iv. Nature of the power to grant tax exemption

BASCO V. PAGCOR(14 May 1991)

Attorneys Humberto Basco, Edilberto Balce, Socrates Maranan and Lorenzo Sanchez, petitioners vs Philippine Amusement and Gaming Corporation (PAGCOR), respondent.

DOCTRINE: The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax.

The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law.

NATURE: Petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter

PONENTE: Paras, J.

FACTS: PAGCOR was originally created by virtue of PD 1067-A in January 1977 and

granted a franchise “to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines."

The Charter was amended as PD 1869 dated July 11, 1983 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law

Petitioners come to the Court questioning the validity of the PAGCOR charter anchoring their petition on the following points:

o It waives the City of Manila’s power to impose taxes and license feeso Such restriction is contrary to the principles of local autonomyo It violates the equal protection clause by legalizing PAGCOR-

conducted gambling but not other forms o It violates the trend away from monopolistic and crony economy

ISSUES:1. Do petitioners have standing to question the legality of the Charter? YES. 2. Is the Charter is void for being unconstitutional? NO.3. Is the Charter void for violating the local autonomy clause of the Constitution?

NO. [REVELANT ISSUE]

HELD/RATIO/RULING: 1. YES

“Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition.”

“The transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." 

2. NO Gambling in all its forms, unless allowed by law, is generally prohibited.

But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power.

The aim of the Charter is to “regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government”

Further, the Charter does not deprive the City of Manila its right to impose taxes and fees for the following reasons:

o The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax"

o The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers". Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

o The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government

o 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

o Further, 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.

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o This doctrine emanates from the supremacy of the National over the local government. 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"

Further, the Charter is not repugnant to local autonomy for the Constitution itself provides that the power of an LGU to create its own sources of wealth is subject to such guidelines as Congress may provide

Finally, it does not violate the equal protection clause. The clause does not preclude a classification. Such classification is allowed so long as it is reasonable and not arbitrary

Finally, the Constitution does not prohibit monopolies per se. It only enjoins their limitation or prohibition should public interest so require.

3. The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked"

(Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization". It does not make local governments sovereign within the state or an "imperium in imperio."

DISPOSITION: Petition DISMISSED.

VOTE: Fernan, C.J., Gutierrez, Jr. Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grino-Aquino, Medialdea, Regalado, Davide, JJ., concur

-Ice

MACEDA V MACARAIG(May 31, 1991)

Facts: On Nov 1936, CA 120 created the NPC On June 1949, RA 358 granted NPC tax and duty exemption On Sept 1971, RA 6395 revised the NPC charter On Jan 1974, PD 380 granted exemption of NPC from such taxes, duties, fees,

imposts and other charges imposed directly or indirectly On June 1984, PD 1931 withdrew all tax exemptions of GOCCs but empowered

the President and/or Minister of Finance upon the recommendation of the FIRB to restore, partially or totally, the exemptions withdrawn.

On Feb 1985, FIRB issued Res No 10-85 restoring tax and duty exemption of NPC

On Jan 1986, FIRB issued Res No 1-86 restoring indefinitely tax and duty exemption of NPC

On March 1987, EO 93 withdrew all tax and duty exemptions of GOCCs restored by PD 1931 and PD 1955 but authorized the FIRB to restore, revise and prescribe the date of effectivity of such tax and/or duty exemptions

On June 1987, FIRB issued Res No 17-87 restoring NPC’s tax and duty exemption.

On Oct 1987, the President through Exec Sec Macaraig, Jr confirmed and approved FIRB Res No 17-87

Issues: WON FIRB Res No 10-85 and Res No 1-86 restored NPC’s exemption from

indirect taxes WON FIRB could validly issue Res No 17-87 restoring NPC’s tax exemption

Held: Yes Yes

Ratio: A direct tax is a tax for which a taxpayer is directly liable on the

transaction or business it engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else ."  For example, the excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

as FIRB Resolutions Nos. 10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective.

The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the government of the Republic of the Philippines. 

Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the NPC "shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion.

It is evident from the Preamble of PD 938 that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NPC.

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

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

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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." 

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given controlling weight. Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of May 20, 1988 to the Executive Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as amended, included exemption from payment of all taxes relative to NPC's petroleum purchases including indirect taxes.

When the NPC was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938, it means exactly what it says, i.e.,all forms of taxes including those that were imposed directly or indirectly on petroleum products used in its operation.

On the issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the same is valid and effective.

The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of persons or entities would be restored. The task may be assigned to an administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of constitutionality of legislation should be adopted.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There are various arrangements in the payment of crude oil purchased by NPC from oil companies. Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC. As to the specific and ad valoremtaxes, they are added a part of the seller's price, but NPC pays the price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax component on fuel had been charged or recovered by NPC from the consumers through its power rates.  Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors may claim the same privilege should be dispelled by the fact that

o (a) this decision particularly treats of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on the petroleum products it used or uses for its operation; and

o (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on all petroleum products used in its operation only, which is the very exemption which this Court deems to be carried over by the passage of P.D. No. 938.

As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the "Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC of other products or services.

-Ivan

v. Rationale/grounds for tax exemption

TOLENTINO vs SECRETARY OF FINANCE(30 October 1995)

Ponente: Mendoza, J.Nature: Motions for Reconsideration of a decision of the Supreme Court

DOCTRINE: RATIONALE/GROUNDS FOR TAX EXEMPTION As a general proposition, the press is not exempt from the taxing power of

the State. What the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment, or which in any way discriminate against the press on the basis of the content of the publication. RA 7716 is none of these.

Since the law granted the press a PRIVILEGE, the law could take back the privilege anytime without offense to the Constitution. The reason is SIMPLE: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.

In withdrawing the exemption, the law merely subjects the press to the same tax burden to which the others businesses have long ago been subject.

An enumeration of some of these transactions will suffice to show that by and large this is not so and that the exemptions are granted for a purpose.

Such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit.

FACTS: These are motions seeking reconsideration of our decision dismissing the

petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. 

Important petitioners here re: VAT exemptiono TAX EXEMPTION OF THE PRESS: PHILIPPINE PRESS

INSTITUTE, INC. (PPI); EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA

o TAX EXEMPTION OF COOPERATIVES: COOPERATIVE UNION OF THE PHILIPPINES (CUP)

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ISSUE/S + HELD + RATIO: (Other issues have already been discussed; REVIEW! CRAZAAAAAAAAAAY!)

1. On claims of press freedom and religious libertyPetitioner PPI’s argument : By removing the tax exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press.COURT SAYS: Kulit eh!

As a general proposition, the press is not exempt from the taxing power of the State. What the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment, or which in any way discriminate against the press on the basis of the content of the publication. RA 7716 is none of these.

Since the law granted the press a PRIVILEGE, the law could take back the privilege anytime without offense to the Constitution. The reason is SIMPLE: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.

In withdrawing the exemption, the law merely subjects the press to the same tax burden to which the others businesses have long ago been subject.

AMERICAN CASES : The license tax in Grosjean v. American Press Co. (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident.

In Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue (1983), the tax was found to be discriminatory because although it could have been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which made these items "the only items subject to the use tax that were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of regulation is not related to suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden the base of the tax.

Petitioner PPI’s argument : The discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716.  

COURT SAYS: Try harder, PPI! An enumeration of some of these transactions will suffice to show that by

and large this is not so and that the exemptions are granted for a purpose.

Such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines) or for professional use, like professional instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

Petitioner PPI’s final argument : Even non-discriminatory taxation on the constitutionally guaranteed freedom is unconstitutional. (based on Murdock vs Pennsylvania)COURT SAYS:

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the

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Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is unconstitutional. 

Similar ruling in American Bible Society vs City of Manila wherein it was held that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate.

BUT VAT IS DIFFERENT. NOT a license tax, NOT a tax on the exercise of privilege, much less a consti right.

It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

EXTRA: Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale.

Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly.

The registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in §108 of the NIRC.

That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.

2. On the alleged violation of policy towards cooperativesPetitioner CUP’s argument:

The legislation must adopt a definite policy for granting tax exemption to cooperatives because the Constitution says so. To subject cooperatives to the VAT would be an infringement of a constitutional policy.

PD 175 (1975) – granted coops from payment of income taxes and sales taxes; PD 1955 (1984) – withdrew exemption; PD 2008 (1986) – granted exemption to coops again; finally, EO 93 (1991) revoked the exemption.

BUT CUP says that 1987 Consti repudiated the previous actions of the government adverse to the interests of cooperative and upheld the policy of strengthening the cooperatives by way of grant of tax exemptions based on ART XII, Secs 1 and 15.

COURT SAYS: Dream on, CUP. ;) What P.D. No. 1955, §1 did was to withdraw the exemptions and

preferential treatments theretofore granted to private business enterprises in general, in view of the economic crisis which then beset the nation. The withdrawal of tax incentives applied to all, including government and private entities.

The Constitution does not really require that cooperatives be granted tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax exemptions, but that is left to the discretion of Congress.

Petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

EXTRA: CUP says – VAT denies cooperatives of the equal protection of law because electric cooperatives are exempt from VAT!

Court says: The classification between electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide cheaper electric power to as many people as possible, especially those living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification is unreasonable.

Dispositive: WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted.

Vote: Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima, Jr., JJ., concur. Padilla and Vitug, JJ., maintained their separate opinion. Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their dissenting opinion. Panganiban, J., took no part.

-Kriszanne

ERNESTO M. MACEDA, petitioner,-versus-

HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents.

(June 8, 1993 | G.R. No. 88291 | En Banc)

DOCTRINE:

XXX

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power.

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XXX

Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board.

XXX

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate procedural due process.

XXX

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried out  and it fixed the standard to which the delegate had to conform in the performance of his functions,  both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 

TYPE OF TAX INVOLVED: Indirect Tax and Duties

NATURE: Motion for Reconsideration

PONENTE: Nocon, J. FACTS:

A Chronological review of the relevant NPC laws, especially with respect to its tax exemption provisions, at the risk of being repetitious is, therefore, in order. Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy of the country. It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended. A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows:

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. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt: library 

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, and municipalities and other government agencies and instrumentalities; 

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities; virtual law library 

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and 

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCOR’s exemption, which was approved by the President on 5 October 1987.

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Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery

ISSUE: (a) What kind of tax exemption privileges did NPC have?

HELD: (a) It is a valid tax exemption. It is a continuation of the tax exemption granted by then President Marcos exercising legislative power through the now infamous Amendment No. 6.

REASONING:A. MAIN ISSUE

(The) Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-85 and 1-86 as approved by the Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but merely restored it.

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous Amendment No. 6 as there was no showing that President Marcos' encroachment on legislative prerogatives was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required immediate action' to meet the 'exigency'.

Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos') judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued only around nine (9) months after the

Philippines unilaterally declared a moratorium on its foreign debt payments as a result of the economic crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt payments. One of the big borrowers was the NPC which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back.  From all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power.

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted under FIRB Resolution No. 17-87 dated June 24, 1987 which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. There is no indication, however, from the records of the case whether or not similar approvals were given by then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might have occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals  when the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the Director of Mines, and inAnzaldo vs. Clave  where Presidential Executive Assistant Clave affirmed, on appeal to Malacañang, his own decision as Chairman of the Civil Service Commission.

Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board.

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other comparable entity — not even a single public or private corporation — whose rights would be violated if NPC's tax exemption privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its environs. And as of 1984,

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there was no more MERALCO — as a producer of electricity — which could have objected to the restoration of NPC's tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate procedural due process.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her thereunder.

A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried out  and it fixed the standard to which the delegate had to conform in the performance of his functions,  both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984 up to the present.

DISPOSITIVE: WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED.

VOTES: Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo, JJ., concur.Padilla and Quiason, JJ. took no part.

NO DISSENTING/CONCURRING OPINION.-Poy

DAVAO LIGHT v. COMMISSIONER OF CUSTOMS

(March 29, 1972)

DOCTRINE: In granting such tax exemption, the government actually waived its right to collect taxes from the NPC in order to facilitate the liquidation by said corporation of its liabilities, and the consequential release by the government itself from its obligation (as principal obligor) in the transactions entered into by the President on behalf of the NPC.

NATURE: Appeals from CTA

PONENTE: Reyes, JBL, J.

FACTS:

Davao Light, grantee of a legislative franchise to install, operate and maintain an electric light, heat and power plant in Davao imported electric supplies in 1962.

The Collector of Customs imposed, and it paid under protest, customs duties and taxes in the total amount of P9,928.00.

Collector Customs ruled unfavorably on the protests and denied refund. Commissioner of Customs affirmed.

Court of Tax Appeals affirmed. Tax exemptions granted to NPC only applied to said corporation and did not benefit other entities.

Petitioner: Its legislative franchise (granted by Act 3760) was specifically made subject to Act 3636. Section 17 provides that any favorable terms granted to any "competing individual, association of persons or corporation" shall ipso facto become part of a franchise earlier issued.

o Since NPC, exempt from all taxes, is operating a power plant in Davao and selling power in said locality, such tax exemption ipso facto became part of petitioner’s franchise.

Laws pertinent to case:

Pre-Commonwealth Act No. 3636 (Standard Electric Power & Light Franchises Law), Sec 17

o In the event of any competing individual, association of persons or corporation receiving either a franchise or permission from the Government of the Philippine Islands, or from any province, city or municipality thereof, to conduct a similar business in all or any substantial portion of the territory covered by this franchise to that of the grantee, in which franchise or permission there shall be any term or terms more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms shall ipso facto   become a part of the terms hereof and shall operate equally in favor of the grantee as in the case of said competing individual asssociation of persons or corporations."

RA 358 as amended by RA 937: to facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, except real property tax, and from all duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities."

RA 357 authorized President to contract loans in behalf of NPC, and to guarantee, absolutely and unconditionally, as primary obligator and not merely as surety, the payment of loans therefore contracted

ISSUES/HELD: WON Davao Light is also subject to the tax exemption granted to NPC? No, it must pay taxes.

RATIO/RULING:

1. Per Act No 3636, a subsequent franchise issued to an individual, association, etc. shall automatically be considered incorporated in the franchise or permit earlier issued to another individual, association, etc. engaged in the same business. The idea is to place both competing groups

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or entities on equal footing and not to give one an advantage over the other. This principle of fair play, which is the basic idea behind the provision, does not find operation in the present case.

a. Petitioner's purpose in securing a franchise was to make profit. NPC was created to undertake the development of hydraulic power throughout the country and the production of power from other sources, for use of the government and the general public. It can hardly be motivated by profit or income.

b. NPC is not in competition to petitioner's business because it does not sell electric power directly to the general public. It sells power to petitioner for resale to the latter's customers.  NPC is the source of petitioner’s business, not its competitor.

c. The fact that NPC supplies electric power to the National Development Company (NDC) plant in Davao does not make NPC petitioner’s competitor. The NPC Charter makes it NPC's duty to supply power to the NDC, a government owned plant. Besides, an isolated case of sale would not be enough to classify the NPC as a "competing" concern to petitioner.

2. The provisions of Section 2 of RA 358 granting tax exemption to the NPC, taken with RA 357, must be construed as intended to benefit only the NPC. The lawmakers expected that by relieving said corporation of tax obligations, the NPC could easily pay its indebtedness. In granting such tax exemption, the government actually waived its right to collect taxes from the NPC in order to facilitate the liquidation by said corporation of its liabilities, and the consequential release by the government itself from its obligation (as principal obligor) in the transactions entered into by the President on behalf of the NPC. Such condition, peculiar only to the NPC, cannot be said to exist in petitioner's case; hence, the absolute lack of basis for awarding of equal privileges (granted to the NPC) to said petitioner.

3. Petitioner can’t claim the exemption given to NPC because said corporation happened to be operating a power plant in the same locality where petitioner has a franchise. The legal principle on the matter is firmly established: exemption from taxation is never presumed; for tax exemption to be recognized, the grant must be clear and expressed; it cannot be made to rest on vague implications. The possession by petitioner of a permit to operate an electric plant in Davao City does not entitle it to the same exemption privileges enjoyed by another operator without an express provision of the law to that effect.

DISPOSITION: Decision of CTA is affirmed

VOTE: Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

-Steph

Tan Kim Kee v CAApril 22, 1963

Nature: Appeal from the majority decision of the CTA affirming the denial of a claim for refund of the fixed and sales taxes.Ponente: REYES, J.B.L.

1. TAN KIM KEE, owner of a coconut plantation, is a producer of copra in Davao City who uses two methods

a. Sun-dried method: The nuts are first split into halves and are dried under the sun to partly loosen the meat from the shell. After one or two days of drying in that state, the meat is removed from the shell with an instrument designed for the purpose. To facilitate drying and handling, the meat so removed is chopped into small pieces and the same is dried under the sun for at least three days or until its moisture content is reduced to a minimum acceptable in the market.

b. Kiln-dried method: Same as sun-dried except that in the kiln-dried method, the nuts are first unhusked before being split into halves and the meat is dried in a kiln or oven heated with fuel. Further, the drying process (18-23 hours) under the kiln-dried method is shorter than the sun-dried method.

2. For the period from August 24, 1956 to December 31, 1956, petitioner's gross sales of copra produced amounted to P17,917.53 on which he paid to the treasurer of Davao City, on January 10, 1957, the sum of P1,254.24 as the 7% sales tax imposed by section 186 of the National Internal Revenue Code as amended by Republic Act No. 1612. Petitioner also paid fixed taxes of P40.00 for 1956 and 1957 pursuent to Section 182 of NIRC

3. Petitioner filed a claim for refund for the aforesaid taxes based on the amended by RA 1856 of RA 1612. Claim was denied. Subsequent MR was also denied

WON petitioner is engaged in production of agricultural products and therefore exempted from paying taxes. HELD: NO

1. Case involves an interpretation of Section 188(b) of the Tax Code1, as amended by RA 16122, when applied to copra making. RA 1612 took effect on 24 August 1956 until it was superseded by RA 18563 on 22 June 1957.

CTA’s view

1 Before effectivity of RA No. 1612: (b) Agricultural products and the ordinary salt when sold, bartered, or exchanged in this country by the producers or owner of the land where produced, as well as fish and its by-products when sold, bartered, or exchanged by the fisherman or fishing operator, whether in their original state or not.

2 During the eleven-month effectivity of RA No. 1612: (b) Agricultural products and the ordinary salt in their original form when sold, bartered, or exchanged by the producer or owner of the land where produced. The term "agricultural products" as used herein shall not include cultured fish and other products raised or produced in fishponds, and those which have undergone the process of manufacturing as defined in section one hundred ninety-four (x) of this Code.

3 After repeal of RA No. 1612 by RA No. 1856: (b) Agricultural products and the ordinary salt whether in their original form or not when sold, bartered, or exchanged in this country by the producer or owner of the land where produced, as well as all kinds of fish and its by-products when sold, bartered or exchanged by the fisherman or fishing operator whether in their original state or not.

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2. Before the passage of Republic Act No. 1612, copra making was not taxable because the law then exempted agricultural products "whether in their original state or not"

3. Copra making became taxable during the effectivity of the RA 1612 because the agricultural products that were exempted under it were those "in their original form", and said law excluded from the exemption "those which have undergone the process of manufacturing as defined in section 194(x)4 of this Code"

4. Because of the unhusking and halving of the coconut fruit, removal and cutting into several pieces of its meat, and dehydrating by sun or kiln, the fruit in its original form underwent a process of manufacturing, and, therefore, became taxable

5. After the repeal of RA 1612 by RA 1856, the exempt agricultural products included once more those products "whether in their original state or not".

6. The taxability of copra making under RA 1612 is in accordance with the legislative intent to increase revenue by imposing taxes on "greater coverage of subjects of taxation", as expressed in the explanatory note of the House Bill 5809, the source of RA 1612; and that the said section being an exempting provision, the same should be construed strictissimi juris against the party claiming exemption.

Petitioner’s arguments7. Copra is an agricultural product in its original form because

a. Coconut fruit is merely the crop of the producer b. Copra is the only product that may be produced from coconut lands c. Process of manufacture involved in the conversion of the coconut fruit

to copra is a part of the genuine agricultural labor of the farmer. 8. Enactment of RA 1612 did not change anything; because the processes that

constitute manufacturing under Section 194(x) have not been enlarged or extended

9. Ruling of CTA would be a radical departure from the time-honored policy of Congress to give preferential treatment to farmers;

10. CTA interpretation would lead to absurd, illogical, and mischievous results, like the following:

a. Coconut planters, abaca planters and rice farmers would be liable for 7% tax while operators of coconut oil mills and dessicated coconut factories, rope factories, and rice mill operators are taxable only at 2% under Section 189 of the Code;

b. The coconut planter is not taxable for producing coconuts, but the moment he unhusks them he is obliged to pay 7% on sales tax.

4 194(x) "Manufacturer" includes every person (1) who by physical or chemical process alters the exterior texture or form of inner substance of any raw material or manufactured or partially manufactured product in such a manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or (2) who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or (3) who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished products of such process of manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and for his own use or consumption.

11. The legislative intent in enacting RA 1612 was to exclude copra making, as shown in

a. Explanatory note of House Bill 6094, a bill intended to amend RA 1612

b. Speeches and debates delivered in the floor of Congress

COURT12. The flaw in petitioner’s argument is that it ignores the legislative change in

the phraseology of the exemption of agricultural products. a. The original statute excepted from the tax "Agricultural products

xxx whether in their original state or not", but under the shortlived R.A. No. 1612 it was altered and reduced to "agricultural products in their original form" exclusively.

b. The change in scope was further emphasized by the qualification in the same Act that "agricultural products xxx shall not include cultured fish ... and those which have undergone the process of manufacturing ...."

c. RA 1612 was intended to restrict the exemption and broaden the subject of taxation, in order to increase the state revenues

d. It is not to be presumed that the Legislature, in making such changes, was indulging in mere semantic exercise. There must have been some purpose in making them, and the rational explantion is that the coverage of the exemption was being broadened by RA 1612, as expressly stated in the original House Bill No. 5819 that later became said Act

e. The policy change was later found inadvisable, so that the statute was reworded by RA 1856 to corresponded to the original terminology so as to restore the original exemption..

13. We find no weight in the argument that under the interpretation given to Republic Act 1612 the planters and farmers would pay a higher tax than rice mills and coconut factories. The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.

14. The legislative intent to increase revenue by widening the coverage of taxable subjects is evident under Republic Act 1612, and by it the exempt agricultural products were only those that remain in their original form, and have not undergone the process of manufacture.

DISPOSITVE: Decision is affirmed.- Zoilo

NATIONAL POWER CORPORATIONvs.

HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, 10TH JUDICIAL REGION BRANCH XXV, CAGAYAN DE ORO CITY, PROVINCE OF MISAMIS ORIENTAL, MUNICIPALITY OF JASAAN, MISAMIS ORIENTAL AND BARANGAY APLAYA,

JASAAN, MISAMIS ORIENTAL(Oct. 16, 1990)

FERNAN, C.J.:

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October 10, 1984, the Province of Misamis Oriental filed a complaint with the Regional Trial Court of Cagayan de Oro City, against NAPOCOR for the collection of real property tax and special education fund tax in the amounts of P11,105,008.10 and P11,104,658.10, respectively, covering the period 1978 to 1984. NAPOCOR filed a MTD on the grounds that the court has no jurisdiction over the action or suit and that it is not the proper forum for the adjudication of the case. It cited PD 242 which provides that disputes between agencies of the government including GOCCs shall be administratively settled or adjudicated by the Secretary of Justice.

Judge Pablito C. Pielago idenied MTD. RTC again denied a 2nd MTD

Barangay Aplaya, Misamis Oriental filed a complaint in intervention contending that non-payment by NAPOCOR of real property taxes would adversely affect its interest since under the law 10% of the real property tax collected on properties within its jurisdiction shall accrue to the general fund of the barangay.

NAPOCOR filed before this Court the present special civil action for certiorari

ISSUE: WON the RTC acted in GADALEJ in denying NAPOCOR’s MTD? NOWON NAPOCOR is exempt from paying taxes? NO

NAPOCOR relies on Sections 2 and 3 of Presidential Decree No. 242 (reproduced below)

Section 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled corporations and entities, in consonance with section 83 of the Revised Administrative Code. His ruling or determination of the question in each case shall be conclusive and binding upon all the parties concerned.

Section 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claims or controversies between or among the departments, bureaus, offices and other agencies of the National Government;

(b) The Govermnent Corporate Counsel, with respect to disputes or claims or controversies between or among the government-owned or controlled corporations or entities being served by the office of the Government Corporate Counsel and

(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under the categories mentioned in paragraphs (a) and (b). (Emphasis supplied)

In upholding the lower court's jurisdiction, respondent municipal corporations, on the other hand, rely on Presidential Decree No. 464, specifically Section 82:

Section 82. Collection of real property tax through the courts. — The delinquent real property tax shall constitute a lawful indebtedness of the taxpayer to the province or city and collection of the tax may be enforced by civil action in any court of competent

jurisdiction. The civil action shall be filed by the Provincial or City Fiscal within fifteen days after receipt of the statement of delinquency certified to by the provincial or city treasurer. This remedy shall be in addition to all other remedies provided by law.

An examination of these two decrees shows that P.D. 242 is a general law which deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. The coverage is broad and sweeping, encompassing all disputes, claims and controversies.

P.D. 464 on the other hand, governs the appraisal and assessment of real property for purposes of taxation by provinces, cities and municipalities, as wen as the levy, collection and administration of real property tax. It is a special law which deals specifically with real property taxes.

It is a basic tenet in statutory construction that between a general law and a special law, the special law prevails. GENERALIA SPECIALIBUS NON DEROGANT.

Where a later special law on a particular subject is repugnant to, or inconsistent with, a prior general law on the same subject, a partial repeal of the latter win be implied to the extent of the repugnancy or an exception grafted upon the general law.

A special law must be intended to constitute an exception to the general law in the absence of special circumstances forcing a contrary conclusion.

The conflict in the provisions on jurisdiction between P.D. 242 and P.D. 464 should be resolved in favor of the latter law, since it is a special law and of later enactment. P.D. 242 must yield to P.D. 464 on the matter of who or which tribunal or agency has jurisdiction over the enforcement and collection of real property taxes. Therefore, respondent court has jurisdiction to hear and decide Civil Case No. 9901.

NAPOCOR IS LIABLE

Presidential Decree No. 1177, entitled "REVISING THE BUDGET PROCESS IN ORDER TO INSTITUTIONALIZE THE BUDGETARY INNOVATIONS OF THE NEW SOCIETY" was passed on July 30, 1977. Section 23 thereof provides:

Section 23. Tax and Duty Exemptions. — All units of govemment, including government-owned or controlled corporations, shall pay income taxes, customs duties and other taxes and fees as are imposed under revenue laws; provided, that organizations otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund in the exact amount of taxes/duties due; provided, further, that a procedure shag be established by the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be considered as both revenue and expenditure of the General Fund. (Emphasis supplied)

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Petitioner alleges that what has been withdrawn is its exemption from taxes, duties, and fees which are payable to the national government while its exemption from taxes, duties and fees payable to government branches, agencies and instrumentalities remains unaffected. Considering that real property taxes are payable to the local government, NAPOCOR maintains that it is exempt therefrom.

We find the above argument untenable. It reads into the law a distinction that is not there. It is contrary to the clear intent of the law to withdraw from all units of government, including government-owned or controlled corporations their exemptions from all kinds of taxes. Had it been otherwise, then the law would have said so. Not having distinguished as to the kinds of tax exemptions withdrawn, the plain meaning is that all tax exemptions are covered. There the law does not distinguish, neither must we.

Moreover, Presidential Decree No. 1931 entitled "DIRECTING THE RATIONALIZATION OF DUTY AND TAX EXEMPTION PRIVILEGES GRANTED TO GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS AND ALL OTHER UNITS OF GOVERNMENT" which was passed on June 11, 1984, categorically states:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grunt of tax privileges to any government-owned or controlled corporation and all other units of government. Thus, any dubiety on NAPOCOR'S liability to pay taxes, duties and fees should be considered unequivocably resolved by the above provision.

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the Government be said to have lost anything.

The proceeds of the real property tax are divided among the province, city or municipality where the property subject to the tax is situated and shall be applied by the respective local government unit for its own use and benefit. Even the barrio where the property is situated shares in the real property tax collections. Likewise, the entire proceeds of the additional 1% real property tax levied for the Special Education Fund created under R.A. 5447, are divided among the province, city and municipalities where the property is situated.

Petition dismissed-Justin

DAVAO GULF LUMBER CORP v. CIR

(G.R. No. 117359.|July 23, 1998)

DOCTRINE: The specific taxes collected on gasoline and fuel accrue to the Highway Special Fund, which is to be used for the construction and maintenance of the highway system.  But because the gasoline and fuel purchased by mining and lumber concessionaires are used within their own compounds and roads, and their vehicles seldom use the national highways, they do not directly benefit from the Fund and its use.  Hence, the tax refund gives the mining and the logging companies a measure of relief in light of their peculiar situation.

NATURE: Petition for review on certiorari

PONENTE: Panganiban, J.

FACTS: Petitioner is a licensed forest concessionaire possessing a Timber License Agreement granted by the Ministry of Natural Resources (DENR).  From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the exploitation and operation of its forest concession.  Said oil companies paid the specific taxes imposedby the NIRC, on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the user, the petitioner in this case.

On December 13, 1982, petitioner filed before CIR a claim for refund, representing  25%  of  the  specific taxes actually paid, used by petitioner in its operations as forest concessionaire.  The claim was based on Insular Lumber Co. vs. Court of Tax Appeals and Section 5 of RA 1435 which reads:

“Section 5.  xxx Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one hereof, amending section one hundred forty-two of the Internal Revenue Code xxx”

It is an unquestioned fact that petitioner complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils in its forest concession as required by the above-quoted law. 

On January 20, 1983, petitioner filed at the CTA a petition for review. On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes the latter had paid. 

The CTA ruled that the

1) Claim on purchases of lubricating oil (from July 1, 1980 to January 19, 1981), and on manufactured oils other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. 2) Disallowed on the ground that they were not included in the original claim filed before the CIR were the claims for refund on purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982.  3) In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC.

Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the CA. CA affirmed the CTA.

In the main, the question before us pertains only to the computation of the tax refund.  

Davao: Argues that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC.  

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CIR: Contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435

ISSUES: WON petitioner is entitled under RA 1435 to the refund of 25% of the amount of specific taxes it actually paid under Sec. 153 and Sec. 156 of the 1977 NIRC?

HELD: No, Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed  strictissimi  juris against the grantee.  Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. 

RATIO/RULING:

Petitioner Entitled to Refund

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund.

The specific taxes collected on gasoline and fuel accrue to the Highway Special Fund, which is to be used for the construction and maintenance of the highway system.  But because the gasoline and fuel purchased by mining and lumber concessionaires are used within their own compounds and roads, and their vehicles seldom use the national highways, they do not directly benefit from the Fund and its use.  Hence, the tax refund gives the mining and the logging companies a measure of relief in light of their peculiar situation. When the Highway Special Fund was abolished in 1985, the reason for the refund likewise ceased to exist. Since petitioner purchased the subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and submitted the required proof that these were actually used in operating its forest concession, it is entitled to claim the refund under Section 5 of RA 1435. 

Tax Refund Strictly Construed Against the Grantee

Petitioner claims a refund based on the increased rates under Sections 153 and 156 of the NIRC. Petitioner argues that the statutory grant of the refund privilege, specifically the phrase “twenty-five  per  centum of  the specific tax paid thereon shall be refunded by the CIR,” is “clear and unambiguous” enough to require construction or qualification thereof. In addition, it cites our pronouncement in Insular Lumber vs. Court of Tax Appeals:

“x x x Section 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only for the purpose of prescribing the procedure for refund.  This express reference cannot be expanded in scope to include the limitation of the period of refund.  If the limitation of the period of refund of specific taxes paid on oils used in aviation and agriculture is intended to cover similar taxes paid on oil used by miners and forest concessionaires, there would have been no need of dealing with oil used by miners and forest concessions separately and Section 5 would very well have been included in Section 1 of Republic Act No. 1435, notwithstanding the different rate of exemption.”

Petitioner then reasons that “the express mention of Section 1 of RA 1435 in Section 5 cannot be expanded to include a limitation on the tax rates to be applied x x x [otherwise,] Section 5 should very well have been included in Section 1 x x x.”

A tax cannot be imposed unless it is supported by the clear and express language of a statute;on the other hand, once the tax is unquestionably imposed, “[a] claim of

exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.”  Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi  juris against the grantee.  Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. 

We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioner’s claim.  When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise.  A legislative lacuna cannot be filled by judicial fiat.

Finally, petitioner asserts that “equity and justice demand that the computation of the tax refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC.” We disagree.  According to an eminent authority on taxation, “there is no tax exemption solely on the ground of equity.”

DISPOSITION: WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED

VOTE: En Banc. Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Martinez, Quisumbing, and Purisima, JJ., concur

-Miggy

vi. Nature of tax exemption

PHILIPPINE ACETYLENE CO., INC.,   petitioner,   vs.

COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,   respondents.

(August 17, 1967)

Doctrine: (parang wala namang in depth discussion on the type of exemption but I guess this is the most relevant) If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting on statutory grant.

Nature: petition for review of a decision of the CTAPonente: Castro, J.

Facts:- The petitioner is a corporation engaged in the manufacture and sale of

oxygen and acetylene gases. During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United States Government. The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of

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P12,910.60 as deficiency sales tax and surcharge, pursuant to the provisions of the National Internal Revenue Code (secs 186 & 183).

- Petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to the Court of Tax Appeals.

- The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not on the buyer with the result that the "petitioner Philippine Acetylene Company, the manufacturer or producer of oxygen and acetylene gases sold to the National Power Corporation, cannot claim exemption from the payment of sales tax simply because its buyer — the National Power Corporation — is exempt from the payment of all taxes." With respect to the sales made to the VOA, the court held that goods purchased by the American Government or its agencies from manufacturers or producers are exempt from the payment of the sales tax under the agreement between the Government of the Philippines and that of the United States, provided the purchases are supported by certificates of exemption, and since purchases amounting to only P558, out of a total of P1,683, were not covered by certificates of exemption, only the sales in the sum of P558 were subject to the payment of tax. Accordingly, the assessment was revised and the petitioner's liability was reduced from P12,910.60, as assessed by the respondent commission, to P12,812.16.1

- The petitioner appealed to this Court. Its position is that it is not liable for the payment of tax on the sales it made to the NPC and the VOA because both entities are exempt from taxation.

Issues:WON Philippine Acetylene is exempt from paying tax on sales it made to NPC and VOA because both are exempt from taxation.

Held & Ratio:1. As to NPC:

The Code states that the sales tax "shall be paid by the manufacturer or producer,"4 who must "make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon." It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that reason alone that one may validly argue that it is a tax on the purchaser.

If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting on statutory grant.

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's

obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else.14

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics.15 Then it can no longer be contended that a sales tax is a tax on the purchaser.

We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible.

2. As to VOA

A claim is here made that the exemption of such sales from taxation rests on stronger grounds. As per the relevant provisions of the Agreement between the RP and the US5, only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax.

On the other hand, article XVIII exempts from the payment of the tax sales made within the base by (not sales to) commissaries and the like in recognition of the principle that a sales tax is a tax on the seller and not on the purchaser.

Tax exemption must be strictly construed and that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention of the parties. Hence, in so far as the circular of the Bureau of Internal Revenue would give the tax exemptions in the Agreement an expansive construction it is void.

We hold, therefore, that sales to the VOA are subject to the payment of percentage taxes under section 186 of the Code. The petitioner is thus liable for P12,910.60

Dispositive:Decision a quo is modified by ordering the petitioner to pay to the respondent Commission the amount of P12,910.60 as sales tax and surcharge, with costs against the petitioner.

5 ARTICLE V. — Exemption from Customs and Other DutiesNo import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such purposes.

ARTICLE XVIII.—Sales and Services Within the Bases1. It is mutually agreed that the United States Shall have the right to establish on bases, free of all licenses; fees; sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States military forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. . . .

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Vote:Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur.Concepcion, C.J., and Dizon, J., took no part.

-Wiggy

WONDER MECHANICAL ENGINEERING CORP. v. COURT OF TAX APPEALSWonder Mechanical Engineering Corp. represented by Mr. Lucio Quijano, President, v.

Hon. Court of Tax Appeals, Bureau of Internal Revenue represented by the Commissioner of Internal Revenue

Doctrine: The cardinal rule in taxation [is] that exemptions therefrom are highly disfavored in law, and he who claims tax exemption must be able to justify his claim or right thereto by the clearest grant of organic or statute law… Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden cannot be permitted to exist upon a vague implication.

Date: June 30, 1975

Nature: Petition for review of the decisions of the Court of Tax Appeals

Ponente: Esguerra, J.

Facts: These are two petitions for review of the decisions of CTA, (1) dismissing the appeal of Wonder Mechanical Engineering (WME) for lack of jurisdiction, for having been filed beyond the 30-day period prescribed in R.A.1125, Sec.11, and confirming the decision made by the CIR, assessing WME the total amount of P69,699.65 as:

a. Fixed taxes,b. Sales taxes, andc. Percentage taxes (inclusive of 25% surcharge, for years 1953-1954).

And (2) ordering the petitioner to pay CIR the amount of P25,080.91 as deficiency sales and percentage taxes or the years 1957-1960. The facts are as follows:

1. Wonder Mechanical Engineering was given a Certificate of Tax Exemption for new and necessary industries pursuant to the provisions of R.A. 35.6 R.A. 35 was amended by R.A. 901, which extended the period of tax exemption and elaborated on the meaning of “new and necessary industry.”7

6 RA 35: grants to persons “who or which shall engage in a new and necessary industry,” for a period of four years from the date of the organization of such industry, exemption from “payment of all internal revenue taxes directly payable by such person.”

7 RA 905, Sec. 2: … a “new industry is one not existing or operating on a commercial scale prior to January first, nineteen hundred and forty five. Where several applications for exemption are filed in connection with the same kind of industry, the Secretary of Finance shall approve them in the order in which they have been filed until the total output or production of those already granted exemption for that particular kind of industry is sufficient to meet local demand or consumption….”

a. Said certificate of tax exemption in substance reads that it is granted with respect to WME’s manufacture of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.

b. Tax exemption under R.A. 35 expired on May 30, 1951. Petitioner reapplied for reinstatement of tax exemption privileges under RA 901, which was granted by the Secretary of Finance. The reinstatement commenced on June 20, 1953, the date when RA 901 took effect.

c. Tax exemption was until December 31, 1958, and thereafter with diminishing exemption until June 20, 1959, except that exemption from income tax which will wholly terminate on June 20, 1955.

2. Sometime in 1955, CIR caused the investigation of petitioner for determining whether it had any tax liability. The findings of the revenue examiner showed that during 1953 and 1954, the petitioner was engaged in the business of manufacturing various articles, namely, auto spare parts, lamp shades, rice threshers, post clips, radio screws, etc., and in the business of electroplating and repair of machines.

a. Although it was engaged in said businesses, it did not provide itself any privilege tax receipts and did not pay the sales tax on its gross sales of articles manufactured by it, and the percentage tax due on the gross receipts of its electroplating and repair business.

b. Based on this report, CIR assessed the petitioner P69,699.56 as fixed taxes and sales and percentage taxes (see above). Respondent also suggested the payment of P3,300 as extrajudicial settlement of petitioner’s violations of several sections of the Tax Code and the Bookkeeping Regulations.

3. Sometime 1960, CIR again investigated the petitioner for determining its tax liability. The revenue examiner reported that “petitioner had manufactured and sold steel chairs without paying the 30% sales tax imposed by the Tax code, accepted job orders without paying the 3% tax in gross receipts, manufactured and sold other articles subject to 7% sales tax but not covered by the tax exemption privilege, and committed several violations of the Bookkeeping Regulations. Based on the foregoing, CIR assessed WME P25,080.91 as deficiency percentage taxes for 1957-1960, and also suggested the payment of P5,200 as total compromise penalty.

4. Petitioner contests that it is not liable on the P25,080.91 assessment, as it is covered by the tax exemption granted to it, which took effect on 1953.

Issue:

Sec. 3. For purposes of this Act, a “necessary” industry is one complying with the following requirements:1. Where the establishment of the industry will contribute to the attainment of a stable and balanced

national economy;2. Where the industry will operate on a commercial scale in conformity with up-to-date practices and

will make its products available to the general public in quantities and at prices which will justify its operation with a reasonable degree of permanency;

3. Where the imported raw materials represent a value not exceeding sixty percentum of the manufacturing costs plus reasonable selling and administrative expenses…

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Whether the manufacture and sale of steel chairs, jeepney parts and other articles which are not machines for making other products, and job orders done by the petitioner, come within the purview of the tax exemption granted it under R.A. 35 and R.A. 901.

Held: NO. The principle of strictissimi juris construction applies. The activities in question not falling within the language of the grant of tax exemption, it is not exempt and hence should be taxed.

1. From the above-quoted provisions of law, it is clear that an industry to be entitled to tax exemption must be “new and necessary.” The tax exemption was granted to new and necessary industries as an incentive to greater and adequate production of products made scarce by the second world war. This purpose can be understood from an examination of the text of the law.

2. Viewed in light of the foregoing, the Court is convinced that petitioner was granted tax exemption in the manufacture and sale of machines for making cigarette paper, pails, lead washers, etc., as explicitly stated in its certificate, but certainly not for the manufacture and sale of articles produced by those machines.

3. That such was the intention of the State (to grant exemption on the manufacture and sale of machines, not of the products of said machines) is apparent from the communications made by the Secretary of Finance and the Executive Secretary.

4. The manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would NOT fall under the classification of “new and necessary” industries.

5. There is no way to dispute the cardinal rule in taxation that exemptions therefrom are highly disfavored in law, and he who claims tax exemption must be able to justify his claim or right thereto by the clearest grant of organic or statute law… Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden cannot be permitted to exist upon a vague implication.

Disposition: Wherefore, the decisions of the CTA are AFFIRMED

Voting: 5-0-Sandra

PLDT v. CITY OF DAVAO(March 25, 2003)

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao, respondents.

DOCTRINE: Along with the police power and eminent domain, taxation is one of the three

necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language.

Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion.

o Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected.

o Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions.Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected.

o Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.

NATURE: Motion for Reconsideration of the decision of the Second DivisionPONENTE: MENDOZA, J.:

FACTS:Petitioner seeks a reconsideration of the decision of the Second Division in this case.Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A. No. 7082 amending its charter, Act. No. 3436. The exemption from "all taxes on this franchise or earnings thereof" was subsequently withdrawn by R.A. No. 71608 (Local Government Code of 1991), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction.

Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which imposed a tax on businesses enjoying a franchise.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe)2 and Smart Information Technologies, Inc. (Smart) franchises which contained "in lieu of all taxes" provisos. In 1995, it enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines), § 23 of which provides that "Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises." In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro Exchange, it was required to pay the local franchise tax for the first to the fourth quarter of 1999. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund. It filed a petition in the Regional Trial Court of Davao.

8 Sec. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. . . . Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

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RTC: Dismissed its petition and its claim for exemption under R.A. No. 7925. The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed by persons and entities and authorized local government units to impose a tax on businesses enjoying franchises within their territorial jurisdictions, notwithstanding the grant of tax exemption to them.Petitioner, therefore, brought this appeal.

Decision of August 22, 2001: this Court, through its Second Division, held that:R.A. No. 7925, § 23 cannot be so interpreted as granting petitioner exemption from local taxes because the word "exemption," taking into consideration the context of the law, does not mean "tax exemption." Hence this motion for reconsideration.

ISSUE: Whether, by virtue of R.A. No. 7925, § 23, PLDT is again entitled to exemption from the payment of local franchise tax in view of the grant of tax exemption to Globe and Smart.

HELD: NO.

RATIO/RULING:Petitioner Contention #1: Because the subsequent franchises granted contain "in lieu of all taxes" clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise by virtue of RA 7925 Sec. 23: equality clause.

COURT: But the rule is that tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken."

If, as PLDT contends, the word "exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of communicating the legislative intent.

But the best refutation of PLDT’s claim that R.A. No. 7925, § 23 grants tax exemption is the fact that after its enactment on March 16, 1995, Congress granted several franchises containing both an "equality clause" similar to § 23 and an "in lieu of all taxes" clause.

If the equality clause automatically extends the tax exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing such clause.

Petitioner Contention #2: that the legislative intent to promote the development of the telecommunications industry is evident

use of words as "development," "growth," and "financial viability," and by using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the terms "ipso facto," "immediately," and "unconditionally,"

Congress intended to automatically extend whatever tax exemption or tax exclusion has been granted to the holder of a franchise enacted after the LGC to the holder of a franchise enacted prior thereto, such as PLDT.

COURT: The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and

operations of all public telecommunications entities and thus to level the playing field in the telecommunications industry.

An intent to grant tax exemption cannot even be discerned from the law. The Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925, were "equal access clauses" in interconnection agreements, not tax exemptions.

There is also a need to promote a level playing field in the telecommunications industry.

New entities must be granted protection against dominant carriers through the encouragement of equitable access charges and equal access clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers.

Nor does the term "exemption" in § 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC).

Petitioner's Contention #3: PLDT says that the policy of the law is to promote healthy competition in the telecommunications industry.

COURT: The law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers.

Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the establishment of connection with a new entrant and to deter the former from imposing excessive access charges.That is also the reason there are franchises granted by Congress after the effectivity of R.A. No. 7925 which do not contain the "in lieu of all taxes" clause, just as there are franchises, also granted after March 16, 1995, which contain such exemption from other taxes. The "in lieu of all taxes" provision in the franchises of Globe and Smart, which are relatively new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which had virtual monopoly in the telephone service in the country for a long time, without defeating the very policy of leveling the playing field of which PLDT speaks.

Petitioner's Contention #4: that the rule of strict construction of tax exemptions does not apply to this case because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption. Rather, the applicable rule should be

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that tax laws are to be construed most strongly against the government and in favor of the taxpayer.

COURT: This is contrary to the uniform course of decisions of this Court which consider "in lieu of all taxes" provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the taxpayer and in favor of the taxing authority applies.

Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language.Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion.

Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected.18 Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions.Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent with the theory that R.A. No. 7925, § 23 grants tax exemption because of a similar grant to Globe and Smart.

Petitioner’s justification for its claim of tax exemption rests on a strained interpretation of R.A. No. 7925, § 23. For petitioner’s claim for exemption is not based on an amendment to its charter but on a circuitous reasoning involving inquiry into the grant of tax exemption to other telecommunications companies and the lack of such grant to others, when Congress could more clearly and directly have granted tax exemption to all franchise holders or amend the charter of PLDT to again exempt it from tax if this had been its purpose.

The fact is that after petitioner’s tax exemption by R.A. No. 7082 had been withdrawn by the LGC, no amendment to re-enact its previous tax exemption has been made by Congress.

Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. They cannot be extended by mere implication or inference.

Thus, it was held in Home Insurance & Trust Co. v. Tennessee25 that a law giving a corporation all the "powers, rights reservations, restrictions, and liabilities" of another company does not give an exemption from taxation which the latter may possess.

In Rochester R. Co. v. Rochester, it was held that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity.

Petitioner's Contention #5: that as between two laws on the same subject matter which are irreconcilably inconsistent, that which is passed later prevails as it is the latest expression of legislative will.

COURT: As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the decision under reconsideration that no inconsistency exists and that the rule that the later law is the latest expression of the legislature does not apply. The matter need not be further discussed.

Petitioner's Contention #6: It is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioner’s exemption from local taxes has been restored is a contemporaneous construction of § 23 and, as such, it is entitled to great weight.

COURT: The BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation and other related matters. Thus, the rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority"30 cannot apply in the case of BLGF.

DISPOSITIVE: WHEREFORE, the motion for reconsideration is DENIED and this denial is final.

VOTE: EN BANC; Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur. Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, and Austria-Martinez, JJ., join the dissent of J. Puno. Puno, J., please see dissent. Vitug, J., I concur; a statute effectively limiting the constitutionally-delegated tax powers of LGU’s can only be done in a clear and express manner. Panganiban, J., no part. Same reason given in original decision. Carpio, J., see separate opinion.

DISSENTING/SEPARATE OPINIONS:Dissenting Opinion: PUNO, J.

I cannot understand what is unclear in section 23. Favor, privilege, exemption and immunity are ordinary words without any mystic meaning. The provision states without any flourish that if any favor, privilege, exemption or immunity is granted in the franchise of any telecommunications company, it will be deemed granted to other telecommunications companies with prior franchises. The grant is unequivocal for the provision directs that it is "ipso facto," and should be "immediately and unconditionally." The language of the law cannot be more limpid, indeed, the work of a worthy wordsmith.I agree that all these subsequent laws should be considered and not only the laws granting exemptions to Smart and Globe. With due respect, however, I have great difficulty following the flow of the logic of the majority. To my mind, the reiteration of the "equality clause" as well as the "in lieu of all taxes clause" in the telecommunications franchises granted by Congress after March 16, 1995 fortifies the claim for exemption of the petitioner.

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The reiteration of the clauses shows that Congress never wavered in its touchstone policy of equalizing the status of our companies in the telecommunications industry. By treating alikes as unalike, the majority is violating the equal protection clause of the Constitution.Congressman Paras merely clarified that the aim of the law is to promote a level playing field in the telecommunications industry. And, doubtless, one way of leveling the playing field is by granting equal access to all operators connecting into the inter-exchange network. But this is not all that has to be done to level the playing field. There are other acts and practices that distort the playing field in the telecommunications industry and they were addressed by Congress. One destructive practice that can really dislevel the playing field is the imposition of discriminatory tax. Precisely to eliminate these practices, Congress enacted section 23 decreeing for equality of treatment of all companies in the telecommunications industry. By one sweep, it did away with the grant of unequal favors to telecommunication companies, which is anathema to fair competition in deregulated industries.More untenable is the majority ruling that "exemption" in section 23 does not refer to tax exemption but "exemptions from certain regulations and requirements imposed by the National Telecommunications Commission" like for instance, exemption from securing permits for every import equipment. The ruling is not based on any clear cut provision of law but is a mere surmise. It is all too easy for the law to define exemption as the majority interprets it but the law did not. I submit that the majority reading of the word "exemption" collides with the basic rule in statutory construction that the meaning of a word should be understood in light of the cluster of words to which it is associated. The word "exemption" is clustered with the words "advantage, favor, privilege and immunity." Its most natural meaning is that it refers, to and at least includes, tax exemption.The majority fails to grasp the processes of deregulation followed in the telecommunications industry.

The key move to take before deregulating is to break up the monopoly or oligopoly in control of the industry. For with a monopoly or oligopoly enjoying a stranglehold on the industry, the market forces cannot have a free play and prices in the industry will be dictated by the lucre of commerce. The next step in deregulation is to level the playing field. The mechanism for leveling the playing field is installed in section 23 of the law which requires equality of treatment in the telecommunications industry. A level playing field is indispensable to prevent predatory pricing on the part of any player in the industry. Without a level playing field, competition will be unfair and prices in the industry will not be determined by market forces but by unregulated greed. Inexplicably, the majority would deny to petitioner PLDT the right to a level playing field. Its reasons are tenuous to say the least. Its prime reason is that petitioner PLDT had enjoyed virtual monopoly in the telephone service in the country for a long time. The monopoly status of petitioner PLDT is past and should be viewed in its propel’ historical perspective. It is in line with this strategy that Congress granted to petitioner PLDT a monopoly status for a certain time. No company would then invest in our telecommunications industry but petitioner PLDT did, assumed the risk and undeniably played a vital role in our economic development which cannot be

dismissed as insignificant. For this reason, our Constitution does not ban monopolies as evil per se for they are not.

I submit the view that section 23 granted equal tax treatment to all telecommunications companies and to stress again, this was done only after breaking up the monopoly in the industry. Today, petitioner PLDT no longer controls the industry and there is no reason to treat it unequally from other companies.

Separate Opinion: Carpio, J. (he basically concurred with the main opinion, so I won't include this in the digest kasi ang haba na. Di naman usually nagtatanong si ma'am ng separate opinions. If ever she asks about it look in my direction and I shall try to TV you. :))

My concurrence is based on two grounds. PLDT claims that the "in lieu of all taxes" clause in the franchises of Globe and Smart applies to PLDT by virtue of the equality clause1 in Republic Act No. 7925.

First, the "in lieu of all taxes" clause was not re-enacted in the franchise of Globe Mackay Cable and Radio Corporation (Globe) when Congress adopted Republic Act No. 7229 approving the merger of Globe and Clavecilla Radio System (Clavecilla). Second, the "in lieu of all taxes" clause in the franchise of Smart Communications, Inc. (Smart) has become functus officio with the abolition of the franchise tax on telecommunications companies. Moreover, this clause applies only to national internal revenue taxes and not to local taxes.

-David

PLDT vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of Davao

(August 22, 2001)

Doctrine: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supportedTax Involved: Franchise tax

Nature: Petition for review on certiorari

Ponente: Mendoza J.

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Facts:

January 1999: PLDT applied for a Mayor's Permit to operate its Davao Metro Exchange. City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for 1st – 4th

quarter of 1999. PLDT was claiming exemption under its franchise; however, respondent

contended that Sec 137 and 1939 of the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.

May 31, 1999: petitioner protested the assessment of the local franchise tax and requested a refund for the year 1997 and 1998 (1st – 3rd quarter). It contended that it was exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF), dated June 2, 1998.10

It also cited that by virtue of Section 23 of RA 792511 (approved on March 1, 1995), it is exempt from the payment of the franchise tax.

o Why? PLDT claimed that since Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of

9 SECTION 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.8

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. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

10 SECTION 12. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . .

11 SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise.

the Department of Finance, by virtue of Sec 23 of RA 7295, it is likewise exempt from paying the tax.

September 27, 1999: City Treasurer of Davao, denied the protest and claim for tax refund of petitioner, citing the legal opinion of the City Legal Officer of Davao and Art. 10, §1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519, Series of 1992, which provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City

November 3, 1999: PLDT filed a petition seeking a reversal of respondent City Treasurer's decision. The petition was filed pursuant to §§195 and 196 of the Local Government Code (R.A. No. 7160).

RTC Davao: denied petitioner's appeal and affirmed the City Treasurer's decision. It ruled that:a. LGC withdrew all tax exemptions previously enjoyed by all persons

and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.

b. The claim for exemption under R.A. No. 7925 cannot be granted for the following reasons: (1) it is clear from the wording of Sec 193 of the Local Government Code that Congress did not intend to exempt any franchise holder from the payment of local franchise and business taxes; (2) the opinion of the Executive Director of the Bureau of Local Government Finance to the contrary is not binding on respondents; and (3) petitioner failed to present any proof that Globe and Smart were enjoying local franchise and business tax exemptions.

Issues:

1. Whether after the withdrawal of its exemption by virtue of §137 of the LGC, petitioner has again become entitled to exemption from local franchise tax by virtue of RA 71295. NO

2. Whether the opinion of the Executive Director of the Bureau of Local Government Finance (which is favorable to PLDT) is binding on the respondents. NO.

Held:

First, In the present case, petitioner justifies its claim of tax exemption by strained inferences.

1. It cites R.A. No. 7925.

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2. It claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of the Department of Finance.

3. It argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1½%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to "level the playing field" so to speak. This could not have been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner's theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.

The fact is that the term "exemption" in §23 is too general . A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended.

R.A. No. 7925 is a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of §23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this case: "When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported."

In this case, the word "exemption" in §23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the

policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on §23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

Second, In the case of petitioner, the BLGF opined that §23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject.

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It does enjoy this presumption, but this has nothing to do with the question in this case.

In sum

It does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.

Disposition: WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Regional Trial Court, Branch 13, Davao City is AFFIRMED.

Vote: Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ ., concur.

Concurring/Dissenting Opinion: None.-Dana

Commissioner vs PALJuly 14, 2009GR 180043

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Ponente: Chico-Nazario

Doctrine: A tax refund, which is in the nature of a tax exemption, should be construed strictissimi juris against the taxpayer. However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same.

Notes: OCT is a business tax

Facts: On the year 2001 (Jan-Dec) PAL mistakenly paid 10% Overseas Communication

Tax (OCT) which was collected by PLDT pursuant to Section 120 of the National Internal Revenue Code (NIRC) of 1997, which reads:

SEC. 120.Tax on Overseas Dispatch, Message or Conversation Originating from the.-(A)Persons Liable—There shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service, a tax of ten percent (10%) on the amount paid of [the transaction involving overseas dispatch, message or conversation] such services.The tax imposed in this Section shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter.

On April 8, 2003, PAL filed with the BIR an administrative claim for refund of the P202,471.18 OCT it alleged to have erroneously paid in 2001.In a letter dated, addressed to petitioner, Ma. Stella L. Diaz (Diaz), the Assistant Vice-President for Financial Planning & Analysis of respondent, explained that the claim for refund of respondent was based on its franchise, Section 13 of Presidential Decree No. 1590, which granted it (1) the option to pay either the basic corporate income tax on its annual net taxable income or the two percent franchise tax on its gross revenues, whichever was lower; and (2) the exemption from all other taxes, duties, royalties, registration, license and other fees and charges imposed by any municipal, city, provincial or national authority or government agency, now or in the future, except only real property tax.Also invoking BIR Ruling No. 97-94.dated 13 April 1994, Diaz maintained that, other than being liable for basic corporate income tax or the franchise tax, whichever was lower, respondent was clearly exempted from all other taxes, including OCT, by virtue of the “in lieu of all taxes” clause in Section 13 of Presidential Decree No. 1590.

PAL incurred a net loss for the year 2001, thus it opted to pay the basic corporate income tax which amounted to 0 for the year 2001 because it incurred a net loss.

The BIR however, failed to act on the request of the PAL so PAL filed a petition for review with the CTA on June of 2003. The CTA and subsequently on review the CTA enbanc ruled in favor of PAL saying that by virtue of section 13 of its charter, PAL was exempted from paying all other taxes.

Issues: WON PAL is exempted from paying OCT taxes? YES WON a tax refund, which is in the nature of a tax exemption, should be

construedstrictissimi juris against the taxpayer. Yes

BIR's arguments: PAL is not exempted from paying OCT taxes because it did not

pay any tax at all for the year 2001 due to its net loss. Section 13 of PAL's charter states that PAL has the option to either pay the basic corporate tax or 2% of its gross receipts in lieu of all other taxes. Since PAL did not pay any tax at all for 2001, there was nothing paid in lieu of taxes, thus it was not exempt.

A tax refund is essentially a tax exemption, thus should be strictly construed.

PAL's Arguments:sec 13 of Pal's charter gives it the option to choose

among two tax regimes in lieu of all other taxes. Since PAL incurred a net loss, it chose the basic corporate tax regime thus incurring 0 tax liabilities. That PAL is exempt regardless of the fact that it paid 0 in taxes.

Ratio of the Court:

1. The language used in Section 13 of Presidential Decree No. 1590, granting respondent tax exemption, is clearly all-inclusive.The basic corporate income tax or franchise tax paid by respondent 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 futurex x x,” except only real property tax. Even a meticulous examination of Presidential Decree No. 1590 will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest income or excluding from said exemption the OCT.

In insisting that respondent needs to actually pay a certain amount as basic corporate income tax or franchise tax, before it can enjoy the tax exemption granted to it, petitioner places too much reliance on the use of the word “pay” in the first line of Section 13 of Presidential Decree No. 1590.

It must do well for petitioner to remember that a statute’s clauses and phrases should not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. A strict interpretation of the word “pay” in Section 13 of Presidential Decree No. 1590 would effectively render nugatory the other rights categorically conferred upon the respondent by its franchise.

In the event that respondent incurs a net loss, it shall have zero liability for basic corporate income tax, the lowest possible tax liability. There being no qualification to the exercise of its options under Section 13 of Presidential Decree

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No. 1590, then respondent is free to choose basic corporate income tax, even if it would have zero liability for the same in light of its net loss position for the taxable year. Additionally, a ruling by this Court compelling respondent to pay a franchise tax when it incurs a net loss and is, thus, not liable for any basic corporate income tax would be contrary to the evident intent of the law to give respondent options and to make the latter liable for the least amount of tax.

Yes, a tax refund is essentially a tax exemption and must be strictly construed, However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same.

WHEREFORE, the instant Petition for Review is DENIED.  The Decision of the Court of Tax Appeals En Banc dated 9 August 2007 in CTA EB No. 221, affirming the Decision dated 14 June 2006 of the CTA First Division in CTA Case No. 6735, which granted the claim of Philippine Airlines, Inc. for a refund of Overseas Communications Tax erroneously collected from it for the period April to December 2001, in the amount of P126,243.80, is AFFIRMED. No costs.

-Kester

CIR v. PILIPINAS SHELL25 April 2012 | Ponente: Villarama, JR., J.

Notes: o “Excise Taxes” term used by NIRC to refer to taxes applicable to certain

specified goods or articles manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported into the Phils. ; imposed in addition to VAT

o Tax refunds are in the nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to the misinterpreted, it is never presumed nor be allowed solely on the ground of equity. EXEMPTIONS must not rest on vague, uncertain or indefinite inference, but granted only by a clear and equivocal provision of law on the basis of language too plain to be mistaken. EXEMPTIONS ARE STRICTLY CONSTRUED AGAINST THE TAXPAYER.

FACTS Respondent, Pilipinas Shell (Shell) is engaged in the business of processing,

treating and refining petroleum for the purpose of producing marketable products and subsequent sale.

Shell filed a formal claim for refund or tax credit representing exise taxes it paid on sales and deliveries of gas and fuel oils to various international carriers.

No action was taken; Shell filed petition for review before the CTA

CTA FIRST DIVISION : Ruled that respondent is entitled to a refund of the exise tax (approx P95M) and relied on a previous ruling (Pilipinas Shell v. CIR) where

CTA granted claim for refund on te basis of exise tax exemption for petroleum sold to international carriers of foreign registry for the use or consumption outside the Philippines.

ISSUE WON Pilipinas Shell can claim a refund of the exise tax on petroleum products sold to international carriers

Arguments of the SOL GENa. Obvious intent of the law is to grant exise tax exemption to international

carriers and exempt entities as buyers of petroleum products NOT to the manufacturers / producers of goods.

b. Sec 135 (a) and (c) means that grant of exemption from payment of exise tax can only be interpreted to mean that Shell cannot pass on to international carriers and other exempt agencies the exise tax it paid to as the manufacturer/producer.

c. Sec 130 (d) is explicit on the circumstances under which the taxpayer may claim for a refund of exise taxes paid on manifactured products ; enumeration did NOT include exise taxes paid on petroleum products sold to international carriers

d. Maceda and Phil. Acetylene cases are APPLICABLE e. ULTIMATELY, Shell must should the exise taxes it paid.

Arguments of Shell a. Petroleum products sold to int’l carriers are exempt from exise tax = no

taxes should be imposed on the article to which goods the tax attaches b. Sec 229 of NIRC allows recovery of taxes erroneously paid. c. Maceda and Phil Acetylene Rulings are NOT APPLICABLE to the present

case

In MACEDA : adjudication on the issue of tax exemption of NPC from direct and inderect taxes, what was in issue is NPC’s right to claim for a refund of the indirect taxes. Not applicable because – Shell’s claim for refund is not anchered on the exemption of the buyer from direct and indirect taxes BUT on the exemption of the goods themselves under Sec. 135

In PHIL. ACETYLENE: involved sales tax, tax on the transaction which the Court held as due to the seller even if tax is not passed on to the buyers Not applicable because – the exise tax is a tax on the goods themselves ; while the manufacturer has the duty to pay the tax, by Sec 135, goods are stripped of such tax under the circumstances provided therein ; arguments in Phil Acetylene not anchored on an exempting provision but on the argument that tax burden cannot be passed on.

d. Requiring Shell to shoulder the burden on exise taxes would effectively defeat the principle of international comity upon which the tax exemption on aviation fuel of international flights was founded.

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RULING OF THE COURT : CLAIMS FOR TAX REFUND OR CREDIT FILED BY SHELL – DENIED

Relevant provisions of the NIRC [for full text, please refer to the SCRA] Sec 148 – provides list of petroleum products upon which exise taxes attachSec 134 – exemptions with reference to the nature and quality of the goods manufactured Sec 135 – entities exempt from exise tax on petroleum products

(1) Shell failed to make the distinction between Sec 134 and Sec 135 ; Shell’s claim does not fall under tax exemption “attaching to the goods themselves” which should be based on a statute granting tax exemption or the result of legislative grace = claim should be construed strictissimi juris against the taxpayer. When the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of a nature of an exemption, the claimant must show that he clearly falls under the exempting statute.

(2) The exemption under Sec 135 is conferred on international carriers who purchased petroleum products for their use and consumption outside the Philippines. Pursuant to Philippine Acetylene case, tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods. The exise tax imposed on petroleum products under Sec 148 is the direct liability of the manufacturer who cannot invoke the exise tax exemption granted to its buyers who are international carriers.

(3) Sec 135 (a) should be construed as prohibiting the shifting of the burden of the exise tax to the international carriers who buys petroleum products from the local manufacturers. Such provision merely allows the international carriers to purchase petroleum products without the exise tax component as an added cost in the price fixed by the manufacturers/distributors/sellers. Consequently, oil companies which sold such petroleum products to international carriers are not entitled to a refund of exise taxes previously paid on goods.

-Mae

vii. Laws granting tax exemption/tax incentives

I. Philippine Tax Laws and Regulations

1. Nature of Tax Laws

Hilado v. CIREmilio Hilado, petitioner,  vs. Collector of Internal Revenue and the Court of Tax

Appeals, respondents.(October 31, 1956)

NOTES: Kind of tax: income tax

DOCTRINE: It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

NATURE: Appeal from CTA decision disallowing deduction

PONENTE: Bautista Angelo

FACTS:1. On March 31, 1952, Petitioner filed his income tax return for 1951 with

treasurer of Bacolod City wherein he claimed P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue.

2. This circular was issued pursuant to certain rules laid down by the Secretary of Finance. On the basis of said return, an assessment notice demanding payment of P9,419 was sent to Hilado, who paid the tax in monthly installments, last installment being paid on January 2, 1953.

3. Meanwhile on Aug 2, 1952, Sec of Finance, through Collector of Internal Revenue, issued Gen. Circular No. V-139 which not only revoked and declared void the previous circular but laid down the rule that losses of property which occurred during World War II from fires, storms, shipwreck or other casualty, or from robbery, theft or embezzlement are deductible in the year of actual loss or destruction of property.

4. As a result, amount of P12,837.65 was disallowed as deduction from gross income of Hilado for 1951, and the Collector demanded from him the payment of P3,546 as deficiency income tax for said year.

5. Hilado filed MR which was denied. He file a petition for review with CTA which affirmed the assessment of Collector of Internal Revenue. Hence this appeal.

Petitioner’s contentions (Note that the numbers in the ruling correspond to Court’s answers to Petitioner’s contentions):

1. He claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a “business asset” within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951.

2. during the last war and as a consequence of enemy occupation in the Philippines “there was no taxable year” within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit.

3. Only courts may pass upon validity of laws so Sec. of Finance had no authority to revoke V-123.

4. Gen. Circular V-139 cannot be given retroactive effect.

Issues: WON his claimed deduction was proper?

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Held: No. This claim is untenable.

1. To begin with, assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to Hilado, the last installment he received from the War Damage Commission (WDC), together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income.

In the second place, said amount cannot be considered as a “business asset” which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which Hilado could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the WDC merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, “All findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court”. (section 113).

It’s true Sec. of Finance issued Gen. Circular No. V-123 under which P12.837.65 was allowed to be deducted “in the year the last installment was received with notice that no further payment would be made until the US Congress makes further appropriation therefor” but it was later found to be wrong so was revoked. Upon advice of Sec. of Justice who opined that while property owners might argue that they have not initially included the losses as deductions in the year they were incurred because there was the Act wherein WDC will compensate their losses, such argument cannot be given weight because the Act was actually passed much later after the war and so the property owners neither expected the compensation nor failed to file their losses as deduction because of this legislation. Because of this, Secretary of Finance issued V-139 which not only revoked V-123 but also laid down the rule that losses of property which occurred during World War II from fires, storms, etc. are deductible for income tax purposes in the year of actual loss.

We can hardly argue against this opinion. Since we have already stated that the amount claimed does not represent a “business asset” that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year.

2. As to Hilado’s contention that during the last war and as a consequence of enemy occupation in the Philippines “there was no taxable year” within the meaning of our internal revenue laws because during that period they were unenforceable, it is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

“Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.’ As the same author says, in his Treatise on the Conflict of Laws, ‘There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.’“ (Co Kim Chan vs. Valdes Tan Keh and Dizon)

3. It cannot be denied that the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given.

“When the Commissioner determined in 1937 that the Petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the Petitioner from tax.

4. With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by Petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration.

“It seems too clear for serious argument that an administrative officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due.”

“Art. 2254. — No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others.” (Article 2254, New Civil Code.)

DISPOSITION: Decision of CTA Affirmed.

VOTE: En Banc, CJ Paras, Padilla, Montemayor, Labrador, Concepcion, JBL Reyes, Endencia and Felix, JJ., concur.

-Ann

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Testate Estate of OLIMPIO FERNANDEZ, deceased. REPUBLIC OF THE PHILIPPINES, claimant- Appellee , vs. ANGELINA OASAN VDA DE FERNANDEZ, PRISCILLA O.

FERNANDEZ, and ESTELA O. FERNANDEZ,   Oppositors - Appellants

Nature: Appeal from CTA DecisionDate: 25 Sept. 1956Ponente: Labrador

Facts:Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8,600 on December 8, 1941. During the Japanese occupation the spouses acquired several real properties, and at the time of his death on February 11, 1945 he had a net worth of P31,489. The Collector of Internal Revenue assessed a war profits tax on the estate of the deceased at P7,614.60, which his administratrix refused to pay. The case was brought to the Court of Tax Appeals which sustained the validity and legality of the assessment. The administratrix has appealed this decision to this Court

Issues/Held:(a) WON the war profits tax law is unconstitutional for the reason that it is

retroactive NO(b) WON the said law is inapplicable to the estate of the deceased Olimpio

Fernandez because the law taxes individuals NO(c) WON the estate of the deceased Olimpio Fernandez should be taxed separately

from that of his wife’s because Olimpio Fernandez died before the law was passed NO

Ratio:

(a) The tax, insofar as applicable to the estate of the deceased Olimpio Fernandez, is both a property tax and a tax on income. It is a property tax in relation to the properties that Fernandez had in December, 1941; ryand it is an income tax in relation to the properties which he purchased during the Japanese occupation. In both cases, however, the war profits tax may not be considered as unconstitutional.

The doctrine of unconstitutionality raised by respondent is based on the prohibition against ex post facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights. 

It has also been held that in order to declare a tax as transgressing the constitutional limitation(due process), it must be so harsh and oppressive in its retroactive application. But we hold that far from being unjust or harsh and oppressive our war profits tax is both wise and just. The last Pacific war and the Japanese occupation of the Islands have wrought divergent effects upon the different sectors of the population. The quiet and the timid, who were afraid to go out of their homes or who refused to have any dealings with the enemy, stopped from exercising their callings or professions, losing their incomes; and they supported themselves with properties they already owned, selling these from time to time to raise funds with which to purchase their daily needs. These were reduced to penury and want. But the bold and the daring, as well as those who were callous to the criticism of being collaborators, engaged in trading in all forms or sorts of commodities,

from foodstuffs to war materials, earning fabulous incomes and acquiring properties with their earnings. Those who were able to retain their properties found themselves possessed of increased wealth because inflation set in, the currency dropped in value and properties soared in prices. It would have been unrealistic for the legislature to have ignored all these facts and circumstances. After the war it could not, with justice to all concerned, apportion the expenses of government equally on all the people irrespective of the vicissitudes of war, equally on those who had their properties decimated as on those who had become fabulously rich after the war. Those who were fortunate to increase their wealth during the troubulous period of the war were made to contribute a portion of their newly-acquired wealth for the maintenance of the government and defray its expenses. Those who in turn were reduced to penury or whose incomes suffered reductions could not be compelled to share in the expenses to the same extent as those who grew rich. This in effect is what the legislature did when it enacted the War Profits Tax Law. The law may not be considered harsh and oppressive because the force of its impact fell on those who had amassed wealth or increased their wealth during the war, but did not touch the less fortunate. The policy followed is the same as that which underlies the Income Tax Law, imposing the burden upon those who have and relieving those who have not. No one can dare challenge the law as harsh and oppressive. We declare it to be just and sound and overrule the objection thereto on the ground of unconstitutionality.

(b) Under section 84 of the National Internal Revenue Code, the term “person” means an individual, a trust, estate, corporation, or a duly registered general co-partnership. If the individual is already dead, property or estate left by him should be subject to the tax in the same manner as if he were alive.

The property which Olimpio Fernandez was possessed of in December, 1941 is presumed to be conjugal property and so are the properties which were acquired by him during the war, because at that time he was married. There is no claim or evidence to support the claim that any of the properties were paraphernal properties of the wife; so the presumption stands that they were conjugal properties of the husband and wife. Under these circumstances they cannot be considered as properties belonging to two individuals, each of which shall be subject to the tax independently of the other.

(c) Fernandez died immediately before the liberation and the actual cessation of hostilities. He profited by the war; there is no reason why the incident of his death should relieve his estate from the tax. On this matter we agree with the Court of Tax Appeals that the provisions of section 18 of the Internal Revenue Code have been incorporated in Republic Act No. 55 by virtue of Section 9 thereof, which provides: y

SEC. 9.  Administrative remedies. — All administrative, special and general provisions of law, including the laws in relation to the assessment, remission, collection and refund of national internal revenue taxes, not inconsistent with the provisions of the Act, are hereby extended and made applicable to all the provisions of this law, and to the tax herein imposed.”

Disposition: judgment AFFIRMED.

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Votes: Paras, C.J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur.Separate Opinions: none

-Barbie

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