," as well as "acquire, hold, mortgage and alienate
personal and real property in the Philippines or elsewhere; . . . make
contracts of any kind and description", and "perform any and all acts which
a corporation or natural persons is authorized to perform under the laws
now existing or which may be enacted hereafter."

28

We find no compelling reason why the foregoing ruling, although referring to lands which
would eventually be transferred to private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and
National Waterworks and Sewerage Authority (NWSA). In that case, We held that properties
of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did
not
distinguish
between
those
possessed
by
the
government
in
sovereign/governmental/political capacity and those in private/proprietary/patrimonial
character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is more
superficial than real. The NDC decision speaks of properties owned by NDC, while
the BAA ruling concerns properties belonging to the Republic. The latter case appears to be
exceptional because the parties therein stipulated
1. That the petitioner National Waterworks and Sewerage Authority
(NAWASA) is a public corporation created by virtue of Republic Act. No.
1383, and that it is owned by the Government of the Philippines as well as
all property comprising waterworks and sewerage systems placed under
it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the property
involved in this case "is owned by the Government of the Philippines." Hence, it belongs to
the Republic of the Philippines and falls squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of
subject properties should first be established. For, while it may be stated that the Republic
owns NDC, it does not necessary follow that properties owned by NDC, are also owned by
Republic in the same way that stockholders are not ipso facto owners of the properties of
their corporation.
The Republic, like any individual, may form a corporation with personality and existence
distinct from its own. The separate personality allows a GOCC to hold and possess properties
in its own name and, thus, permit greater independence and flexibility in its operations. It
may, therefore, be stated that tax exemption of property owned by the Republic of the

Philippines "refers to properties owned by the Government and by its agencies which do not
have separate and distinct personalities (unincorporated entities). We find the separate opinion
of Justice Bautista-Angelo in Gonzales v. Hechanova, et al., 21 appropriate and enlightening

. . . The Government of the Republic of the Philippines under the Revised

Administrative Code refers to that entity through which the functions of
government are exercised, including the various arms through which
political authority is made effective whether they be provincial, municipal
or other form of local government, whereas a government instrumentality
refers to corporations owned or controlled by the government to promote
certain aspects of the economic life of our people. A government agency
therefore, must necessarily after refer to the government itself to the
Republic, as distinguished from any government instrumentality which has
a personality distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in
commercial enterprises all properties of the government and its unincorporated agencies
possessed in propriety character are taxable. Similarly, in the case at bar, NDC proceeded on
the premise that the BAA ruling declared all properties owed by GOCC's as properties in the
name of the Republic, hence, exempt under Sec. 3 of the Assessment Law.22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment
Law, it is important to establish that the property is owned by the government or its
unincorporated agency, and once government ownership is determined, the nature of the use
of the property, whether for proprietary or sovereign purposes, becomes immaterial. What
appears to have been ceded to NWC (later transferred to NDC), in the case before Us, is
merely the administration of the property while the government retains ownership of what has
been declared reserved for warehousing purposes under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a quo to
this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or
disposition." 23 The land remains "absolute property of the government." 24 The government

29

"does not part with its title by reserving them (lands), but simply gives notice to all the world
that it desires them for a certain purpose." 25 Absolute disposition of land is not implied from
reservation; 26 it merely means "a withdrawal of a specified portion of the public domain from
disposal under the land laws and the appropriation thereof, for the time being, to some
particular use or purpose of the general government." 27 As its title remains with the Republic,
the reserved land is clearly recovered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is
a form of disposition of public land which, subjects the recipient (NDC ) to real estate
taxation under Sec. 115 of the Public Land Act. as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon
which final proof has not been made or approved shall, even though and
while the title remains in the State, be subject to the ordinary taxes, which
shall be paid by the grantee or the applicant, beginning with the year next
following the one in which the homestead application has been filed, or the
concession has been approved, or the contract has been signed, as the case
may be, on the basis of the value fixed in such filing, approval or signing of
the application, concession or contract.
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in
Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of the
Assessment Law. While ordinary public lands are tax exempt because title thereto belongs to
the Republic, Sec. 115 subjects them to real estate tax even before ownership thereto is
transferred in the name of the beneficiaries. Sec. 115 comprehends three (3) modes of
disposition of Lands under the Public Land Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead
application, (b) approval of concession and, (c) signing of contract. Significantly, without
these words, the date of the accrual of the real estate tax would be indeterminate. Since NDC
is not a homesteader and no "contract" (bilateral agreement) was signed, it would appear,
then, that reservation under Sec. 83, being a unilateral act of the President, falls under
"concession".

"Concession" as a technical term under the Public Land Act is synonymous with "alienation"
and "disposition", and is defined in Sec. 10 as "any of the methods authorized by this Act for
the acquisition, lease, use, or benefit of the lands of the public domain other than timber or
mineral lands." Logically, where Sec. 115 contemplates authorized methods for acquisition,
lease, use, or benefit under the Act, the taxability of the land would depend on whether
reservation under Sec. 83 is one such method of acquisition, etc. Tersely put, is reservation
synonymous with alienation? Or, are the two terms antithetical and mutually exclusive?
Indeed, reservation connotes retention, while concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that
may be subject of disposition, to wit
Sec. 8. Only those lands shall be declared open to disposition or concession
which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reservedfor public or quasi-public uses,
nor appropriated by the Government, nor in any manner become private
property , nor those on which a private right authorized and recognized by
this Act or any valid law may be claimed, or which, having been reserved
or appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions of section
eighty-three shall be non-alienable and shall not be subject to occupation,
entry, sale, lease, or other disposition until again declared alienable under
the provisions of this Act or by proclamation of the President (Emphasis
supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land
and transform it into non-alienable or non-disposable under the Public Land Act. Section 115,
on the other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not
apply to lands reserved under Sec. 83. Consequently, the subject reserved public land remains
tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule should
apply because "[t]he exemption of public property from taxation does not extend to
improvements on the public lands made by pre-emptioners, homesteaders and other claimants,

30

or occupants, at their own expense, and these are taxable by the state . . ." 29 Consequently, the
warehouse constructed on the reserved land by NWC (now under administration by NDC),
indeed, should properly be assessed real estate tax as such improvement does not appear to
belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by
CEBU should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the former
Real Property Tax Code which exempted from taxation real property owned by the Republic
of the Philippines or any of its political subdivisions, as well as any GOCC so exempt by its
charter. 30
As regards the requirement of paying under protest before judicial recourse, CEBU argues
that in any case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the Revised
Charter of the City of Cebu, 31 requires payment under protest before resorting to judicial
action for tax refund; that it could not have acted on the first demand letter of NDC of 20 May
1970 because it was sent to the City Assessor and not to the City Treasurer; that,
consequently, there having been no appropriate prior demand, resort to judicial remedy is
premature; and, that even on the premise that there was proper demand, NDC has yet to
exhaust administrative remedies by way of appeal to the Department of Finance and/or
Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement is
Sec. 75 of the Revised Cebu City Charter because the issue is not the validity of tax
assessment but recovery of erroneous payments under Arts. 2154 and 2155 of the Civil
Code. 32 It cites the case of East Asiatic Co., Ltd. v. City of Davao33 which held that where the
tax is unauthorized, "it is not a tax assessed under the charter of the appellant City of Davao
and for that reason no protest is necessary for a claim or demand for its refund." In Ramie Textiles,
Inc. vs. Mathay, Sr., 34We held
. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund. Section 54 35 of
Commonwealth Act No. 470 does not apply to petitioner which could conceivably
not have been expected to protest a payment it honestly believed to be due. The
same refers only to the case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to make the proper protest, for in

such case, he should manifest an unwillingness to pay, and failing so, the taxpayer is
deemed to have waved his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He
had no knowledge of the fact that it was exempted from payment of the realty tax
under Commonwealth Act No. 470. Payment was made through error or mistake, in
the honest belief that petitioner was liable, and therefore could not have been made
under protest, but with complete voluntariness. In any case, a taxpayer should not be
held to suffer loss by his good intention to comply with what he believes is his legal
obligation, where such obligation does not really exist . . . The fact that petitioner
paid thru error or mistake, and the government accepted the payment, gave rise to
the application of the principle of solutio indebiti under Article 2154 of the New
Civil Code, which provides that "if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return it
arises." There is, therefore, created a tie or juridical relation in the nature ofsolutio
indebiti, expressly classified as quasi-contract under Section 2, Chapter I of Title
XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the expense of
another . . . Hence, it would seem unedifying for the government, that knowing it
has no right at all to collect or to receive money for alleged taxes paid by mistake, it
would be reluctant to return the same . . . Petitioner is not unsatisfied in the
assessment of its property. Assessment having been made, it paid the real estate
taxes without knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also said
in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio
indebiti, the claim for refund must be commenced within six (6) years from date of
payment pursuant to Article 1145 (2) of the New Civil Code 36 . . .
We sustain the appellate court to the extent that its decision covers improperly collected taxes on the
reserved land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the plaintiff,
however, did not answer in its memorandum, is partly well-taken. Actions for refund

31

of taxes illegally collected must be commenced within six (6) years from the date of
collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain data
specifying when and how much were paid by the year, of the taxes sought to be
refunded. Accordingly, the Court has no other alternative but to order the refund of
an undetermined amount based, however, on the date of payment counted six (6)
years backward from October 25, 1972, when the complaint in this case was filed. 37
As regards exhaustion of administrative remedies, We agree with the trial court that the case constitutes
an exception to the rule, as it involves purely question of law. 38 Specifically, on the requirement of
appeal to the Secretary of Finance, We further held in the same Ramie Textiles that "[E]qually not
applicable is Section 17 of Commonwealth Act No. 470 39 cited by respondent in relation to the right of
a, property owner to contest the validity of assessment . . ."

WHEREFORE, finding that National Development Company (NDC) is exempt from real estate tax on
the reserved land but liable for the warehouse erected thereon, the decision appealed from is
accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the
Regional Trial Court of Manila, to determine the proper liability of NDC, particularly on its warehouse,
and effect the corresponding refund, payment or set-off, as the case may be, conformably with this
decision. No costs.
SO ORDERED.
Cruz, Padilla and Grio-Aquino, JJ., concur.
Medialdea, J., is on leave.

Respondent CEBU likewise invites Our attention to the availability of appeal to the Government
Auditing Office although no authority is cited to Us. We do not find any either to sustain the procedure.

32