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Republic of the Philippines

SUPREME COURT
Manila

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), 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:

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:

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 second-class 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."

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.

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 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).

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 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 well-known 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 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.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

PHILIPPINE AIRLINES, INC., plaintiff-appellant,


vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund
of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the
payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two per
cent of the gross revenue or gross earning derived by the grantee from its operations
under this franchise. Such tax shall be due and payable quarterly and shall be in lieu
of all taxes of any kind, nature or description, levied, established or collected by any
municipal, provincial or national automobiles, Provided, that if, after the audit of the
accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is
shown to be due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real property in
conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since
1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation


requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the
amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner
Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil.
212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the
payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine
Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration
fees are regulatory exceptional. and not revenue measures and, therefore, do not come within the
exemption granted to PAL? under its franchise. Hence,

PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National
Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was
docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit
Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while Act
4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings,
it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees.
The resolution of the motion to dismiss was deferred by the Court until after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint
"moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine
Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which
certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid., Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It
is not held liable for a tax but for a registration fee. It therefore cannot make use of a
backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth that
a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on its
authority to tax it expressly so states, and where it is enacting a regulatory measure, it
is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)

From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides
that all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposedthough called
feesare of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation
Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg.
43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money


collected under the provisions of this Act shall accrue to the road and bridge funds of
the different provinces and chartered cities in proportion to the centum shall during
the next previous year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and maintenance of
national and provincial roads and bridges. as well as the streets and bridges in the
chartered cities to be alloted by the Secretary of Public Works and Communications
for projects recommended by the Director of Public Works in the different provinces
and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:


Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of
this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one year,
shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor


vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to the
Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As
stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation (Sonzinky
v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees. Isabela
such case, the fees may properly be regarded as taxes even though they also serve as
an instrument of regulation. If the purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then the exaction is properly called a
tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592,
593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These
exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801,
4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on
tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-
13, citing Cooley on Taxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration
fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in
the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code.
It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Though
nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-
593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor
vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the
law could have referred to an original tax and not one in addition to the tax already imposed on the
registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not
be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for
certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11).
These are not to be understood as taxes because such fees are very minimal to be revenue-raising.
Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle
registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem life
as we know it would stand still, Congress found the registration of vehicles a very convenient way of
raising much needed revenues. Without changing the earlier deputy. of registration payments as
"fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to
the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses of
the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint
of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in
legislative franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%)
of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was repealed
by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary


notwithstanding, all corporate taxpayers not specifically exempt
under Sections 24 (c) (1) of this Code shall pay the rates provided in
this section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the law
intended all corporate taxpayers to pay income tax as provided by the statute. There
can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5
of the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is not covered by
the provision. Considering the foregoing, the Court Resolved to DENY the petition
for lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail, and
freight revenues. from its outgoing flights shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any
kind, nature or description imposed, levied, established, assessed, or collected by any
municipal, city, provincial, or national authority or government, agency, now or in the
future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and licensing
of motor vehicles. Such payments are already included in the basic tax or franchise tax provided in
Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of
registration fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory
Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration
and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree
No. 1590.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Grio Aquino and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional


Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80,
inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second, dated
October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-
50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion
for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the respondent
Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of the order of
July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against
the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule
86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the claim
has been presented directly before the court in the administration proceedings. Claims
not yet due, or contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-
335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-
23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well
as the matter of prescription thereof are governed by the provisions of the National Internal revenue
Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim
Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-
10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section 2 of
Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the Court
as not affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on claims
in the ordinary course of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have been assessed against
the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be
filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. (Commissioner of
Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affairs. This should not hold true to government officials
with respect to matters not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle of estoppel. (Republic
vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and
Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162;
Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs.
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110;
Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals,
L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-
23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even after the
distribution of the estate of the decedent among his heirs (Government of the Philippines vs.
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph
of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of
the Philippines from the time the assessment was made by the Commissioner of Internal Revenue
until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the
estate already in the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may
be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court.
It may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the
income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which
reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order
of Payment of Taxes) which, though filed after the expiration of the time previously limited but before
an order of the distribution is entered, should have been granted by the respondent court, in the
absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect represents
a claim of the people at large, the only reason given for the denial that the claim was filed out of the
previously limited period, sustaining thereby private respondents' contention, erroneously as has been
demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the
total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code
is a final one and the respondent estate's sole defense of prescription has been herein overruled, the
Motion for Allowance of Claim is herein granted and respondent estate is ordered to pay and
discharge the same, subject only to the limitation of the interest collectible thereon as provided by the
Tax Code. No pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.

Office of the Solicitor General for petitioner.


Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in
the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow was
appointed administratrix. The estate was divided among and awarded to the heirs and the
proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the
income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that
the corresponding income tax returns were not filed. Thereupon, the representative of the
Collector of Internal Revenue filed said returns for the estate on the basis of information and
data obtained from the aforesaid estate proceedings and issued an assessment for the
following:

1. Deficiency income tax


1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15,
1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00
Total amount due
P2,707.44
===========
Additional residence tax P14.50
2.
for 1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he
appealed to the Court of Tax Appeals alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision
of the Commissioner on the ground that his right to assess and collect the tax has
prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax
Court in respect to the assessment for income tax for the year 1947 but held that the right to
assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the
returns were filed on August 24, 1953; assessments for both taxable years were made within
five years therefrom or on October 19, 1953; and the action to collect the tax was filed within
five years from the latter date, on August 7, 1957. For taxable year 1947, however, the return
was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five
years from the date the return was filed; hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the Tax Court for further appropriate
proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B.
Pineda liable for the payment corresponding to his share of the following taxes:

Deficiency income tax

P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel
B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from
the estate in the total amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.1awphl.nt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid
income tax due the estate only up to the extent of and in proportion to any share he received.
He relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after
the partition of an estate, heirs and distributees are liable individually for the payment of all
lawful outstanding claims against the estate in proportion to the amount or value of the
property they have respectively received from the estate."

RULING---We hold that the Government can require Manuel B. Pineda to pay the
full amount of the taxes assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging
to the estate/taxpayer. As an heir he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance.3 His liability, however,
cannot exceed the amount of his share.4

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of
the property in his possession. The reason is that the Government has a lien on the P2,500.00
received by him from the estate as his share in the inheritance, for unpaid income taxes4a for
which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code,
which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion),


association, or insurance company liable to pay the income tax, neglects or refuses to
pay the same after demand, the amount shall be a lien in favor of the Government
of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs
that may accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28.
After such payment, Pineda will have a right of contribution from his co-heirs,5 to achieve an
adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after
all the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. This remedy was adopted in Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government filed an action against all the heirs for the
collection of the tax. This action rests on the concept that hereditary property consists only of
that part which remains after the settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.6 The reason why in case suit is filed
against all the heirs the tax due from the estate is levied proportionately against them is to
achieve thereby two results: first, payment of the tax; and second, adjustment of the
shares of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the very avenue the Government
took in this case to collect the tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion to avail itself of the most expeditious
way to collect the tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve
only one objective: payment of the tax. The adjustment of the respective shares due to the
heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by
the heir from whom the Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered
to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax
for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the
whole year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,


vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the
Intermediate Appellate Court, to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name.

The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to
the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a
tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the


amended complaint and ordering:

(a) The Register of Deeds of Pasay City to issue a new Transfer


Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of


P1,000.00 as attorney's fees. (p. 30, Record on Appeal)

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF


LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED
TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
GOVERNMENT IS INDEBTED TO THE FORMER.

II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND


SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY
NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

III

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS


ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO
SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF
PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION
SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)

We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his
property was sold at public auction without notice to him and that the price paid for the property was
shockingly inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation.
He claims that the government owed him P4,116.00 when a portion of his land was expropriated on
October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15,
1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he be at the same time
a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are
they a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not
required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are
not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount
of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September
30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with
the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from
the deposit so that he could pay the tax obligation thus aborting the sale at public auction.

Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented
that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since
defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him
to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis
supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by


proof and the general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)

There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale.
The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As long
as there was substantial compliance with the requirements of the notice, the validity
of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho


Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?

A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de
Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a sale is made at public auction,
upon the theory that the lesser the price, the easier it is for the owner to effect redemption."
In Velasquez v. Coronel (5 SCRA 985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold are
unconscionable considering the wide divergence between their assessed values and
the amounts for which they had been actually sold. However, while in ordinary sales
for reasons of equity a transaction may be invalidated on the ground of inadequacy of
price, or when such inadequacy shocks one's conscience as to justify the courts to
interfere, such does not follow when the law gives to the owner the right to redeem,
as when a sale is made at public auction, upon the theory that the lesser the price the
easier it is for the owner to effect the redemption. And so it was aptly said: "When
there is the right to redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to redeem and thus
recover the loss he claims to have suffered by reason of the price obtained at the
auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity, for, if a fair price for
the land were essential to the sale, it would be useless to offer the property. Indeed, it
is notorious that the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P.
367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):

Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules
and lead to uncertainty and difficulty in the collection of taxes which are the life
blood of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years
from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without
reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez.
The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The
decision of the respondent court is affirmed.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,


vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.


Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30,
1960, this Court declared as final and executory the order for the payment by the estate of the estate
and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First
Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the
Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a
petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was,
however, denied by the court which held that the execution is not justifiable as the Government is
indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary
Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon
dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director
Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of
P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the
administratrix Simeona K. Price, as directed in the above note of the President. Considering
these facts, the Court orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5,
1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R.
No. L-14674, be deducted from the amount of P262,200.00 due and payable to the
Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government
to her without further delay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government
shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not
be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its
citizens-creditors before it can insist in the prompt payment of the latter's account to it,
specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September 28,
1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the
claimant to present a claim before the probate court so that said court may order the administrator to
pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court
of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased and
all debts or expenses of administrator and with the written notice to all the heirs legatees and
devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2.
And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90,
section 7, should be complied with.1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of
the debts and expenses of administration and it is later ascertained that there are such debts Commented [A1]: In CIR v Pineda, probate proceedings were
already closed. na divide-divide na sa mga ate girls and kuya boys
and expenses to be paid, in which case "the court having jurisdiction of the estate may, by and inheritence
order for that purpose, after hearing, settle the amount of their several liabilities, and order
how much and in what manner each person shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the
court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by Commented [A2]:
1.Debts already due and demandable.
operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and 2.There was a contract
both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes
effect by operation of law, and extinguished both debts to the concurrent amount, eventhough
the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the
estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is
not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, COURT OF APPEALS, and THE COURT
OF TAX APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP No. 36975[1] affirming the Court of Tax
Appeals decision in CTA Case No. 4872 dated March 16, 1995 [2] ordering it to pay
the amount of P110,677,668.52 as excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August
6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to
settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the
1st and 2nd quarter of 1992 in the total amount of P123,821,982.52 computed as
follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL


EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88


------------------- ----------------- ----------------- ---------------------

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

========== ========== =========== ===========[3]

In a letter dated August 20, 1992,[4] Philex protested the demand for payment of
the tax liabilities stating that it has pending claims for VAT input credit/refund for the
taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be applied against the
tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992,[6] found no merit in Philexs
position. Since these pending claims have not yet been established or determined
with certainty, it follows that no legal compensation can take place. Hence, he BIR
reiterated its demand that Philex settle the amount plus interest within 30 days from
the receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input
credit/refund against its exercise tax obligation, Philex raised the issue to the Court
of Tax Appeals on November 6, 1992.[7] In the course of the proceedings, the BIR
issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which,
applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the
latters tax obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition,
p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No.
4707). A fortiori, the liquidated debt of the Petitioner to the government cannot,
therefore, be set-off against the unliquidated claim which Petitioner conceived to
exist in its favor (see Compaia General de Tabacos vs. French and Unson, No.
14027, November 8, 1918, 39 Phil. 34).[8]

Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off
on compensation since claim for taxes is not a debt or contract.[9] The dispositive
portion of the CTA decision[10] provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount
of P110,677,668.52 representing excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as
amended.

Aggrieved with the decision, Philex appealed the case before the Court of
Appeals docketed as CA-G.R. CV No. 36975.[11] Nonetheless, on April 8, 1996, the
Court of Appeals affirmed the Court of Tax Appeals observation. The pertinent
portion of which reads:[12]

WHEREFORE, the appeal by way of petition for review is hereby


DISMISSED and the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a


Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991
but also for 1992 and 1994, computed as follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities[15] since both had already
become due and demandable, as well as fully liquidated;[16] hence, legal
compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors of each
other.[17] There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity.[18] We find no cogent reason to deviate from the aforementioned
distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,[19] we
categorically held that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of


taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected. The collection of tax cannot await the results of a lawsuit against
the government.

The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:

x x x a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.

Further, Philexs reliance on our holding in Commissioner of Internal Revenue v.


Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off
against an existing tax liability even though the refund has not yet been approved by
the Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case
was anchored on Section 51(d) of the National Revenue Code of 1939. However,
when the National Internal Revenue Code of 1977 was enacted, the same
provision upon which the Itogon-Suyoc pronouncement was based was
omitted.[22] Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that
the imposition of surcharge and interest for the non-payment of the excise taxes
within the time prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise liabilities within the prescribed period since, after all, it
still has pending claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance.[24] Evidently, to countenance
Philexs whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on
the ground that it has a pending tax claim for refund or credit against the government
which has not yet been granted. It must be noted that a distinguishing feature of a
tax is that it is compulsory rather than a matter of bargain.[25] Hence, a tax does not
depend upon the consent of the taxpayer.[26] If any payer can defer the payment of
taxes by raising the defense that it still has a pending claim for refund or credit, this
would adversely affect the government revenue system. A taxpayer cannot refuse to
pay his taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the result of the lawsuit it
filed against the government.[27] Moreover, Philex's theory that would automatically
apply its VAT input credit/refund against its tax liabilities can easily give rise to
confusion and abuse, depriving the government of authority over the manner by
which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund
with the government is immaterial for the imposition of charges and penalties
prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the
collection thereof.[28] The same cannot be condoned for flimsy reasons, [29] similar to
the one advanced by Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e)[30] of the National
Internal Revenue Code of 1977, which requires the refund of input taxes within 60
days,[31] when it took five years for the latter to grant its tax claim for VAT input
credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute that a claimant
has the burden of proof to establish the factual basis of his or her claim for tax credit
or refund,[33] however, once the claimant has submitted all the required documents, it
is the function of the BIR to assess these documents with purposeful dispatch. After
all, since taxpayers owe honesty to government it is but just that government render
fair service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from
the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax
Appeals:[36]

"The power of taxation is sometimes called also the power to destroy.


Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collectot kill the 'hen that lays the golden egg.' And, in
the order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously."

Despite our concern with the lethargic manner by which the BIR handled Philex's
tax claim, it is a settled rule that in the performance of governmental function, the
State is not bound by the neglect of its agents and officers. Nowhere is this more
true than in the field of taxation.[37] Again, while we understand Philex's predicament,
it must be stressed that the same is not valid reason for the non- payment of its tax
liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public
servants or employees especially BIR examiners who, in investigating tax claims are
seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claims for refund, the latter can seek judicial remedy before the Court of
Tax Appeals in the manner prescribed by law.[38] Second, if the inaction can be
characterized as willful neglect of duty, then recourse under the Civil Code and the
Tax Code can also be availed of.
Article 27 of the Civil Code provides:

"Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform his
official duty may file an action for damages and other relief against the
latter, without prejudice to any disciplinary action that may be taken."

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997
states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum
collected in the performance of duty or wilfully neglecting to perform, any
other duties enjoined by law."

Simply put, both provisions abhor official inaction, willful neglect and unreasonable
delay in the performance of official duties.[39] In no uncertain terms must we stress
that every public employee or servant must strive to render service to the people with
utmost diligence and efficiency. Insolence and delay have no place in government
service. The BIR, being the government collecting arm, must and should do no less.
It simply cannot be apathetic and laggard in rendering service to the taxpayer if it
wishes to remain true to its mission of hastening the country's development. We take
judicial notice of the taxpayer's generally negative perception towards the BIR;
hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in


performing its duties, still, the same cannot justify Philex's non-payment of its tax
liabilities. The adage "no one should take the law into his own hands" should have
guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby
DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is
hereby AFFIRMED.
SO ORDERED.
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS
and COMMISSIONER OF CUSTOMS, respondents.

DECISION
ROMERO, J.:

Caltex, a corporation engaged in the oil industry, imported on various dates in


1982 light/medium mix special oil and heavy crude oil for which it was assessed
the following ad valorem duties by the Collector of Customs:

1. P 97,697.143 - for the importation which arrived on April 10, 1982

2. P119,572.319 - for the importation which arrived on June 7, 1982

3. P 60,769.00 - for the importation which arrived on July 19, 1982

The basis of the assessments was a memorandum dated January 26, 1971,
issued by then Acting Commissioner of Customs which provided that the duties
and taxes in the importation of crude oil shall be based on the gross actual
receipt without deducting the basic sediment and water (BSW). The full text of
the memorandum reads as follows:
[1]

The Collector of Customs

Port of Manila

Port of Batangas

Subport of Limay, Bataan

Effective February 1, 1971, Customs duties and taxes on importation of crude oil
shall be based on the gross actual receipts without deducting the BSW as has been
previously done.

In determining the freight, the amount indicated in the bill of lading or as certified
by the ship agent shall be used as basis. However, if it is found by the examiner
that the actual receipt is more than the manifested weight, the freight shall be
adjusted accordingly.

Please see to it that all the personnel concerned in your respective ports are
informed of these instructions.

(SGD.) ROLANDO A. GEOTINA

Acting Commissioner of Customs


The assessments were timely protested by Caltex before the Collector of
Customs on June 9, 1982, July 21, 1982 and September 8, 1982, respectively, on
[2]

the ground that the BSW contents should have been deducted before imposing
the assessable ad valorem duties. The protests were, however, disregarded in a
decision dated December 19, 1983.
Caltex then elevated the case to the Commissioner of Customs, who affirmed
the Collectors finding in a decision dated October 23, 1984, disposing as follows:

WHEREFORE, finding no cogent reason to disturb the decision of the Collector of


Customs, Port of Batangas, the same is hereby affirmed.

SO ORDERED.

Undaunted, Caltex filed a petition for review with the Court of Tax Appeals
(CTA) raising the same argument. On August 9, 1991, the CTA ruled in favor of
[3]

Caltex and reversed the decisions of both the Collector of Customs and
Commissioner of Customs, the dispositive portion of the decision reads:

WHEREFORE, the petition is GRANTED. Respondent [Commissioner of


Customs] should and is hereby ordered to refund or credit to petitioner the
following amounts: P212,959.00 under Entry No. 163/82; P759,385.00 under
Entry No. 204/82; P532,732.00 under Entry No. 293/82. [4]

Disagreeing with the CTA decision, the Commissioner of Customs filed a


petition for review with the Court of Appeals questioning the decision. On
February 12, 1992, the appellate court set aside the CTAs decision and reinstated
the ruling of the Commissioner of Customs. In reversing the CTAs decision, the
[5]

Court of Appeals justified its ruling in this wise:

The ad valorem duties should thus be based on the price paid by the importer as
shown in the sales invoice. In this case, apparently the sale invoices do not indicate
a distinct and separate price or value for the crude oil alone without the basic
sediment and water contents or BSW. This is so because, as already stated, the
BSW naturally occur in crude oil. In the case at bar, the BSW was only formed and
produced during transit which should be considered an accession. Therefore, it
should be included in the delivery of crude oil as part of what was actually
purchased by the importer. (Civil Code, Art. 1166).

In computing the ad valorem duties on the basis of the sales invoice, (it becomes
irrelevant whether the volume of crude oil increased while in transit by reason of
BSW and other impurities, because the law mandates that the tax should be based
on the home consumption value which is the price indicated in the sales invoice or
the value of the importation. (Commissioner of Customs v. Proctor & Gamble, 169
SCRA 693 [1989]; Commissioner of Customs v. Court of Tax Appeals, 162 SCRA
730 [1988]; Commissioner of Customs v. Court of Tax Appeals, supra). Even if
BSW contents are deducted from the actual gross barrels received by respondent
Caltex, the price in the sales invoice would remain unaltered.

The decretal portion of the decision reads: [6]

WHEREFORE, the decision appealed from is REVERSED and the decision of the
Collector of Customs as affirmed by the Commissioner of Customs is
REINSTATED.

Dismayed by the sudden turn of events, Caltex filed a motion for


reconsideration which was, however, denied by the Court of Appeals in a
resolution dated March 19, 1992. Hence, this petition.
[7]

The basic issue for resolution is whether the Basic Sediment and Water, as
impurities, should have been deducted from the gross actual receipts to determine
the proper imposable ad valorem duties.
Before discussing the crux of the petition, a preliminary matter to be threshed
out is Caltexs assertion that the Collector of Customs should have published the
memorandum which increases the imposable duties for importation of oil, for in
the absence of publication, the same would be violative of due process and Section
3502 of the Tariff and Customs Code. At this juncture, it is important to note that
[8] [9]

the non-publication of the memorandum was not denied by the Commissioner of


Customs. [10]

There is no doubt that issuances by an administrative agency have the force


and effect of law. Corollarily, when the issuances are of general applicability,
[11]

publication is necessary as a requirement of due process. In this regard,


[12]

Commonwealth Act No. 638, mandates that besides legislations and resolutions
[13]

of public nature of the Congress of the Philippines, executive and administrative


orders and proclamations which have general applicability must also be published.
It cannot be disputed that the questioned memorandum increases the imposable
duties for the importation of oil, a departure from the previous practice. To be sure,
the increase invariably interferes with the property rights of oil importers. Hence,
the statutory norm of publication is necessary, not only for effectivity, but also to
apprise those affected. Since the assailed memorandum was never published, it
follows the same cannot be upheld. [14]

We, however, are not unmindful of the possible effect of this ruling upon our
countrys tax revenue, in light of the fact that the genesis of instant petition took
place some 16 years ago.Likewise, we cannot close our eyes to the fact that the
collections were done in reliance on the validity of the memorandum. Thus, we are
constrained to adopt a practical and realistic solution for after all, custom duties are
taxes on import and export of goods, hence, it is the lifeblood of the
nation. Undoubtedly, to accept Caltexs belated protestations will necessarily
[15]

prejudice the public interest.


In Fernandez v. Cuerva, which explained the effect of a declaration of
[16]

invalidity of an assailed legislative or executive act, we declared:

The growing awareness of the role of the judiciary as the governmental organ
which has the final say on whether or not a legislative or executive measure is
valid leads to a more appreciative attitude of the emerging concept that a
declaration of nullity may have legal consequences which the more orthodox view
would deny. That for a period of time such a statute, treaty, executive order, or
ordinance was in actual existence appears to be indisputable. What is more
appropriate and logical then than to consider it as an operative fact.

In addition to the preceding discussion, a more glaring act which must be


emphasized is that the importations occurred in 1982 or eleven (11) years after said
memorandum was issued, hence, Caltex cannot feign ignorance as to the existence
of such memorandum. Certainly, it is safe to assume that Caltex, as a regular
importer of crude oil, had knowledge that, from 1971 the procedure for
determining the ad valorem duties on crude oil importation was that the BSW
content were to be included in imposing the duties due. However, from 1971 to
1982, Caltex made no move to question the validity of the memorandum nor did it
assail the duties being charged on its shipment before the proper forum. In fact, it
would not be unwarranted to conclude that during this period, Caltex continued
importing crude oil under the procedures laid down by the Memorandum. To
compound matters, Caltex offered no plausible explanation nor justifiable reason
for its delay or omission in taking timely action against the memorandum which
was already in existence for a period of nine years prior to the importations in
question.The time-honored rule anchored on public policy is that relief will be
denied to a litigant whose claim or demand has become stale, or who has
acquiesced in the prevailing situation for an unreasonable length of time, or who
has not been vigilant or who has slept on his rights either by negligence, folly or
inattention. Caltex has no one to blame but itself.
[17]

With respect to the decisive issue posed by the instant petition, the axiomatic
rule is that the dutiable value of an imported article subject to ad valorem is
based on its home consumption value or price as freely offered for sale in
wholesale quantities in the ordinary course of trade in the principal market of
the country from where exported on the date of exportation to the
Philippines. The home consumption value is the price declared in the consular,
commercial, trade or sales invoice. Thus, in the leading case of Commissioner of
Customs v. Court of Tax Appeal, we held:
[18]

(t)he law is clear and mandatory. The dutiable value of an imported article subject
to an ad valorem rate of duty is based on its home consumption value or price as
freely offered for sale in wholesale quantities in the ordinary course of trade in the
principal markets of the country from where exported on the date of exportation to
the Philippines. That home consumption value or price is the value or price
declared in the consular, commercial, trade or sales invoice.

The above doctrine has consistently been applied by this Court in subsequent
cases.
[19]

Consequently, Caltex, in an effort to prove that the BSW contents should have
been omitted in the purchase price, submitted the sales invoices provided by its
seller in Saudi Arabia indicating a net barrel computation, that is, crude oil
[20]

without BSW. Paradoxically, the Import Entry permit declaration it submitted


[21]

before the Collector of Customs showed otherwise, that is the BSW contents were
not deducted in the purchase price. [22]

Obviously, there is a discrepancy between the sales invoice and the Import
Entry permit submitted by Caltex. Faced with this fact, we must uphold the latter
as more conclusive. In the early case of Murphy, Morris & Co. v. Collector of
Customs, we held that in the absence of any compelling reason, sworn statements
[23]

made before customs officials concerning an importation would render said


declarations conclusive upon the party. Furthermore, under the Tariff and Customs
Code, declarations and statements contained in the Import Entry Permit are
presumed to be true and correct under the penalties of falsification and
perjury. Moreover, descriptions in entries and other documents are admissions
[24]

against interest and presumptively correct. [25]

Our conclusion is premised on the fact that sales, commercial or consular


invoices are not conclusive on the government. Our customs laws should not be at
the mercy of importers who may avail of schemes and other arrangements to lower
and reduce the face value of the articles covered by such invoices. Noteworthy is
[26]

the fact that: If the customs authorities were bound by the invoice value, it is
evident that they would be, to a considerable extent, at the mercy of foreign
merchants and importers. The purpose of Congress in providing for an appraiser
was to prevent fraud upon the customs, and thus protect the revenues of the
Government. [27]

Conformably with the above discussion, a scrutiny of Caltexs Import Entry


declaration covering the importation dated April 10, 1982, stated that it had paid a
total purchase price of $53,055,905, broken down as follows:

TOTAL BARRELS PRICE/BARREL TOTAL PRICE

(Including BSW)

Arabian Light/Medium 1,411,310 $32.964 $46,522,733

Arabian Heavy 210,537 $31.030 $ 6,533,131

$53,055,905
It is important to note that in arriving at the total purchase price, the barrels
representing the BSW were included in the computation. In other words, the 1,765
barrels of BSW of Arabian light/medium mix crude oil, as well as the 1,852 barrels
of BSW for Arabian heavy, were declared by Caltex as part of the total purchase
price.
If Caltex wanted to prove that, at the outset, the BSW contents were to be
excluded from the original purchase price, then it should have declared in the
Import Entry permit that it had only paid for the Arabian Light/Medium crude oil
the amount of $46,464,241, computed as follows:

Gross Barrels : 1,411,310

Less : 1,765 (BSW content)

Net Barrels : 1,409,545

Multiplied by : $ 32.964 per barrel

TOTAL : $ 46,464,241

On the other hand, with respect to the Arabian heavy crude oil, Caltex should
have paid the amount of $6,475,624, computed as follows:

Gross Barrels : 210,537

Less : 1,852 (BSW content)

Net Barrel : 208,685

Multiplied by : $ 31.030 per barrel

TOTAL : $ 6,475,624

The importation dated June 7, 1982, as reflected in the Import Entry permit,
would reveal that Caltex paid $55,554,053 for Arabian light/medium crude oil and
$8,835,300 for Arabian light crude oil. The respective BSW contents of both
importations were included for the purpose of determining the total purchase
price. Likewise, for the importation dated July 19, 1982, the basis of the purchase
[28]

price paid by petitioner was without any deductions representing the BSW
contents. [29]

Considering the foregoing, the Collector of Customs did not err in imposing a
20% ad valorem duty on Caltexs importations on the basis of the purchase price in
the Import Entry permit instead of the sales invoices.
Caltex, however, insists that BSW contents, being impurities, are not subject
to ad valorem taxes. To support its contention, Caltex argues that:
[30]

x x x, the BSW is destined to be thrown away as they are in fact thrown away
(TSN, April 14, 1986, pp. 21 and 22 at the CTA). To petitioner, the thing of value
is the crude oil while BSW has no value whatsoever. Thus, when it is considered
that the rate of duty is based according to value (ad valorem as contrasted to
specific which is imposed as a fixed sum on each article of a class without regard
to value (Blacks Law Dictionary, Fifth Edition), such a duty cannot attach to BSW,
BSW having no value at all.

It is important to emphasize that Caltex in contending that the BSW, as


impurities, should be deducted from the purchase price, has the burden of proof to
establish the validity of the claimed deduction. A party challenging an appraisers
[31]

finding of value is required to prove not only that the appraised value is erroneous
but also what the proper value is.[32]

Evidently, the issue to be resolved is whether BSW contents are impurities


usually found in crude oil. The resolution of this query is important since under
customs law no deductions are permitted for impurities except those not usually
found in or upon such similar merchandice. [33]

Caltex asserts that these impurities are not an integral part of crude oil. This
position was sustained by the Court of Tax Appeals, thus:

It is clarified under Rule 3(b) that the application of Section 203 is premised on the
condition that before articles can be classified as forming part of the essential
article, the other article should be a compositepart or component of the essential
article. This is clear from the phrase Mixture and composite articles which consist
of different materials or are made of different components. It appears that basic
sediment and water are not components or composites of crude oil. [34]

In reversing the above finding, the Court of Appeals ruled that BSW naturally
occurs in crude oil, especially during transit, hence:

Thus, even the value of coverings and packing materials, which when destroyed
upon opening after arrival of the shipment has no value except perhaps as scrap, is
included in determining the home consumption value. There is no reason then why
the BSW elements, which naturally occur in oil, should be deducted from the gross
receipt.
[35]

We sustain the observation of the Court of Appeals.


The principal physical composition of oil are carbon and hydrogen. However,
[36]

this is not to detract from the fact that other fundamental substances are properties
of crude oil. One of this substance is water. As one authority observes:
The presence of water in the rocks is a controlling factor in the accumulation of oil
and gas. Its effect in driving these substances from the finer to the coarser pores in
the rock has been noticed. [37]

Another substance is sand.

Although most of the oil produced in the Salt Creek field, Wyo., comes from
sands, some oil has been produced in commercial quantities from crevices in the
shale strata that lie above the First Wall Creek sand. Oil is also produced from
fissured shale in a few fields in California, at Florence, Colo., and in several small
fields in Pennsylvania.[38]

As can be gleaned from the foregoing, there seems to be no dispute that BSW,
as impurities, are part of crude oil. In fact, we agree with the observation of the
Court of Appeals that these impurities could have been formed during the trip from
Saudi Arabia to the Philippines.
Because of the paucity of local precedents squarely in point, we find occasion
here to state the rule as enunciated by the United States Customs Court that [39]

prohibited the deduction for dirt or impurities other than those not usually found in
or upon the goods, thus:

Appellant conceded that no application for allowance was made under customs
regulations. Such application must be made within 10 days after the return of the
weight by customs officials, and compliance is mandatory as a condition precedent
to recovery. The judgment of the Customs Court sustaining Collectors rejection of
the protest claim was properly rendered in accordance with established
law. Appellant failed to establish that the dirt and other impurities in the feathers
were of an unusual quantity deemed to be excessive in crude imported feathers.

Consequently, the Court of Appeals did not err in concluding BSW as an


integral part of crude oil, which must be included in the computation of the
assessable duties.
Finally, Caltex avers that it failed to receive a copy of the Commissioner of
Customs petition within the 15-day period to file a petition for review. Hence, the
Court of Appeals erred in not dismissing the petition outright as provided for in
Circular No. 1-91 in relation to Circular No. 28-91.
Circular No. 1-91 issued on February 27, 1991 and pertinently provides:
xxxxxxxxx

5. HOW APPEAL TAKEN. - Appeal shall be taken by filing a verified petition for
review in six (6) legible copies, with the Court of Appeals, a copy of which shall
be served on the adverse party and on the court or agency a quo. Proof of service
of the petition on the adverse party and on the court of agency a quo shall be
attached to the petition.

While Circular 28-91 reads as follows:

A petition filed under Rule 45, or under Rule 65, or a motion for extension may be
denied outright if it is not clearly legible, or there is no proof of service on the
lower court, tribunal, or office concerned and on the adverse party in accordance
with Section 3, 5 and 10 of Rule 13, attached to the petition or motion for
extension when filed. (Underscoring supplied)

Reviewing the records of the case, while it seems that the petition
for certiorari was indeed not served upon Caltex within the 15-day reglementary
period, the same was, however, furnished the very next day. Hence, the proximity
of the service of petition for review to Caltex may be pleaded as substantial
compliance therewith. Our pronouncement is not without any precedent. In
Gabionza v. Court of Appeals, we explicitly stated:
[40]

It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and
applied as to achieve the purposes projected by the Supreme Court when it
promulgated that Circular. Circular No. 28-91 was designed to serve as an
instrument to promote and facilitate an orderly administration of justice and should
not be interpreted with such absolute literalness as to subvert its own ultimate and
legitimate objective or the goal of all rules of procedure - which is to achieve
substantial justice as expeditiously as possible.

The fact that the Circular requires that it be strictly complied with merely
underscored its mandatory nature in that it cannot be dispensed with or its
requirements altogether disregarded, but it does not thereby interdict substantial
compliance with its provisions under justifiable circumstances.

WHEREFORE, in view of the foregoing, the instant petition is DISMISSED


and the appealed decision of the Court of Appeals dated February 12, 1992, is
AFFIRMED. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional


Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80,
inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second, dated
October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-
50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion
for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the respondent
Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of the order of
July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against
the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule
86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the claim
has been presented directly before the court in the administration proceedings. Claims
not yet due, or contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-
335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-
23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well
as the matter of prescription thereof are governed by the provisions of the National Internal revenue
Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim
Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-
10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section 2 of
Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the Court
as not affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on claims
in the ordinary course of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have been assessed against
the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be
filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. (Commissioner of
Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affairs. This should not hold true to government officials
with respect to matters not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle of estoppel. (Republic
vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and
Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162;
Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs.
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110;
Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals,
L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-
23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even after the
distribution of the estate of the decedent among his heirs (Government of the Philippines vs.
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph
of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of
the Philippines from the time the assessment was made by the Commissioner of Internal Revenue
until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the
estate already in the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may
be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court.
It may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the
income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which
reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order
of Payment of Taxes) which, though filed after the expiration of the time previously limited but before
an order of the distribution is entered, should have been granted by the respondent court, in the
absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect represents
a claim of the people at large, the only reason given for the denial that the claim was filed out of the
previously limited period, sustaining thereby private respondents' contention, erroneously as has been
demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the
total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code
is a final one and the respondent estate's sole defense of prescription has been herein overruled, the
Motion for Allowance of Claim is herein granted and respondent estate is ordered to pay and
discharge the same, subject only to the limitation of the interest collectible thereon as provided by the
Tax Code. No pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera, JJ., concur.


FIRST DIVISION

[G.R. No. L-7859. December 22, 1955.]

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, Plaintiff-Appellant, v. J. ANTONIO ARANETA, as the Collector of Internal
Revenue, Defendant-Appellee.

Ernesto J. Gonzaga for Appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for Appellee.

SYLLABUS

1. CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN AND


SUPPORT OF SUGAR INDUSTRY. As the protection and promotion of the sugar industry is a
matter of public concern the Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative must be allowed full play,
subject only to the test of reasonableness; and it is not contended that the means provided in section 6
of Commonwealth Act No. 567 bear no relation to the objective pursued or are oppressive in
character. If objective an methods are alike constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the
implement. Taxation may be made the implement of the states police power (Great Atl. & Pac. Tea
Co. v. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477; MCulloch
v. Maryland, 4 Wheat, 316, 4 L. Ed. 579).

2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF TAXATION. It is inherent in the


power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation or exemption infringe
no constitutional limitation (Carmicheal v. Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed. 1245,
citing numerous authorities, at 1251).

DECISION

REYES, J. B. L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffie Act, and the "eventual loss of its preferential position in the United States market"
; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and the
imposition of the export taxes."cralaw virtua1aw library

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactures; while section 3 levies on owners
or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise

"a tax equivalent to the difference between the money value of the rental or consideration collected
and the amount representing 12 per centum of the assessed value of such land."cralaw virtua1aw
library

According to section 6 of the law

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury,
to be known as the Sugar Adjustment and Stabilization Fund, and shall be paid out only for any or
all of the following purposes or to attain any or all of the following objectives, as may be provided by
law.

First, to place the sugar industry in a position to maintain itself despite the gradual loss of the
preferential position of the Philippine sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the consequent necessity of meeting
competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component elements
thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in
the field so that all might continue profitably to engage therein;

Third, to limit the production of sugar to areas more economically suited to the production thereof;
and

Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjournment of the
next regular session of the National Assembly, make the necessary disbursements from the fund
herein created (1) for the establishment and operation of sugar experiment station or stations and the
undertaking of researchers (a)to increase the recoveries of the centrifugal sugar factories with the
view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar
cane more adaptable to different distinct conditions in the Philippines, (c) to lower the costs of raising
sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e)
to determine the possibility of utilizing the other by-products of the industry, (f) to determine what
crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitated and stabilize the industry, and (2) for the
improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to
organize the necessary agency or agencies to take charge of the expenditure and allocation of said
funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount of amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses or said agency or agencies."cralaw
virtua1aw library

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid
by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiffs opinion is not a public purpose for which a tax may be
constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs
appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiffs position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production in one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the states wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide
field of its police power, the law-making body could provide that the distribution of benefits
therefrom be readjusted among its components to enable it to resist the added strain of the increase in
taxes that it had to sustain (Sligh v. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson v. State ex rel.
Marey, 99 Fla. 1311, 128 So 853; Maxcy Inc. v. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson v. State ex rel. Marey, with reference to the citrus industry in Florida

"The protection of a large industry constituting one of the great sources of the states wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the State
is affected to such an extent by public interests as to be within the police power of the sovereign."
(128 So. 857)

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed full play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not be levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the states police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U. S.
412, 81 L. Ed. 1193; U. S. v. Butler, 297 U. S. 1, 80 L. Ed. 477; MCulloch v. Maryland, 4 Wheat.
318, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption
infringe no constitutional limitation" (Carmichael v. Southern Coal & Coke Co., 301 U. S. 495, 81 L.
Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; but the legislature is not required by the Constitution to adhere to a policy of "all or none."
As ruled in Minnesota ex rel. Pearson v. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "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;" and that the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. v. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of by-
products and solution of allied problems, as well as to the improvement of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson v.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Paras, C.J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador and Concepcion, JJ.,
concur.
Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner,

vs.

THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER


BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ,
respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority
of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil
Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its
claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising
from sales to the National Power Corporation, Atlas Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from
exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and
disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA)
and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional Commissions 3
may be brought to this Court on certiorari by the aggrieved party within thirty (30) days from receipt
of a copy thereof. The certiorari referred to is the special civil action for certiorari under Rule 65 of
the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:

(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in disallowing a claim which is still pending
resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5
in declaring that petitioner cannot avail of the right to offset any amount that it may be required under
the law to remit to the OPSF against any amount that it may receive by way of reimbursement
therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering
further the importance of the issues raised, the error in the designation of the remedy pursued will, in
this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No.
1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to
be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price
changes brought about by exchange rate adjustments and/or changes in world market prices of crude
oil and imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of
the following:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum
products subject to tax under this Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of
Energy;

c) Any additional amount to be imposed on petroleum products to augment the resources of the
Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by
persons or companies engaged in the business of importing, manufacturing and/or marketing
petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.

The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustment and/or increase in world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the
reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall
be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the
years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid
Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be
held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with
the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:

1986 P233,190,916.00

1987 335,065,650.00

1988 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt
of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected
against outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to
March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies and government-owned or controlled
corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward
payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the
reimbursement claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the
payment of the collections and the recovery of claims, since the outright payment of the sum of
P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and
reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law
to administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF,
similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be conducted expeditiously.

(4) The review of current claims (1989) will be conducted expeditiously to preclude further
accumulation of reimbursement from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation,
and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for
reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989
and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization Fund of
collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the
latter reiterating the same directive but further advising the firms to desist from offsetting collections
against their claims with the notice that "this Commission will hold in abeyance the audit of all . . .
claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund
against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending
with the then Ministry of Energy, the government entity charged with administering the OPSF. This
Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these oil companies that
such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek
reconsideration and in support thereof clearly manifest their intent to make arrangements for the
remittance to the Office of Energy Affairs of the amount of collections equivalent to what has been
previously offset, provided that this Commission authorizes the Office of Energy Affairs to prepare
the corresponding checks representing reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the remittance of collections due to the OPSF and
the reimbursement of claims from the Fund shall be made within a period of not more than one week
from each other, will benefit the Fund and not unduly jeopardize the continuing daily cash
requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no
further objectionable feature in the proposed arrangement, provided that 15% of whatever amount is
due from the Fund is retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in the course of audit and
surcharges for late remittances without prejudice to similar future retentions to answer for any
deficiency in such surcharges, and provided further that no offsetting of remittances and
reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director
Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial
verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc.
offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price
Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex
(Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing
remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted
claims). In addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to
cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details
of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535, which included
P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in
Schedule 1 as summarized as follows:

Disallowance of COA

Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b

Inventory losses

Borrow loan arrangement 14,034,786 /c

Sales to Atlas/Marcopper 32,097,083 /d

Sales to NPC 558

P257,263,300

Disallowances of OEA 130,420,235

Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges


Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of
financing charges by oil companies is not among the items for which the OPSF may be utilized.
Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for
such claims is provided in DOF Circular 1-87.

b. Product Sales Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095
indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF
impost on export sales of petroleum products. Effective February 7, 1987 sales to international
vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of
the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution
No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to
international vessels/airlines and claim the corresponding reimbursements from OPSF during the
period. It is our opinion that the effectivity of the said resolution should be February 7, 1987.

c. Inventory losses Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA
agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil
companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are
not tax paid inventories of Caltex subject to reimbursements but those of the borrower. Hence, we
recommend reduction of the claim for July, August, and November, 1987 amounting to P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment
of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the
copper mining companies in distress to the national and local governments." It is our opinion that LOI
1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no
legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein
authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable
auditing rules and regulations. With regard to the disallowances, it is further informed that the
aggrieved party has 30 days within which to appeal the decision of the Commission in accordance
with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,


ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND
THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF


EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY
BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED
NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED


BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads
as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to
recover financing charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87,
dated February 18, 1987, which allowed oil companies to "recover cost of financing working capital
associated with crude oil shipments," and provided a schedule of reimbursement in terms of peso per
barrel. It appears that on November 6, 1989, the DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing charges and justifying their reimbursement as
follows:

As part of your program to promote economic recovery, . . . oil companies (were authorized) to
refinance their imports of crude oil and petroleum products from the normal trade credit of 30 days up
to 360 days from date of loading . . . Conformably . . ., the oil companies deferred their foreign
exchange remittances for purchases by refinancing their import bills from the normal 30-day payment
term up to the desired 360 days. This refinancing of importations carried additional costs (financing
charges) which then became, due to government mandate, an inherent part of the cost of the purchases
of our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges increased oil costs
and the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase
(sic) were not validated in our independent inquiry. As manifested in Exhibit 2, using the same
formula which the DOF used in arriving at the reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil companies are actually gaining rather than
losing from the extension of credit because such extension enables them to invest the collections in
marketable securities which have much higher rates than those they incur due to the extension. The
Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our
records.

With respect to product sales or those arising from sales to international vessels or airlines, . . ., it is
believed that export sales (product sales) are entitled to claim refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view of
this Commission that the OPSF is not liable to refund such surtax on inventory losses because these
are paid to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim
recovery from the OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper mining
companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling price.

Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has
no authority to claim reimbursement for this uncollected OPSF impost because LOI 1416 dated July
17, 1984, which exempts distressed mining companies from "all taxes, duties, import fees and other
charges" was issued when OPSF was not yet in existence and could not have contemplated OPSF
imposts at the time of its formulation. Moreover, it is evident that OPSF was not created to aid
distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING


CHARGES FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO


NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT


ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL


RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE
OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL


PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition
within ten (10) days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file
their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment
filed on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added
a second purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall
be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now Department) of
Finance may include financing charges for "in essence, financing charges constitute unrecovered cost
of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989
Memorandum to the President of the Department of Finance; they "directly translate to cost
underrecovery in cases where the money market placement rates decline and at the same time the tax
on interest income increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on
the basis of Department of Finance Circular No.

1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated with crude oil
shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to
the payment of the foregoing (sic) exchange risk premium and recovery of financing charges will be
implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the
first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one year, to
be applied on crude oil' shipments from January 1, 1987. Shipments with outstanding financing as of
January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of
financing.

2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to
recover financing charges directly from the OPSF per barrel of crude oil based on the following
schedule:

Financing Period Reimbursement Rate

Pesos per Barrel

Less than 180 days None

180 days to 239 days 1.90

241 (sic) days to 299 4.02

300 days to 369 (sic) days 6.16

360 days or more 8.28


The above rates shall be subject to review every sixty

days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the
Office of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary

For Energy Affairs

Office of the President

Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and
subsequent discussions held by the Price Review committee on February 6, 1987.

On the basis of the representations made, the Department of Finance recognizes the necessity to
reduce the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such
a reduction would allow the industry to recover partly associated financing charges on crude oil
imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for
the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum period of one year,
effective January 1, 1987. In addition, since the prevailing company take would still leave
unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the
provisions of the attached Department of Finance circular. 23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges
from the OPSF, to wit:

B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both
crude and product shipments loaded after January 1, 1987 based on the following rates:

Financing Period Reimbursement Rate

(PBbl.)

Less than 180 days None

180 days to 239 days 1.90

240 days to 229 (sic) days 4.02

300 days to 359 days 6.16

360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further
guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18,
1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund.
(OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost
differential for a particular shipment and duly certified supporting documents provided for under
Ministry of Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued


by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to
the OPSF. The oil companies may also redeem said certificates in cash if not utilized, subject to
availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017.
26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the
light of the determination of executive agencies. The determination by the Department of Finance and
the OEA that financing charges are recoverable from the OPSF is entitled to great weight and
consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing
certain expenditures, is limited to the promulgation of accounting and auditing rules for, among
others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's
claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and
not supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary
government expenditures and as the monetary claims of petitioner are not allowed by law, the COA
acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the
OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose
of the OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or
analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the
Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise
allow reimbursement of financing

charges. 29
We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory
of petitioner that such does not extend to the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or use of government funds and properties, but only to
the promulgation of accounting and auditing rules for, among others, such disallowance to be
untenable in the light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine,
audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations
with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices
that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as
are necessary and appropriate to correct the deficiencies. It shall keep the general accounts, of the
Government and, for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to
define the scope of its audit and examination, establish the techniques and methods required therefor,
and promulgate accounting and auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or, unconscionable expenditures, or
uses of government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are broader
and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission
was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the
revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust by,
or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including
government-owned or controlled corporations, keep the general accounts of the Government and, for
such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate
accounting and auditing rules and regulations including those for the prevention of irregular,
unnecessary, excessive, or extravagant expenditures or uses of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor,
the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section
2 of Article XI thereof provided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues
and receipts from whatever source, including trust funds derived from bond issues; and audit, in
accordance with law and administrative regulations, all expenditures of funds or property pertaining
to or held in trust by the Government or the provinces or municipalities thereof. He shall keep the
general accounts of the Government and the preserve the vouchers pertaining thereto. It shall be the
duty of the Auditor General to bring to the attention of the proper administrative officer expenditures
of funds or property which, in his opinion, are irregular, unnecessary, excessive, or extravagant. He
shall also perform such other functions as may be prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or


uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and
regulations to prevent the same. His was merely to bring that matter to the attention of the proper
administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez 32
and Ramos vs. Aquino, 33 are no longer controlling as the two (2) were decided in the light of the
1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow
illegal expenditures of funds or uses of funds and property. Our present Constitution retains that same
power and authority, further strengthened by the definition of the COA's general jurisdiction in
Section 26 of the Government Auditing Code of the Philippines 34 and Administrative Code of 1987.
35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the
prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the
COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the
enforcement of the rules and regulations, it goes without saying that failure to comply with them is a
ground for disapproving the payment of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures of
public funds but could only "bring [the matter] to the attention of the proper administrative officer,"
under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence, since the Commission on Audit must ultimately be
responsible for the enforcement of these rules and regulations, the failure to comply with these
regulations can be a ground for disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role
and invested it with broader and more extensive powers, they did not intend merely to make the COA
a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the
Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular No.
1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued
pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other
factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are
not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other
factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what
"cost underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are
in the nature of government mandated price reductions. Hence, any other factor which seeks to be a
part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or
nature as those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad
and unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be construed in
their widest extent, but are held to be as applying only to persons or things of the same kind or class
as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they
do not have a common characteristic. The first relates to price reduction as directed by the Board of
Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii)
cannot be limited by the enumeration in these subparagraphs. What should be considered for purposes
of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the
Section which explicitly allows cost underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the
sense that such were incurred as a result of the inability to fully offset financing expenses from yields
in money market placements, they do not, however, fall under the foregoing provision of P.D. No.
1956, as amended, because the same did not result from the reduction of the domestic price of
petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by
Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret
the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it
was at the behest of the Government that petitioner refinanced its oil import payments from the
normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that
owing to the extended period for payment, the financial institution which refinanced said payments
charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would
appear then that equity considerations dictate that petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained because it accommodated the request of the
Government. Although under Section 29 of the National Internal Revenue Code such losses may be
deducted from gross income, the effect of that loss would be merely to reduce its taxable income, but
not to actually wipe out such losses. The Government then may consider some positive measures to
help petitioner and others similarly situated to obtain substantial relief. An amendment, as aforestated,
may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained
only upon the ground that some standard for its exercise is provided and that the legislature, in
making the delegation, has prescribed the manner of the exercise of the delegated authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by
reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove
COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It
cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the
petitioner. The respondents themselves admit in their Comment that underrecovery arising from sales
to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to
prove this, respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal
Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the
tax and duty exemption privileges of the National Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987."
In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was
confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the
NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price
Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952
provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported
crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or
increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil
sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be
finally decided by the Supreme

Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power
Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by
the copper mining companies in distress to the national government. Pursuant to this LOI, then
Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising
the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation
are among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by OEA has no legal
basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to
claim reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was
issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the
time of its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was not created
to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil
prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to
exempt said distressed mining companies from the payment of OPSF dues for the following reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the
OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on
February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the
government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was
issued for the purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether
direct or indirect, due and payable by the copper mining companies in distress to the Notional and
Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper
companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF
dues. Rather, such imposts are built in or already incorporated in the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF
dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent
that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil
Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished
presidential issuances which are of general application, and unless so published they shall have no
binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated
on 29 December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication unless a
different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the
exercise of legislative powers whenever the same are validly delegated by the legislature or, at
present, directly conferred by the Constitution. Administrative rules and regulations must also be
published if their purpose is to enforce or implement existing laws pursuant also to a valid delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their
approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become
effective only after fifteen days from their publication, or on another date specified by the legislature,
in accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette
after its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18
June 1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication either in the
Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise
provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to
Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor
of the taxing authority. 48 The burden of proof rests upon the party claiming exemption to prove that
it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS
and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not give petitioner the same
privilege with respect to the payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49
Respondents, on the other hand, contend that said amount was already disallowed by the OEA for
failure to substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the
abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has already
been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be
upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends
that it should be allowed to offset its claims from the OPSF against its contributions to the fund as this
has been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides
for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions
communications from the Board of Energy and the Department of Finance that supposedly authorize
compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be
no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do
not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents
also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative
Code, is misplaced because "while this provision empowers the COA to withhold payment of a
government indebtedness to a person who is also indebted to the government and apply the
government indebtedness to the satisfaction of the obligation of the person to the government, like
authority or right to make compensation is not given to the private person." 54 The reason for this, as
stated in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that money due the government,
either in the form of taxes or other dues, is its lifeblood and should be collected without hindrance.
Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative
Code makes it the respondents' duty to collect petitioner's indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a
result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead
established a special fund . . .," 56 and that the OPSF contributions do not go to the general fund of
the state and are not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose behind
OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx


(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company
which has an outstanding obligation to the Government without said obligation being offset first,
subject to the requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the state. 57 There can be no
doubt that the oil industry is greatly imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and
cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization
then of oil prices is of prime concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58 Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed
unto the end-users the consuming public. In that capacity, the petitioner, as one of such companies,
has the primary obligation to account for and remit the taxes collected to the administrator of the
OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims
for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the
petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no
proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in
order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice has no
legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their
OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum
Price Standby Fund to oil companies which have outstanding obligations with the government,
without said obligation being offset first subject to the rules on compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from sales to the National Power Corporation, which is
hereby allowed.

With costs against petitioner.

SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino,
Medialdea, Regalado, Romero and Nocon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-


appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.


Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen.
Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of
the passage and approval of said Act, was a member of the Senate of the Philippines; that on May,
1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to
donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer
was accepted by the council, subject to the condition "that the donor would submit a plan of the said
roads and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum
of P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that
the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected
feeder roads in question were private property at the time of the passage and approval of Republic Act
No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was illegal and, therefore, void ab initio";
that said appropriation of P85,000.00 was made by Congress because its members were made to
believe that the projected feeder roads in question were "public roads and not private streets of a
private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to
the aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he
was a member of the Senate of the Philippines, an alleged deed of donation copy of which is
annexed to the petition of the four (4) parcels of land constituting said projected feeder roads, in
favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on
the same date, accepted by the then Executive Secretary; that being subject to an onerous condition,
said donation partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly financially
interested in any contract with the Government, and, hence, is unconstitutional, as well as null and
void ab initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside
from relieving him from the burden of constructing his subdivision streets or roads at his own
expense"; that the construction of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue
to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the
irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from making
and securing any new and further releases on the aforementioned item of Republic Act No. 920, and
the disbursing officers of the Department of Public Works and Highways from making any further
payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on
the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent
from making and securing any new and further releases on the aforesaid item of Republic Act No. 920
and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent
is " not aware of any law which makes illegal the appropriation of public funds for the improvements
of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other respondents,
in turn, maintained that petitioner could not assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and
petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its
enforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities"
to question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is
without power appropriate public revenues for anything but a public purpose", that the instructions
and improvement of the feeder roads in question, if such roads where private property, would not be a
public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact
made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner
of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision,
certain portions of which had been reserved for the projected feeder roads aforementioned, which,
admittedly, were private property of said respondent when Republic Act No. 920, appropriating
P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads,
was passed by Congress, as well as when it was approved by the President on June 20, 1953. The
petition further alleges that the construction of said roads, to be undertaken with the aforementioned
appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of
constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent
Zulueta contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity
of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed supra sec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.

xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably, based upon the following premises,
namely: (1) that, if valid, said donation cured the constitutional infirmity of the aforementioned
appropriation; (2) that the latter may not be annulled without a previous declaration of
unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property when
the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was
approved by the President and the disbursement of said sum became effective, or on June 20, 1953
(see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private
purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after
the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a
"semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned
basic defect. Consequently, a judicial nullification of said donation need not precede the declaration
of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute, the general rule is that not only persons individually affected,
but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys
raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the U.S.,
the states of the Union are integral part of the Federation from an international viewpoint, but, each
state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the
Federal Constitution. In fact, the same was made by representatives of each state of the Union, not of
the people of the U.S., except insofar as the former represented the people of the respective States,
and the people of each State has, independently of that of the others, ratified said Constitution. In
other words, the Federal Constitution and the Federal statutes have become binding upon the people
of the U.S. in consequence of an act of, and, in this sense, through the respective states of the Union
of which they are citizens. The peculiar nature of the relation between said people and the Federal
Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the
people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof may
direct (Article II, section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that the
authority of the Republic of the Philippines over the people of the Philippines is more fully direct than
that of the states of the Union, insofar as the simple and unitary type of our national government is not
subject to limitations analogous to those imposed by the Federal Constitution upon the states of the
Union, and those imposed upon the Federal Government in the interest of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating
local or state public funds which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted
with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same.
Moreover, the reason that impelled this Court to take such position in said two (2) cases the
importance of the issues therein raised is present in the case at bar. Again, like the petitioners in the
Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which
he represents officially as its Provincial Governor, is our most populated political subdivision, 8and,
the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower
court for further proceedings not inconsistent with this decision, with the costs of this instance against
respondent Jose C. Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

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


vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant
appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant
Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy
Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos.
23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17, 1963,
the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the
Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly
report, of the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and
collects "on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of
the total number of gallons produced or manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint
and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos.
23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said
Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.

There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory


and oppressive?

2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose


percentage or specific taxes?

3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to local governments in respect of matters of
local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal,
it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed
over under the guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice
and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is
for a private as distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting
taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although
the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does
not require that the property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on
the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is
that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of
the Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not
in a case where one tax is imposed by the State and the other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not
so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962,
imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity.
The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain
substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to
that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to
enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant
of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that
only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the Provincial
Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series
of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the
provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a
specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is
not within the exceptions and limitations in the law, the same comes within the ambit of the general
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null
and void for being outside the power of the municipality to enact. 20But, the imposition of "a tax of
one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax
on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or
not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is not set ratio
between the volume of sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft
drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust
and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates
of imposable taxes. 25 This is in line with the constutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not
deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to
affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not
only municipal license taxes upon persons engaged in any business or occupation but also to levy for
public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within
the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as
the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series,
is hereby declared of valid and legal effect. Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and
Concepcion, Jr., JJ., concur.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I
am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating
doctrines that arose from a different basic premise as to the scope of such power in accordance with
the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully
what for me are the nuances and implications that could arise from the approach taken by my
brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would
limit myself to what has been set forth in City of Baguio v. De Leon. 1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or offices, he could only . It
exercise general supervision over all local governments as may be provided by law ... 3 As far as
legislative power over local government was concerned, no restriction whatsoever was placed on the
Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely
for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of
the municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local
Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the
Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, 6reaffirmed the traditional concept in these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a
statute must clearly show an intent to confer that power or the municipal corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity
arising from the terms of the grant to be resolved against the municipality." 7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as
to weakness of a claim "based merely by inferences, implications and deductions, [as they have no
place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion
reached by the Court finds support in such grant of the municipal taxing power, I concur in the result.
2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the
doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is
not violative of due process, Justice Holmes made clear in this language: 'The objection to the
taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause) no
more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or
proceedings unconstitutional on other grouse With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as
noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with
approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I
am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating
doctrines that arose from a different basic premise as to the scope of such power in accordance with
the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully
what for me are the nuances and implications that could arise from the approach taken by my
brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would
limit myself to what has been set forth in City of Baguio v. De Leon. 1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or offices, he could only . It
exercise general supervision over all local governments as may be provided by law ... 3 As far as
legislative power over local government was concerned, no restriction whatsoever was placed on the
Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely
for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of
the municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local
Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the
Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, 6reaffirmed the traditional concept in these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a
statute must clearly show an intent to confer that power or the municipal corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity
arising from the terms of the grant to be resolved against the municipality." 7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as
to weakness of a claim "based merely by inferences, implications and deductions, [as they have no
place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion
reached by the Court finds support in such grant of the municipal taxing power, I concur in the result.
2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the
doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is
not violative of due process, Justice Holmes made clear in this language: 'The objection to the
taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause) no
more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or
proceedings unconstitutional on other grouse With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as
noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with
approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.
Republic of the Philippines
SUPREME COURT

EN BANC

G.R. No. 168056 October 18, 2005

Agenda for Item No. 45

G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon.
Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et
al. vs. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas
Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G.
Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan Governor Enrique T.
Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)

RESOLUTION

For resolution are the following motions for reconsideration of the Courts Decision dated September
1, 2005 upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act1:

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the
following grounds:

A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM
PRODUCTS AND POWER GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART OF
THE BICAMERAL CONFERENCE COMMITTEE.

B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE


ON EXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER 24, ARTICLE VI, 1987
PHILIPPINE CONSTITUTION.

C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO


INCREASE THE VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE
RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF FINANCE,
CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia,
Jr., with the argument that burdening the consumers with significantly higher prices under a VAT
regime vis--vis a 3% gross tax renders the law unconstitutional for being arbitrary, oppressive and
inequitable.

and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No.
168461, on the grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section
110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the amount of input
VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the NIRC, as
amended by the EVAT Law, requiring the government or any of its instrumentalities to withhold a 5%
final withholding VAT on their gross payments on purchases of goods and services, and finding that
the questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without
due process of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;

B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987
Philippine Constitution; and

C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section
28(1) of the 1987 Philippine Constitution.

II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as
amended by the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed
as a credit against output VAT notwithstanding the finding that the tax is not progressive as exhorted
by Article VI, Section 28(1) of the 1987 Philippine Constitution.

Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.

Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted
on the no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555
on the one hand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision for
the sale of service for power generation because both the Senate and the House were in agreement that
the VAT burden for the sale of such service shall not be passed on to the end-consumer. As to the no
pass-on provision for sale of petroleum products, petitioners argue that the fact that the presence of
such a no pass-on provision in the House version and the absence thereof in the Senate Bill means
there is no conflict because "a House provision cannot be in conflict with something that does not
exist."

Such argument is flawed. Note that the rules of both houses of Congress provide that a conference
committee shall settle the "differences" in the respective bills of each house. Verily, the fact that a no
pass-on provision is present in one version but absent in the other, and one version intends two
industries, i.e., power generation companies and petroleum sellers, to bear the burden of the tax, while
the other version intended only the industry of power generation, transmission and distribution to be
saddled with such burden, clearly shows that there are indeed differences between the bills coming
from each house, which differences should be acted upon by the bicameral conference committee. It is
incorrect to conclude that there is no clash between two opposing forces with regard to the no pass-
on provision for VAT on the sale of petroleum products merely because such provision exists in the
House version while it is absent in the Senate version. It is precisely the absence of such provision in
the Senate bill and the presence thereof in the House bills that causes the conflict. The absence of the
provision in the Senate bill shows the Senates disagreement to the intention of the House of
Representatives make the sellers of petroleum bear the burden of the VAT. Thus, there are indeed two
opposing forces: on one side, the House of Representatives which wants petroleum dealers to be
saddled with the burden of paying VAT and on the other, the Senate which does not see it proper to
make that particular industry bear said burden. Clearly, such conflicts and differences between the no
pass-on provisions in the Senate and House bills had to be acted upon by the bicameral conference
committee as mandated by the rules of both houses of Congress.

Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance
with the very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a
tax on spending or consumption, thus, the burden thereof is ultimately borne by the end-consumer.

Escudero, et al., then claim that there had been changes introduced in the Rules of the House of
Representatives regarding the conduct of the House panel in a bicameral conference committee, since
the time of Tolentino vs. Secretary of Finance 2 to act as safeguards against possible abuse of authority
by the House members of the bicameral conference committee. Even assuming that the rule requiring
the House panel to report back to the House if there are substantial differences in the House and
Senate bills had indeed been introduced after Tolentino, the Court stands by its ruling that the issue of
whether or not the House panel in the bicameral conference committee complied with said internal
rule cannot be inquired into by the Court. To reiterate, "mere failure to conform to parliamentary
usage will not invalidate the action (taken by a deliberative body) when the requisite number of
members have agreed to a particular measure."3

Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional
imperative on exclusive origination of revenue bills under Section 24 of Article VI of the Constitution
when the Senate introduced amendments not connected with VAT.

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:

Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.

Section 24 speaks of origination of certain bills from the House of Representatives which has been
interpreted in the Tolentino case as follows:

To begin with, it is not the law but the revenue bill which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive changes in the Senate that the result may be
a rewriting of the whole At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law must substantially be the
same as the House bill would be to deny the Senate's power not only to "concur with amendments"
but also to " propose amendments." It would be to violate the coequality of legislative power of the
two houses of Congress and in fact make the House superior to the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose its own
version even with respect to bills which are required by the Constitution to originate in the House.

...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills,
bills authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are expected to approach the same problems from
the national perspective. Both views are thereby made to bear on the enactment of such laws.4

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the
Constitution states that the latter can propose or concur with amendments. The Court finds that the
subject provisions found in the Senate bill are within the purview of such constitutional provision as
declared in the Tolentino case.

The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve
the countrys serious financial problems. It was stated in the respective explanatory notes that there is
a need for the government to make significant expenditure savings and a credible package of revenue
measures. These measures include improvement of tax administration and control and leakages in
revenues from income taxes and value added tax. It is also stated that one opportunity that could be
beneficial to the overall status of our economy is to review existing tax rates, evaluating the relevance
given our present conditions. Thus, with these purposes in mind and to accomplish these purposes for
which the house bills were filed, i.e., to raise revenues for the government, the Senate introduced
amendments on income taxes, which as admitted by Senator Ralph Recto, would yield about P10.5
billion a year.

Moreover, since the objective of these house bills is to raise revenues, the increase in corporate
income taxes would be a great help and would also soften the impact of VAT measure on the
consumers by distributing the burden across all sectors instead of putting it entirely on the shoulders
of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e.,
percentage taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to
cushion the effects of VAT on consumers. As we said in our decision, certain goods and services
which were subject to percentage tax and excise tax would no longer be VAT exempt, thus, the
consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus,
there is a need to amend these sections to soften the impact of VAT. The Court finds no reason to
reverse the earlier ruling that the Senate introduced amendments that are germane to the subject
matter and purposes of the house bills.

Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by authority to the Executive to
increase the VAT rate, especially on account of the recommendatory power granted to the Secretary
of Finance, constitutes undue delegation of legislative power. They submit that the recommendatory
power given to the Secretary of Finance in regard to the occurrence of either of two events using the
Gross Domestic Product (GDP) as a benchmark necessarily and inherently required extended analysis
and evaluation, as well as policy making.

There is no merit in this contention. The Court reiterates that in making his recommendation to the
President on the existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take effect. The
Secretary of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to gather and collate statistical
data and other pertinent information and verify if any of the two conditions laid out by Congress is
present. Congress granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of GDP of the
previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these
two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective
January 1, 2006. Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward.There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress did not delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of
the President is to simply execute the legislative policy. That Congress chose to use the GDP as a
benchmark to determine economic growth is not within the province of the Court to inquire into, its
task being to interpret the law.

With regard to petitioner Garcias arguments, the Court also finds the same to be without merit. As
stated in the assailed Decision, the Court recognizes the burden that the consumers will be bearing
with the passage of R.A. No. 9337. But as was also stated by the Court, it cannot strike down the law
as unconstitutional simply because of its yokes. The legislature has spoken and the only role that the
Court plays in the picture is to determine whether the law was passed with due regard to the mandates
of the Constitution. Inasmuch as the Court finds that there are no constitutional infirmities with its
passage, the validity of the law must therefore be upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the
petition, citing this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting
Opinion.

The glitch in petitioners arguments is that it presents figures based on an event that is yet to happen.
Their illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains
theoretical. Theories have no place in this case as the Court must only deal with an existing case or
controversy that is appropriate or ripe for judicial determination, not one that is conjectural or
merely anticipatory.5 The Court will not intervene absent an actual and substantial controversy
admitting of specific relief through a decree conclusive in nature, as distinguished from an opinion
advising what the law would be upon a hypothetical state of facts.6

The impact of the 70% limitation on the creditable input tax will ultimately depend on how one
manages and operates its business. Market forces, strategy and acumen will dictate their moves. With
or without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic
variables will surely perish in the competition. The arguments posed are within the realm of business,
and the solution lies also in business.
Petitioners also reiterate their argument that the input tax is a property or a property right. In the same
breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-
registered persons entitlement to the creditable input tax is a mere statutory privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it
has already evolved into a vested right that the State cannot remove.

As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to
the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not
recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10%
multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output tax was established.
This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997
(R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by
law, a privilege that also the law can limit. It should be stressed that a person has no vested right in
statutory privileges.7

The concept of "vested right" is a consequence of the constitutional guaranty of due process that
expresses a present fixed interest which in right reason and natural justice is protected against
arbitrary state action; it includes not only legal or equitable title to the enforcement of a demand but
also exemptions from new obligations created after the right has become vested. Rights are considered
vested when the right to enjoyment is a present interest, absolute, unconditional, and perfect or fixed
and irrefutable.8 As adeptly stated by Associate Justice Minita V. Chico-Nazario in her Concurring
Opinion, which the Court adopts, petitioners right to the input VAT credits has not yet vested, thus

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits
were inexistent they were unrecognized and disallowed by law. The petroleum dealers had no such
property called input VAT credits. It is only rational, therefore, that they cannot acquire vested rights
to the use of such input VAT credits when they were never entitled to such credits in the first place, at
least, not until Rep. Act No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum
dealers right to use their input VAT as credit against their output VAT unlimitedly has not vested,
being a mere expectancy of a future benefit and being contingent on the continuance of Section 110 of
the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.

The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:

Moreover, there is no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of presentation in a companys financial
statements, and are not rooted in laws of nature, as are the laws of physical science, for these are
merely developed and continually modified by local and international regulatory accounting bodies.
To state otherwise and recognize such asset account as a vested right is to limit the taxing power of
the State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly restricted by
mere creations of the State.

More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and
wisdom. So long as there is a public end for which R.A. No. 9337 was passed, the means through
which such end shall be accomplished is for the legislature to choose so long as it is within
constitutional bounds. As stated in Carmichael vs. Southern Coal & Coke Co.:

If the question were ours to decide, we could not say that the legislature, in adopting the present
scheme rather than another, had no basis for its choice, or was arbitrary or unreasonable in its action.
But, as the state is free to distribute the burden of a tax without regard to the particular purpose for
which it is to be used, there is no warrant in the Constitution for setting the tax aside because a court
thinks that it could have distributed the burden more wisely. Those are functions reserved for the
legislature.9

WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The
temporary restraining order issued by the Court is LIFTED.

SO ORDERED.

(The Justices who filed their respective concurring and dissenting opinions maintain their respective
positions. Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while Justice
Consuelo Ynares- Santiago joins him in his dissenting opinion.)
GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HON. EXECUTIVE SECRETARY EDUARDO
ERMITA, ET AL.)

GR No. 168207 (AQUILINO Q. PIMENTEL, JR., ET. AL. v. EXECUTIVE SECRETARY


EDUARDO R. ERMITA, ET. AL.)

GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its


President, ROSARIO ANTONIO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue.

GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA, in his


capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner
of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary.

GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON. EDUARDO R.
ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as
Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Customs.

x-------------------------------------------------------------------x

DISSENTING OPINION

Tinga, J.:

Once again, the majority has refused to engage and refute in any meaningful fashion the arguments
raised by the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by the majority of
the issues of 70% cap, the 60-month amortization period, and 5% withholding VAT on transactions
made with the national government is regrettable, with ruinous consequences for the nation. I see no
reason to turn back from any of the views expressed in my Dissenting Opinion, and I accordingly
dissent from the denial of the Motion for Reconsideration filed by the petitioners in G.R. No.
168461.1

The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion,
and I do not see the need to replicate them herein. However, I wish to stress a few points.

Tax Statutes May Be Invalidated

If They Pose a Clear and Present Danger

To the Deprivation of Life, Liberty and

Property Without Due Process of Law

The majority again dismisses the arguments of the petitioners as "theoretical", "conjectural" or merely
"anticipatory," notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of the
E-VAT Law is ascertainable with mathematical certainty. In support of this view, the majority cites
the Courts Resolution dated 15 June 2005 in Information Technology Foundation v. COMELEC,2 one
of the rulings issued in that case subsequent to the main Decision rendered on 13 January 2004. The
reference is grievously ironic, considering that in the 13 January 2004 Decision, the Court, over
vigorous dissents, chose anyway to intervene and grant the petition despite the fact that the petitioners
therein did not allege any violation of any constitutional provision or letter of statute. 3 In this case, the
petitioners have squarely invoked the violation of the Bill of Rights of the Constitution, and yet the
majority is suddenly timid, unlike in Infotech.

Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or
otherwise, is beyond judicial attack prior to its implementation. If the tax measure in question
provided that the taxpayer shall remit all income earned to the government beginning 1 January 2008,
would this mean that the Court can take cognizance of the legal challenge only starting 2 January
2008?

I do not share the majoritys penchant for awaiting the blood spurts before taking action even when
the knifes edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be
validly challenged and stricken down even before its implementation if it poses a clear and present
danger to the deprivation of life, liberty or property of the taxpayer without due process of law. This is
the expectation of every citizen who wishes to maintain trust in all the branches of government. In the
enforcement of the constitutional rights of all persons, the commonsense expectation is that the Court,
as guardian of these rights, is empowered to step in even before the prospective violation takes place.
Hence, the evolution of the "clear and present danger" doctrine and other analogous principles,
without which, the Court would be seen as inutile in the face of constitutional violation.

Of course, not every anticipatory threat to constitutional liberties can be assailed prior to
implementation, hence the employment of the "clear and present danger" standard to separate the
wheat from the chaff. Still, the Court should not be so readily dismissive of the petitioners posture
herein merely because it is anticipatory. There should have been a meaningful engagement by the
majority of the facts and formulae presented by the petitioners before the reasonable conclusion could
have been reached on the maturity of the claim. That the majority has not bothered to do so is
ultimately of tragic consequence.

70% Input VAT Credit

An Impaired Asset

The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property
rights attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all
income earned by private persons preternaturally belongs to the government, and whatever is retained
by the person after taxes is acquired as a matter of privilege. This is the sort of thinking that has
fermented revolutions throughout history, such as the American Revolution of 1776.

I pointed out in my Dissenting Opinion that under current accepted international accounting
standards, the 30% prepaid input VAT would be recorded as a loss in the accounting books, since the
possibility of its recovery is improbable, considering that the E-VAT Law allows its recovery only
after the business has ceased to exist. Even the Bureau of Internal Revenue itself has long recognized
the unutilized input VAT as an asset.
The majority fails to realize that even under the new E-VAT Law, the State recognizes that the
persons who pre-pay that input VAT, usually the dealers or retailers, are not the persons who are
liable to pay for the tax. The VAT system, as implemented through the previous VAT law and the
new E-VAT Law, squarely holds the end consumer as the taxpayer liable to shoulder the input VAT.
Nonetheless, under the mechanism foisted in the new E-VAT Law, the dealer or retailer who pre-pays
the input VAT is virtually precluded from recovering the pre-paid input VAT, since the law only
allows such recovery upon the cessation of the business. Indeed, the only way said class of taxpayers
can recover this pre-paid input VAT was if it were to cease operations at the end of every quarter.

The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT
may anyway be carried over into the succeeding quarter, a chimera enhanced by the grossly
misleading presentation of the Office of the Solicitor General. What this deception fosters, and what
the majority fails to realize, is that since the taxpayer is perpetually obliged to remit the 30% input
VAT every quarter, there would be a continuous accumulation of excess input VAT. It is not true then
that the input VAT prepaid for the first quarter can be recovered in the second, third or fourth quarter
of that year, or at any time in the next year for that matter since the amount of prepaid input VAT
accumulates with every succeeding prepayment of input VAT. Moreover, the accumulation of the
prepaid input VAT diminishes the actual value of the refundable amounts, considering the established
principle of "time-value of money", as explained in my Dissenting Opinion.

Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are not
even ultimately liable in the first place, represents in tangible terms an actual loss. To put it more
succinctly, when the taxpayer prepays the 30% input VAT, there is no chance for its recovery except
until after the taxpayer ceases to be such. This point is crucial, as it goes in the heart of the
constitutional challenge raised by the petitioners. A recognition that the input VAT is a property asset
places it squarely in the ambit of the due process clause.

The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or
dealers were not recoverable. The nature of a sales tax precisely is that it is shouldered by the seller,
not the consumer. In that case, the clear legislative intent is to encumber the retailer with the end tax.
Under the VAT system, as enshrined under Rep. Act No. 9337, the new E-VAT Law, there is
precisely a legislative recognition that it is the end user, not the seller, who shoulders the E-VAT. The
problem with the new E-VAT law is that it correspondingly imposes a defeatist mechanism that
obviates this entitlement of the seller by forcibly withholding in perpetua this pre-paid input VAT.

The majority cites with approval Justice Chico-Nazarios argument, as expressed in her concurring
opinion, that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT
credits to speak of, and therefore, could not assert any property rights to the input VAT credits under
the new law. Of course the petroleum dealers had no input VAT credits prior to the E-VAT Law
because precisely they were not covered by the VAT system in the first place. What would now be
classified as "input VAT credits" was, in real terms, profit obtainable by the petroleum dealers prior to
the new E-VAT Law. The E-VAT Law stands to diminish such profit, not by outright taking perhaps,
but by ad infinitum confiscation with the illusory promise of eventual return. Obviously, there is a
deprivation of property in such case; yet is it seriously contended that such deprivation is ipso
facto sheltered if it is not classified as a taking, but instead reclassified as a "credit"?

It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested property
rights, rejects the notion that a person has a vested right to the earnings and profits incurred in
business. Before, no legal basis could be found to prop up such a palpably outlandish claim; but
the Decision, as affirmed by the majoritys Resolution, now enshrines a temerarious proposition with
doctrinal status.

In the Decision, and also in Justice Panganibans Separate Opinion therein, the case of United
Paracale Mining Co. v. De la Rosa4 was cited in support of the proposition that there is no vested
right to the input VAT credit. Justice Panganiban went as far as to cite that case to support the
contention that "[t]here is no vested right in a deferred input tax account; it is a mere statutory
privilege." Reliance on the case is quite misplaced. First, as pointed out in my Dissenting Opinion, it
does not even pertain to tax credits involving as it does, questions on the jurisdiction of the Bureau of
Mines.5 Second, the putative vested rights therein pertained to mining claims, yet all mineral
resources indisputably belong to the State. Herein, the rights pertain to profit incurred by private
enterprise, and certainly the majority cannot contend that such profits actually belong to the State.

As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit
when it recognizes "the right of enterprises to reasonable returns on investments, and to expansion and
growth."6 Section 20, Article II of the Constitution further mandates that the State recognize the
indispensable role of the private sector, the encouragement of private enterprise, and the provision of
incentives to needed investments.7 Indeed, there is a fundamental recognition in any form of
democratic government that recognizes a capitalist economy that the enterprise has a right to its
profits. Today, the Court instead affirms that there is no such right. Should capital flight ensue, the
phenomenom should not be blamed on investors in view of our judicial systems rejection of
capitalisms fundamental precept.

Mainstream Denunciation of 70% Cap

The fact that petitioners are dealers of petroleum products may have left the impression that the 70%
cap singularly affects the petroleum industry; or that other classes of dealers or retailers do not pose
the same objections to these "innovations" in the E-VAT law. This is far from the truth.

In fact, the clamor against the 70% cap has been widespread among the players and components in the
financial mainstream. Denunciations have been registered by the Philippine Chamber of Commerce
and Industry8, the Joint Foreign Chambers of the Philippines (comprising of the American Chamber
of Commerce in the Philippines, the Australian-New Zealand Chamber Commerce of the Philippines,
Inc., the Canadian Chamber of Commerce of the Philippines, Inc., the European Chamber of
Commerce of the Philippines, Inc., the Japanese Chamber of Commerce of the Philippines, Inc., the
Korean Chamber of Commerce and Industry of the Philippines, and the Philippine Association of
Multinational Companies Regional Headquarters, Inc.),9 the Filipino-Chinese Chamber of Commerce
and Industry,10 the Federation of Philippine Industries,11 the Consumer and Oil Price Watch,12 the
Association of Certified Public Accountants in Public Practice,13 the Philippine Tobacco
Institute,14 and the auditing firm of PricewaterhouseCooper.15

Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input
VAT "may not work across all industries because of varying profit margins". 16 Other experts who
have voiced concerns on the 70% input VAT are former NEDA Directors Cielito Habito17 and Solita
Monsod,18 Peter Wallace of the Wallace Business Forum,19 and Paul R. Cooper, director of
PricewaterhouseCooper.
In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems
surrounding the 70% cap, portions of which I replicate below:

Policy concerns on the cap

When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was to
address to some extent the under-reporting of output VAT by non-complaint taxpayers. The original
suggestion was a 90 percent cap, or effectively a 1-percent minimum VAT. At that level, the rule
should not impact adversely on complaint taxpayers, but would result in non-complaint taxpayers
having to account for closer to their true tax liability.

As a general policy consideration, one should question why our legislators are penalizing complaint
taxpayers when the fundamental issue is at the apparent inability of the Bureau of Internal Revenue
(BIR) to implement tax law effectively.

At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT.
However, somewhere in the bicameral process, the rule has become even more punitive with a 70-
percent cap. As with most amendments introduced at the bicameral stage, there is no public indication
about what lawmakers were thinking when they put the travesty in place.

xxx

One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it was
good enough for mom-and-pop stores to have to account for the VAT, it was good enough for the
biggest companies in the country to do the same. A similar argument here is that if small businesses
have to pay a minimum 3-percent tax, why should larger VAT-registered persons get away with
paying less?

The problem with this thinking is threefold:

The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the BIR
collects close to what it should from this. Nor should we be overly concerned if this is the casethe
revenues are small, and the BIRs efforts would be a lot better focused on larger taxpayers where
more significant revenues will be at issue.

VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as a
slightly more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive rule
for small businesses. (If the percentage tax is considered unduly punitive, why is it not just repealed?)

Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers below,
the registration threshold to register voluntarily for VAT if they believe the 3-percent tax imposition
to be excessive. Without the minimum VAT, smaller taxpayers might have been encouraged to enter
the more formalized VAT sector.

Potential consequences of the cap

The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is
more likely to impact on sellers of goods than on sellers of services, as their proportion of taxable
inputs are lower (there is no VAT paid when using labor, but there is VAT on the purchase of goods).
Consequently, there will be a bias toward consuming services over goods. Businesses may have an
incentive to obtain goods from the informal (and potentially tax-evading) sector as there will be no
input tax paid for the purchasein other words, the bill may actively encourage less tax complaint
behavior. Business structures may change; expect buy-sell distributors to convent into commission
agents, as this reduces the risk that they will need to pay more than should be paid under a VAT
system to cover the 3-percent minimum VAT.20

These objections are voiced by members of the sensible center, and not those reflexively against VAT
or any tax imposition of the current administration. These objections are raised by the people who
stand to be directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-month
amortization period and the 5% withholding VAT. Indeed, Justice Chico-Nazario has expressed her
disbelief over, or at least has asserted as unproven, the claimed impact of the input VAT on the
petroleum dealers.21 Of course there can be no tangible gauge as of yet on the impact of these changes
in the VAT law, since they have yet to be implemented. However, the prevalent adverse reaction
within the business sector should be sufficiently expressive of the actual fears of the people who
should know better. It is sad that the majority, by maintaining a blithely nave view of the input VAT,
perpetuates the disconnect between the Court and the business sector, unnecessarily considering that
in this instance, the concerns of the financial community can be translated into a viable constitutional
challenge.

Reliance on Legislative Amendments

An Abdication of the Courts Constitutional Duty

Justice Panganiban has already expressed the view that the remedy to the inequities caused by the new
input VAT system would be amending the law, and not an outright declaration of unconstitutionality.
I can only hazard a guess on how many members of the Court or the legal community are similarly
reliant on that remedy as a means of assuaging their fears on the impact of the input VAT innovations.

As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to
strike down unconstitutional laws. Congress may amend unconstitutional laws to remedy such legal
infirmities, but it is under no constitutional or legal obligation to do so. The same does not hold true
with this Court. The essence of judicial review mandates that the Court strike down unconstitutional
laws.

Another corollary prospect has also arisen, that the Executive Department itself will mitigate the
implementation of the 70% cap by not fully implementing the law.

This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim of
the officials of the executive branch and one that cannot be quantified by mathematical formula. This
cannot be the basis for any judicial action or vote. Moreover, such resort may actually be illegal.

For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public
officers "who shall encroach upon the powers of the legislative branch of the Government, either by
making general rules or regulations beyond the scope of his authority, or by attempting to repeal a law
or suspending the execution thereof." Certainly, the remedy to the inequities of the E-VAT Law
cannot be left to administrative pussy-footing, considering that these officials may be jailed for
refusing to implement the law, or obfuscating the legislative will.

Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or
even the Department of Finance cannot amend an act of Congress. Whatever administrative
regulations they may adopt under legislative authority must be in harmony with the provisions of the
law they are intended to carry into effect. They cannot widen or diminish its scope.22

Finally, it must be remembered that one of the central doctrines enforced in the disposition of the joint
petitions is that the power to tax belongs solely to the legislative branch of government. If the
legislative will were to be frustrated by haphazard implementation by the executive branch, all our
disquisitions on this matter, as well as the key constitutional principle on the inherent, non-delegable
nature of the legislative power of taxation, will be for naught.

Indeed, I truly fear the scenario when, after the deluge, the executive branch of government suspends
the implementation of the 70% cap, or increases the cap to a higher amount such as 90%. Any
taxpayer will have standing to attack such remedial measure, considering that the net effect would be
to diminish the governments collection of cash at hand. Following the law, the proper judicial action
would be to uphold the clear legislative intent over the reengineering of the taxing provisions by the
executive branch of government. Yet if the courts instead uphold the power of the executive branch of
government to reinvent the tax statute, then the end concession would be that the power to enact tax
laws ultimately belongs to the executive branch of government.

I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business
sector with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It could have
been stopped through the allowance of the petition in G.R. No. 168461, but regrettably the Court did
not act.

I respectfully dissent.

DANTE O. TINGA

Associate Justice
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 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.

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 post-
publication 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.

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

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 barrio ordinances 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 particular prescription for liability due to
defective streets in particular. In the same manner, the Revised Charter of the City prescribes 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

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

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 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 ante-mortem 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 * * * "

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.

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 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

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."

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."
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 141104 & 148763 June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner
Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the
refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-
rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax
Appeals (CTA), was affirmed by the Court of Appeals.

Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was
initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register
anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR)
when it moved its principal place of business, and it was re-issued VAT Registration No. 32-0-
004622, dated 15 August 1990.1

G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April
1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a
"zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal
Revenue (respondent Commissioner) to refund/credit petitioner corporation with the amount
of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992. The
respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner
corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision4 on
24 November 1997 with the following disposition

WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on
the ground of prescription, insufficiency of evidence and failure to comply with Section 230
of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack
of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated 15
April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in
its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible
error in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of
petitioner corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December
1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, assigning the following errors committed by the Court of
Appeals

THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF


REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE
[BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF
EXPORTS FOR ZERO-RATING TO APPLY.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO


SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF
VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.

III

THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS
FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS
FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.

IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-
OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8

G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except
that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.

Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods
and on its zero-rated sales, the details of which are presented as follows
Date of Application Period Covered Amount Applied For

21 August 1990 2nd Quarter, 1990 P 54,014,722.04

21 November 1990 3rd Quarter, 1990 75,304,774.77

19 February 1991 4th Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the
CTA the following petitions for review

Date Filed Period Covered CTA Case No.

20 July 1992 2nd Quarter, 1990 4831

9 October 1992 3rd Quarter, 1990 4859

14 January 1993 4th Quarter, 1990 4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions
and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its
Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive
periods for filing the same had expired. In a Resolution,10 dated 15 January 1998, the CTA denied the
motion for reconsideration of petitioner corporation since the latter presented no new matter not
already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the
alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds
cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of
merits required by Section 2 of the same Rule.

Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R.
SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding that
although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to
substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. In its
Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration of
petitioner corporation, finding no cogent reason to reverse its previous Decision.

Aggrieved, petitioner corporation filed with this Court another Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the
following issues

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT


PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88
AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-
RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR
THE INSTANT CLAIM.
B.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS


NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.

There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of
this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the
claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating
of its sales, the burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner
corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for
granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before
the CTA so it could be given the opportunity to present the required evidence.

Prescription

The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as
amended, which provided that

SEC. 106. Refunds or tax credits of input tax. x x x.

(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by
paragraph (a) above, whose sales are zero-rated may, within two years after the close of the
quarter when such sales were made, apply for the issuance of a tax credit certificate or refund
of the input taxes attributable to such sales to the extent that such input tax has not been
applied against output tax.

xxxx

(e) Period within which refund of input taxes may be made by the Commissioner. The
Commissioner shall refund input taxes within 60 days from the date the application for refund
was filed with him or his duly authorized representative. No refund of input taxes shall be
allowed unless the VAT-registered person files an application for refund within the period
prescribed in paragraphs (a), (b) and (c) as the case may be.

By a plain reading of the foregoing provision, the two-year prescriptive period for filing the
application for refund/credit of input VAT on zero-rated sales shall be determined from the close of
the quarter when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period should be counted, not from
the close of the quarter when the zero-rated sales were made, but from the date of filing of the
quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as amended, quoted as follows

SEC. 110. Return and payment of value-added tax. x x x.


(b) Time for filing of return and payment of tax. The return shall be filed and the tax paid
within 20 days following the end of each quarter specifically prescribed for a VAT-registered
person under regulations to be promulgated by the Secretary of Finance: Provided,
however, That any person whose registration is cancelled in accordance with paragraph (e) of
Section 107 shall file a return within 20 days from the cancellation of such registration.

It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230 13 of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court already
set out in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a rule, thus

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch
as the respondent Commissioner by his own rules and regulations mandates that the corporate
taxpayer opting to ask for a refund must show in its final adjustment return the income it
received from all sources and the amount of withholding taxes remitted by its withholding
agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment
return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in
the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No.
85956), we ruled that the two-year prescriptive period within which to claim a refund
commences to run, at the earliest, on the date of the filing of the adjusted final tax return.
Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for
refund.

Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that
the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to
reiterate its claim before the Court of Tax Appeals through a petition for review on April 13,
1984, the respondent appellate court manifestly committed a reversible error in affirming the
holding of the tax court that ACCRAIN's claim for refund was barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year prescriptive period
with respect to the petitioner corporation's claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it
made profits or incurred losses in its business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final
adjustment return on April 15, 1982.

In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded
on the same matter

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is
warranted under the circumstances to lay down a categorical pronouncement on the question
as to when the two-year prescriptive period in cases of quarterly corporate income tax
commences to run. A full-blown decision in this regard is rendered more imperative in the
light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in
the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted
in relation to the other provisions of the Tax Code in order to give effect the legislative intent
and to avoid an application of the law which may lead to inconvenience and absurdity. In the
case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a
sensible construction, such as will give effect to the legislative intention and so as to avoid an
unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA
EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts
must give effect to the general legislative intent that can be discovered from or is unraveled
by the four corners of the statute, and in order to discover said intent, the whole statute, and
not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al.
vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the
statute must be expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be ascertained from the
whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs.
Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now
Section 230) of the National Internal Revenue Code but also the other provisions of the Tax
Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now
Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment
and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of
the Tax Code should be harmonized with each other.

xxxx

Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68)
and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive
at a net taxable income, should be treated as advances or portions of the annual income tax
due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87
(now Section 69) which provides for the filing of adjustment returns and final payment of
income tax. Consequently, the two-year prescriptive period provided in Section 292 (now
Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.

In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year prescriptive
period under Section 306 (Section 292) of the Tax Code, should be from the date of the last
installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.

The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period
for claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at
bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated
sales.

It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but
is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid
on a purely quarterly basis without need for a final adjustment at the end of the taxable year.
However, it is also equally true that until and unless the VAT-registered taxpayer prepares and
submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much
input VAT16 the taxpayer may apply against its output VAT;17how much output VAT it is due to pay
for the quarter or how much excess input VAT it may carry-over to the following quarter; or how
much of its input VAT it may claim as refund/credit. It should be recalled that not only may a VAT-
registered taxpayer directly apply against his output VAT due the input VAT it had paid on its
importation or local purchases of goods and services during the quarter; the taxpayer is also given the
option to either (1) carry over any excess input VAT to the succeeding quarters for application against
its future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit
certificate covering the amount of such input VAT.18 Hence, even in the absence of a final adjustment
return, the determination of any output VAT payable necessarily requires that the VAT-registered
taxpayer make adjustments in its VAT return every quarter, taking into consideration the input VAT
which are creditable for the present quarter or had been carried over from the previous quarters.

Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it
does have refundable or creditable input VAT, and the same has not been applied against its output
VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus,
an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the
taxable quarter/s concerned.

Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally
or erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers
by the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or
erroneously collected national internal revenue tax, consists of monetary amounts which are currently
in the hands of the government but must rightfully be returned to the taxpayer. Therefore, whether
claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input
VAT, the taxpayer must be given equal opportunity for filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period
for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the
return and payment of the tax due which, according to the law then existing, should be made within
20 days from the end of each quarter. Having established thus, the relevant dates in the instant cases
are summarized and reproduced below

Period Covered Date of Date of Date of Filing (Case


Filing (Return w/ Filing (Application w/ w/ CTA)
BIR) BIR)

2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992

3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992

4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993

1st Quarter, 1992 20 April 1992 -- 20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within
the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT
on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner
corporation filed in time its judicial claim with the CTA, there is no showing that it had previously
filed an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended,
explicitly provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer
filed an application for refund with respondent Commissioner within the two-year prescriptive period.
The application of petitioner corporation for refund/credit of its input VAT for the first quarter of
1992 was not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-
Finance and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly
received the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102,
made the following observations

This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of
VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner
on account of the fact that it does not bear the BIR stamp showing the date when such
application was filed together with the signature or initial of the receiving officer of
respondent's Bureau. Worse still, it does not show the date of application and the signature of
a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's authorized
filer.

A review of the records reveal that the original of the aforecited application was lost during
the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt
was made to prove that petitioner exerted efforts to recover the original copy, but to no avail.
Despite this, however, We observe that petitioner completely failed to establish the missing
dates and signatures abovementioned. On this score, said application has no probative value
in demonstrating the fact of its filing within two years after the [filing of the VAT return for
the quarter] when petitioner's sales of goods were made as prescribed under Section 106(b) of
the Tax Code. We believe thus that petitioner failed to file an application for refund in due
form and within the legal period set by law at the administrative level. Hence, the case at bar
has failed to satisfy the requirement on the prior filing of an application for refund with the
respondent before the commencement of a judicial claim for refund, as prescribed under
Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation
timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also
whether petitioner corporation actually filed such administrative claim in the first place. For failing to
prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for the
first quarter of 1992, within the period prescribed by law, then the case instituted by petitioner
corporation with the CTA for the refund/credit of the very same tax cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate.

"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominated sales. "Foreign currency denominated sales", means sales to
nonresidents of goods assembled or manufactured in the Philippines, for delivery to residents
in the Philippines and paid for in convertible foreign currency remitted through the banking
system in the Philippines.

These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of
goods or services related to such zero-rated sale shall be available as tax credit or refund.20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales
to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are registered not only with the BOI, but also with the then Export
Processing Zone Authority (EPZA).21

The contentious provisions of Revenue Regulations No. 2-88 read

SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:

"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for
zero-rating for each and every separate buyer, in accordance with Section 8(d) of
Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the
manufacture, processing or repacking of his own registered export product;

"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales
invoice. The exporter (buyer) can no longer claim from the Bureau of Internal
Revenue or any other government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign
buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in
manufacturing, processing or repacking of the said buyer's goods and paid for in foreign
currency, inwardly remitted in accordance with Central Bank rules and regulations shall be
subject to zero-rate.

It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to
the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered
seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations,
but also that more than 70% of the total annual production of these corporations are actually exported.
Revenue Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented
corporations registered with it.

While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds
that its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOI-
registered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the
sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized
that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with
the EPZA and located within an export-processing zone. Petitioner corporation does not claim that its
sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-
oriented BOI-registered corporations, but rather, on the basis that the sales were made to EPZA-
registered enterprises operating within export processing zones. Although sales to export-oriented
BOI-registered enterprises and sales to EPZA-registered enterprises located within export processing
zones were both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as
amended, shall be subject to 0% VAT distinction must be made between these two types of sales
because each may have different substantiation requirements.

The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominated sales." Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e.,
1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more
comprehensive definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other commercial
documents, of export products exported directly by a registered export producer or the net
selling price of export product sold by a registered export producer or to an export trader that
subsequently exports the same: Provided, That sales of export products to another producer or
to an export trader shall only be deemed export sales when actually exported by the latter, as
evidenced by landing certificates of similar commercial documents: Provided, further,
That without actual exportation the following shall be considered constructively exported for
purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented
manufacturers; (2) sales to export processing zones; (3) sales to registered export traders
operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic
missions and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign currency or not:
Provided, further, That export sales of registered export trader may include commission
income; and Provided, finally, That exportation of goods on consignment shall not be deemed
export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos
abroad and other non-residents of the Philippines as well as returning Overseas Filipinos
under the Internal Export Program of the government and paid for in convertible foreign
currency inwardly remitted through the Philippine banking systems shall also be considered
export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export products
are actually exported. For purposes of VAT zero-rating, such producer or export trader must be
registered with the BOI and is required to actually export more than 70% of its annual production.

Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing zones
are subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of
goods or merchandise brought into the export processing zones. Of particular relevance herein is
paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the
customs territory and subsequently brought into the zone, shall be considered as export sales and the
exporter thereof shall be entitled to the benefits allowed by law for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle,22 goods and services are taxed only in the country where these
are consumed. In connection with the said principle, the Cross Border Doctrine23 mandates that no
VAT shall be imposed to form part of the cost of the goods destined for consumption outside the
territorial border of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes,
are effectively considered as foreign territory. For this reason, sales by persons from the Philippine
customs territory to those inside the export processing zones are already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are export sales, which,
under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and
PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-
oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating
within export processing zones is actually supported by subsequent development in tax laws and
regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the
BIR defined with more precision what are zero-rated export sales

(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;

Any enterprise whose export sales exceed 70% of the total annual production of the preceding
taxable year shall be considered an export-oriented enterprise upon accreditation as such
under the provisions of the Export Development Act (R.A. 7844) and its implementing rules
and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.

The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are
subject to 0% VAT.

This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which
applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied
to the applications for refund/credit of input VAT filed by petitioner corporation since it based its
applications on the zero-rating of export sales to enterprises registered with the EPZA and located
within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual
bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful dispatch.28 It therefore falls upon
herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the
existing laws (legal basis), and then to present sufficient evidence that said sales were actually made
and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).

It would initially appear that the applications for refund/credit filed by petitioner corporation cover
only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more
thorough perusal of its applications, VAT returns, pleadings, and other records of these cases would
reveal that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of
gold to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner corporation have
sufficient legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the
Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales were
deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner
corporation sold its products, were operating inside an export processing zone and duly registered
with EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially
recognized in the case Atlas Consolidated Mining & Development Corporation v. Commissioner of
Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to
apply for refund/credit of the input VAT paid on capital goods imported or locally purchased to the
extent that such input VAT has not been applied against its output VAT. Meanwhile, the effective
zero-rating of sales of gold to the CBP from 1989 to 1991 31 was already affirmed by this Court
in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it ruled that

At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The
BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered export and therefore shall be
subject to the export and premium duties. In coming out with this interpretation, the BIR also
considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold to the
Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established
the factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16
of Revenue Regulations No. 5-87, which provided as follows

SECTION 16. Refunds or tax credits of input tax.

xxxx

(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly with
the Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate
or refund. In addition, the following documents shall be attached whenever applicable:

xxxx

"3. Effectively zero-rated sale of goods and services.

"i) photo copy of approved application for zero-rate if filing for the first time.

"ii) sales invoice or receipt showing name of the person or entity to whom the
sale of goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered.

"iii) evidence of actual receipt of goods or services.

"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the date of purchase, purchase
price, amount of value-added tax paid and description of the capital
equipment locally purchased.

"ii) with respect to capital equipment imported, the photo copy of import
entry document for internal revenue tax purposes and the confirmation
receipt issued by the Bureau of Customs for the payment of the value-added
tax.

"5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government agencies, a
statement therefrom showing the amount and description of sale of goods and services, name
of persons or entities (except in case of exports) to whom the goods or services were sold, and
date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated
transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and
services, and the VAT paid (inputs) on purchases of goods and services cannot be directly
attributed to any of the aforementioned transactions, the following formula shall be used to
determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated Sale


Total Sales

X
Total Amount of Input Taxes
=
Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unacted upon by the
BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file
a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents,
such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be
governed by CTA Circular No. 1-95, as amended, reproduced in full below

In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as
receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c),
Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied
Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers,


dates and amounts covered by the invoices or receipts and the amount/s of tax paid;
and (b) a Certification of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an examination, evaluation
and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be
commissioned by the Court to conduct the audit and, thereafter, testify in Court
relative to such summary and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before the
Court or Clerk of Court anymore after the introduction of the summary and CPA certification.
It is enough that the receipts, invoices, vouchers or other documents covering the said
accounts or payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party who
desires to check and verify the correctness of the summary and CPA certification. Likewise,
the originals of the voluminous receipts, invoices or accounts must be ready for verification
and comparison in case doubt on the authenticity thereof is raised during the hearing or
resolution of the formal offer of evidence.

Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the
said Circular was issued, then petitioner corporation must have complied therewith during the course
of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-
rated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this
Court emphasized the importance of complying with the substantiation requirements for claiming
refund/credit of input VAT on zero-rated sales, to wit

For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.

This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.

xxxx

Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before
it are litigated de novo, party litigants should prove every minute aspect of their cases. No
evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be formally offered before
the CTA.

This Court thus notes with approval the following findings of the CTA:

x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output
tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid
during the year in question. What is being claimed in the instant petition is the refund
of the input taxes paid by the herein petitioner on its purchase of goods and services.
Hence, it is necessary for the Petitioner to show proof that it had indeed paid the
input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this
duty. It did not adduce in evidence the sales invoice, receipts or other documents
showing the input value added tax on the purchase of goods and services.

xxx

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into
consideration. (Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered


indicating the prices charged therefor or a list by whatever name it is known which is used in
the ordinary course of business evidencing sale and transfer or agreement to sell or transfer
goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.

These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
amount or quantity of goods sold and their selling price, and taken collectively are the best
means to prove the input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit
to establish the input VAT payments it had made on its purchases from suppliers, Revenue
Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to
qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first
time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or
services were delivered, date of delivery, amount of consideration, and description of goods or
services delivered; and (3) the evidence of actual receipt of goods or services.

Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus

Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers' invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-
97, which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments.

xxxx

The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the
Court. It does not relieve respondent of its imperative task of pre-marking photocopies of
sales receipts and invoices and submitting the same to the court after the independent CPA
shall have examined and compared them with the originals. Without presenting these pre-
marked documents as evidence from which the summary and schedules were based, the
court cannot verify the authenticity and veracity of the independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in
order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation,
No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to
a refund of input VAT.

xxxx

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure
are not ends in themselves but are primarily intended as tools in the administration of justice,
the presentation of the purchase receipts and/or invoices is not mere procedural technicality
which may be disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of the respondent's claims.

The records further show that respondent miserably failed to substantiate its claims for input
VAT refund for the first semester of 1991. Except for the summary and schedules of input
VAT payments prepared by respondent itself, no other evidence was adduced in support of its
claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it employed
the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.)
executed a certification that:

We have examined the information shown below concerning the input tax payments
made by the Makati Office of Manila Mining Corporation for the period from July 1
to December 31, 1991. Our examination included inspection of the pertinent
suppliers' invoices and official receipts and such other auditing procedures as we
considered necessary in the circumstances. x x x

As the certification merely stated that it used "auditing procedures considered necessary" and
not auditing procedures which are in accordance with generally accepted auditing principles
and standards, and that the examination was made on "input tax payments by the Manila
Mining Corporation," without specifying that the said input tax payments are attributable to
the sales of gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient
proof of the respondent's input VAT payments for the second semester.37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-
rated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to
comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive
period for the filing of the application for refund/credit thereof. This bars the grant of the application
for refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the
same Code.

Granting arguendo that the application of petitioner corporation for the refund/credit of the input
VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner
corporation still failed to present together with its application the required supporting documents,
whether before the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of proof
rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to
substantiate its claim for tax refunds. Thus:

"We note, however, that in the cases at bar, petitioner has relied totally on Revenue
Regulations No. 2-88 in determining compliance with the documentary requirements
for a successful refund or issuance of tax credit. Unmentioned is the applicable and
specific amendment later introduced by Revenue Regulations No. 3-88 dated April 7,
1988 (issued barely after two months from the promulgation of Revenue Regulations
No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations
No. 5-87 on refunds or tax credits of input tax. x x x.

xxxx

"A thorough examination of the evidence submitted by the petitioner before this
court reveals outright the failure to satisfy documentary requirements laid down under
the above-cited regulations. Specifically, petitioner was not able to present the
following documents, to wit:

"a) sales invoices or receipts;

"b) purchase invoices or receipts;

"c) evidence of actual receipt of goods;

"d) BOI statement showing the amount and description of sale of goods, etc.

"e) original or attested copies of invoice or receipt on capital equipment


locally purchased; and

"f) photocopy of import entry document and confirmation receipt on


imported capital equipment.

"There is the need to examine the sales invoices or receipts in order to ascertain the
actual amount or quantity of goods sold and their selling price. Without them, this
Court cannot verify the correctness of petitioner's claim inasmuch as the regulations
require that the input taxes being sought for refund should be limited to the portion
that is directly and entirely attributable to the particular zero-rated transaction. In this
instance, the best evidence of such transaction are the said sales invoices or receipts.

"Also, even if sales invoices are produced, there is the further need to submit
evidence that such goods were actually received by the buyer, in this case, by CBP,
Philp[h]os and PASAR.

xxxx

"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods without
the required purchase invoice or receipt, as the case may be, and confirmation
receipts.

"There is, thus, the imperative need to submit before this Court the original or attested
photocopies of petitioner's invoices or receipts, confirmation receipts and import
entry documents in order that a full ascertainment of the claimed amount may be
achieved.

"Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court, most especially on
documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity
claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v.
Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias
Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co.,
Inc. v. Commissioner of Customs, 44 SCRA 122).

There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-
destructive", as it finds comfort in the very SGV's stand, as follows:

"It is our understanding that the above procedure are sufficient for the purpose of the
Company. We make no presentation regarding the sufficiency of these procedures for
such purpose. We did not compare the total of the input tax claimed each quarter
against the pertinent VAT returns and books of accounts. The above procedures do
not constitute an audit made in accordance with generally accepted auditing
standards. Accordingly, we do not express an opinion on the company's claim for
input VAT refund or credit. Had we performed additional procedures, or had we
made an audit in accordance with generally accepted auditing standards, other matters
might have come to our attention that we would have accordingly reported on."

The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent


auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts."38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on
its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found
that petitioner corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No.
2-88, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence
submitted in accordance with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to
Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate
all needful rules and regulations for the effective enforcement of the provisions of this Code."
Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or
the issuance of a tax credit certificate with the BIR x x x to prove sales to such buyers as
required by Revenue Regulations No. 3-98. Logically, the same evidence should be presented
in support of an action to recover taxes which have been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing
sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS],
respectively, and the dates and amounts of the same, nor any evidence of actual receipt by the
said buyers of the mineral products. It merely presented receipts of purchases from suppliers
on which input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied
the claims for refund of input VATs or the issuance of tax credit certificates of petitioner
[corporation]. Significantly, in the resolution, dated 7 June 2000, this Court directed the
parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the
parties, including the petitioner, failed to address this issue, thereby necessitating the
affirmance of the ruling of the Court of Tax Appeals on this point.39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled
is the general rule that the jurisdiction of this Court in cases brought before it from the Court of
Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court,
is limited to reviewing or revising errors of law; findings of fact of the latter are conclusive. 40 This
Court is not a trier of facts. It is not its function to review, examine and evaluate or weigh the
probative value of the evidence presented.41

The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth
or falsehood of alleged facts."42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these
sales in the amount it had declared in its returns; whether all the input VAT subject of its applications
for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the
input VAT against its output VAT liabilities, are all questions of fact which could only be answered
after reviewing, examining, evaluating, or weighing the probative value of the evidence it presented,
and which this Court does not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked into questions of fact
under particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in
both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of
petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot
dispute its non-compliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA
Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the substantiation
requirements under Revenue Regulations No. 2-88 should not have applied to it, while being
conspicuously silent on the evidentiary requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening
of its cases or holding of new trial before the CTA for the reception of additional evidence, may be
granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor,
consistent with the policy that rules of procedure be liberally construed in pursuance of substantive
justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered
in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration.
Within the period for taking an appeal, the aggrieved party may move the trial court to set
aside the judgment or final order and grant a new trial for one or more of the following causes
materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which such aggrieved party has probably been impaired in
his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify the
decision or final order, or that the decision or final order is contrary to law.

In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases
and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce
the necessary evidence should be construed as excusable negligence or mistake which should
constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief that such
evidence was rendered unnecessary by the presentation of unrebutted evidence indicating that
respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-
rated." 44 The CTA denied such motion on the ground that it was not accompanied by an affidavit of
merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed
the denial of the motion, but apart from this technical defect, it also found that there was no
justification to grant the same.

On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an
affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for new
trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its counsel,
and since the ground for the motion was premised on said counsel's excusable negligence or mistake,
then the obvious conclusion is that he had personal knowledge of the facts relating to such negligence
or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its
cases and/or holding of new trial was in substantial compliance with the formal requirements of the
revised Rules of Court.

Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the
re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by the CTA
in another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of
input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No.
5296, earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the
missing export documents.

The rule that the grant or denial of motions for new trial rests on the discretion of the trial court,47 may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof.48

That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a similar motion in another case filed by the same party, does not necessarily
demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases
involve identical parties, the causes of action and the evidence to support the same can very well be
different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296,
petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting
of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account
the presentation by petitioner corporation of inward remittances of its export sales for the quarter
involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its
sales to the said foreign corporation, and its application for refund. In contrast, the present Petitions
involve the claims of petitioner corporation for refund/credit of the input VAT on its purchases of
capital goods and on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR
and PHILPHOS for the second, third, and fourth quarters of 1990 and first quarter of 1992. There
being a difference as to the bases of the claims of petitioner corporation for refund/credit of input
VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting variances as to the
evidence required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to
present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA]
that petitioner [corporation] has established a few of the aforementioned material points regarding the
possible existence of the export documents together with the prior and succeeding returns for the
quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be
bound by its ruling in CTA Case No. 5296, when these cases do not involve the exact same
circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA
Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of
new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What
the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask
for the reversal of the court's ruling.49

As elucidated by this Court in another case,50 the general rule is that the client is bound by the action
of his counsel in the conduct of his case and he cannot therefore complain that the result of the
litigation might have been otherwise had his counsel proceeded differently. It has been held time and
again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result of
the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If
such were to be admitted as valid reasons for re-opening cases, there would never be an end to
litigation so long as a new counsel could be employed to allege and show that the prior counsel had
not been sufficiently diligent, experienced or learned.

Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could
not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988,
had been in effect more than two years prior to the filing by petitioner corporation of its earliest
application for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-
95 was issued only on 25 January 1995, after petitioner corporation had filed its Petitions before the
CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The
counsel of petitioner corporation does not allege ignorance of the foregoing administrative regulation
and tax court circular, only that he no longer deemed it necessary to present the documents required
therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of petitioner
corporation. It was a judgment call made by the counsel as to which evidence to present in support of
his client's cause, later proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under
Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred
to in the said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the present
case, the supposed mistake made by the counsel of petitioner corporation is one of law, for it was
grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular
No. 1-95, as amended, did not apply to his client's cases and that there was no need to comply with
the documentary requirements set forth therein. And although the counsel of petitioner corporation
advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of
his client's right to be heard, must bind petitioner corporation. The question is not whether petitioner
corporation succeeded in establishing its interests, but whether it had the opportunity to present its
side.53

Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated the presentation
of all available evidence that would have supported the claims for refund/credit of input VAT of
petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded that
Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its
client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure,
nay, refusal, to comply with the appropriate administrative regulations and tax court circular in
pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though
these were separately instituted in a span of more than two years. It is also evident in the failure of
petitioner corporation to address the issue and to present additional evidence despite being given the
opportunity to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision,
dated 15 September 2000, in CA-G.R. SP No. 46718

x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of
gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the
petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the
Court of Tax Appeals on this point.55

Summary

Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period
for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the
quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88,
it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of
capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and
the first quarter of 1992, for not being established and substantiated by appropriate and sufficient
evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of
new trial since the non-presentation of the required documentary evidence before the BIR and the
CTA by its counsel does not constitute excusable negligence or mistake as contemplated in Section 1,
Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos.
47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.


EN BANC

June 30, 1987

G.R. No. L-53961

NATIONAL DEVELOPMENT COMPANY, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

CRUZ, J.:

We are asked to reverse the decision of the Court of Tax Appeals on the ground that it is erroneous.
We have carefully studied it and find it is not; on the contrary, it is supported by law and doctrine. So
finding, we affirm.

Reduced to simplest terms, the background facts are as follows.

The national Development Company entered into contracts in Tokyo with several Japanese
shipbuilding companies for the construction of twelve ocean-going vessels. 1 The purchase price was
to come from the proceeds of bonds issued by the Central Bank. 2 Initial payments were made in cash
and through irrevocable letters of credit. 3 Fourteen promissory notes were signed for the balance by
the NDC and, as required by the shipbuilders, guaranteed by the Republic of the
Philippines. 4 Pursuant thereto, the remaining payments and the interests thereon were remitted in due
time by the NDC to Tokyo. The vessels were eventually completed and delivered to the NDC in
Tokyo. 5

The NDC remitted to the shipbuilders in Tokyo the total amount of US$4,066,580.70 as interest on
the balance of the purchase price. No tax was withheld. The Commissioner then held the NDC liable
on such tax in the total sum of P5,115,234.74. Negotiations followed but failed. The BIR thereupon
served on the NDC a warrant of distraint and levy to enforce collection of the claimed amount. 6 The
NDC went to the Court of Tax Appeals.

The BIR was sustained by the CTA except for a slight reduction of the tax deficiency in the sum of
P900.00, representing the compromise penalty. 7 The NDC then came to this Court in a petition
for certiorari.

The petition must fail for the following reasons.

The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the
Tax Code, thus:

SEC. 37. Income from sources within the Philippines. (a) Gross income from sources
within the Philippines. The following items of gross income shall be treated as gross
income from sources within the Philippines:
(1) Interest. Interest derived from sources within the Philippines, and interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or otherwise;

xxx xxx xxx

The petitioner argues that the Japanese shipbuilders were not subject to tax under the above provision
because all the related activities the signing of the contract, the construction of the vessels, the
payment of the stipulated price, and their delivery to the NDC were done in Tokyo. 8 The law,
however, does not speak of activity but of "source," which in this case is the NDC. This is a domestic
and resident corporation with principal offices in Manila.

As the Tax Court put it:

It is quite apparent, under the terms of the law, that the Government's right to levy and collect
income tax on interest received by foreign corporations not engaged in trade or business
within the Philippines is not planted upon the condition that 'the activity or labor and the
sale from which the (interest) income flowed had its situs' in the Philippines. The law
specifies: 'Interest derived from sources within the Philippines, and interest on bonds, notes,
or other interest-bearing obligations of residents, corporate or otherwise.' Nothing there
speaks of the 'act or activity' of non-resident corporations in the Philippines, or place where
the contract is signed. The residence of the obligor who pays the interest rather than the
physical location of the securities, bonds or notes or the place of payment, is the determining
factor of the source of interest income. (Mertens, Law of Federal Income Taxation, Vol. 8, p.
128, citing A.C. Monk & Co. Inc. 10 T.C. 77; Sumitomo Bank, Ltd., 19 BTA 480; Estate of
L.E. Mckinnon, 6 BTA 412; Standard Marine Ins. Co., Ltd., 4 BTA 853; Marine Ins. Co.,
Ltd., 4 BTA 867.) Accordingly, if the obligor is a resident of the Philippines the interest
payment paid by him can have no other source than within the Philippines. The interest is
paid not by the bond, note or other interest-bearing obligations, but by the obligor. (See
mertens, Id., Vol. 8, p. 124.)

Here in the case at bar, petitioner National Development Company, a corporation duly
organized and existing under the laws of the Republic of the Philippines, with address and
principal office at Calle Pureza, Sta. Mesa, Manila, Philippines unconditionally promised to
pay the Japanese shipbuilders, as obligor in fourteen (14) promissory notes for each vessel,
the balance of the contract price of the twelve (12) ocean-going vessels purchased and
acquired by it from the Japanese corporations, including the interest on the principal sum at
the rate of five per cent (5%) per annum. (See Exhs. "D", D-1" to "D-13", pp. 100-113, CTA
Records; par. 11, Partial Stipulation of Facts.) And pursuant to the terms and conditions of
these promisory notes, which are duly signed by its Vice Chairman and General Manager,
petitioner remitted to the Japanese shipbuilders in Japan during the years 1960, 1961, and
1962 the sum of $830,613.17, $1,654,936.52 and $1,541.031.00, respectively, as interest on
the unpaid balance of the purchase price of the aforesaid vessels. (pars. 13, 14, & 15, Partial
Stipulation of Facts.)

The law is clear. Our plain duty is to apply it as written. The residence of the obligor which
paid the interest under consideration, petitioner herein, is Calle Pureza, Sta. Mesa, Manila,
Philippines; and as a corporation duly organized and existing under the laws of the
Philippines, it is a domestic corporation, resident of the Philippines. (Sec. 84(c), National
Internal Revenue Code.) The interest paid by petitioner, which is admittedly a resident of the
Philippines, is on the promissory notes issued by it. Clearly, therefore, the interest remitted to
the Japanese shipbuilders in Japan in 1960, 1961 and 1962 on the unpaid balance of the
purchase price of the vessels acquired by petitioner is interest derived from sources within the
Philippines subject to income tax under the then Section 24(b)(1) of the National Internal
Revenue Code. 9

There is no basis for saying that the interest payments were obligations of the Republic of the
Philippines and that the promissory notes of the NDC were government securities exempt from
taxation under Section 29(b)[4] of the Tax Code, reading as follows:

SEC. 29. Gross Income. xxxx xxx xxx xxx

(b) Exclusion from gross income. The following items shall not be included in gross
income and shall be exempt from taxation under this Title:

xxx xxx xxx

(4) Interest on Government Securities. Interest upon the obligations of the Government of
the Republic of the Philippines or any political subdivision thereof, but in the case of such
obligations issued after approval of this Code, only to the extent provided in the act
authorizing the issue thereof. (As amended by Section 6, R.A. No. 82; emphasis supplied)

The law invoked by the petitioner as authorizing the issuance of securities is R.A. No. 1407, which in
fact is silent on this matter. C.A. No. 182 as amended by C.A. No. 311 does carry such authorization
but, like R.A. No. 1407, does not exempt from taxes the interests on such securities.

It is also incorrect to suggest that the Republic of the Philippines could not collect taxes on the interest
remitted because of the undertaking signed by the Secretary of Finance in each of the promissory
notes that:

Upon authority of the President of the Republic of the Philippines, the undersigned, for value
received, hereby absolutely and unconditionally guarantee (sic), on behalf of the Republic of
the Philippines, the due and punctual payment of both principal and interest of the above
note.10

There is nothing in the above undertaking exempting the interests from taxes. Petitioner has not
established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely
implied but must be categorically and unmistakably expressed. 11 Any doubt concerning this question
must be resolved in favor of the taxing power. 12

Nowhere in the said undertaking do we find any inhibition against the collection of the disputed taxes.
In fact, such undertaking was made by the government in consonance with and certainly not against
the following provisions of the Tax Code:

Sec. 53(b). Nonresident aliens. All persons, corporations and general co-partnership
(companies colectivas), in whatever capacity acting, including lessees or mortgagors of real
or personal capacity, executors, administrators, receivers, conservators, fiduciaries,
employers, and all officers and employees of the Government of the Philippines having
control, receipt, custody; disposal or payment of interest, dividends, rents, salaries, wages,
premiums, annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or categorical gains, profits and income of any nonresident alien
individual, not engaged in trade or business within the Philippines and not having any office
or place of business therein, shall (except in the cases provided for in subsection (a) of this
section) deduct and withhold from such annual or periodical gains, profits and income a tax to
twenty (now 30%) per centum thereof: ...

Sec. 54. Payment of corporation income tax at source. In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines and
not having any office or place of business therein, there shall be deducted and withheld at the
source in the same manner and upon the same items as is provided in section fifty-three a tax
equal to thirty (now 35%) per centum thereof, and such tax shall be returned and paid in the
same manner and subject to the same conditions as provided in that section:....

Manifestly, the said undertaking of the Republic of the Philippines merely guaranteed the obligations
of the NDC but without diminution of its taxing power under existing laws.

In suggesting that the NDC is merely an administrator of the funds of the Republic of the Philippines,
the petitioner closes its eyes to the nature of this entity as a corporation. As such, it is governed in its
proprietary activities not only by its charter but also by the Corporation Code and other pertinent laws.

The petitioner also forgets that it is not the NDC that is being taxed. The tax was due on the interests
earned by the Japanese shipbuilders. It was the income of these companies and not the Republic of the
Philippines that was subject to the tax the NDC did not withhold.

In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to
withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the
Tax Code, thus:

Section 53(c). Return and Payment. Every person required to deduct and withhold any tax
under this section shall make return thereof, in duplicate, on or before the fifteenth day of
April of each year, and, on or before the time fixed by law for the payment of the tax, shall
pay the amount withheld to the officer of the Government of the Philippines authorized to
receive it. Every such person is made personally liable for such tax, and is indemnified
against the claims and demands of any person for the amount of any payments made in
accordance with the provisions of this section. (As amended by Section 9, R.A. No. 2343.)

In Philippine Guaranty Co. v. The Commissioner of Internal Revenue and the Court of Tax
Appeals, 13 the Court quoted with approval the following regulation of the BIR on the responsibilities
of withholding agents:

In case of doubt, a withholding agent may always protect himself by withholding the tax due,
and promptly causing a query to be addressed to the Commissioner of Internal Revenue for
the determination whether or not the income paid to an individual is not subject to
withholding. In case the Commissioner of Internal Revenue decides that the income paid to an
individual is not subject to withholding, the withholding agent may thereupon remit the
amount of a tax withheld. (2nd par., Sec. 200, Income Tax Regulations).

"Strict observance of said steps is required of a withholding agent before he could be released from
liability," so said Justice Jose P. Bengson, who wrote the decision. "Generally, the law frowns upon
exemption from taxation; hence, an exempting provision should be construed strictissimi juris." 14

The petitioner was remiss in the discharge of its obligation as the withholding agent of the
government an so should be held liable for its omission.

WHEREFORE, the appealed decision is AFFIRMED, without any pronouncement as to costs. It is so


ordered.

Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano,
Gancayno, Padilla, Bidin, Sarmiento and Cortez, JJ., concur
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 163072 April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,


vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF
PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF PASAY, Respondents.

DECISION

CARPIO, J.:

This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution
dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport (NAIA) Complex under Executive Order No. 903 (EO 903),3 otherwise known
as the Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July
1983 by then President Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately
600 hectares of land, including the runways, the airport tower, and other airport buildings, were
transferred to MIAA. The NAIA Complex is located along the border between Pasay City and
Paraaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of
Pasay for the taxable years 1992 to 2001. MIAAs real property tax delinquency for its real properties
located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated
as follows:

TAX DECLA- TAXABLE


TAX DUE PENALTY TOTAL
RATION YEAR

A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18

A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98

A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20

A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44


A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85

A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28

A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58

A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36

A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33

A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13

A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00

GRAND TOTAL P642,747,726.20 P373,466,110.13 P1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants
of levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August
2001. Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay
properties if the delinquent real property taxes remain unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction
with prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin
the City of Pasay from imposing real property taxes on, levying against, and auctioning for public sale
the NAIA Pasay properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of
Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for
reconsideration, which the Court of Appeals denied. Hence, this petition.

The Court of Appeals Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local
Government Code, which took effect on 1 January 1992, withdrew the exemption from payment of
real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under Republic Act No. 6938,
non-stock and non-profit hospitals and educational institutions. Since MIAA is a government-owned
corporation, it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon
the effectivity of the Local Government Code.

The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real
property tax.
The Courts Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections
193 and 234 of the Local Government Code which read:

SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise to a
taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,


non-profit or religious cemeteries and all lands, buildings and improvements actually,
directly, and exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and

(e) Machinery and equipment used for pollution control and environment protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.

The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under
Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code
in 1992.

In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already
resolved the issue of whether the airport lands and buildings of MIAA are exempt from tax under
existing laws. The 2006 MIAA case originated from a petition for prohibition and injunction which
MIAA filed with the Court of Appeals, seeking to restrain the City of Paraaque from imposing real
property tax on, levying against, and auctioning for public sale the airport lands and buildings located
in Paraaque City. The only difference between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in Paraaque City while this case involved
airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. In the 2006 MIAA case,
this Court held:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of


the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16,
Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial use of real property owned by
the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government
Code.7 (Emphasis in the original)

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a "government-
owned or controlled corporation." Obviously, the term government "instrumentality" is broader than
the term "government-owned or controlled corporation." Section 2(10) provides:

SEC. 2. General Terms Defined. x x x

(10) Instrumentality refers to any agency of the national Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions and government-
owned or controlled corporations.

The term "government-owned or controlled corporation" has a separate definition under Section
2(13)8 of the Introductory Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of
its capital stock: Provided, That government-owned or controlled corporations may further be
categorized by the department of Budget, the Civil Service Commission, and the Commission on
Audit for the purpose of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.

The fact that two terms have separate definitions means that while a government "instrumentality"
may include a "government-owned or controlled corporation," there may be a government
"instrumentality" that will not qualify as a "government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13)


will show that MIAA would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or controlled corporation." As
explained in the 2006 MIAA case:

A government-owned or controlled corporation must be "organized as a stock or non-stock


corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting
shares. x x x

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA
has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as "one where no part of its income is distributable as dividends
to its members, trustees or officers." A non-stock corporation must have members. Even if we assume
that the Government is considered as the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income
to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal status of MIAA within the National
Government?

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

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."9

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality


which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing
power of local government units is subject to the limitations enumerated in Section 133 of the Local
Government Code.10 Under Section 133(o)11 of the Local Government Code, local government units
have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is
not liable to pay real property tax for the NAIA Pasay properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under Section 234(a) of the Local
Government Code. However, under the same provision, if MIAA leases its real property to a taxable
person, the specific property leased becomes subject to real property tax.12 In this case, only those
portions of the NAIA Pasay properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and
the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
We DECLARE the NAIA Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay. We declare VOID all the
real property tax assessments, including the final notices of real property tax delinquencies, issued by
the City of Pasay on the NAIA Pasay properties of the Manila International Airport Authority, except
for the portions that the Manila International Airport Authority has leased to private parties.

No costs.

SO ORDERED.
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 government-owned
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 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 Plaintiff-
Appellee).

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."

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 "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 reserved for 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, 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 Davao 33 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 of solutio
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
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 . . ."

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.

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.


Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120082 September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,


vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS
R. OSMEA, and EUSTAQUIO B. CESA, respondents.

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of
22 March 1995 1 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the
petition for declaratory relief in Civil Case No. CEB-16900 entitled "Mactan Cebu
International Airport Authority vs. City of Cebu", and its order of 4, May 1995 2 denying the
motion to reconsider the decision.

We resolved to give due course to this petition for its raises issues dwelling on the scope of
the taxing power of local government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by


virtue of Republic Act No. 6958, mandated to "principally undertake the economical,
efficient and effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport in Cebu City, . . .
and such other Airports as may be established in the Province of Cebu . . . (Sec. 3,
RA 6958). It is also mandated to:

a) encourage, promote and develop international and


domestic air traffic in the Central Visayas and
Mindanao regions as a means of making the regions
centers of international trade and tourism, and
accelerating the development of the means of
transportation and communication in the country;
and
b) upgrade the services and facilities of the airports
and to formulate internationally acceptable standards
of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter.

Sec. 14. Tax Exemptions. The authority shall be exempt from


realty taxes imposed by the National Government or any of its
political subdivisions, agencies and instrumentalities . . .

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of


the Treasurer of the City of Cebu, demanded payment for realty taxes on several
parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A,
989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A),
located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming
in its favor the aforecited Section 14 of RA 6958 which exempt it from payment of
realty taxes. It was also asserted that it is an instrumentality of the government
performing governmental functions, citing section 133 of the Local Government
Code of 1991 which puts limitations on the taxing powers of local government units:

Sec. 133. Common Limitations on the Taxing Powers of Local


Government Units. Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangay shall not extend to the levy of the following:

a) . . .

xxx xxx xxx

o) Taxes, fees or charges of any kind on the National


Government, its agencies and instrumentalities, and
local government units. (Emphasis supplied)

Respondent City refused to cancel and set aside petitioner's realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Governmental Code that took effect on January 1, 1992:

Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in


this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under RA No.
6938, non-stock, and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Emphasis supplied)
xxx xxx xxx

Sec. 234. Exemptions from Real Property taxes. . . .

(a) . . .

xxx xxx xxx

(c) . . .

Except as provided herein, any exemption from payment of real


property tax previously granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or
controlled corporations are hereby withdrawn upon the effectivity of
this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account "under protest" and
thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing
powers of local government units do not extend to the levy of taxes or fees of any
kind on an instrumentality of the national government. Petitioner insisted that while it
is indeed a government-owned corporation, it nonetheless stands on the same footing
as an agency or instrumentality of the national government. Petitioner insisted that
while it is indeed a government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national government by the very nature
of its powers and functions.

Respondent City, however, asserted that MACIAA is not an instrumentality of the


government but merely a government-owned corporation performing proprietary
functions As such, all exemptions previously granted to it were deemed withdrawn by
operation of law, as provided under Sections 193 and 234 of the Local Government
Code when it took effect on January 1, 1992. 3

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings,
to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides
the express cancellation and withdrawal of exemption of taxes by government owned
and controlled corporation per Sections after the effectivity of said Code on January
1, 1992, to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of
Cebu are exempted from paying realty taxes in view of the exemption granted under
RA 6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and special laws, acts, city
charters, decress [sic], executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the provisions
of this Code are hereby repealed or modified accordingly." ([f], Section 534, RA
7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner had been expressly repealed
by the provisions of the New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties
effective after January 1, 1992 until the present.

This Court's ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. "It is hereby
declared the policy of the State that the territorial and political subdivisions of the
State shall enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them more effective
partners in the attainment of national goals. Towards this end, the State shall provide
for a more responsive and accountable local government structure instituted through a
system of decentralization whereby local government units shall be given more
powers, authority, responsibilities, and resources. The process of decentralization
shall proceed from the national government to the local government units. . . . 5

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order,
the petitioner filed the instant petition based on the following assignment of errors:

I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT


THE PETITIONER IS VESTED WITH GOVERNMENT POWERS
AND FUNCTIONS WHICH PLACE IT IN THE SAME
CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF
THE GOVERNMENT.

II RESPONDENT JUDGE ERRED IN RULING THAT


PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO
THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or
controlled corporation it is mandated to perform functions in the same category as an
instrumentality of Government. An instrumentality of Government is one created to perform
governmental functions primarily to promote certain aspects of the economic life of the
people. 6 Considering its task "not merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the Government policies of
promoting and developing the Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country," 7 and that it is an attached agency of the
Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in
[sic] the same footing as an agency or instrumentality of the national government." Hence, its
tax exemption privilege under Section 14 of its Charter "cannot be considered withdrawn with
the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133
thereof specifically states that the taxing powers of local government units shall not extend to
the levy of taxes of fees or charges of any kind on the national government its agencies and
instrumentalities."

As to the second assigned error, the petitioner contends that being an instrumentality of the
National Government, respondent City of Cebu has no power nor authority to impose realty
taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco
vs. Philippine Amusement and Gaming Corporation; 9

Local governments have no power to tax instrumentalities of the National


Government. PAGCOR is a government owned or controlled corporation with an
original character, PD 1869. All its shares of stock are owned by the National
Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in


any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (McCulloch v. Maryland,
4 Wheat 316, 4 L Ed. 579).

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

Justice Holmes, speaking for the Supreme Court, make references to the entire
absence of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau Modern Constitutional
Law, Vol. 2, p. 140)

Otherwise mere creature of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as "a toll for regulation" (U.S. v. Sanchez, 340 US 42). The power to
tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the
very entity which has the inherent power to wield it. (Emphasis supplied)

It then concludes that the respondent Judge "cannot therefore correctly say that the questioned
provisions of the Code do not contain any distinction between a governmental function as
against one performing merely proprietary ones such that the exemption privilege withdrawn
under the said Code would apply to all government corporations." For it is clear from Section
133, in relation to Section 234, of the LGC that the legislature meant to
exclude instrumentalities of the national government from the taxing power of the local
government units.

In its comment respondent City of Cebu alleges that as local a government unit and a political
subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction.
Such power is guaranteed by the Constitution 10 and enhanced further by the LGC. While it
may be true that under its Charter the petitioner was exempt from the payment of realty
taxes, 11 this exemption was withdrawn by Section 234 of the LGC. In response to the
petitioner's claim that such exemption was not repealed because being an instrumentality of
the National Government, Section 133 of the LGC prohibits local government units from
imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof does not
distinguish between government-owned or controlled corporations performing governmental
and purely proprietary functions. Respondent city of Cebu urges this the Manila International
Airport Authority is a governmental-owned corporation, 12 and to reject the application of
Basco because it was "promulgated . . . before the enactment and the singing into law of R.A.
No. 7160," and was not, therefore, decided "in the light of the spirit and intention of the
framers of the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who are
to pay it. Nevertheless, effective limitations thereon may be imposed by the people through
their Constitutions. 13 Our Constitution, for instance, provides that the rule of taxation shall be
uniform and equitable and Congress shall evolve a progressive system of taxation. 14 So potent
indeed is the power that it was once opined that "the power to tax involves the power to
destroy." 15Verily, taxation is a destructive power which interferes with the personal and
property for the support of the government. Accordingly, tax statutes must be construed
strictly against the government and liberally in favor of the taxpayer. 16 But since taxes are
what we pay for civilized society, 17 or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayers and liberally in favor of the taxing authority. 18 A claim of
exemption from tax payment must be clearly shown and based on language in the law too
plain to be mistaken. 19 Elsewise stated, taxation is the rule, exemption therefrom is the
exception. 20 However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect of the
exemption is merely to reduce the amount of money that has to be handled by the government
in the course of its operations. 21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. 22 Under the latter, the exercise of the power may be subject to such guidelines
and limitations as the Congress may provide which, however, must be consistent with the
basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt
from the payment of realty taxes imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual nature, which then becomes
contractual and is thus covered by the non-impairment clause of the Constitution. 23

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the
exercise by local government units of their power to tax, the scope thereof or its limitations,
and the exemption from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units as follows:

Sec. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial
institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, "inheritance, gifts, legacies and other


acquisitions mortis causa, except as otherwise provided herein

(d) Customs duties, registration fees of vessels and wharfage on


wharves, tonnage dues, and all other kinds of customs fees charges
and dues except wharfage on wharves constructed and maintained by
the local government unit concerned:

(e) Taxes, fees and charges and other imposition upon goods carried
into or out of, or passing through, the territorial jurisdictions of local
government units in the guise or charges for wharfages, tolls for
bridges or otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;

(f) Taxes fees or charges on agricultural and aquatic products when


sold by marginal farmers or fishermen;

(g) Taxes on business enterprise certified to be the Board of


Investment as pioneer or non-pioneer for a period of six (6) and four
(4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;

(i) Percentage or value added tax (VAT) on sales, barters or


exchanges or similar transactions on goods or services except as
otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractor and person


engage in the transportation of passengers of freight by hire and
common carriers by air, land, or water, except as provided in this
code;

(k) Taxes on premiums paid by ways reinsurance or retrocession;

(l) Taxes, fees, or charges for the registration of motor vehicles and
for the issuance of all kinds of licenses or permits for the driving of
thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine product actually


exported, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business


Enterprise and Cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of the Philippines;
and

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE


NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.
(emphasis supplied)

Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges"
referred to are "of any kind", hence they include all of these, unless otherwise provided by the
LGC. The term "taxes" is well understood so as to need no further elaboration, especially in
the light of the above enumeration. The term "fees" means charges fixed by law or Ordinance
for the regulation or inspection of business activity, 24while "charges" are pecuniary liabilities
such as rents or fees against person or property. 25

Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section
232. It reads as follows:

Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality
within the Metropolitan Manila Area may levy on an annual ad valorem tax on real
property such as land, building, machinery and other improvements not hereafter
specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons, including
government owned and controlled corporations, except as provided therein. It provides:

Sec. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of


its political subdivisions except when the beneficial use thereof had
been granted, for reconsideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents


appurtenants thereto, mosques nonprofits or religious cemeteries and
all lands, building and improvements actually, directly, and
exclusively used for religious charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as


provided for under R.A. No. 6938; and;

(e) Machinery and equipment used for pollution control and


environmental protection.

Except as provided herein, any exemptions from payment of real


property tax previously granted to or presently enjoyed by, all
persons whether natural or juridical, including all government owned
or controlled corporations are hereby withdrawn upon the effectivity
of his Code.

These exemptions are based on the ownership, character, and use of the property. Thus;

(a) Ownership Exemptions. Exemptions from real property taxes on


the basis of ownership are real properties owned by: (i) the Republic,
(ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and
(vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the


basis of their character are: (i) charitable institutions, (ii) houses and
temples of prayer like churches, parsonages or convents appurtenant
thereto, mosques, and (iii) non profit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the


basis of the actual, direct and exclusive use to which they are devoted
are: (i) all lands buildings and improvements which are actually,
directed and exclusively used for religious, charitable or educational
purpose; (ii) all machineries and equipment actually, directly and
exclusively used or by local water districts or by government-owned
or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection.

To help provide a healthy environment in the midst of the modernization of the


country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously


granted to natural or juridical persons including government-owned
or controlled corporations are withdrawn upon the effectivity of the
Code. 26

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It
provides:

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in


this code, tax exemptions or incentives granted to or presently enjoyed by all persons,
whether natural or juridical, including government-owned, or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non stock
and non profit hospitals and educational constitutions, are hereby withdrawn upon the
effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:

Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem necessary.

The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions
and the exceptions thereto. The use of exceptions of provisos in these section, as shown by the
following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of


Section 133;

(2) "Unless otherwise provided in this Code" in section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234


initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise
provided herein," with the "herein" to mean, of course, the section, it should have used the
clause "unless otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local government units and,
where exceptions were intended, the exceptions were explicitly indicated in the text. For
instance, in item (a) which excepts the income taxes "when livied on banks and other
financial institutions", item (d) which excepts "wharfage on wharves constructed and
maintained by the local government until concerned"; and item (1) which excepts taxes, fees,
and charges for the registration and issuance of license or permits for the driving of
"tricycles". It may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section interchangeably
uses therein the clause "except as otherwise provided herein" as in items (c) and (i), or the
clause "except as otherwise provided herein" as in items (c) and (i), or the clause "excepts as
provided in this Code" in item (j). These clauses would be obviously unnecessary or mere
surplus-ages if the opening clause of the section were" "Unless otherwise provided in this
Code" instead of "Unless otherwise provided herein". In any event, even if the latter is used,
since under Section 232 local government units have the power to levy real property tax,
except those exempted therefrom under Section 234, then Section 232 must be deemed to
qualify Section 133.

Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general
rule, as laid down in Section 133 the taxing powers of local government units cannot extend
to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its
agencies and instrumentalties, and local government units"; however, pursuant to Section 232,
provinces, cities, municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph
of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical


persons, including government-owned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except
upon the effectivity of the LGC, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The latter proviso could refer to
Section 234, which enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to those enumerated there-in; all
others not included in the enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as the real property is owned by the Republic of the Philippines, or any of its
political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption
is withdrawn if the beneficial use of such property has been granted to taxable person for
consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the
LGC, exemptions from real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge
under any of the exceptions provided in Section 234, but not under Section 133, as it now
asserts, since, as shown above, the said section is qualified by Section 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing
powers of the local government units cannot extend to the levy of:

(o) taxes, fees, or charges of any kind on the National Government,


its agencies, or instrumentalities, and local government units.

I must show that the parcels of land in question, which are real property, are any one of those
enumerated in Section 234, either by virtue of ownership, character, or use of the property.
Most likely, it could only be the first, but not under any explicit provision of the said section,
for one exists. In light of the petitioner's theory that it is an "instrumentality of the
Government", it could only be within be first item of the first paragraph of the section by
expanding the scope of the terms Republic of the Philippines" to embrace . . . . .
. "instrumentalities" and "agencies" or expediency we quote:

(a) real property owned by the Republic of the Philippines, or any of


the Philippines, or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.

This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly mentions the
word "instrumentalities"; and in the second place it fails to consider the fact that the
legislature used the phrase "National Government, its agencies and instrumentalities" "in
Section 133(o),but only the phrase "Republic of the Philippines or any of its political
subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable.
The former is boarder and synonymous with "Government of the Republic of the Philippines"
which the Administrative Code of the 1987 defines as the "corporate governmental entity
though which the functions of the government are exercised through at the Philippines,
including, saves as the contrary appears from the context, the various arms through which
political authority is made effective in the Philippines, whether pertaining to the autonomous
reason, the provincial, city, municipal or barangay subdivision or other forms of local
government." 27 These autonomous regions, provincial, city, municipal or barangay
subdivisions" are the political subdivision. 28

On the other hand, "National Government" refers "to the entire machinery of the central
government, as distinguished from the different forms of local Governments." 29 The National
Government then is composed of the three great departments the executive, the legislative and
the judicial. 30
An "agency" of the Government refers to "any of the various units of the Government,
including a department, bureau, office instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit therein;" 31 while an "instrumentality"
refers to "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy; usually
through a charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations". 32

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption
from payment of real property taxes under the last sentence of the said section to the agencies
and instrumentalities of the National Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to
expand the scope of the exemption in Section 234(a) to include real property owned by other
instrumentalities or agencies of the government including government-owned and controlled
corporations is further borne out by the fact that the source of this exemption is Section 40(a)
of P.D. No. 646, otherwise known as the Real Property Tax Code, which reads:

Sec 40. Exemption from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the


Philippines or any of its political subdivisions and
any government-owned or controlled corporations so
exempt by is charter: Provided, however, that this
exemption shall not apply to real property of the
above mentioned entities the beneficial use of which
has been granted, for consideration or otherwise, to a
taxable person.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned or
controlled corporation so exempt by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, specially in light of the general provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of property taxes in the last paragraph of
Section 234. These policy considerations are consistent with the State policy to ensure
autonomy to local governments 33 and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals. 34 The
power to tax is the most effective instrument to raise needed revenues to finance and support
myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of
the people. It may also be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled corporations and all other
units of government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, and there was a need for this
entities to share in the requirements of the development, fiscal or otherwise, by paying the
taxes and other charges due from them. 35
The crucial issues then to be addressed are: (a) whether the parcels of land in question belong
to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and
(b) whether the petitioner is a "taxable person".

Section 15 of the petitioner's Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the airports, and all assets,
powers, rights, interests and privileges relating on airport works, or air operations,
including all equipment which are necessary for the operations of air navigation,
acrodrome control towers, crash, fire, and rescue facilities are hereby transferred to
the Authority: Provided however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways communication,
the approach control office, and the area control center shall be retained by the Air
Transportation Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence of the authority. The
authority may assist in the maintenance of the Air Transportation Office equipment.

The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International
AirPort in the Province of Cebu", 36 which belonged to the Republic of the Philippines, then
under the Air Transportation Office (ATO). 37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City of
Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands"
among other things, to the petitioner and not just the transfer of the beneficial use thereof,
with the ownership being retained by the Republic of the Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because the
petitioner's authorized capital stock consists of, inter alia "the value of such real estate owned
and/or administered by the airports." 38 Hence, the petitioner is now the owner of the land in
question and the exception in Section 234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It
was only exempted from the payment of real property taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative intent to make it a taxable person
subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property
tax, in light of the forgoing disquisitions, it had already become even if it be conceded to be
an "agency" or "instrumentality" of the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment
of real property taxes, which, as earlier adverted to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco


vs. Philippine Amusement and Gaming Corporation 39 is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that
even instrumentalities or agencies of the government performing governmental functions may
be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the
Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 191109 July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION


AUTHORITY (PRA), Petitioner,
vs.
CITY OF PARANAQUE, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure
questions of law, assailing the January 8, 2010 Order 1 of the Regional Trial Court, Branch 195,
Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a
government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not exempt
from payment of real property taxes. The pertinent portion of the said order reads:

In view of the finding of this court that petitioner is not exempt from payment of real property taxes,
respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or in excess of jurisdiction in issuing
the warrants of levy on the subject properties.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached
Supplemental Petition is denied and the supplemental petition attached thereto is not admitted.

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took effect on February 4,

1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration
and operation of lands belonging to, managed and/or operated by, the government with the object of
maximizing their utilization and hastening their development consistent with public interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating, directing
and coordinating all reclamation projects for and on behalf of the National Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming
PEA into PRA, which shall perform all the powers and functions of the PEA relating to reclamation
activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Paraaque City, and was issued Original Certificates of Title
(OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos.
104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRAs reclaimed properties (Central Business Park and Barangay San Dionisio)
located in Paraaque City based on the assessment for delinquent real property taxes made by then
Paraaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order
(TRO) and/or writ of preliminary injunction against Carabeo before the RTC.

On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the issuance
of a temporary restraining order.

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public
auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating
that the public auction could not be deferred because the RTC had already denied PRAs TRO
application.

On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary injunction
for being moot and academic considering that the auction sale of the subject properties on April 7,
2003 had already been consummated.

On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a
compromise agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental
Petition which sought to declare as null and void the assessment for real property taxes, the levy based
on the said assessment, the public auction sale conducted on April 7, 2003, and the Certificates of
Sale issued pursuant to the auction sale.

On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA was
not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC under
Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an authorized
capital stock divided into no par value shares. In fact, PRA admitted its corporate personality and that
said properties were registered in its name as shown by the certificates of title. Therefore, as a GOCC,
local tax exemption is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local
Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real property
taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already
been expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural
requirements in Section 206 thereof.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
based on the following GROUNDS

I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL


GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY
TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS.

II

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED


LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a capital
stock divided into shares, it is not authorized to distribute dividends and allotment of surplus and
profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks
the second requisite of a stock corporation which is the distribution of dividends and allotment of
surplus and profits to the stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is
not organized for charitable, religious, educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers as provided in Section 88 of the Corporation Code.

Moreover, PRA points out that it was not created to compete in the market place as there was no
competing reclamation company operated by the private sector. Also, while PRA is vested with
corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but merely
an incorporated instrumentality and that the mere fact that an incorporated instrumentality of the
National Government holds title to real property does not make said instrumentality a GOCC. Section
48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a scenario where a piece of
land owned by the Republic is titled in the name of a department, agency or instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt
from payment of real property tax except when the beneficial use of the real property is granted to a
taxable person. PRA claims that based on Section 133(o) of the LGC, local governments cannot tax
the national government which delegate to local governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from
the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use
or public service. While the subject reclaimed lands are still in its hands, these lands remain public
lands and form part of the public domain. Hence, the assessment of real property taxes made on said
lands, as well as the levy thereon, and the public sale thereof on April 7, 2003, including the issuance
of the certificates of sale in favor of the respondent Paraaque City, are invalid and of no force and
effect.

On the other hand, the City of Paraaque (respondent) argues that PRA since its creation consistently
represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared it to be a GOCC
and that it has entered into several thousands of contracts where it represented itself to be a GOCC. In
fact, PRA admitted in its original and amended petitions and pre-trial brief filed with the RTC of
Paraaque City that it was a GOCC.

Respondent further argues that PRA is a stock corporation with an authorized capital stock divided
into 3 million no par value shares, out of which 2 million shares have been subscribed and fully paid
up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges granted to or presently
enjoyed by all persons, whether natural or juridical, including GOCCs.

Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.

THE COURTS RULING

The Court finds merit in the petition.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as
follows:

SEC. 2. General Terms Defined. x x x x

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

(51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x

From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the law
makes a government instrumentality operationally autonomous, the instrumentality remains part of
the National Government machinery although not integrated with the department framework.
When the law vests in a government instrumentality corporate powers, the instrumentality does not
necessarily become a corporation. Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers.

Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed
a GOCC. Examples are the Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines, and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called government corporate entities. They
are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is
the governing law defining the legal relationship and status of government entities.2

Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital
stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x
x x." Section 87 thereof defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." Further, Section 88 provides that non-
stock corporations are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers."

Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it
has capital stock divided into shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations, they must have members
and must not distribute any part of their income to said members.3

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It
cannot be considered as a stock corporation because although it has a capital stock divided into no par
value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends,
surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in
any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525, 5 E.O. No.
6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus allotments or profits to its
stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-
stock corporation must have members.8 Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all
government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16,
Article XII of the 1987 Constitution provides as follows:

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.

The fundamental provision above authorizes Congress to create GOCCs through special charters on
two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet
the test of economic viability. In this case, PRA may have passed the first condition of common good
but failed the second one - economic viability. Undoubtedly, the purpose behind the creation of PRA
was not for economic or commercial activities. Neither was it created to compete in the market place
considering that there were no other competing reclamation companies being operated by the private
sector. As mentioned earlier, PRA was created essentially to perform a public service considering that
it was primarily responsible for a coordinated, economical and efficient reclamation, administration
and operation of lands belonging to the government with the object of maximizing their utilization
and hastening their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084
reads, as follows:

Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated,
economical and efficient reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by the government, with the object of maximizing their
utilization and hastening their development consistent with the public interest.

Section 4. Purposes. The Authority is hereby created for the following purposes:

(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other
means, or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any
and all kinds of lands, buildings, estates and other forms of real property, owned, managed,
controlled and/or operated by the government.

(c) To provide for, operate or administer such services as may be necessary for the efficient,
economical and beneficial utilization of the above properties.

The twin requirement of common good and economic viability was lengthily discussed in the case of
Manila International Airport Authority v. Court of Appeals,9 the pertinent portion of which reads:

Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution.

The first condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation must
meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin conditions of
common good and economic viability. In other words, Congress has no power to create government-
owned or controlled corporations with special charters unless they are made to comply with the two
conditions of common good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State for the common
good meaning for economic development purposes these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental
or public functions need not meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines
and similar government-owned or controlled corporations, which derive their incometo meet
operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations
that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates
a corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes
its claim upon the taxpayers' money through new equity infusions from the government and what is
always invoked is the common good. That is the reason why this year, out of a budget of P115 billion
for the entire government, about P28 billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers' money which could have been relocated to
agrarian reform, to social services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.1wphi1

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes capability to make profit and
generate benefits not quantifiable in financial terms.

Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential
services from the public.

However, government-owned or controlled corporations with special charters, organized essentially


for economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters
as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall under the definition
of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.
[Emphases supplied]

This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution. The
facts, the evidence on record and jurisprudence on the issue support the position that PRA was not
organized either as a stock or a non-stock corporation. Neither was it created by Congress to operate
commercially and compete in the private market. Instead, PRA is a government instrumentality vested
with corporate powers and performing an essential public service pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. Being an incorporated government
instrumentality, it is exempt from payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA.
On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from
paying realty taxes and protects it from the taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

xxxx

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]

It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic)
is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person.
In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands to a
taxable entity. There is no showing on record either that PRA leased the subject reclaimed properties
to a private taxable entity.

This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local
governments from imposing "taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x." The Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or instrumentalities of the national government. Such
real properties remain owned by the Republic and continue to be exempt from real estate tax.

Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when the title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption, unless "the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person."10

The rationale behind Section 133(o) has also been explained in the case of the Manila International
Airport Authority,11 to wit:

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

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

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in the course of its operations. For these
reasons, provisions granting exemptions to government agencies may be construed liberally, in favor
of non tax-liability of such agencies.

There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of essential public
services for sound and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any doubt whether such
power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in
the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

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

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can
regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for
regulation." (U.S. v. Sanchez, 340 US 42)

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it. [Emphases supplied]

The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned
by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least 60 per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may provided by law. In cases of water
rights for irrigation, water supply, fisheries, or industrial uses other than the development of
waterpower, beneficial use may be the measure and limit of the grant.

Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. [Emphases supplied]

Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of
Manila Bay. As such, these lands remain public lands and form part of the public domain. In the case
of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation,12 the Court
held that foreshore and submerged areas irrefutably belonged to the public domain and were
inalienable unless reclaimed, classified as alienable lands open to disposition and further declared no
longer needed for public service. The fact that alienable lands of the public domain were transferred to
the PEA (now PRA) and issued land patents or certificates of title in PEAs name did not
automatically make such lands private. This Court also held therein that reclaimed lands retained their
inherent potential as areas for public use or public service.

As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged
with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or sold
by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable
lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified
private parties acquire these lands will the lands become private lands. In the hands of the government
agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these
lands are still public, not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well
as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands. Thus,
the mere fact that alienable lands of the public domain like the Freedom Islands are transferred to
PEA and issued land patents or certificates of title in PEA's name does not automatically make such
lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code
of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-

(1)The President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation.

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are
properties of public dominion. The ownership of such lands remains with the State unless they are
withdrawn by law or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila
Bay are part of the "lands of the public domain, waters x x x and other natural resources" and
consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these
areas by PEA does not convert these inalienable natural resources of the State into alienable or
disposable lands of the public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved
them for some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by
respondent, as well as the issuances of certificates of title in favor of respondent, are without basis.

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court,
Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the
Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate
tax assessments, including the final notices of real estate tax delinquencies, issued by the City of
Paraaque on the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and the
Certificates of Sale subsequently issued by the Paraaque City Treasurer in favor of the City of
Paraaque, are all declared VOID.

SO ORDERED.
FIRST DIVISION

[G.R. No. 184879, February 23 : 2011]

REPUBLIC OF THE PHILIPPINES (DEPARTMENT OF TRANSPORTATION AND


COMMUNICATIONS), PETITIONER, VS. CITY OF MANDALUYONG, RESPONDENT.

RESOLUTION

PEREZ, J.:

The subject of this petition for review on certiorari is the writ of possession issued in favor of
respondent City of Mandaluyong by the Regional Trial Court (RTC Branch 213), Branch 213,
Mandaluyong City of real properties forming part of the EDSA Metro Rail Transit (MRT) III.

Petitioner Republic of the Philippines (Republic) is represented in this suit by the Department of
Transportation and Communications (DOTC), which is the primary policy, planning, programming,
regulating and administrative entity of the executive branch of the government in the promotion,
development, and regulation of dependable and coordinated networks of transportation and
communications systems, as well as in the fast, safe, efficient, and reliable postal, transportation and
communications services; while respondent City Government of Mandaluyong is a local government
unit tasked, among others, with meeting the priority needs and service requirements of its constituents
in Mandaluyong City.[1]

The material facts and events leading to this controversy are as follows:

On 8 August 1997, the DOTC entered into a Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail System for EDSA (BLT) with Metro Rail Transit Corporation Limited (Metro
Rail), a foreign corporation. Under the BLT Agreement, Metro Rail shall be responsible for the
design, construction, equipping, completion, testing, and commissioning of the Light Rail Transit
System-LRTS Phase I (EDSA MRT III).[2] The DOTC shall operate the same but ownership of the
EDSA MRT III shall remain with Metro Rail during the Revenue and Construction periods. At the
end of the Revenue Period,[3] Metro Rail shall transfer to DOTC its title to and all of its rights and
interests therein, in exchange for US$1.00.[4]

On even date, Metro Rail then assigned all its rights and obligations under the BLT Agreement to
Metro Rail Transit Corporation (MRTC), a domestic corporation.

In an agreement dated 15 July 2000, Metro Rail turned over the EDSA MRT III System to the DOTC
for its operation.[5]

In a joint resolution dated 5 April 2001, the City Assessors of Mandaluyong City, Quezon City,
Makati City and Pasay City fixed the current and market value of EDSA MRT III at US$655 Million
or P32.75 Billion, and which will be divided proportionately according to distance traversed among
these cities.[6]

On 4 June 2001, the Office of the City Assessor of Mandaluyong issued Tax Declaration No. D-013-
06267 in the name of MRTC, fixing the market value of the railways, train cars, three (3) stations and
miscellaneous expenses at P5,974,365,000.00 and the assessed value at
P4,779,492,000.00.[7] Subsequently on 18 June 2001, the said Office of the City Assessor of
Mandaluyong City demanded payment of real property taxes due under the aforesaid tax
declaration.[8]

The computation of real property tax of MRTC was pegged at P317,250,730.23 from the taxable year
2000 until August 2001.[9] Two (2) years later or on August 2003, another demand was made on
MRTC placing the deficiency real estate tax due to the City of Mandaluyong at P769,784,981.52. [10]

Initially, a Notice of Delinquency dated 24 June 2005 was sent to MRTC wherein the assessed
deficiency real property tax amounted to P12,843,928.79,[11] however the City Treasurer of
Mandaluyong issued another Notice of Delinquency on 7 September 2005 rectifying the 24 June 2005
notice by increasing the deficiency real property tax to P1,306,617,522.96.[12]

On the same date, the City Treasurer issued and served a Warrant of Levy upon MRTC with the
corresponding Notices of Levy upon the City Assessor and the Registrar of Deeds of Mandaluyong
City.[13]

On 5 December 2005, petitioner Republic filed a case for Declaration of Nullity of Real Property Tax
Assessment and Warrant of Levy with a prayer for a Temporary Restraining Order (TRO) and Writ of
Preliminary Injunction before the Regional Trial Court (RTC Branch 208), Branch 208, Mandaluyong
City, docketed as Civil Case No. MC05-2882.

Petitioner Republic alleged that since Metro Rail had transferred to the DOTC the actual use,
possession and operation of the EDSA MRT III System, Metro Rail or MRTC does not have actual or
beneficial use and possession of the EDSA MRT III properties as to subject it to payment of real
estate taxes. On the other hand, notwithstanding the transfer to DOTC of the actual use, possession
and operation of the EDSA MRT III, petitioner Republic is not liable because local government units
are legally proscribed from imposing taxes of any kind on it under Section 133(o) of Republic Act
No. 7160. Likewise, under Section 234 of the same law, petitioner is exempted from payment of real
property tax.[14]

MRTC filed a complaint-in-intervention and sought to declare the nullity of the real property tax
assessments.

The posting and publication of the Notice of Auction were made on 26 February 2006 and 5 March
2006.[15]

On 22 March 2006, the RTC Branch 208, through Presiding Judge Esteban A. Tacla, Jr., denied both
petitioner Republic's and MRTC's applications for TRO.[16]

Consequently, on 24 March 2006, a public auction was conducted. For lack of bidders, the real
properties were forfeited in favor of the City of Mandaluyong for the price of P1,483,700,100.18.[17]

On 15 September 2006, the RTC Branch 208 issued an order denying petitioner and MRTC's
application for issuance of a writ of preliminary injunction. A motion for reconsideration was filed
but it was eventually denied on 9 March 2007. The issue on the validity of tax assessment however is
pending before that court.
Petitioner Republic filed a petition for certiorari before the Court of Appeals challenging the denial of
both the TRO and injunction by RTC Branch 208.

Meanwhile, respondent manifested before the Court of Appeals that due to the failure of MRTC to
exercise the right of redemption, the City Treasurer of Mandaluyong executed a Final Deed of Sale in
favor of the purchaser in the auction sale. Subsequently, Tax Declaration No. D-013-06267 in
MRTC's name was cancelled and Tax Declaration No. D-013-10636 was issued in its place.[18]

On 11 April 2008, respondent filed an ex parte petition praying for the issuance of a writ of
possession before RTC Branch 213 of Mandaluyong and docketed as LRC Case No. MC-08-
460.[19] Petitioner Republic countered that the instant petition does not fall within the cases when a
writ of possession may be issued. Moreover, petitioner argued that the pendency of Civil Case No.
MC05-2882 assailing the validity of the tax assessment and the subsequent auction sale of the
properties pre-empts the issuance of said writ.[20]

On 30 July 2008, the RTC Branch 213, through Judge Carlos A. Valenzuela, granted the petition for
the issuance of a writ of possession.[21] A subsequent motion for reconsideration filed by petitioner
was denied for lack of merit.[22]

While MRTC appealed said order to the Court of Appeals, petitioner Republic filed the instant case
raising a question of law, i.e. the propriety of the issuance of a writ of possession. To support its main
thesis that the RTC Branch 213 erred in issuing a writ of possession, petitioner claims that since
EDSA MRT properties are beneficially owned by DOTC, it should not have been assessed for
payment of real property taxes. Being a governmental entity, it is exempt from payment of real
property tax under Section 234 of the Local Government Code. Therefore, no tax delinquency exist
authorizing respondent to sell the subject properties through public auction. It then follows that
respondent has no legal right to a writ of possession.[23]

Petitioner Republic then asserts that the auction sale conducted by respondent cannot be likened to an
extrajudicial foreclosure sale of a real estate mortgage under Act No. 3135 as a justification for the
issuance of a writ of possession. Petitioner Republic reasons that the EDSA MRT properties were not
put up as a collateral or security for a loan or indebtedness which was secured from respondent, nor
was there any mortgage contract voluntarily entered into by petitioner or even by MRTC.[24]

Finally, petitioner Republic adds that all requisites of litis pendencia exist in CA-G.R. SP No. 98334,
which is a case for denial of injunction and TRO and in the present case, concerning the issuance of a
writ of possession because there is identity of parties, rights asserted and reliefs prayer
for. Respondent seeks to acquire possession over the EDSA MRT III properties on the basis of its tax
assessments and auction sale, which petitioner Republic seeks to permanently enjoin respondent from
enjoying when it initiated Civil Case No. MC05-2882. The pendency of CA-G.R. SP No. 98334
before the Court of Appeals, assailing the Orders denying respondent's prayer for a TRO and
injunction should have pre-empted the issuance of the writ of possession by reason of litis
pendencia.[25]

In a Resolution dated 10 November 2008, this Court directed the parties to maintain the
status quo and enjoined the enforcement and implementation of the Order and Writ of Possession
dated 22 October 2008.[26]
Respondent filed its comment refuting the allegations of petitioner. Respondent does not contest
petitioner's immunity from local taxes. In fact, it has assessed MRTC, and not petitioner, for real
property tax. Respondent defends the RTC's issuance of a writ of possession after it was established
that there was a valid foreclosure sale of MRTC's properties for non-payment of real property taxes
and after the title had been consolidated in respondent's name. Respondent also avers that the subject
public auction sale is an execution sale within the purview of Section 33, Rule 39 of the Rules of
Court, thus a writ of possession was validly issued. Respondent subscribes to this Court's ruling
in Ong v. Court of Appeals[27] which clarified that there is no forum shopping where a petition for the
issuance of a writ of possession is filed despite the pendency of an action for annulment of mortgage
and foreclosure sale.[28]

This case is, ultimately, between a local government's power to tax and the national government's
privilege of tax exemption. That issue needs full hearing and deliberation, as indeed, the issue pends
before the RTC, at first instance. Such trial of facts and issues must proceed. It should not be pre-
empted by the present petition that deals with precisely the herein respondent's intended end result.

A writ of possession is a mere incident in the transfer of title.[29] In the instant case, it stemmed from
the exercise of alleged ownership by respondent over EDSA MRT III properties by virtue of a tax
delinquency sale. The issue of whether the auction sale should be enjoined is still pending before the
Court of Appeals. Pending determination, it is premature for respondent to have conducted the
auction sale and caused the transfer of title over the real properties to its name. The denial by the
RTC to issue an injunction or TRO does not automatically give respondent the liberty to proceed with
the actions sought to be enjoined, especially so in this case where a certiorari petition assailing the
denial is still being deliberated in the Court of Appeals. All the more it is premature for the RTC to
issue a writ of possession where the ownership of the subject properties is derived from an auction
sale, the validity of which is still being threshed out in the Court of Appeals. The RTC should have
held in abeyance the issuance of a writ of possession. At this juncture, the writ issued is premature
and has no force and effect.

WHEREFORE, the petition is GRANTED. The Decision and Order dated 30 July 2008 and 6
October 2008, respectively of RTC Branch 213 of Mandaluyong City in LRC Case No. M-08-460 are
hereby VACATED and SET ASIDE. The status quo Order dated 10 November 2008
is MAINTAINED. The Court of Appeals is ORDERED to resolve CA-G.R. SP No. 98334 with
deliberate dispatch.

SO ORDERED.

Corona, C.J., (Chairperson), Velasco, Jr., Nachura,* and Del Castillo JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 167000 June 8, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner,


vs.
GROUP MANAGEMENT CORPORATION (GMC) AND LAPU-LAPU DEVELOPMENT &
HOUSING Corporation (LLDHc), Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 169971

GROUP MANAGEMENT CORPORATION (GMC), Petitioner,


vs.
LAPU-LAPU DEVELOPMENT & HOUSING Corporation (LLDHc) and GOVERNMENT
SERVICE INSURANCE SYSTEM (GSIS), Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

At bar are two consolidated Petitions for Review on Certiorari concerning 78 parcels of land located
in Barrio Marigondon, Lapu-Lapu City. The parties in both cases have been in litigation over these
lots for the last two decades in what seems to be an endless exercise of filing repetitious suits before
the Court of Appeals and even this Court, questioning the various decisions and resolutions issued by
the two separate trial courts involved. With this decision, it is intended that all legal disputes among
the parties concerned, particularly over all the issues involved in these cases, will finally come to an
end

In the Petition in G.R. No. 167000, the Government Service Insurance System (GSIS) seeks to reverse
and set aside the November 25, 2004 Decision1 and January 20, 2005 Resolution2 of the Twentieth
Division of the Court of Appeals in CA-G.R. SP No. 85096 and to annul and set aside the March 11,
20043 and May 7, 20044 Orders of the Regional Trial Court (RTC) of Lapu-Lapu City (Lapu-Lapu
RTC) in Civil Case No. 2203-L.

In the Petition in G.R. No. 169971, Group Management Corporation (GMC) seeks to reverse and set
aside the September 23, 2005 Decision5 in CA-G.R. SP No. 84382 wherein the Special Nineteenth
Division of the Court of Appeals annulled and set aside the March 11, 2004 Order of the Lapu-Lapu
RTC in Civil Case No. 2203-L.

Both these cases stem from the same undisputed factual antecedents as follows:
Lapu-Lapu Development & Housing Corporation6 (LLDHC) was the registered owner of seventy-
eight (78) lots (subject lots), situated in Barrio Marigondon, Lapu-Lapu City.

On February 4, 1974, LLDHC and the GSIS entered into a Project and Loan Agreement for the
development of the subject lots. GSIS agreed to extend a Twenty-Five Million Peso-loan
(P25,000,000.00) to LLDHC, and in return, LLDHC will develop, subdivide, and sell its lots to GSIS
members. To secure the payment of the loan, LLDHC executed a real estate mortgage over the subject
lots in favor of GSIS.

For LLDHCs failure to fulfill its obligations, GSIS foreclosed the mortgage. As the lone bidder in the
public auction sale, GSIS acquired the subject lots, and eventually was able to consolidate its
ownership over the subject lots with the corresponding transfer certificates of title (TCTs) issued in its
name.

On November 19, 1979, GMC offered to purchase on installments the subject lots from GSIS for a
total price of One Million One Hundred Thousand Pesos (P1,100,000.00), with the aggregate area
specified as 423,177 square meters. GSIS accepted the offer and on February 26, 1980, executed a
Deed of Conditional Sale over the subject lots. However, when GMC discovered that the total area of
the subject lots was only 298,504 square meters, it wrote GSIS and proposed to proportionately
reduce the purchase price to conform to the actual total area of the subject lots. GSIS approved this
proposal and an Amendment to the Deed of Conditional Sale was executed to reflect the final sales
agreement between GSIS and GMC.

On April 23, 1980, LLDHC filed a complaint for Annulment of Foreclosure with Writ of Mandatory
Injunction against GSIS before the RTC of Manila (Manila RTC). This became Civil Case No. R-82-
34297 and was assigned to Branch 38.

On November 3, 1989, GMC filed its own complaint against GSIS for Specific Performance with
Damages before the Lapu-Lapu RTC. The complaint was docketed as Civil Case No. 2203-L and it
sought to compel GSIS to execute a Final Deed of Sale over the subject lots since the purchase price
had already been fully paid by GMC. GSIS, in defense, submitted to the court a Commission on Audit
(COA) Memorandum dated April 3, 1989, purportedly disallowing in audit the sale of the subject lots
for "apparent inherent irregularities," the sale price to GMC being lower than GSISs purchase price at
the public auction. LLDHC, having been allowed to intervene, filed a Motion to Dismiss GMCs
complaint. When this motion was denied, LLDHC filed its Answer-in-Intervention and participated in
the ensuing proceedings as an intervenor.

GMC, on February 1, 1992, filed its own Motion to Intervene with a Complaint-in-Intervention in
Civil Case No. R-82-3429. This was dismissed on February 17, 1992 and finally denied on March 23,
1992 by the Manila RTC on the ground that GMC can protect its interest in another proceeding.8

On February 24, 1992, after a full-blown trial, the Lapu-Lapu RTC rendered its Decision9 in Civil
Case No. 2203-L, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering defendant to:


1. Execute the final deed of absolute sale and deliver the seventy-eight (78) certificates of title
covering said seventy-eight (78) parcels of land to the [Group Management Corporation
(GMC)];

2. Pay [GMC] actual damages, plus attorneys fees and expenses of litigation, in the amount
of P285,638.88 and P100,000.00 exemplary damages;

3. [D]ismissing in toto intervenors complaint-in-intervention for lack of evidence of legal


standing and legal interest in the suit, as well as failure to substantiate any cause of action
against either [GMC] or [GSIS].10

In deciding in favor of GMC, the Lapu-Lapu RTC held that there existed a valid and binding sales
contract between GSIS and GMC, which GSIS could not continue to ignore without any justifiable
reason especially since GMC had already fully complied with its obligations. 11

The Lapu-Lapu RTC found GSISs invocation of COAs alleged disapproval of the sale belated and
self-serving. The Lapu-Lapu RTC said that COA, in disapproving GSISs sale of the subject lots to
GMC, violated its own circular which excludes the disposal by a government owned and/or controlled
corporation of its "acquired assets" (e.g., foreclosed assets or collaterals acquired in the regular course
of business).12 The Lapu-Lapu RTC also held that COA may not intrude into GSISs charter-granted
power to dispose of its acquired assets within five years from acquisition by "preventing/aborting the
sale in question by refusing to pass it in audit."13 Moreover, the Lapu-Lapu RTC held that the GSIS-
proferred COA Memorandum was inadmissible in evidence not only because as a mere photocopy it
failed to measure up to the "best evidence" rule under the Revised Rules of Court, but also because no
one from COA, not even the auditor who supposedly prepared it, was ever presented to testify to the
veracity of its contents or its due execution.14

In dismissing LLDHCs complaint-in-intervention, the Lapu-Lapu RTC held that LLDHC failed to
prove its legal personality as a party-intervenor and all it was able to establish was a "suggestion of
right for [GSIS] to renege [on] the sale for reasons peculiar to [GSIS] but not transmissible nor subject
to invocation by [LLDHC]."15

LLDHC and GSIS filed their separate Notices of Appeal but these were dismissed by the Lapu-Lapu
RTC on December 6, 1993.16

On May 10, 1994, the Manila RTC rendered a Decision17 in Civil Case No. R-82-3429. The Manila
RTC held that GSIS was unable to prove the alleged violations committed by LLDHC to warrant the
foreclosure of the mortgage over the subject lots. Thus, the Manila RTC annulled the foreclosure
made by GSIS and ordered LLDHC to pay GSIS the balance of its loan with interest, to wit:

WHEREFORE, judgment is hereby rendered:

1. ANNULLING the foreclosure by the defendant GSIS of the mortgage over the seventy-
eight (78) parcels of land here involved:

2. CANCELLING the consolidated certificates of [title] issued in the name of GSIS and
directing the Register of Deeds of Lapu-Lapu City to issue new certificates of [title] over
those seventy-eight (78) parcels of land in the name of the plaintiff, in exactly the same
condition as they were before the foreclosure;

3. ORDERING the plaintiff to pay the GSIS the amount of P9,200,000.00 with interest
thereon at the rate of twelve (12%) percent per annum commencing from October 12, 1989
until fully paid; and

4. ORDERING defendant GSIS to execute a properly registrable release of discharge of


mortgage over the parcels of land here involved after full payment of such amount by the
plaintiff.

All claims and counterclaims by the parties as against each other are hereby dismissed.

No pronouncement as to costs.18

Armed with the Manila RTC decision, LLDHC, on July 27, 1994, filed before the Court of Appeals a
Petition for Annulment of Judgment of the Lapu-Lapu RTC Decision in Civil Case No. 2203-
L.19 LLDHC alleged that the Manila RTC decision nullified the sale of the subject lots to GMC and
consequently, the Lapu-Lapu RTC decision was also nullified.

This petition, docketed as CA-G.R. SP No. 34696, was dismissed by the Court of Appeals on
December 29, 1994.20 The Court of Appeals, in finding that the grounds LLDHC relied on were
without merit, said:

In fine, there being no showing from the allegations of the petition that the respondent court is without
jurisdiction over the subject matter and of the parties in Civil Case No. 2309 [2203-L], petitioner has
no cause of action for the annulment of judgment. The complaint must allege ultimate facts for the
annulment of the decision (Avendana v. Bautista, 142 SCRA 41). We find none in this case.21

No appeal having been taken by LLDHC, the decision of the Court of Appeals in CA-G.R. SP No.
34696 became final and executory on January 28, 1995, as stated in the Entry of Final Judgment dated
August 18, 1995.22

On February 2, 1995, LLDHC filed before this Court a Petition for Certiorari23 docketed as G.R. No.
118633. LLDHC, in seeking to annul the February 24, 1992 Decision of the Lapu-Lapu RTC, again
alleged that the Manila RTC Decision nullified the Lapu-Lapu RTC Decision.

Finding the petition a mere reproduction of the Petition for Annulment filed before the Court of
Appeals in CA-G.R. SP No. 34696, this Court, in a Resolution24 dated September 6, 1996, dismissed
the petition in this wise:

In a last ditch attempt to annul the February 24, 1992 Decision of the respondent court, this petition
was brought before us on February 2, 1995.

Dismissal of this petition is inevitable.

The instant petition which is captioned, For: Certiorari With Preliminary Injunction, is actually
another Petition for Annulment of Judgment of the February 24, 1992 Decision of the respondent
Regional Trial Court of Lapu-lapu City, Branch 27 in Civil Case No. 2203-L. A close perusal of this
petition as well as the Petition for Annulment of Judgment brought by the petitioner before the Court
of Appeals in CA-G.R. SP No. 34696 reveals that the instant petition is a mere reproduction of the
petition/complaint filed before the appellate tribunal for annulment of judgment. Paragraphs two (2)
to eighteen (18) of this petition were copied verbatim from the Petition for Annulment of Judgment
earlier filed in the court a quo, except for the designation of the parties thereto, i.e., plaintiff was
changed to petitioner, defendant to respondent. In fact, even the prayer in this petition is the same
prayer in the Petition for Annulment of Judgment dismissed by the Court of Appeals, x x x.

xxxx

Under Section 9(2) of Batas Pambansa Blg. 129, otherwise known as "The Judiciary Reorganization
Act of 1980," it is the Court of Appeals (then the Intermediate Appellate Court), and not this Court,
which has jurisdiction to annul judgments of Regional Trial Courts, viz:

SEC. 9. Jurisdiction -- The Intermediate Appellate Court shall exercise:

xxxx

(2) Exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts;
and

xxxx

Thus, this Court apparently has no jurisdiction to entertain a petition which is evidently another
petition to annul the February 24, 1992 Decision of the respondent Branch 27, Regional Trial Court of
Lapu-lapu City, it appearing that jurisdiction thereto properly pertains to the Court of Appeals. Such a
petition was brought before the appellate court, but due to petitioners failure to nullify Judge Risos
Decision in said forum, LLDHC, apparently at a loss as to what legal remedy to take, brought the
instant petition under the guise of a petition for certiorari under Rule 65 seeking once again to annul
the judgment of Branch 27.

Instead of filing this petition for certiorari under Rule 65, which is essentially another Petition to
Annul Judgment, petitioner LLDHC should have filed a timely Petition for Review under Rule 45 of
the Revised Rules of Court of the decision of the Court of Appeals, dated December 29, 1994,
dismissing the Petition for Annulment of Judgment filed by the petitioner LLDHC before the court a
quo. But, this is all academic now. The appellate courts decision had become final and executory on
January 28, 1995.25

Despite such pronouncements, this Court, nevertheless, passed upon the merits of LLDHCs Petition
for Certiorari in G.R. No. 118633. This Court said that the petition, "which was truly for annulment of
judgment,"26 cannot prosper because the two grounds on which a judgment may be annulled were not
present in the case.27 Going further, this Court held that even if the petition were to be given due
course as a petition for certiorari under Rule 65 of the Revised Rules of Court, it would still be
dismissible for not being brought within a reasonable period of time as it took LLDHC almost three
years from the time it received the February 24, 1992 decision until the time it brought this action.28
LLDHCs motion for reconsideration was denied with finality29 on November 18, 1996, and on
February 18, 1997, an Entry of Judgment30 was made certifying that the September 6, 1996
Resolution of this Court in G.R. No. 118633 had become final and executory on December 23, 1996.

Consequently, on November 28, 1996, the Lapu-Lapu RTC issued an Order31 directing the execution
of the judgment in Civil Case No. 2203-L. A corresponding Writ of Execution32 was issued on
December 17, 1996. The Motions to Stay Execution filed by LLDHC and GSIS were denied by the
Lapu-Lapu RTC on February 19, 1997.33

Meanwhile, on December 27, 1996, the Court of Appeals rendered a Decision34 in the separate
appeals taken by GSIS and LLDHC from the May 10, 1994 Manila RTC Decision in Civil Case No.
R-82-3429. This case, docketed as CA-G.R. CV No. 49117, affirmed the Manila RTC decision with
modification insofar as awarding LLDHC attorneys fees and litigation expenses.

On March 3, 1997, GSIS came to this Court on a Petition for Review of the Court of Appeals
decision in CA-G.R. CV No. 49117. This was docketed as G.R. No. 127732 and was dismissed on
April 14, 199735 due to late filing, the due date being January 31, 1997. This dismissal became final
and executory on May 30, 1997.36

On March 8, 1997, LLDHC filed a Petition for Certiorari with preliminary injunction before the
Court of Appeals, praying that GMC and the Lapu-Lapu RTC be ordered to cease and desist from
proceeding with the execution of its Decision in Civil Case No. 2203-L, on the theory that the Manila
RTC decision was a supervening event which made it mandatory for the Lapu-Lapu RTC to stop the
execution of its decision. This case was docketed as CA-G.R. SP No. 44052. On July 16, 1997, the
Court of Appeals issued an Order temporarily restraining the Lapu-Lapu RTC and GMC from
executing the February 24, 1992 decision in Civil Case No. 2203-L so as not to render the resolution
of the case moot and academic.37

On July 21, 1997, because of GSISs continued refusal to implement the December 17, 1996 Writ of
Execution, the Lapu-Lapu RTC, upon GMCs motion, issued an Order38 redirecting its instructions to
the Register of Deeds of Lapu-Lapu City, to wit:

WHEREFORE, the defendant GSIS having refused to implement the Order of this Court dated
December 17, 1996 the Court in accordance with Rule 39, Sec. 10-a of the 1997 Rules of Procedure,
hereby directs the Register of Deeds of Lapu-lapu City to cancel the Transfer Certificate of Titles of
the properties involved in this case and to issue new ones in the name of the plaintiff and to deliver
the same to the latter within ten (10) days after this Order shall have become final.39

While the TRO issued by the Court of Appeals in CA-G.R. SP No. 44052 was in effect, the Manila
RTC, on August 1, 1997, issued a Writ of Execution40 of its judgment in Civil Case No. R-82-3429.
On August 7, 1997, the Sheriff implemented the Writ and ordered the Register of Deeds of Lapu-
Lapu City to cancel the consolidated certificates of title issued in the name of GSIS and to issue new
ones in favor of LLDHC. In conformity with the TRO, the Lapu-Lapu RTC on August 19, 1997,
ordered41 the suspension of its July 21, 1997 Order. With no similar restraining order against the
execution of the Manila RTC Decision, a Writ of Possession was issued on August 21, 1997 to cause
GSIS and all persons claiming rights under it to vacate the properties in question and to place LLDHC
in peaceful possession thereof.42
On October 23, 1997, the Lapu-Lapu RTC, being aware of the events that have taken place while the
TRO was in effect, issued an Order43 reiterating its previous Orders of November 28, 1996, December
17, 1996, and July 21, 1997. The Lapu-Lapu RTC held that since the restraining order issued by the
Court of Appeals in CA-G.R. SP No. 44052 had already lapsed by operation of law, and the February
24, 1992 Decision in Civil Case No. 2203-L had not only become final and executory but had been
affirmed and upheld by both the Court of Appeals and this Court, the inescapable mandate was to give
due course to the efficacy of its decision. The Lapu-Lapu RTC thus directed the Register of Deeds of
Lapu-Lapu City to effect the transfer of the titles to the subject lots in favor of GMC and declared
"any and all acts done by the Register of Deeds of Lapu-Lapu City null and void starting with the
surreptitious issuance of the new certificates of title in the name of [LLDHC], contrary" to its decision
and orders.44

On November 13, 1997, LLDHC filed before the Court of Appeals another Petition
for Certiorari with preliminary injunction and motion to consolidate with CA-G.R. SP No. 44052.
This case was docketed as CA-G.R. SP No. 45946, but was dismissed45 on November 20, 1997 for
LLDHCs failure to comply with Section 1, Rule 65 of the 1997 Rules of Civil Procedure which
requires the petition to be accompanied by, among others, "copies of all pleadings and documents
relevant and pertinent thereto."46

The petition in CA-G.R. SP No. 44052 would likewise be dismissed47 by the Court of Appeals on
January 9, 1998, but this time, on the merits, to wit:

The validity of the decision of the respondent judge in Civil Case No. 2303-L has thus been brought
both before this Court and to the Supreme Court by the petitioner. In both instances the respondent
judge has been upheld. The instant petition is petitioners latest attempt to resist the implementation or
execution of that decision using as a shield a decision of a Regional Trial Court in the National
Capital Region. We are not prepared to allow it. The applicable rule and jurisprudence are clear. The
prevailing party is entitled as a matter of right to a writ of execution, and the issuance thereof is a
ministerial duty compellable by mandamus. We do not believe that there exists in this instance a
supervening event which would justify a deviation from this rule.48

Prior to this, however, on November 28, 1997, the Lapu-Lapu RTC, acting on GMCs Omnibus
Motion, made the following orders: for LLDHC to show cause why it should not be declared in
contempt; for a writ of preliminary prohibitory injunction to be issued to restrain all persons acting on
LLDHCs orders from carrying out such orders in defiance of its final and executory judgment; and
for a writ of preliminary mandatory injunction to be issued to direct the ouster of LLDHC. The Lapu-
Lapu RTC also declared the Register of Deeds of Lapu-Lapu City in contempt and directed the Office
of the City Sheriff to implement the above orders and to immediately detain and confine the Register
of Deeds of Lapu-Lapu City at the City Jail if he continues to refuse to transfer the titles of the subject
lots after ten days from receipt of this order.49

On December 22, 1997, the Lapu-Lapu RTC denied50 the motion for reconsideration filed by the
Register of Deeds of Lapu-Lapu City. In separate motions, LLDHC, and again the Register of Deeds
of Lapu-Lapu City, sought the reconsideration of the November 28, 1997 and December 22, 1997
Orders. On May 27, 1998, the Lapu-Lapu RTC, acting under a new judge,51 granted both motions and
accordingly set aside the November 28, 1997 and December 22, 1997 Orders.52
With the denial53 of its motion for reconsideration on August 4, 1998, GMC came to this Court on a
Petition for Certiorari, Prohibition and Mandamus, seeking to set aside the May 27, 1998 Order of the
Lapu-Lapu RTC in Civil Case No. 2203-L. The Petition was referred to the Court of Appeals, which
under Batas Pambansa Blg. 129, exercises original jurisdiction to issue such writs.54 This was
docketed as CA-G.R. SP No. 50650.

On April 30, 1999, the Court of Appeals rendered its Decision55 in CA-G.R. SP No. 50650, the
dispositive portion of which reads:

WHEREFORE, the petition being partly meritorious, the Court hereby resolves as follows:

(1) To AFFIRM the Orders of May 28, 1998 and August 4, 1998 in Civil Case No. 2203-L
insofar as they set aside the order holding respondent Register of Deeds guilty of indirect
contempt of court and to NULLIFY said orders in so far as they set aside the directives
contained in paragraphs (a) and (b) and (c) of the order dated November 28, 1997.

(2) To DECLARE without FORCE and EFFECT insofar as petitioner Group Management
Corporation is concerned the decision in Civil Case No. R-82-3429 as well as the orders and
writs issued for its execution and enforcement: and

(3) To ENJOIN respondent Lapu-Lapu Development and Housing Corporation, along with its
agents and representatives and/or persons/public officials/employees acting in its interest,
specifically respondent Regional Trial Court of Manila Branch 38, and respondent Register of
Deeds of Lapu-Lapu City, from obstructing, interfering with or in any manner delaying the
implementation/execution/ enforcement by the Lapu-Lapu City RTC of its order and writ of
execution in Civil Case No. 2203-L.

For lack of sufficient basis the charge of contempt of court against respondent Lapu-Lapu
Development and Housing Corporation and the public respondents is hereby DISMISSED.56

With the denial of LLDHCs motion for reconsideration on December 29, 1999,57 LLDHC, on
January 26, 2000, filed before this Court a Petition for Review on Certiorari assailing the April 30,
1999 decision of the Court of Appeals in CA-G.R. SP No. 50650. This petition was docketed as G.R.
No. 141407.

This Court dismissed LLDHCs petition and upheld the decision of the Court of Appeals in CA-G.R.
SP No. 50650 in its decision dated September 9, 2002. 58 LLDHCs Motion for Reconsideration and
Second Motion for Reconsideration were also denied on November 13, 200259 and February 3,
2003,60 respectively.

The September 9, 2002 decision of this Court in G.R. No. 141407 became final on March 10, 2003.61

On March 11, 2004, the Lapu-Lapu RTC, acting on GMCs Motion for Execution, issued an
Order62 the dispositive portion of which reads:

WHEREFORE, in light of the foregoing considerations, plaintiff Group Management Corporations


motion is GRANTED, while defendant GSIS motion to stay the issuance of a writ of execution is
denied for lack of merit. Consequently, the Sheriff of this Court is directed to proceed with the
immediate implementation of this Courts decision dated February 24, 1992, by enforcing completely
this Courts Order of Execution dated November 28, 1996, the writ of execution dated December 17,
1996, the Order dated July 21, 1997, the Order dated October 23 1997, the Order dated November 28,
1997 and the Order dated December 22, 1997.63

On May 7, 2004, the Lapu-Lapu RTC denied64 the motions for reconsideration filed by LLDHC and
GSIS.

On May 27, 2004, LLDHC filed before the Court of Appeals a Petition for Certiorari, Prohibition
and Mandamus65against the Lapu-Lapu RTC for having issued the Orders of March 11, 2004 and May
7, 2004 (assailed Orders). This petition docketed as CA-G.R. SP No. 84382, sought the annulment of
the assailed Orders and for the Court of Appeals to command the Lapu-Lapu RTC to desist from
further proceeding in Civil Case No. 2203-L, to dismiss GMCs Motion for Execution, and for the
issuance of a Temporary Restraining Order (TRO)/Writ of Preliminary Injunction against the Lapu-
Lapu RTC and GMC.

On July 6, 2004, GSIS filed its own Petition for Certiorari and Prohibition with Preliminary
Injunction and Temporary Restraining Order66 before the Court of Appeals to annul the assailed
Orders of the Lapu-Lapu RTC, to prohibit the judge therein and the Register of Deeds of Lapu-Lapu
City from implementing such assailed Orders, and for the issuance of a TRO and writ of preliminary
injunction to maintain the status quo while the case is under litigation. This petition was docketed as
CA-G.R. SP No. 85096.

The Court of Appeals initially dismissed outright LLDHCs petition for failure to attach the Required
Secretarys Certificate/Board Resolution authorizing petitioner to initiate the petition, 67 but in a
Resolution68 dated August 2, 2004, after having found the explanation for the mistake satisfactory, the
Court of Appeals, "on equitable consideration and for the purpose of preserving the status quo during
the pendency of the appeal,"69 issued a TRO against the Lapu-Lapu RTC from enforcing its
jurisdiction and judgment/order in Civil Case No. 2203-L until further orders. In its August 30, 2004
Resolution,70 the Court of Appeals, without resolving the case on its merits, also issued a Writ of
Preliminary Injunction, commanding the Lapu-Lapu RTC to cease and desist from implementing the
assailed Orders in Civil Case No. 2203-L, until further orders.

On November 25, 2004, the Twentieth Division of the Court of Appeals promulgated its decision in
CA-G.R. SP No. 85096. It dismissed GSISs petition and affirmed the assailed Orders of March 11,
2004 and May 7, 2004. The Court of Appeals found no merit in GSISs petition since the judgment in
Civil Case No. 2203-L, which was decided way back on February 24, 1992, had long become final
and executory, which meant that the Lapu-Lapu RTC had no legal obstacle to cause said judgment to
be executed and enforced. The Court of Appeals quoted in full, portions of this Courts Decision in
G.R. No. 141407 to underscore the fact that no less than the Supreme Court had declared that the
decision in Civil Case No. 2203-L was valid and binding and had become final and executory a long
time ago and had not been in any way nullified by the decision rendered by the Manila RTC on May
10, 1994 in Civil Case No. R-82-3429. On January 20, 2005, the Court of Appeals upheld its decision
and denied GSISs Motion for Reconsideration.71

However, on September 23, 2005, the Special Nineteenth Division of the Court of Appeals came out
with its own decision in CA-G.R. SP No. 84382. It granted LLDHCs petition, contrary to the Court
of Appeals decision in CA-G.R. SP No. 85096, and annulled and set aside the March 11, 2004 Order
of the Lapu-Lapu RTC in this wise:

WHEREFORE, finding merit in the instant Petition for Certiorari, Prohibition and Mandamus, the
same is hereby GRANTED, and the assailed Order, dated March 11, 2004, of the Regional Trial
Court, 7th Judicial Region, Branch 27, Lapulapu City, in Civil Case No. 2203-L is ANNULLED
AND SET ASIDE.

Accordingly, respondent Judge Benedicto Cobarde is hereby ORDERED:

a) to DESIST from further proceeding in Civil Case No. 2203-L; and

b) to DISMISS GMCs Motion for Execution in the abovementioned case;

Meanwhile, the Writ of Preliminary Injunction earlier issued is hereby declared PERMANENT. No
pronouncement as to costs.72

GSIS73 and GMC74 are now before this Court, with their separate Petitions for Review on Certiorari,
assailing the decisions of the Court of Appeals in CA-G.R. SP No. 85096 and CA-G.R. SP No. 84382,
respectively.

G.R. No. 167000

In G.R. No. 167000, GSIS is assailing the Orders issued by the Lapu-Lapu RTC on March 11, 2004
and May 7, 2004 for being legally unenforceable on GSIS because the titles of the 78 lots in
Marigondon, Lapu-Lapu City were already in LLDHCs name, due to the final and executory
judgment rendered by the Manila RTC in Civil Case No. R-82-3429. GSIS contends that it is legally
and physically impossible for it to comply with the assailed Orders as the "subject matter to be
delivered or performed have already been taken away from" 75 GSIS. GSIS asserts that the
circumstances which have arisen, from the judgment of the Manila RTC to the cancellation of GSISs
titles, are "supervening events" which should be considered as an exception to the doctrine of finality
of judgments because they render the execution of the final and executory judgment of the Lapu-Lapu
RTC in Civil Case No. 2203-L unjust and inequitable. GSIS further claims that it should not be made
to pay damages of any kind because its funds and properties are exempt from execution, garnishment,
and other legal processes under Section 39 of Republic Act No. 8291.

LLDHC, in its Compliance,76 believes that it was impleaded in this case as a mere nominal party since
it filed its own Petition for Certiorari before the Court of Appeals, which was granted in CA-G.R. SP
No. 84382. LLDHC essentially agrees with GSIS that the implementation of the assailed Orders have
become legally impossible due to the fully implemented Writ of Execution issued by the Manila RTC
in Civil Case No. R-82-3429. LLDHC alleges that because of this "supervening event," GSIS cannot
be compelled to execute a final deed of sale in GMCs favor, and "LLDHC cannot be divested of its
titles, ownership and possession" of the subject properties.77

GMC in its comment78 argues that GSIS has no legal standing to institute this petition because it has
no more interest in the subject lots, since it is no longer in possession and the titles thereto have
already been registered in LLDHCs name. GMC claims that the decision of the Special Nineteenth
Division of the Court of Appeals is barred by res judicata, and that LLDHC is guilty of forum
shopping for filing several petitions before the Court of Appeals and this Court with the same issues
and arguments. GMC also asserts that the judgment in Civil Case No. R-82-3429 is enforceable only
between GSIS and LLDHC as GMC was not a party to the case, and that the Manila RTC cannot
overrule the Lapu-Lapu RTC, they being co-equal courts.

G.R. No. 169971

In G.R. No. 169971, GMC is praying that the decision of the Special Nineteenth Division of the Court
of Appeals in CA-G.R. SP No. 84382 be reversed and set aside. GMC is claiming that the Court of
Appeals, in rendering the said decision, committed a palpable legal error by overruling several final
decisions rendered by the Lapu-Lapu RTC, the Court of Appeals, and this Court.79 GMC claims that
the Lapu-Lapu RTCs duty to continue with the implementation of its orders is purely ministerial as
the judgment has not only become final and executory, but has been affirmed by both the Court of
Appeals and the Supreme Court in several equally final and executory decisions. 80 GMC, repeating its
arguments in G.R. No. 167000, maintains that the petition is barred by res judicata, that there is forum
shopping, and that the Manila RTC decision is not binding on GMC.

LLDHC in its comment81 insists that there is a supervening event which rendered it necessary to stay
the execution of the judgment of the Lapu-Lapu RTC. LLDHC also asserts that, as correctly found by
the Court of Appeals in CA-G.R. SP No. 84382, the Lapu-Lapu RTC decision in Civil Case No.
2203-L was not affirmed with finality by the Court of Appeals and the Supreme Court as the decision
was not reviewed on the merits.

SUMMARY OF THE ISSUES

The present case is peculiar in the sense that it involves two conflicting final and executory decisions
of two different trial courts. Moreover, one of the RTC decisions had been fully executed and
implemented. To complicate things further, the parties have previously filed several petitions, which
have reached not only the Court of Appeals but also this Court. Upon consolidation of the two
petitions, this Court has narrowed down the issues to the following:

1. Whether or not the decision of the Manila RTC in Civil Case No. R-82-3429 constitutes a
supervening event, which should be admitted as an exception to the doctrine of finality of
judgments.

2. Whether or not the September 23, 2005 Decision of the Special Nineteenth Division of the
Court of Appeals in CA-G.R. SP No. 84382 and GSISs Petition in G.R. No. 167000 are
barred by res judicata.

3. Whether or not there is a legal and physical impossibility for GSIS to comply with the
March 11, 2004 and May 7, 2004 Orders of the Lapu-Lapu RTC in Civil Case No. 2203-L.

4. Whether or not LLDHC and GSIS are guilty of forum shopping.

DISCUSSION

First Issue:
Supervening Event

It is well-settled that once a judgment attains finality, it becomes immutable and unalterable. It may
not be changed, altered or modified in any way even if the modification were for the purpose of
correcting an erroneous conclusion of fact or law. This is referred to as the "doctrine of finality of
judgments," and this doctrine applies even to the highest court of the land.82 This Court explained its
rationale in this wise:

The doctrine of finality of judgment is grounded on fundamental considerations of public policy and
sound practice, and that, at the risk of occasional errors, the judgments or orders of courts must
become final at some definite time fixed by law; otherwise, there would be no end to litigations, thus
setting to naught the main role of courts of justice which is to assist in the enforcement of the rule of
law and the maintenance of peace and order by settling justiciable controversies with finality.83

This Court has, on several occasions, ruled that the doctrine of finality of judgments admits of certain
exceptions, namely: "the correction of clerical errors, the so-called nunc pro tunc entries which cause
no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of
the decision which render its execution unjust and inequitable."84

Both GSIS and LLDHC claim that the execution of the decision and orders in Civil Case No. 2203-L
should be stayed because of the occurrence of "supervening events" which render the execution of the
judgment "impossible, unfair, unjust and inequitable."85 However, in order for an event to be
considered a supervening event to justify the alteration or modification of a final judgment, the event
must have transpired after the judgment has become final and executory, to wit:

Supervening events refer to facts which transpire after judgment has become final and executory or to
new circumstances which developed after the judgment has acquired finality, including matters which
the parties were not aware of prior to or during the trial as they were not yet in existence at that time.86

The Lapu-Lapu RTC Decision in Civil Case No. 2203-L was promulgated on February 24, 1992,
while the Manila RTC Decision in Civil Case No. R-82-3429 was promulgated on May 10, 1994. As
early as December 6, 1993, both GSISs and LLDHCs appeals of the Lapu-Lapu RTC Decision were
dismissed by the said RTC.87 Only GSIS moved to reconsider this dismissal, which was denied on
July 6, 1994.88 Strictly speaking, the Lapu Lapu RTC Decision should have attained finality at that
stage; however, LLDHC filed with the Court of Appeals its Petition for Annulment of Judgment (CA-
G.R. SP No. 34696) on July 27, 1994 and it used therein the Manila RTC Decision as its main ground
for annulment of the Lapu-Lapu RTC decision.

The Court of Appeals nonetheless dismissed LLDHCs Petition for Annulment of Judgment, in CA-
G.R. SP No. 34696,89 and that became final and executory on January 28, 1995,90 after LLDHC
interposed no appeal. The entry of judgment in this case was issued on August 18, 1995.91 Moreover,
the similar petition of LLDHC before this Court in G.R. No. 118633 was decided on September 6,
1996 and became final and executory on December 23, 1996. Therefore, the ruling by the Manila
RTC is evidently not a supervening event. It was already in existence even before the decision in Civil
Case No. 2203-L attained finality.
Just as LLDHC and GSIS, as the losing parties, had the right to file their respective appeals within the
prescribed period, GMC, as the winning party in Civil Case No. 2203-L, equally had the correlative
right to benefit from the finality of the resolution of its case,92 to wit:

A final judgment vests in the prevailing party a right recognized and protected by law under the due
process clause of the Constitution. A final judgment is "a vested interest which it is right and equitable
that the government should recognize and protect, and of which the individual could not be deprived
arbitrarily without injustice."93(Citations omitted.)

Since the Manila RTC decision does not constitute a supervening event, there is therefore neither
reason nor justification to alter, modify or annul the Lapu-Lapu RTC Decision and Orders, which
have long become final and executory. Thus, in the present case, GMC must not be deprived of its
right to enjoy the fruits of a final verdict.

It is settled in jurisprudence that to stay execution of a final judgment, a supervening event "must
create a substantial change in the rights or relations of the parties which would render execution of a
final judgment unjust, impossible or inequitable making it imperative to stay immediate execution in
the interest of justice."94

However, what would be unjust and inequitable is for the Court to accord preference to the Manila
RTC Decision on this occasion when in the past, the Court of Appeals and this Court have repeatedly,
consistently, and with finality rejected LLDHCs moves to use the Manila RTC Decision as a ground
to annul, and/or to bar the execution of, the Lapu Lapu RTC Decision. To be sure, in the Decision
dated September 9, 2002 in G.R. No. 141407, penned by former Chief Justice Artemio V.
Panganiban, the Court already passed upon the lack of effect of the Manila RTC Decision on the
finality of the Lapu Lapu RTC decision in this wise:

The records of the case clearly show that the Lapulapu Decision has become final and executory and
is thus valid and binding upon the parties. Obviously, petitioner [LLDHC] is again trying another
backdoor attempt to annul the final and executory Decision of the Lapulapu RTC.

First, it was petitioner that filed on March 11, 1992 a Notice of Appeal contesting the Lapulapu RTC
Judgment in Civil Case No. 2203-L rendered on February 24, 1992. The Notice was however rejected
by the said RTC for being frivolous and dilatory. Since petitioner had done nothing thereafter, the
Decision clearly became final and executory.

However, upon receipt of the Manila RTC Decision, petitioner found a new tool to evade the already
final Lapulapu Decision by seeking the annulment of the latter in a Petition with the CA. However,
the appellate court dismissed the action, because petitioner had been unable to prove any of the
grounds for annulment; namely lack of jurisdiction or extrinsic fraud. Because no appeal had been
taken by petitioner, the ruling of the CA also became final and executory.

Second, the Supreme Court likewise recognized the finality of the CA Decision when it threw out
LLDHCs Petition for Certiorari in GR No. 118633. This Court ruled thus:

"Instead of filing this petition for certiorari under Rule 65, which is essentially another Petition to
Annul Judgment, petitioner LLDHC should have filed a timely Petition for Review under Rule 45 of
the Revised Rules of Court of the decision of the Court of Appeals, dated December 29, 1994,
dismissing the Petition for Annulment of Judgment filed by the petitioner LLDHC before the court a
quo. But this is all academic now. The appellate courts decision had become final and executory on
January 28, 1995."

Jurisprudence mandates that when a decision becomes final and executory, it becomes valid and
binding upon the parties and their successors in interest. Such decision or order can no longer be
disturbed or reopened no matter how erroneous it may have been. Petitioners failure to file an appeal
within the reglementary period renders the judgment final and executory. The perfection of an appeal
in the manner and within the period prescribed by law is mandatory. Failure to conform to the rules
regarding appeal will render the judgment final and executory and, hence, unappealable. Therefore,
since the Lapulapu Decision has become final and executory, its execution has become mandatory and
ministerial on the part of the judge.

The CA correctly ruled that the Lapulapu Judgment is binding upon petitioner [LLDHC] which, by its
own motion, participated as an intervenor. In fact, the latter filed an Answer in Intervention and
thereafter actively took part in the trial. Thus, having had an opportunity to be heard and to seek a
reconsideration of the action or ruling it complained of, it cannot claim that it was denied due process
of law. What the law prohibits is the absolute absence of the opportunity to be heard. Jurisprudence
teaches that a party cannot feign denial of due process if it has been afforded the opportunity to
present its side.

Petitioner likewise claims that Private Respondent GMC cannot escape the adverse effects of the final
and executory judgment of the Manila RTC.

Again, we do not agree. A trial court has no power to stop an act that has been authorized by another
trial court of equal rank. As correctly stated by the CA, the Decision rendered by the Manila RTC --
while final and executory -- cannot bind herein private respondent [GMC], which was not a party to
the case before the said RTC. A personal judgment is binding only upon the parties, their agents,
representatives and successors in interest.1avvphi1

Third, petitioner grievously errs in insisting that the judgment of the Manila RTC nullified that of the
Lapulapu RTC. As already adverted to earlier, courts of coequal and coordinate jurisdiction may not
interfere with or pass upon each others orders or processes, since they have the same power and
jurisdiction. Except in extreme situations authorized by law, they are proscribed from doing
so.95(Emphases supplied.)

It likewise does not escape the attention of this Court that the only reason the Manila RTC Decision
was implemented ahead of the Lapu Lapu RTC Decision was that LLDHC successfully secured a
TRO from the Court of Appeals through its petition for certiorari docketed as CA-G.R. SP No. 44052,
which was eventually dismissed by the appellate court. The Court of Appeals ruled that the Manila
RTC Decision did not constitute a supervening event that would forestall the execution of the Lapu
Lapu RTC Decision. This decision of the Court of Appeals likewise became final and executory in
1998.

It bears repeating that the issue of whether or not the Manila RTC Decision could nullify or render
unenforceable the Lapu Lapu RTC Decision has been litigated many times over in different fora. It
would be the height of inequity if the Court were to now reverse the Court of Appeals and its own
final and executory rulings and allow GSIS to prevent the execution of the Lapu Lapu RTC Decision
on the same legal grounds previously discredited by the courts.

Second Issue:

Res Judicata

GMC asserts that the September 23, 2005 Decision of the Special Nineteenth Division of the Court of
Appeals in CA-G.R. SP No. 84382 and the petition herein by GSIS in G.R. No. 167000 are barred by
res judicata as the issues involved had been fully resolved not only by the lower courts but by this
Court as well. GSIS and LLDHC both insist that res judicata does not apply as this Court "has not yet
rendered a decision involving the same or any similar petition."96 The petitions by LLDHC before the
Court of Appeals and GSIS before this Court both prayed for the annulment of the March 11, 2004
and May 7, 2004 Orders of the Lapu-Lapu RTC in Civil Case No. 2203-L. These assailed Orders
were both issued to resolve the parties motions and to have the February 24, 1992 judgment
implemented and executed.

In Republic of the Philippines (Civil Aeronautics Administration) v. Yu, 97 this Court expounded on
the concept of res judicata and explained it in this wise:

Res judicata literally means "a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment." Res judicata lays the rule that an existing final judgment or decree
rendered on the merits, and without fraud or collusion, by a court of competent jurisdiction, upon any
matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other
actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and
matters in issue in the first suit.98

In Villanueva v. Court of Appeals,99 we enumerated the elements of res judicata as follows:

a) The former judgment or order must be final;

b) It must be a judgment or order on the merits, that is, it was rendered after a consideration of
the evidence or stipulations submitted by the parties at the trial of the case;

c) It must have been rendered by a court having jurisdiction over the subject matter and the
parties; and

d) There must be, between the first and second actions, identity of parties, of subject matter
and of cause of action. This requisite is satisfied if the two (2) actions are substantially
between the same parties.100

All three parties herein are in agreement with the facts that led to the petitions in this case. However,
not all of them agree that the matters involved in this case have already been judicially settled. While
GMC contends that GSISs petition is barred by res judicata, both GSIS and LLDHC assert that this
Court has not yet decided any similar petition, thus disputing the claim of res judicata.
Res judicata has two concepts: (1) "bar by prior judgment" as enunciated in Rule 39, Section 47(b) of
the 1997 Rules of Civil Procedure; and (2) "conclusiveness of judgment" in Rule 39, Section 47(c),
which reads as follows:

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation thereto, conclusive between
the parties and their successors in interest by title subsequent to the commencement of the
action or special proceeding, litigating for the same thing and under the same title and in the
same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment or final order which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein or
necessary thereto.

In explaining the two concepts of res judicata, this Court held that:

There is "bar by prior judgment" when, as between the first case where the judgment was rendered,
and the second case that is sought to be barred, there is identity of parties, subject matter, and causes
of action. But where there is identity of parties and subject matter in the first and second cases, but no
identity of causes of action, the first judgment is conclusive only as to those matters actually and
directly controverted and determined and not as to matters merely involved therein. This is
"conclusiveness of judgment." Under the doctrine of conclusiveness of judgment, facts and issues
actually and directly resolved in a former suit cannot again be raised in any future case between the
same parties, even if the latter suit may involve a different claim or cause of action. The identity of
causes of action is not required but merely identity of issues.101

In Pealosa v. Tuason,102 we laid down the test in determining whether or not the causes of action in
the first and second cases are identical:

Would the same evidence support and establish both the present and former cause of action? If so, the
former recovery is a bar; if otherwise, it does not stand in the way of the former action.103

Res judicata clearly exists in G.R. No. 167000 and in CA-G.R. SP No. 84382 because both GSISs
and LLDHCs actions put in issue the validity of the Lapu-Lapu RTC Decision and were based on the
assumption that it has either been modified, altered or nullified by the Manila RTC Decision.

In CA-G.R. SP No. 84382, LLDHC sought to annul the assailed Orders of the Lapu-Lapu RTC and to
order the judge therein to desist from further proceeding in Civil Case No. 2203-L. LLDHC sought
for the same reliefs in its Petition for Annulment of Judgment in CA-G.R. SP No. 34696 and G.R. No.
118633, in its Petition for Certiorari in CA-G.R. SP No. 44052, and in its Petition for Review
on Certiorari in G.R. No. 141407, all of which have been decided with finality.

In G.R. No. 167000, GSIS is praying for the reversal of the November 25, 2004 Decision and January
20, 2005 Resolution in CA-G.R. SP No. 85096, wherein the Court of Appeals affirmed the assailed
Orders. The validity of these assailed Orders hinges on the validity of the Lapu-Lapu RTC Decision,
which issue had already been decided with finality by both the Court of Appeals and this Court.
Notwithstanding the difference in the forms of actions GSIS and LLDHC filed, the doctrine of res
judicata still applies considering that the parties were litigating the same thing, i.e., the 78 lots in
Marigondon, Lapu-Lapu City, and more importantly, the same contentions and evidence were used in
all causes of action. As this Court held in Mendiola v. Court of Appeals104:

The test of identity of causes of action lies not in the form of an action but on whether the same
evidence would support and establish the former and the present causes of action. The difference of
actions in the aforesaid cases is of no moment. x x x.105

The doctrine of res judicata makes a final judgment on the merits rendered by a court of competent
jurisdiction conclusive as to the rights of the parties and their privies and amounts to an absolute bar
to subsequent actions involving the same claim, demand, or cause of action.106 Even a finding of
conclusiveness of judgment operates as estoppel with respect to matters in issue or points
controverted, on the determination of which the finding or judgment was anchored.107

Evidently, this Court could dispose of this case simply upon the application of the principle of res
judicata. It is clear that GSISs petition in G.R. No. 167000 and LLDHCs petition in CA-G.R. SP No.
84382 should have never reached those stages for having been barred by a final and executory
judgment on their claims. However, considering the nature of the case before us, this Court is
compelled to make a final determination of the issues in the interest of substantial justice and to end
the wasteful use of our courts time and resources.

Third Issue:

GSISs Compliance with the


Lapu-Lapu RTC Judgment and Orders

GSIS asserts that the assailed Orders cannot be enforced upon it given the physical and legal
impossibility for it to comply as the titles over the subject properties were transferred to LLDHC
under the Manila RTC writ of execution.

A closer perusal of the March 11, 2004 and May 7, 2004 Orders shows that GSISs argument holds no
water. The May 7, 2004 Order denied GSISs and LLDHCs motions for reconsideration of the March
11, 2004 Order. The March 11, 2004 Order resolved GMCs urgent manifestation and motion to
proceed with the implementation of the February 24, 1992 final and executory decision and GSISs
and LLDHCs opposition thereto, as well as GSISs motion to stay the issuance of a writ of execution
against it. The dispositive portion of the Order reads:

WHEREFORE, in the light of the foregoing considerations, plaintiff Group Management


Corporations motion is GRANTED, while defendant GSIS motion to stay the issuance of a writ of
execution is denied for lack of merit. Consequently, the Sheriff of this Court is directed to proceed
with the immediate implementation of this Courts decision dated February 24, 1992, by
enforcing completely this Courts Order of Execution dated November 28, 1996, the writ of execution
dated December 17, 1996, the Order dated July 21, 1997, the Order dated October 23, 1997, the Order
dated November 28, 1997 and the Order dated December 22, 1997.108(Emphasis ours.)

While the previous orders and writs of execution issued by the Lapu-Lapu RTC required the GSIS to
execute the final deed of sale and to deliver the subject properties, the Lapu-Lapu RTC, in its
subsequent Orders, modified this by directing its order to the Register of Deeds of Lapu-Lapu City. In
its July 21, 1997 Order,109 the Lapu-Lapu RTC, seeing GSISs obstinate refusal to implement the
courts previous orders, directed the Register of Deeds of Lapu-Lapu City to cancel the Transfer
Certificates of Title of the subject properties and to issue new ones in the name of GMC, and to
deliver the same to GMC. Moreover, in its October 23, 1997 Order, the Lapu-Lapu RTC, noting the
implemented judgment of the Manila RTC, declared the issuance of new titles to LLDHC null and
void for being contrary to the courts February 24, 1992 decision and directed the Register of Deeds
to effect the transfer of the titles to GMC.

Considering that the assailed Orders merely directed the Lapu-Lapu RTCs Sheriff to proceed with
the implementation of the courts previous orders, that is, to make sure that the Register of Deeds of
Lapu-Lapu City complied with the orders, GSIS had nothing to comply with insofar as the titles to,
and possession of, the subject properties were concerned, the Orders being clearly directed towards
the Sheriff of the Lapu-Lapu RTC and the Register of Deeds of Lapu-Lapu City. Hence, GSISs
argument of legal and physical impossibility of compliance with the assailed Orders is baseless.

GSIS also argues that it cannot be the "subject [of any] execution including [the] payment of any
damage and other monetary judgments because all GSIS funds and properties are absolutely and
expressly exempt from execution and other legal processes under Section 39 of Republic Act No.
8291."110

Section 39 of Republic Act No. 8291 provides:

SECTION 39. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy
of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at
all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as
low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed
on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate
necessary to sustain the benefits of this Act. Accordingly, notwithstanding any laws to the contrary,
the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from
all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless
expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act
are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or
jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded
and rendered ineffective and without legal force and effect.

xxxx

The funds and/or the properties referred to herein as well as the benefits, sums or monies
corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution,
levy or other processes issued by the courts, quasi judicial agencies or administrative bodies including
Commission on Audit (COA) disallowances and from all financial obligations of the members,
including his pecuniary accountability arising from or caused or occasioned by his exercise or
performance of his official functions or duties, or incurred relative to or in connection with his
position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS.

This Court, in Rubia v. Government Service Insurance System,111 held that the exemption of GSIS is
not absolute and does not encompass all of its funds, to wit:
In so far as Section 39 of the GSIS charter exempts the GSIS from execution, suffice it to say that
such exemption is not absolute and does not encompass all the GSIS funds. By way of illustration and
as may be gleaned from the Implementing Rules and Regulation of the GSIS Act of 1997, one
exemption refers to social security benefits and other benefits of GSIS members under Republic Act
No. 8291 in connection with financial obligations of the members to other parties. The pertinent GSIS
Rule provides:

Rule XV. Funds of the GSIS

Section 15.7 Exemption of Benefits of Members from Tax, Attachment, Execution, Levy or other
Legal Processes. The social security benefits and other benefits of GSIS members under R.A. 8291
shall be exempt from tax, attachment, garnishment, execution, levy or other processes issued by the
courts, quasi-judicial agencies or administrative bodies in connection with all financial obligations
of the member, including his pecuniary accountability arising from or caused or occasioned by his
exercise or performance of his official functions or duties or incurred in connection with his position
or work, as well as COA disallowances. Monetary liability in favor of the GSIS, however, may be
deducted from the benefits of the member. [Emphasis supplied]

The processual exemption of the GSIS funds and properties under Section 39 of the GSIS Charter, in
our view, should be read consistently with its avowed principal purpose: to maintain actuarial
solvency of the GSIS in the protection of assets which are to be used to finance the retirement,
disability and life insurance benefits of its members. Clearly, the exemption should be limited to the
purposes and objects covered. Any interpretation that would give it an expansive construction to
exempt all GSIS assets from legal processes absolutely would be unwarranted.

Furthermore, the declared policy of the State in Section 39 of the GSIS Charter granting GSIS an
exemption from tax, lien, attachment, levy, execution, and other legal processes should be read
together with the grant of power to the GSIS to invest its "excess funds" under Section 36 of the same
Act. Under Section 36, the GSIS is granted the ancillary power to invest in business and other
ventures for the benefit of the employees, by using its excess funds for investment purposes. In the
exercise of such function and power, the GSIS is allowed to assume a character similar to a private
corporation. Thus, it may sue and be sued, as also, explicitly granted by its charter. Needless to say,
where proper, under Section 36, the GSIS may be held liable for the contracts it has entered into in the
course of its business investments. For GSIS cannot claim a special immunity from liability in regard
to its business ventures under said Section. Nor can it deny contracting parties, in our view, the right
of redress and the enforcement of a claim, particularly as it arises from a purely contractual
relationship, of a private character between an individual and the GSIS.112

This ruling has been reiterated in the more recent case of Government Service Insurance System v.
Regional Trial Court of Pasig City, Branch 71,113 wherein GSIS, which was also the petitioner in that
case, asked to reverse this Courts findings in Rubia and grant GSIS absolute immunity. This Court
rejected that plea and held that GSIS should not be allowed to hide behind such immunity especially
since its obligation arose from its own wrongful action in a business transaction.

In this case, the monetary judgments against GSIS arose from its failure to comply with its private and
contractual obligation to GMC. As such, GSIS cannot claim immunity from the enforcement of the
final and executory judgment against it.114
Fourth Issue:

Forum Shopping

On the issue of forum shopping, this Court already found LLDHC guilty of forum shopping and was
adjudged to pay treble costs way back in 2002 in G.R. No. 141407115:

There is forum shopping whenever, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion (other than by appeal or certiorari) from another. In Gatmaytan v. CA, the
petitioner therein repeatedly availed itself of several judicial remedies in different courts,
simultaneously or successively. All those remedies were substantially founded on the same
transactions and the same essential facts and circumstances; and all raised substantially the same
issues either pending in, or already resolved adversely by, some other court. This Court held that
therein petitioner was trying to increase his chances of obtaining a favorable decision by filing
multiple suits in several courts. Hence, he was found guilty of forum shopping.

In the present case, after the Lapulapu RTC had rendered its Decision in favor of private respondent,
petitioner filed several petitions before this Court and the CA essentially seeking the annulment
thereof. True, petitioner had filed its Complaint in the Manila RTC before private respondent filed its
own suit in the Lapulapu RTC. Records, however, show that private respondent learned of the Manila
case only when petitioner filed its Motion for Intervention in the Lapulapu RTC. When GMC filed its
own Motion to Intervene in the Manila RTC, it was promptly rebuffed by the judge therein. On the
other hand, petitioner was able to present its side and to participate fully in the proceedings before the
Lapulapu RTC.

On July 27, 1994, almost two years after the dismissal of its appeal by the Lapulapu RTC, petitioner
filed in the CA a suit for the annulment of that RTC judgment. On December 29, 1994, this suit was
rejected by the CA in a Decision which became final and executory on January 28, 1995, after no
appeal was taken by petitioner. However, this action did not stop petitioner. On February 2, 1995, it
filed with this Court another Petition deceptively cloaked as certiorari, but which in reality sought the
annulment of the Lapulapu Decision. This Court dismissed the Petition on September 6, 1996.
Petitioners Motion for Reconsideration was denied with finality on November 18, 1996.

On November 28, 1996, Judge Risos of the Lapulapu RTC directed the execution of the judgment in
the case filed before it. The Motion to Stay Execution filed by petitioner was denied on February 19,
1997. Undaunted, it filed in this Court another Petition for Certiorari, Prohibition and Mandamus. On
September 21, 1998, we referred the Petition to the CA for appropriate action. This new Petition again
essentially sought to annul the final and executory Decision rendered by the Lapulapu RTC. Needless
to say, the new suit was unsuccessful. Still, this rejection did not stop petitioner. It brought before this
Court the present Petition for Review on Certiorari alleging the same facts and circumstances and
raising the same issues already decided by this Court in G.R. No. 118633.

First Philippine International Bank v. CA stresses that what is truly important to consider in
determining whether forum shopping exists is the vexation caused the courts and the parties-litigants
by one who asks different courts and/or administrative agencies to rule on the same or related facts
and causes and/or to grant the same or substantially the same relief, in the process creating the
possibility of conflicting rulings and decisions.
Petitioner in the present case sued twice before the CA and thrice before this Court, alleging
substantially the same facts and circumstances, raising essentially the same issues, and praying for
almost identical reliefs for the annulment of the Decision rendered by the Lapulapu RTC. This
insidious practice of repeatedly bringing essentially the same action -- albeit disguised in various
nomenclatures -- before different courts at different times is forum shopping no less. Because of
petitioners actions, the execution of the Lapulapu Decision has been needlessly delayed and several
courts vexed.116

There is forum shopping when two or more actions or proceedings, other than appeal or certiorari,
involving the same parties for the same cause of action, are instituted either simultaneously or
successively to obtain a more favorable decision.117 This Court, in Spouses De la Cruz v.
Joaquin,118 explained why forum shopping is disapproved of:

Forum shopping trifles with the courts, abuses their processes, degrades the administration of justice,
and congests court dockets. Willful and deliberate violation of the rule against it is a ground for the
summary dismissal of the case; it may also constitute direct contempt of court.119

It is undeniable that both LLDHC and GSIS are guilty of forum shopping, for having gone through
several actions and proceedings from the lowest court to this Court in the hopes that they will obtain a
decision favorable to them. In all those actions, only one issue was in contention: the ownership of the
subject lots. In the process, the parties degraded the administration of justice, congested our court
dockets, and abused our judicial system. Moreover, the simultaneous and successive actions filed
below have resulted in conflicting decisions rendered by not only the trial courts but also by different
divisions of the Court of Appeals.

The very purpose of the rule against forum shopping was to stamp out the abominable practice of
trifling with the administration of justice. 120 It is evident from the history of this case that not only
were the parties and the courts vexed, but more importantly, justice was delayed. As this Court held in
the earlier case of LLDHC against GMC: "[The] insidious practice of repeatedly bringing essentially
the same action albeit disguised in various nomenclatures before different courts at different times
is forum shopping no less."121

Conclusion

Nonetheless, like we said, substantial justice requires the resolution of this controversy on its merits.
It is the duty of this Court to put an end to this long-delayed litigation and render a decision, which
will bind all parties with finality.

Although it is settled that the Lapu-Lapu RTC Decision was not in any way nullified by the Manila
RTC Decision, it is this Courts duty to resolve the legal implications of having two conflicting, final,
and executory decisions in existence. In Collantes v. Court of Appeals,122 this Court, faced with the
similar issue of having two conflicting, final and executory decisions before it, offered three options
to solve the dilemma: "the first is for the parties to assert their claims anew, the second is to determine
which judgment came first, and the third is to determine which of the judgments had been rendered by
a court of last resort."123

In Collantes, this Court applied the first option and resolved the conflicting issues anew. However,
resorting to the first solution in the case at bar would entail disregarding not only the final and
executory decisions of the Lapu-Lapu RTC and the Manila RTC, but also the final and executory
decisions of the Court of Appeals and this Court. Moreover, it would negate two decades worth of
litigating. Thus, we find it more equitable and practicable to apply the second and third options
consequently maintaining the finality of one of the conflicting judgments. The primary criterion under
the second option is the time when the decision was rendered and became final and executory, such
that earlier decisions should prevail over the current ones since final and executory decisions vest
rights in the winning party. In the third solution, the main criterion is the determination of which court
or tribunal rendered the decision. Decisions of this Court should be accorded more respect than those
made by the lower courts.124

Applying these criteria to the case at bar, the February 24, 1992 Decision of the Lapu-Lapu RTC in
Civil Case No. 2203-L was not only promulgated first; it also attained finality on January 28, 1995,
before the Manila RTCs May 10, 1994 Decision in Civil Case No. R-82-3429 became final on May
30, 1997. It is especially noteworthy that months after the Lapu-Lapu RTC issued its writ of execution
on December 17, 1996, the Manila RTC issued its own writ of execution on August 1, 1997. To
recall, the Manila RTC writ was only satisfied first because the Court of Appeals in CA-G.R. SP No.
44052 deemed it appropriate to issue a temporary restraining order against the execution of the Lapu-
Lapu RTC Decision, pending the case before it. Hence, the fact that the Manila RTC Decision was
implemented and executed first does not negate the fact that the Lapu-Lapu RTC Decision was not
only rendered earlier, but had also attained finality earlier. Furthermore, while both judgments
reached the Court of Appeals, only Civil Case No. 2203-L was passed upon on the merits by this
Court. In G.R. No. 141407, this Court resolved LLDHCs petition for review on certiorari seeking to
annul the Court of Appeals Decision in CA-G.R. SP No. 50650. This Court, in dismissing the
petition, upheld the validity of the Lapu-Lapu RTC Decision and declared that the Manila RTC
Decision cannot bind GMC. That decision became final and executory way back on March 10, 2003.

While this Court cannot blame the parties for exhausting all available remedies to obtain a favorable
judgment, the issues involved in this case should have been resolved upon the finality of this Courts
decision in G.R. No. 141407. As pronounced by this Court in Villanueva v. Court of Appeals125:

The interest of the judicial system in preventing relitigation of the same dispute recognizes that
judicial resources are finite and the number of cases that can be heard by the court is limited. Every
dispute that is reheard means that another will be delayed. In modern times when court dockets are
filled to overflowing, this concern is of critical importance. x x x.126

In summary, this Court finds the execution of the Lapu-Lapu RTC Decision in Civil Case No. 2203-L
to be in order. We affirm the assailed Orders of March 11, 2004 and May 7, 2004, which reiterate,
among others, the October 23, 1997 Order issued by the Lapu-Lapu RTC, directing the Register of
Deeds of Lapu-Lapu City to cancel the certificates of title of LLDHC and to issue new ones in GMCs
name. Whatever rights are due LLDHC from GSIS as a result of the final judgment of the Manila
RTC in Civil Case No. R-82-3429, which we have previously held to be binding between GSIS and
LLDHC, may be threshed out in an appropriate proceeding. Such proceeding shall not further delay
the execution of the Lapu-Lapu RTC Decision.

WHEREFORE, in view of the foregoing, the petition in G.R. No. 167000 is DENIED and the
Decision dated November 25, 2004 and Resolution dated January 20, 2005 of the Twentieth Division
of the Court of Appeals are AFFIRMED. The petition in G.R. No. 169971 is GRANTED and the
Decision dated September 23, 2005 of the Special Nineteenth Division of the Court of Appeals is
hereby REVERSED AND SET ASIDE.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,


vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as
appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their
capacities as appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS of
Manila; and NICOLAS CATIIL in his capacity as City Assessor of Manila, respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros
Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City
Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of
lands on which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act also
suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On October
12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision
of the Civil Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners
herein, were precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject properties based on the
schedule of market values duly reviewed by the Secretary of Finance. The revision, as expected,
entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments made
were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the
taxes imposed upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax
Assessment Appeals, however, considered the assessments valid, holding thus:

WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments appear
to be in accordance with the base schedule of market values and of the base schedule of
building unit values, as approved by the Secretary of Finance, the cases should be, as they are
hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals.1wphi1 They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties. Respondent
City Assessor, on the other hand, submitted three (3) deeds of sale showing the different market
values of the real property situated in the same vicinity where the subject properties of petitioners are
located. To better appreciate the locational and physical features of the land, the Board of Hearing
Commissioners conducted an ocular inspection with the presence of two representatives of the City
Assessor prior to the healing of the case. Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices served them. It was found that certain
parcels of land were below street level and were affected by the tides (Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266,
the appealed Decision is modified by allowing a 20% reduction in their respective market
values and applying therein the assessment level of 30% to arrive at the corresponding
assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES


APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D.
20. Hence, petitioners protested against the levels of the values assigned to their properties as revised
and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the
income approach is used in determining land values in some vicinities, it maintains that when income
is affected by some sort of price control, the same is rejected in the consideration and study of land
values as in the case of properties affected by the Rent Control Law for they do not project the true
market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable
Sales Approach" on the ground that the value estimate of the properties predicated upon prices paid in
actual, market transactions would be a uniform and a more credible standards to use especially in case
of mass appraisal of properties (Ibid.). Otherwise stated, public respondents would have this Court
completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties
within its coverage. In any event, it is unquestionable that both the "Comparable Sales Approach" and
the "Income Approach" are generally acceptable methods of appraisal for taxation purposes (The Law
on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that
the propriety of one as against the other would of course depend on several factors. Hence, as early as
1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil.
383), it has been stressed that the assessors, in finding the value of the property, have to consider all
the circumstances and elements of value and must exercise a prudent discretion in reaching
conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second
Edition). Thus, the need to examine closely and determine the specific mandate of the Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655
[1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed
(Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is
that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents, namely:
(1) that the sale must represent a bonafide arm's length transaction between a willing seller and a
willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can justify or
support their view as it is of judicial notice that for properties covered by P.D. 20 especially during
the time in question, there were hardly any willing buyers. As a general rule, there were no takers so
that there can be no reasonable basis for the conclusion that these properties were comparable with
other residential properties not burdened by P.D. 20. Neither can the given circumstances be
nonchalantly dismissed by public respondents as imposed under distressed conditions clearly
implying that the same were merely temporary in character. At this point in time, the falsity of such
premises cannot be more convincingly demonstrated by the fact that the law has existed for around
twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is
the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of excessive
taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals
of Manila and the City Assessor of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,


vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE,
and CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as
the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive
Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently,
Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of
Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real
estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with
respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of
the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as
follows:

TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLARATION YEAR
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened
to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the
proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought
to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for
public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-
day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December
2002 the present petition for review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay
Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay
La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the
notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The
motion sought to restrain respondents the City of Paraaque, City Mayor of
Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City
Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately.
The Court ordered respondents to cease and desist from selling at public auction the Airport Lands
and Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public
auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General
subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the
name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since
the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general
public. Since the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234
of the Local Government Code because the Airport Lands and Buildings are owned by the Republic.
To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA
points out that the reason for tax exemption of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of
the Local Government Code. Respondents also argue that a basic rule of statutory construction is that
the express mention of one person, thing, or act excludes all others. An international airport is not
among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we
held that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real
estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.

The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments
issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In
such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the


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

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt
from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or
controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from
real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate
tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or
controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock


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

A government-owned or controlled corporation must be "organized as a stock or non-stock


corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to
Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission on
Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to
be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National Government in the Authority.
Thereafter, the Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.

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

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as "one where no part of its income is distributable as dividends
to its members, trustees or officers." A non-stock corporation must have members. Even if we assume
that the Government is considered as the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income
to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal status of MIAA within the National
Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of
a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate
and autonomous body"16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed
a government-owned or controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng
Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized
as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code,
which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18

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

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government instrumentalities. Any doubt
whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in


any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)

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

"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax
as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

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

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the
State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of
the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not change
the character of the road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road. The tollway system is
even a more efficient and equitable manner of taxing the public for the maintenance of public roads.

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

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for public use. Such fees are often termed user's
tax. This means taxing those among the public who actually use a public facility instead of taxing all
the public including those who never use the particular public facility. A user's tax is more equitable
a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the
Philippines for both international and domestic air traffic," 22 are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines.

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

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it
for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality exceeded its authority in the
exercise of its powers by executing a contract over a thing of which it could not dispose, nor
is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as
was decided by the supreme court of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and cannot
be disposed of or even leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased,
said temporary occupation or use must also cease, and the town officials should see to it that
the town plazas should ever be kept open to the public and free from encumbrances or illegal
private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will
stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This
will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare
runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.

SECTION 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 and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from
public use, these properties remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with the State or the Republic of the
Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw
such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of
1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.
(1) The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

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

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of
any political subdivision or of any corporate agency or instrumentality, by the executive
head of the agency or instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even
its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President
of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the Department of Transportation and Communications. The
MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual survey
of the area transferred within one year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any portion thereof shall not
be disposed through sale or through any other mode unless specifically approved by the
President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to
the Bureau of Air Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue facilities, are hereby
transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of
Air Transportation and Transitory Provisions. The Manila International Airport including
the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands
and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for
both international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;

WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a
financially viable operation, will best be achieved by a separate and autonomous body;
and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No.
1772, the President of the Philippines is given continuing authority to reorganize the
National Government, which authority includes the creation of new entities, agencies
and instrumentalities of the Government[.] (Emphasis supplied)

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

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines." This only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x
x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does
not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the
President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings.
This only confirms that the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x." The real properties owned by the Republic are titled either in
the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties remain owned
by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,
even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use
of such land area for a consideration to a taxable person and therefore such land area is subject to
real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.29

3. Refutation of Arguments of Minority


The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the
Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not
exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat,
the provisions lay down the explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or
illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and
234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code."
Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax
on national government instrumentalities like the MIAA. Local governments are devoid of power to
tax the national government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and instrumentalities, "[u]nless
otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause
refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned
by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall
within any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local governments since the national government is
not included in the enumeration of exempt entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not only real estate tax, on the national
government.

Under the minority's theory, many national government instrumentalities with juridical personalities
will also be subject to any kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development


Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government instrumentalities.
Section 133(o) does not distinguish between national government instrumentalities with or without
juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus,
Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether
MIAA is a juridical person, but whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting
local governments from imposing any kind of tax on the national government, its agencies and
instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided
in this Code." This means that unless the Local Government Code grants an express authorization,
local governments have no power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the
Code, which makes the national government subject to real estate tax when it gives the beneficial use
of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment
of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The
exception to this exemption is when the government gives the beneficial use of the real property to a
taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government,
its agencies and instrumentalities are subject to any kind of tax by local governments. The exception
to the exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not devoted to
public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any
one presenteda persuasive argument that there is such a conflict. The minority's assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly
admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the superiority of other provisions of
the Local Government Code that limit the exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government
Units." Section 133 limits the grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments
"shall not extend to the levy" of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing powers.
By their very meaning and purpose, the "common limitations" on the taxing power prevail over the
grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails
over the limitations on such taxing power in Section 133, then local governments can impose any kind
of tax on the national government, its agencies and instrumentalities a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities,
except as otherwise provided in the Local Government Code pursuant to the saving clause in Section
133 stating "[u]nless otherwise provided in this Code." This exception which is an exception to the
exemption of the Republic from real estate tax imposed by local governments refers to Section
234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by
the Republic, whether titled in the name of the national government, its agencies or instrumentalities,
to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-
owned or controlled corporation" is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its definitions are not controlling
when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that
a statute may require a different meaning than that defined in the Administrative Code. However, this
does not automatically mean that the definition in the Administrative Code does not apply to the
Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific
words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local Government
Code defining the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly defines
the phrase "government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled corporation" applies
to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should
apply only to corporations organized under the Corporation Code, the general incorporation law, and
not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the


Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs
are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation"
does not distinguish between one incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter 40 of the Land Bank of the Philippines
provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos
each, which shall be fully subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be issued in accordance with
the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be
Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per
share. These shares are available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million which shall be deemed
paid for by the Government with the net asset values of the Bank remaining after the transfer
of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are
the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the
Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation
Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government
Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation must be established for the common
good. The second condition is that the government-owned or controlled corporation must meet the test
of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled


corporations" through special charters only if these entities are required to meet the twin conditions of
common good and economic viability. In other words, Congress has no power to create government-
owned or controlled corporations with special charters unless they are made to comply with the two
conditions of common good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State for the common
good meaning for economic development purposes these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental
or public functions need not meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines
and similar government-owned or controlled corporations, which derive their income to meet
operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations
that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test
of economic performance. We know what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money through new equity infusions from
the government and what is always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about P28 billion of this will
go into equity infusions to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public employees. And yet
this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they become viable. And so, Madam
President, I reiterate, for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can
do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential
services from the public.
However, government-owned or controlled corporations with special charters, organized essentially
for economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters
as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall under the definition
of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

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

1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;

3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to


authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from,
the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an
international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA
derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers
and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative
fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-
owned or controlled corporation. Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code. More importantly, as long as MIAA renders essential public services, it need not comply with
the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or
controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-owned or controlled corporation." To
belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of


the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16,
Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial use of real property owned by
the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any
kind" by local governments. The only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for the portions
that the Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez,


Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr.,
J.J., concur.

x-------------------------------------------------------------------------------x
DISSENTING OPINION

TINGA, J. :

The legally correct resolution of this petition would have had the added benefit of an utterly fair and
equitable result a recognition of the constitutional and statutory power of the City of Paraaque to
impose real property taxes on the Manila International Airport Authority (MIAA), but at the same
time, upholding a statutory limitation that prevents the City of Paraaque from seizing and conducting
an execution sale over the real properties of MIAA. In the end, all that the City of Paraaque would
hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA
properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions
applied to this case, it also leaves the room for negotiation for a mutually acceptable resolution
between the City of Paraaque and MIAA.

Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes
and judicial precedents left and right in order to protect the precious Ming vase that is the Manila
International Airport Authority (MIAA). While the MIAA is left unscathed, it is surrounded by the
wreckage that once was the constitutional policy, duly enacted into law, that was local autonomy.
Make no mistake, the majority has virtually declared war on the seventy nine (79) provinces, one
hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the
Philippines.1

The icing on this inedible cake is the strained and purposely vague rationale used to justify the
majority opinion. Decisions of the Supreme Court are expected to provide clarity to the parties and to
students of jurisprudence, as to what the law of the case is, especially when the doctrines of long
standing are modified or clarified. With all due respect, the decision in this case is plainly so, so
wrong on many levels. More egregious, in the majority's resolve to spare the Manila International
Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule emerges on the
important question of the power of local government units (LGUs) to tax government corporations,
instrumentalities or agencies.

The majority would overturn sub silencio, among others, at least one dozen precedents enumerated
below:

1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by
recently retired Chief Justice Davide, which held that the express withdrawal by the Local
Government Code of previously granted exemptions from realty taxes applied to instrumentalities and
government-owned or controlled corporations (GOCCs) such as the Mactan-Cebu International
Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a precedent
discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government
rule that the Local Government Code was drafted precisely to counter such philosophy. The efficacy
of several rulings that expressly rely on Mactan, such as PHILRECA v. DILG Secretary,4City
Government of San Pablo v. Hon. Reyes5 is now put in question.

2) The rulings in National Power Corporation v. City of Cabanatuan,6 wherein the Court, through
Justice Puno, declared that the National Power Corporation, a GOCC, is liable for franchise taxes
under the Local Government Code, and succeeding cases that have relied on it such as Batangas
Power Corp. v. Batangas City7 The majority now states that deems instrumentalities as defined under
the Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by LGUs,
stating "[l]ocal governments are devoid of power to tax the national government, its agencies and
instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by
Section 2(d) of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading
to the astounding conclusion that GOCCs may not be taxed by LGUs under the Local Government
Code.

3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the
Lung Center of the Philippines may be liable for real property taxes. Using the majority's reasoning,
the Lung Center would be properly classified as an instrumentality which the majority now holds as
exempt from all forms of local taxation.10

4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System
(GSIS) was liable for real property taxes for the years 1992 to 1994, its previous exemption having
been withdrawn by the enactment of the Local Government Code. 12 This decision, which expressly
relied on Mactan, would be directly though silently overruled by the majority.

5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of
Iloilo,13 cases penned by Justices Callejo and Azcuna respectively, which relied in part on Mactan in
holding the Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding the fact that it is
a GOCC. Based on the reasoning of the majority, the PPA cannot be considered a GOCC. The
reliance of these cases on Mactan, and its rationale for holding governmental entities like the PPA
liable for local government taxation is mooted by the majority.

6) The 1963 precedent of Social Security System Employees Association v. Soriano, 14 which declared
the Social Security Commission (SSC) as a GOCC performing proprietary functions. Based on the
rationale employed by the majority, the Social Security System is not a GOCC. Or perhaps more
accurately, "no longer" a GOCC.

7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v.
Central Board of Assessment.15 The characterization therein of the Light Rail Transit Authority
(LRTA) as a "service-oriented commercial endeavor" whose patrimonial property is subject to local
taxation is now rendered inconsequential, owing to the majority's thinking that an entity such as the
LRTA is itself exempt from local government taxation16, irrespective of the functions it performs.
Moreover, based on the majority's criteria, LRTA is not a GOCC.

8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v.
Court of Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was
similarly engaged in the operation, administration and management of the Manila International
Agency, was engaged in the exercise of proprietary, as opposed to sovereign functions. The majority
would hold otherwise that the property maintained by MIAA is actually patrimonial, thus implying
that MIAA is actually engaged in sovereign functions.

9) My own majority in Phividec Industrial Authority v. Capitol Steel, 19 wherein the Court held that
the Phividec Industrial Authority, a GOCC, was required to secure the services of the Office of the
Government Corporate Counsel for legal representation.20 Based on the reasoning of the majority,
Phividec would not be a GOCC, and the mandate of the Office of the Government Corporate Counsel
extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation
v. Province of Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court
pronounced that "[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges of any kind
on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e.,
when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities." Yet the majority now rules that the exceptions in the LGC no longer hold,
since "local governments are devoid of power to tax the national government, its agencies and
instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes,
is now put in jeopardy by the majority's ruling.

There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local
government taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and
previous distinctions between the exercise of governmental and proprietary functions (a distinction
laid down by this Court as far back as 191624). What is the reason offered by the majority for
overturning or modifying all these precedents and doctrines? None is given, for the majority takes
comfort instead in the pretense that these precedents never existed. Only children should be permitted
to subscribe to the theory that something bad will go away if you pretend hard enough that it does not
exist.

I.

Case Should Have Been Decided

Following Mactan Precedent

The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property
taxes under the Local Government Code, has already been decided by this Court in the Mactan case,
and should have been resolved by simply applying precedent.

Mactan Explained

A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority
(MCIAA) claimed that it was exempt from payment of real property taxes to the City of Cebu,
invoking the specific exemption granted in Section 14 of its charter, Republic Act No. 6958, and its
status as an instrumentality of the government performing governmental functions.25 Particularly,
MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized by
the majority as the basis for MIAA's exemption. Section 133 reads:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities
and local government units. (emphasis and underscoring supplied).
However, the Court in Mactan noted that Section 133 qualified the exemption of the National
Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise
provided herein." It then considered the other relevant provisions of the Local Government Code,
particularly the following:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemption or incentives granted to, or enjoyed by all persons, whether natural or juridical, including
government-owned and controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.26

SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila area may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter specifically exempted.27

SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of
the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person:

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively
used for religious charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned and controlled corporations engaged in the distribution of water
and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.28

Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the
National Government, its agencies and instrumentalities, as evidenced by these cited provisions which
"otherwise provided." But what was the extent of the limitation under Section 133? This is how the
Court, correctly to my mind, defined the parameters in Mactan:

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the
exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following
clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in
Section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided
herein," with the "herein" to mean, of course, the section, it should have used the clause "unless
otherwise provided in this Code." The former results in absurdity since the section itself enumerates
what are beyond the taxing powers of local government units and, where exceptions were intended,
the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income
taxes "when levied on banks and other financial institutions"; item (d) which excepts "wharfage on
wharves constructed and maintained by the local government unit concerned"; and item (1) which
excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving
of "tricycles." It may also be observed that within the body itself of the section, there are exceptions
which can be found only in other parts of the LGC, but the section interchangeably uses therein the
clause, "except as otherwise provided herein" as in items (c) and (i), or the clause "except as provided
in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were "Unless otherwise provided in this Code" instead of "Unless
otherwise provided herein." In any event, even if the latter is used, since under Section 232 local
government units have the power to levy real property tax, except those exempted therefrom under
Section 234, then Section 232 must be deemed to qualify Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as
laid down in Section 133, the taxing powers of local government units cannot extend to the levy of,
inter alia, "taxes, fees and charges of any kind on the National Government, its agencies and
instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter
alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person,"
as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons,


including government-owned and controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer
to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property
owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the
first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has
been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption
from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim
to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said
section is qualified by Sections 232 and 234.29

The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt
from all forms of local government taxation, unless otherwise provided in the Code. On the other
hand, Section 232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem real
property tax, irrespective of who owned the property. At the same time, the imposition of real
property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically
exempted." The exemptions from real property taxes are enumerated in Section 234, which
specifically states that only real properties owned "by the Republic of the Philippines or any of its
political subdivisions" are exempted from the payment of the tax. Clearly, instrumentalities or
GOCCs do not fall within the exceptions under Section 234.30

Mactan Overturned the

Precedents Now Relied

Upon by the Majority

But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR, 31 decided before the
enactment of the Local Government Code. The Court in Basco declared the PAGCOR as exempt from
local taxes, justifying the exemption in this wise:

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of
stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD
1869) it also exercises regulatory powers xxx

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.

"The states have no power by taxation or otherwise, to retard impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in
the federal government." (McCulloch v. Marland, 4 Wheat 316, 4 L Ed. 579)

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

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can
regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activates or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it.32

Basco is as strident a reiteration of the old guard view that frowned on the principle of local
autonomy, especially as it interfered with the prerogatives and privileges of the national government.
Also consider the following citation from Maceda v. Macaraig, 33 decided the same year as Basco.
Discussing the rule of construction of tax exemptions on government instrumentalities, the sentiments
are of a similar vein.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of a government political subdivision or instrumentality.

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or
deductions, even more obvious than with reference to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of
treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in the course of its operations. For these
reasons, provisions granting exemptions to government agencies may be construed liberally, in favor
of non tax-liability of such agencies.

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."34

Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This
evinces the perspective from which the majority is coming from. It is admittedly a viewpoint once
shared by this Court, and en vogue prior to the enactment of the Local Government Code of 1991.

However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance
should be practiced in the Philippines, conceding greater powers once held in the private reserve of
the national government to LGUs. The majority might have private qualms about the wisdom of the
policy of local autonomy, but the members of the Court are not expected to substitute their personal
biases for the legislative will, especially when the 1987 Constitution itself promotes the principle of
local autonomy.

Article II. Declaration of Principles and State Policies


xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

Section 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of decentralization
with effective mechanisms of recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and functions and duties of local officials,
and all other matters relating to the organization and operation of the local units.

xxx

Section 5. Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.

xxx

The Court in Mactan recognized that a new day had dawned with the enactment of the 1987
Constitution and the Local Government Code of 1991. Thus, it expressly rejected the contention of
the MCIAA that Basco was applicable to them. In doing so, the language of the Court was dramatic, if
only to emphasize how monumental the shift in philosophy was with the enactment of the Local
Government Code:

Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine
Amusement and Gaming Corporation is unavailing since it was decided before the effectivity of the
[Local Government Code]. Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental functions may be subject to
tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt
its wisdom.35 (emphasis supplied)

The Court Has Repeatedly

Reaffirmed Mactan Over the

Precedents Now Relied Upon

By the Majority
Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The
notion that instrumentalities may be subjected to local taxation by LGUs was again affirmed in
National Power Corporation v. City of Cabanatuan,36 which was penned by Justice Puno. NPC or
Napocor, invoking its continued exemption from payment of franchise taxes to the City of
Cabanatuan, alleged that it was an instrumentality of the National Government which could not be
taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about
Basco.

xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the
petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to
the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled in the case
of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress
from decreeing that even instrumentalities or agencies of the government performing governmental
functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national
government, was subject to real property tax.37

In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court, in the able ponencia of
Justice Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed under
the old Real Property Tax Code and not the Local Government Code, the Court again cited Mactan to
refute PPA's invocation of Basco as the basis of its exemption.

[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In
fact we stated therein:

The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended, repealed
or revoked". . . its "exemption clause" remains an exemption to the exercise of the power of local
governments to impose taxes and fees.

Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos,
where the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent
Congress from decreeing that even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom." The fact that tax exemptions of
government-owned or controlled corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioner's claim of absolute exemption of government
instrumentalities from local taxation.39

Just last month, the Court in National Power Corporation v. Province of Isabela40 again rejected Basco
in emphatic terms. Held the Court, through Justice Callejo, Sr.:

Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court
noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National Government was in
effect. It further explained that in enacting the LGC, Congress empowered the LGUs to impose
certain taxes even on instrumentalities of the National Government.41

The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a
decision also penned by Justice Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at
public auction for failure to pay realty taxes. The Court again reiterated that "it was the intention of
Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including
government-owned or controlled corporations, upon the effectivity" of the Code.43 The Court in the
second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the
withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and
the objective of the [Local Government Code] that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities. . . . "44

Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real
property taxes of the Government Service Insurance System (GSIS) was removed under the Local
Government Code. Again, Mactan was relied upon as the governing precedent. The removal of the tax
exemption stood even though the then GSIS law46 prohibited the removal of GSIS' tax exemptions
unless the exemption was specifically repealed, "and a provision is enacted to substitute the declared
policy of exemption from any and all taxes as an essential factor for the solvency of the fund."47 The
Court, citing established doctrines in statutory construction and Duarte v. Dade48 ruled that such
proscription on future legislation was itself prohibited, as "the legislature cannot bind a future
legislature to a particular mode of repeal."49

And most recently, just less than one month ago, the Court, through Justice Corona in Government
Service Insurance System v. City Assessor of Iloilo50 again affirmed that the Local Government Code
removed the previous exemption from real property taxes of the GSIS. Again Mactan was cited as
having "expressly withdrawn the [tax] exemption of the [GOCC].51

Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule
employed by the Court since its adoption, the doctrine therein consistent with the Local Government
Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically rejected and declared
inconsistent with the Local Government Code.

II.

Majority, in Effectively Overturning Mactan,

Refuses to Say Why Mactan Is Wrong

The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it
is relied upon by the respondents.52 However, the ineluctable conclusion is that the majority rejects
the rationale and ruling in Mactan. The majority provides for a wildly different interpretation of
Section 133, 193 and 234 of the Local Government Code than that employed by the Court in Mactan.
Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted
from the fact that both petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco
and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the philosophy
of expanded local government rule under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the
majority's studied murkiness vis--vis the Mactan precedent. The majority is obviously inconsistent
with Mactan and there is no way these two rulings can stand together. Following basic principles in
statutory construction, Mactan will be deemed as giving way to this new ruling.

However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan
of the relevant provisions of the Local Government Code is elegant and rational, yet the majority
refuses to explain why this reasoning of the Court in Mactan is erroneous. In fact, the majority does
not even engage Mactan in any meaningful way. If the majority believes that Mactan may still stand
despite this ruling, it remains silent as to the viable distinctions between these two cases.

The majority's silence on Mactan is baffling, considering how different this new ruling is with the
ostensible precedent. Perhaps the majority does not simply know how to dispense with the ruling in
Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more honorable end than
death by amnesia or ignonominous disregard. The majority could have devoted its discussion in
explaining why it thinks Mactan is wrong, instead of pretending that Mactan never existed at all. Such
an approach might not have won the votes of the minority, but at least it would provide some degree
of intellectual clarity for the parties, LGUs and the national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter would have been possible, enriching the study
of law and the intellectual dynamic of this Court.

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in
the business of operating an airport. They are the owners of airport properties they respectively
maintain and hold title over these properties in their name.53 These entities are both owned by the
State, and denied by their respective charters the absolute right to dispose of their properties without
prior approval elsewhere.54 Both of them are

not empowered to obtain loans or encumber their properties without prior approval the prior approval
of the President.55

III.

Instrumentalities, Agencies

And GOCCs Generally

Liable for Real Property Tax

I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position
lies with Mactan, which will further demonstrate why the majority has found it inconvenient to even
grapple with the precedent that is Mactan in the first place.

Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities
under Section 133 is qualified by Section 232 and Section 234, and accordingly, the only relevant
exemption now applicable to these bodies is as provided under Section 234(o), or on "real property
owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."
It should be noted that the express withdrawal of previously granted exemptions by the Local
Government Code do not even make any distinction as to whether the exempt person is a
governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies to "all persons,
including [GOCCs]", thus encompassing the two classes of persons recognized under our laws,
natural persons56 and juridical persons.57

The fact that the Local Government Code mandates the withdrawal of previously granted exemptions
evinces certain key points. If an entity was previously granted an express exemption from real
property taxes in the first place, the obvious conclusion would be that such entity would ordinarily be
liable for such taxes without the exemption. If such entities were already deemed exempt due to some
overarching principle of law, then it would be a redundancy or surplusage to grant an exemption to an
already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from
realty taxes, since it required the enactment of an express exemption from such taxes in its charter.

Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government
instrumentalities are not taxable persons unless they lease their properties to a taxable person. The
general rule laid down in Section 232 is given short shrift. In arriving at this conclusion, several leaps
in reasoning are committed.

Majority's Flawed Definition

of GOCCs.

The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality.
However, and quite grievously, the supposed foundation of this assertion is an adulteration.

The majority gives the impression that a government instrumentality is a distinct concept from a
government corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of
the Administrative Code of 1987, as follows:

Instrumentality refers to any agency of the National Government not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. xxx59 (emphasis omitted)

However, Section 2(10) of the Administrative Code, when read in full, makes an important
clarification which the majority does not show. The portions omitted by the majority are highlighted
below:

(10)Instrumentality refers to any agency of the National Government not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions and government
owned or controlled corporations.60

Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also
worth citing in full:
(4) Agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein. (emphasis supplied)61

Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of
the National Government. Thus, there actually is no point in the majority's assertion that MIAA is not
a GOCC, since based on the majority's premise of Section 133 as the key provision, the material
question is whether MIAA is either an instrumentality, an agency, or the National Government itself.
The very provisions of the Administrative Code provide that a GOCC can be either an instrumentality
or an agency, so why even bother to extensively discuss whether or not MIAA is a GOCC?

Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer,62 the
Supreme Court already noted that a corporation of which the government is the majority stockholder
"remains an agency or instrumentality of government."63

Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However,
the entire discussion of the majority on the definition of a GOCC, obiter as it may ultimately be,
deserves emphatic refutation. The views of the majority on this matter are very dangerous, and would
lead to absurdities, perhaps unforeseen by the majority. For in fact, the majority effectively
declassifies many entities created and recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters as to the definition of these entities.

Majority Ignores the Power

Of Congress to Legislate and

Define Chartered Corporations

First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be
"organized as a stock or non-stock corporation," as defined under the Corporation Code. To insist on
this as an absolute rule fails on bare theory. Congress has the undeniable power to create a corporation
by legislative charter, and has been doing so throughout legislative history. There is no constitutional
prohibition on Congress as to what structure these chartered corporations should take on. Clearly,
Congress has the prerogative to create a corporation in whatever form it chooses, and it is not bound
by any traditional format. Even if there is a definition of what a corporation is under the Corporation
Code or the Administrative Code, these laws are by no means sacrosanct. It should be remembered
that these two statutes fall within the same level of hierarchy as a congressional charter, since they all
are legislative enactments. Certainly, Congress can choose to disregard either the Corporation Code or
the Administrative Code in defining the corporate structure of a GOCC, utilizing the same extent of
legislative powers similarly vesting it the putative ability to amend or abolish the Corporation Code or
the Administrative Code.

These principles are actually recognized by both the Administrative Code and the Corporation Code.
The definition of GOCCs, agencies and instrumentalities under the Administrative Code are laid
down in the section entitled "General Terms Defined," which qualifies:

Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning: (emphasis supplied)
xxx

Similar in vein is Section 6 of the Corporation Code which provides:

SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter creating them or
applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.
(emphasis supplied)

Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity
created by Congress is its legislative charter. If the legislative enactment defines an entity as a
corporation, then it is a corporation, no matter if the Corporation Code or the Administrative Code
seemingly provides otherwise. In case of conflict between the legislative charter of a government
corporation, on one hand, and the Corporate Code and the Administrative Code, on the other, the
former always prevails.

Majority, in Ignoring the

Legislative Charters, Effectively

Classifies Duly Established GOCCs,

With Disastrous and Far Reaching

Legal Consequences

Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as
defined under the Corporation Code. It explains that the MIAA is not a stock corporation because it
does not have any capital stock divided into shares. Neither can it be considered as a non-stock
corporation because it has no members, and under Section 87, a non-stock corporation is one where
no part of its income is distributable as dividends to its members, trustees or officers.

This formulation of course ignores Section 4 of the Corporation Code, which again provides that
corporations created by special laws or charters shall be governed primarily by the provisions of the
special law or charter, and not the Corporation Code.

That the MIAA cannot be considered a stock corporation if only because it does not have a stock
structure is hardly a plausible proposition. Indeed, there is no point in requiring a capital stock
structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such
GOCCs are not empowered to declare dividends or alienate their capital shares.

Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation
(NPC), which is provided with authorized capital stock wholly subscribed and paid for by the
Government of the Philippines, divided into shares but at the same time, is prohibited from
transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security for
payment of any obligation.64 However, based on the Corporation Code definition relied upon by the
majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the
Corporation Code, stock corporations are defined as being "authorized to distribute to the holders of
its shares dividends or allotments of the surplus profits on the basis of the shares held."65 On the other
hand, Section 13 of the NPC's charter states that "the Corporation shall be non-profit and shall devote
all its returns from its capital investment, as well as excess revenues from its operation, for
expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus
profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following
Section 3 of the Corporation Code, the NPC is not a stock corporation, if the majority is to be
believed.

The majority likewise claims that corporations without members cannot be deemed non-stock
corporations. This would seemingly exclude entities such as the NPC, which like MIAA, has no
ostensible members. Moreover, non-stock corporations cannot distribute any part of its income as
dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of its
gross operating income to the national government. How about the Philippine Health Insurance
Corporation, created with the "status of a tax-exempt government corporation attached to the
Department of Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock corporation
because it has no capital stock structure. But using the criteria of the majority, it is doubtful if it would
pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is commonly known, is
expressly empowered "to collect, deposit, invest, administer and disburse" the National Health
Insurance Fund.68 Or how about the Social Security System, which under its revised charter, Republic
Act No. 8282, is denominated as a "corporate body."69 The SSS has no capital stock structure, but has
capital comprised of contributions by its members, which are eventually remitted back to its members.
Does this disqualify the SSS from classification as a GOCC, notwithstanding this Court's previous
pronouncement in Social Security System Employees Association v. Soriano?70

In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-
stock,71 declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or
property dividends to the National Government.72 But according to the majority, non-stock
corporations are prohibited from declaring any part of its income as dividends. But if Republic Act
No. 7656 requires even non-stock corporations to declare dividends from income, should it not follow
that the prohibition against declaration of dividends by non-stock corporations under the Corporation
Code does not apply to government-owned or controlled corporations? For if not, and the majority's
illogic is pursued, Republic Act No. 7656, passed in 1993, would be fatally flawed, as it would
contravene the Administrative Code of 1987 and the Corporation Code.

In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by
Republic Act No. 7656. Following the majority's definition of a GOCC and in accordance with
Republic Act No. 7656, here are but a few entities which are not obliged to remit fifty (50%) of its
annual net earnings to the National Government as they are excluded from the scope of Republic Act
No. 7656:

1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance
of its income or revenue at the end of each year in a general reserve.75

2) Bases Conversion Development Authority76 - has no capital stock,77 no members.

3) Philippine Economic Zone Authority78 - no capital stock,79 no members.

4) Light Rail Transit Authority80 - no capital stock,81 no members.


5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent
(50%) of its net profits to the National Treasury.84

6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders
of its shares dividends or allotments of the surplus profits on the basis of the shares held;"86 no
members.

7) Manila International Airport Authority no capital stock87, no members88, mandated to remit


twenty percent (20%) of its annual gross operating income to the National Treasury.89

Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage
of Republic Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else then could
Executive Order No. 483, signed in 1998 by President Ramos, be explained? The issuance provides:

WHEREAS, Section 1 of Republic Act No. 7656 provides that:

"Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the
National Government to realize additional revenues, government-owned and/or controlled
corporations, without impairing their viability and the purposes for which they have been established,
shall share a substantial amount of their net earnings to the National Government."

WHEREAS, to support the viability and mandate of government-owned and/or controlled


corporations [GOCCs], the liquidity, retained earnings position and medium-term plans and programs
of these GOCCs were considered in the determination of the reasonable dividend rates of such
corporations on their 1997 net earnings.

WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the


adjustment on the percentage of annual net earnings that shall be declared by the Manila International
Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest of national economy
and general welfare.

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers
vested in me by law, do hereby order:

SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as
dividends to the National Government as provided for under Section 3 of Republic Act No. 7656 is
adjusted from at least fifty percent [50%] to the rates specified hereunder:

1. Manila International Airport Authority - 35% [cash]

2. Phividec Industrial Authority - 25% [cash]

SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997
net earnings of the concerned government-owned and/or controlled corporations.

Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a
GOCC, for how else could it have come under the coverage of Republic Act No. 7656, a law
applicable only to GOCCs? But, the majority apparently disagrees, and resultantly holds that MIAA is
not obliged to remit even the reduced rate of thirty five percent (35%) of its net earnings to the
national government, since it cannot be covered by Republic Act No. 7656.

All this mischief because the majority would declare the Administrative Code of 1987 and the
Corporation Code as the sole sources of law defining what a government corporation is. As I stated
earlier, I find it illogical that chartered corporations are compelled to comply with the templates of the
Corporation Code, especially when the Corporation Code itself states that these corporations are to be
governed by their own charters. This is especially true considering that the very provision cited by the
majority, Section 87 of the Corporation Code, expressly says that the definition provided therein is
laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the
Corporation Code which mandates that corporations created by charter be governed by the law
creating them, it is clear that contrary to the majority, MIAA is not disqualified from classification as
a non-stock corporation by reason of Section 87, the provision not being applicable to corporations
created by special laws or charters. In fact, I see no real impediment why the MIAA and similarly
situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or
maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated
from non-stock corporations).

The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if
the legislature says so. After all, it is the legislature that dictates what a corporation is in the first
place. This is better illustrated by another set of entities created before martial law. These include the
Mindanao Development Authority,90 the Northern Samar Development Authority,91 the Ilocos Sur
Development Authority,92 the Southeastern Samar Development Authority93 and the Mountain
Province Development Authority.94 An examination of the first section of the statutes creating these
entities reveal that they were established "to foster accelerated and balanced growth" of their
respective regions, and towards such end, the charters commonly provide that "it is recognized that a
government corporation should be created for the purpose," and accordingly, these charters "hereby
created a body corporate."95 However, these corporations do not have capital stock nor members, and
are obliged to return the unexpended balances of their appropriations and earnings to a revolving fund
in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind
the fact that their very charters declare them to be GOCCs.

I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples
to emphasize my fundamental pointthat it is the legislative charters of these entities, and not the
Administrative Code, which define the class of personality of these entities created by Congress. To
adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous
congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been
the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms"
incorporated therein.

MIAA Is Without

Doubt, A GOCC

Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs
which are stock corporations and GOCCs which are no stock corporations (as distinguished from non-
stock corporation). Stock GOCCs are simply those which have capital stock while no stock GOCCs
are those which have no capital stock. Obviously these definitions are different from the definitions of
the terms in the Corporation Code. Verily, GOCCs which are not incorporated with the Securities and
Exchange Commission are not governed by the Corporation Code but by their respective charters.

For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC.
Observe the following provisions from MIAA's charter:

SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a


body corporate to be known as the Manila International Airport Authority which shall be attached to
the Ministry of Transportation and Communications. The principal office of the Authority shall be
located at the New Manila International Airport. The Authority may establish such offices, branches,
agencies or subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may
be organized shall have the prior approval of the President.

The land where the Airport is presently located as well as the surrounding land area of approximately
six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the corresponding title to be issued in the
name of the Authority. Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.

xxx

SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions,
powers and duties:

xxx

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or immovable, or
any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

xxx

(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are
not inconsistent with the provisions of this Executive Order.
xxx

SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of
Finance and with the approval of the President of the Philippines, as recommended by the Minister of
Transportation and Communications, raise funds, either from local or international sources, by way of
loans, credits or securities, and other borrowing instruments, with the power to create pledges,
mortgages and other voluntary liens or encumbrances on any of its assets or properties.

All loans contracted by the Authority under this Section, together with all interests and other sums
payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority
and shall rank equally with one another, but shall have priority over any other claim or charge on the
revenue and assets of the Authority: Provided, That this provision shall not be construed as a
prohibition or restriction on the power of the Authority to create pledges, mortgages, and other
voluntary liens or encumbrances on any assets or property of the Authority.

Except as expressly authorized by the President of the Philippines the total outstanding indebtedness
of the Authority in the principal amount, in local and foreign currency, shall not at any time exceed
the net worth of the Authority at any given time.

xxx

The President or his duly authorized representative after consultation with the Minister of Finance
may guarantee, in the name and on behalf of the Republic of the Philippines, the payment of the loans
or other indebtedness of the Authority up to the amount herein authorized.

These cited provisions establish the fitness of MIAA to be the subject of legal relations. 96 MIAA
under its charter may acquire and possess property, incur obligations, and bring civil or criminal
actions. It has the power to contract in its own name, and to acquire title to real or personal property.
It likewise may exercise a panoply of corporate powers and possesses all the trappings of corporate
personality, such as a corporate name, a corporate seal and by-laws. All these are contained in
MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is
the primary law that governs the definition and organization of the MIAA.

In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so