Case 1 - Manila Memorial Park v. DSWD

taxation law i i case digest 1
MANILA MEMORIAL PARK V. DSWD

G.R. NO. 175356
FACTS:
RA 7432 was passed into law (amended by RA 9257), granting senior citizens 20% discount
on certain establishments. To implement the tax provisions of RA 9257, the Secretaries of DOF and
DSWD issued its own Rules and Regulations. Hence, this petition. Petitioners assail the
constitutionality of Sec. 4 of RA 7432 and its IRR insofar as these allow business establishments to
claim the 20% discount given to senior citizens as a tax deduction. They are not questioning the
20% to senior citizen discount but only the tax deduction scheme. They posit that it contravenes Art.
III, Sec. 9 of the Constitution which provides: “Private property shall not be taken for public use
without just compensation.” Respondents, on the other hand, maintain that the tax deduction
scheme is a legitimate exercise of the State’s police power.
ISSUE/S:
1) Whether or not the tax deduction scheme is a valid exercise of police power
2) Whether or not the 20% senior citizen discount is an exercise of police power or eminent
domain
RULING:
1) Yes. The State, in promoting the health and welfare of a special group of citizens, can
impose upon private establishments the burden of partly subsidizing a government program. The
Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-
building, and to grant benefits and privileges to them for their improvement and well-being as the
State considers them an integral part of our society. The priority given to senior citizens finds its
basis in the Constitution as set forth in the law itself.
To implement the above policy, the law grants a 20% discount to senior citizens for certain
services for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the 20% discount to senior citizens may claim the
discount as a tax deduction. The tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. Being a tax deduction, the discount does not reduce
taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed. The law
is a legitimate exercise of police power which, similar to the power of eminent domain, has general
welfare for its object.
2) The 20% discount is a valid exercise of police power. Police power is the inherent power
of the State to regulate or to restrain the use of liberty and property for public welfare. To be a valid
exercise of police power, it must have a lawful subject or objective and a lawful method of
accomplishing the goal. Eminent domain, on the other hand, is the inherent power of the State to
take or appropriate private property for public use. The Constitution, however, requires that private
property shall not be taken without due process of law and the payment of just compensation. It
may not always be easy to determine whether a challenged governmental act is an exercise of
police power or eminent domain. The judicious approach, therefore, is to look at the nature and
effects of the challenged governmental act and decide on the basis thereof.
COMMISSIONER OF INTERNAL REVENUE V. CENTRAL LUZON DRUG CORPORATION

G.R. NO. 159647
FACTS:
The instant case is a Petition for Review under Rule 45 of the Rules of Court, seeking to set
aside the Decision Resolution of the Court of Appeals (CA), which affirmed in toto.
Respondent Central Luzon Drug Corporation (CLDC) is a domestic corporation primarily engaged in
retailing of medicines and other pharmaceutical products which operates six (6) drugstores.
From January to December 1996, CLDC granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of medicines pursuant to Republic Act No. 7432 (RA
7432) and its Implementing Rules and Regulations in the amount of ₱904,769.00. On January 16,
1998, respondent CLDC filed with petitioner commissioner of internal revenue a claim for tax
refund/credit.
Unable to obtain affirmative response from petitioner, respondent CLDC elevated its claim to
the Court of Tax Appeals (CTA) through a Petition for Review, but was dismissed for lack of merit
on the ground that if no tax has been paid to the government, erroneously or illegally, or if no
amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Respondent
lodged a Motion for Reconsideration, which was granted. Thereby ordering the petitioner to issue a
Tax Credit Certificate.
Subsequently, CA affirmed in toto the resolution of the CTA ordering petitioner to issue a tax
credit certificate in favor of respondent in the reduced amount of ₱903,038.39.
ISSUE/S:
Whether or not the respondent can claim 20% sales discount as tax credit is valid despite
net loss
RULING:
Yes. The respondent can claim 20% sales discount as tax credit is valid despite net loss
Tax Credit generally refers to an amount that is "subtracted directly from one’s total tax
liability." It is an "a deduction from what is owed" by a taxpayer to the government. On the other
hand, tax deduction is defined as a subtraction "from income for tax purposes," or an amount that is
"allowed by law to reduce income prior to the application of the tax rate to compute the amount of
tax which is due."
Simply put, a tax credit is used only after the tax has been computed; while a tax deduction
is used before a tax has beed computed.Since a tax credit is used to reduce directly the tax that is
due, there ought to be a tax liability before the tax credit can be applied. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to the government. However,
the existence of a tax credit or its grant by law is not the same as the availment or use of such
credit. While the grant is mandatory, the availment or use is not. Under RA 7432, Congress has
granted without conditions a tax credit benefit to all covered establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. By its nature, the tax credit may still be deducted
from a future, not a present, tax liability. In the meantime, it need not move. But it breathes.

However, Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the
20 percent discount deductible from gross income for income tax purposes, or from gross sales for
VAT or other percentage tax purposes. This contrived definition is improper, considering that the
latter has to be deducted from gross sales in order to compute the gross income in the income
statement and cannot be deducted again, even for purposes of computing the income tax. Hence,
the law cannot be amended by a mere regulation. In the present case, the tax authorities have
given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what RA
7432 provides.
RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the
community as a whole and to establish a program beneficial to them. These objectives are
consonant with the constitutional policy of making "health services available to all the people at
affordable cost" and of giving "priority for the needs of the elderly." Sections 2.i and 4 of RR 2-94,
however, contradict these constitutional policies and statutory objectives.
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax
Code, a later law.

CITY OF MANILA, ET AL. VS. HON. COLET
G.R. NO. 120051
FACTS:
The City of Manila, through its City Treasurer, began imposing and collecting the business
tax under Section 21(B) of the Manila Revenue Code (Code), as amended by Ordinance No. 7807
(Ordinance). Section 21 (B) of the Code imposed business tax on “transportation contractors,
persons who transport passenger or freight for hire, and common carriers by land, air or water”
while the Ordinance amended such by lowering the tax rate from 3% per annum to .5% per annum.
Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of
the Manila Revenue Code, as amended, before they were issued their business permits, several
corporations, with principal offices in Manila and operating as "transportation contractors, persons
who transport passenger or freight for hire, and common carriers by land, air or water," filed their
respective petitions before the Manila RTC against the City of Manila, Mayor Lim, Vice Mayor
LitoAtienza (Atienza), the City Council of Manila and City Treasurer Acevedo and questioned the
constitutionality of Sec. 21 (B) for being contrary to the Constitution and the Local Government
Code, and asked for the refund of what they had paid as business tax.
ISSUE/S:
Whether or not Section 21(B) of the Manila Revenue Code, as amended by Ordinance No.
7807 is unconstitutional
RULING:
Yes. Section 133(j) of the Local Government Code clearly and unambiguously proscribes
LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in
the transportation of passengers or freight by hire, and common carriers by air, land, or water. Yet,
confusion arose from the phrase “unless otherwise provided herein,” found at the beginning of the
said provision, and the City of Manila anchors the validity of Sec. 21 (B) on said phrase.

COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION
G.R. No. 148191
FACTS:
In 1995, Solidbank filed its Quarterly Percentage Tax Returns (QPTR) reflecting gross
receipts of more than 1.4 billion pesos. Hence, it wanted to pay gross receipts tax at more than 73
million pesos.
Using ABC v. CIR, Solidbank alleged that the total gross receipts in the amount of
P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts from passive
income which was already subjected to 20% final withholding tax. So, it wants to get tax refund or
tax credit certification for more than 3.5 million pesos. Without waiting for an action from the CIR,
Solidbank filed a petition for review with the CTA to toll the 2-year prescriptive period for judicial
refund claims for overpaid internal revenue tax.
CTA ordered CIR to refund. Appeal to CA was unsuccessful.
ISSUE/S:
1. WON Solidbank entitled to tax refund or tax credit certification?
2. WON there double taxation in this case?
RULING:
1. No, Solidbank is not entitled to tax refund or tax credit certification. Exemptions are
the exception in taxation. No exemptions are normally allowed when a 5% Gross Receipts Tax is
imposed. It is precisely designed to maintain simplicity in the tax collection effort of the government
and to assure its steady source of revenue even during an economic slump.
2. No, there is no double taxation here. The subject matter of the FWT is the passive
income generated in the form of interest on deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in the business of banking. Also, although
both taxes are national in scope because they are imposed by the same taxing authority -- the
national government under the Tax Code -- and operate within the same Philippine jurisdiction for
the same purpose of raising revenues, the taxing periods they affect are different. The FWT is
deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in
which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only
after every taxable quarter in which it is earned.
ABAKADA GURO PARTYLIST VS. EXEC. SEC. ERMITA

G.R. NO. 168056
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed
a petition for prohibition on May 27, 2005. They question the constitutionality of Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods
and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been satisfied, to wit:That the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government
deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½
%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of
the 1987 Philippine Constitution.
ISSUE/S:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1

RULING:
The petitions are hereby DISMISSED there being no constitutional impediment to the
full enforcement and implementation of R.A. No. 9337, the temporary restraining order
issued by the Court is LIFTED upon finality of herein decision.
Procedural Issues
a. No, R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Article VI, Section 24 of the Constitution reads: Sec. 24. All appropriation, revenue or
tariff bills, bills authorizing increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and
3705 that initiated the move for amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out
with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the value-
added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose or concur with amendments to a
revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein
the Court held, thus: exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what
is important to note is that, as a result of the Senate action, a distinct bill may be produced.
To insist that a revenue statute – and not only the bill which initiated the legislative process
culminating in the enactment of the law – must substantially be the same as the House bill
would be to deny the Senate’s power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected as
they are from the districts, the members of the House can be expected to be more sensitive
to the local needs and problems. On the other hand, the senators, who are elected at large,
are expected to approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
b. No, R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution
on the "No-Amendment Rule"

Article VI, Sec. 26 (2) of the Constitution, states: No bill passed by either House shall
become a law unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three days before its passage,
except when the President certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.
Nor is there any reason for requiring that the Committee’s Report in these cases
must have undergone three readings in each of the two houses. If that be the case, there
would be no end to negotiation since each house may seek modification of the compromise
bill.
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the
first time in either house of Congress, not to the conference committee report.
Substantive Issues
1. A. No, Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, does not violate of Article VI, Section 28(1), of the
Constitution on the Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads: The rule of taxation shall be
uniform and equitable.
The Congress shall evolve a progressive system of taxation. Uniformity in taxation

means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times.
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of
goods and properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or trade that will
bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the government. It must be
stressed that 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.

R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross
annual sales or receipts not exceeding ₱1,500,000.00.88 Also, basic marine and
agricultural food products in their original state are still not subject to the tax,89 thus
ensuring that prices at the grassroots level will remain accessible.
R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize
the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage
tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales
and/or receipts not exceeding ₱1.5 Million. This acts as a equalizer because in effect,
bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on
equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the
imposition of the tax on those previously exempt. Excise taxes on petroleum products91
and natural gas92 were reduced. Percentage tax on domestic carriers was removed.93
Power producers are now exempt from paying franchise tax.
Aside from these, Congress also increased the income tax rates of corporations, in
order to distribute the burden of taxation. Domestic, foreign, and non-resident corporations
are now subject to a 35% income tax rate, from a previous 32%.95 Intercorporate dividends
of non-resident foreign corporations are still subject to 15% final withholding tax but the tax
credit allowed on the corporation’s domicile was increased to 20%.96 The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes
anymore.97 Even the sale by an artist of his works or services performed for the production
of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which
would otherwise rest largely on the consumers.
1. B. No, Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, does not violate of Article VI, Section 28(2), of the
Constitution on the Undue Delegation of Legislative Power
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)

of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year

exceeds one and one-half percent (1 ½%).

The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. The legislature has made the operation of the
12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves
the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive. No discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word shall is used in the common proviso. The use
of the word shall connotes a mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion.
In the present case, in making his recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not subject to the power of
control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather data
and information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and verify if
any of the two conditions laid out by Congress is present. His personality in such instance is
in reality but a projection of that of Congress. Thus, being the agent of Congress and not of
the President, the President cannot alter or modify or nullify, or set aside the findings of the
Secretary of Finance and to substitute the judgment of the former for that of the latter.
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating
to the President the legislative power to tax is contrary to the principle of republicanism, the
same deserves scant consideration. Congress did not delegate the power to tax but the
mere implementation of the law. The intent and will to increase the VAT rate to 12% came
from Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the Court to inquire
into, its task being to interpret the law.
2. (A) No, Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC, does not violate of Article VI, Section 28(1), of the Constitution on
the Uniformity and Equitability of Taxation
Progressive taxation is built on the principle of the taxpayer’s ability to pay. Taxation
is progressive when its rate goes up depending on the resources of the person affected.
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive.

The principle of progressive taxation has no relation with the VAT system inasmuch as the
VAT paid by the consumer or business for every goods bought or services enjoyed is the
same regardless of income. In other words, the VAT paid eats the same portion of an
income, whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller
the portion of the income or profit that is eaten by VAT. A converso, the lower the income or

profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really
the lower income group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive
system of taxation.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending
§102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC).
2. (B) No, Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC, does not violate of Article III, Section 1, of the Constitution on the
Due Process and Equal Protection of Rights
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law.
The input tax is not a property or a property right within the constitutional purview of
the due process clause. A VATregistered person’s entitlement to the creditable input tax is
a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind
for persons have no vested rights in statutory privileges. The state may change or take
away rights, which were created by the law of the state, although it may not take away
property, which was vested by virtue of such rights.
The equal protection clause under the Constitution means that "no person or class of
persons shall be deprived of the same protection of laws which is enjoyed by other persons
or other classes in the same place and in like circumstances."
The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power absent a
clear showing of unreasonableness, discrimination, or arbitrariness.
The equal protection clause does not require the universal application of the laws on
all persons or things without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as determined according to a
valid classification. By classification is meant the grouping of persons or things similar to
each other in certain particulars and different from all others in these same particulars.

APOSTOLIC PREFECT OF THE MOUNTAIN PROVINCE VS.
TREASURER OF THE CITY OF BAGUIO
GR NO. L-47252
FACTS:
Plaintiff is a corporation of a religious nature, organized in accordance with the laws

of the Philippines, with residence in the city of Baguio and its land is dedicated to worship
and education. Defendant is a public servant of the City of Baguio and acts as treasurer
and collector of said city. Defendant demanded and collected from the plaintiff the sum of
P1,019.37 under the provisions of Ordinance No. 137. Payment was made by the plaintiff
under protest. Said ordinance listed properties in Baguio City and a “special assessment
list” was made for the construction of a drainage and sewage system. The construction of
the sewage and drainage system has benefited and is benefiting directly and especially to
all owners whose lots and lands are included in the “special assessment list”. The system of
drainage and sewerage has promoted the cleanliness and sanitary condition of the lands of
the aforementioned list.
ISSUE/S:
WON the properties on which the special contribution is collected are exempt from
said payment.
RULING:
No. It is not exempt from payment. It is a well-established rule in tax matters that the
special contributions that are created and charged to amortize extraordinary expenses that
cause works, such as the drainage and sewerage system, that benefit the inhabitants in a
special way is not a tax its sense legal. The special contribution charged to the properties
located in the City of Baguio, was created to amortize the extraordinary expenses caused
by the sewage and drainage system that was built, a work that especially benefits all
owners. Plaintiff- appellant cannot successfully invoke the exemption established by the
Constitution because it has not been admitted or proved that its properties that paid the
special contribution were used exclusively for religious purposes.

CALTEX PHILIPPINES, INC. V. COMMISSION ON AUDIT
208 SCRA 726, MAY 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized under the PD 1956. Pending such
remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance.
The grant total of its unremitted collections of the above tax is P1,287,668,820. Caltex
submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offsetting remittances and reimbursements
for the current and ensuing years. Caltex moved for reconsideration but was denied.
Hence, the present petition.
ISSUE/S:
Whether or not the amounts due from Caltex to the OPSF (Oil Price Stabilization
Fund) may be offsetted against Caltex’s outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of government. Taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of the State. PD 1956, as
amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer
may not offset taxes due from the claims he may have against the government. Taxes
cannot be subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. Hence, COA decision is affirmed except
that Caltex’s claim for reimbursement of under recovery arising from sales to the National
Power Corporation is allowed.

FRANCIA VS. INTERMEDIATE APPELLATE COURT
162 SCRA 753
FACTS:
Petitioner Engracio Francia is the registered owner of a residential lot and a two-
story house built upon it with an area of about 328 square meters. A 125-square-meter
portion of this property was expropriated by the Republic of the Philippines for the sum of
P4,116.00, representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Francia failed to pay his real estate taxes. As a result, his tax property was sold at a
public auction in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the
highest bidder for the property.
Ho Fernandez filed a Petition for Entry of a New Certificate of Title. The auction sale
and the final bill of sale were both annotated by the Register of Deeds.
Francia then filed a complaint to annul the auction sale. The lower court rendered a
decision in favor of Ho Fernandez. The Intermediate Appellate Court affirmed the decision
of the lower court.
ISSUE/S:
Whether or not the tax owed by Francia should be set-off by the “debt” owed him by
the government.
RULING:
No, the tax owed by Francia should not be set-off by the “debt” owed him by the
government.
In the case of Republic v. Mambulao Lumber Co., the Court ruled that Internal
Revenue Taxes cannot be the subject of set-off or compensation. A claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in
an action or any indebtedness of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment since they do not
arise out of the contract or transaction sued on. The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes levied for
general or local governmental purposes. The reason on which the general rule is based, is
that taxes are not in the nature of contracts between the party and party but grow out of
duty to, and are the positive acts of the government to the making and enforcing of which,
the personal consent of individual taxpayers is not required.
DOMINGO VS. GARLITOS
FACTS:
On 30 January 1960, the Supreme Court declared as final and executory the order for the
payment of estate and inheritance taxes, charges and penalties amounting to P40,058.55
by the Estate of the late Walter Scott Price.
A petition for execution was then filed by the fiscal of which the court denied holding
that the execution is not justifiable as the Government is indebted to the estate under
administration in the amount of P262,200 and ordered the amount of inheritance taxes be
deducted from the Government’s indebtedness to the Estate.
ISSUE/S:
WON a tax and a debt may be compensated?
RULING:
Yes. The ground for denying the petition of the provincial fiscal is the fact that the
court having jurisdiction of the estate had found that the claim of the estate against the
Government has been recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act No. 2700).
Under the above circumstances, both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already become overdue
and demandable is well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with the

provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to
the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for
taxes against the estate of the deceased Walter Scott Price.

SILKAIR (SINGAPORE) PTE. LTD V. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 166482
FACTS:
Petitioner Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by the
Securities and Exchange Commission (SEC) to do business in the Philippines as an on-line
international carrier.
In the course of its international flight operations, petitioner purchased aviation fuel
from Petron Corporation (Petron) from July 1, 1998 to December 31, 1998, paying the
excise taxes. The payment was advanced by Singapore Airlines, Ltd. on behalf of
petitioner.
On October 20, 1999, petitioner filed an administrative claim for refund representing excise
taxes on the purchase of jet fuel from Petron, which it alleged to have been erroneously
paid.
Due to the inaction by respondent Commissioner of Internal Revenue, petitioner filed a
petition for review with the Court of Tax Appeals (CTA) on June 30, 2000.
On July 28, 2003, the CTA rendered its decision denying petitioner’s claim for
refund. Said court ruled that while petitioner’s country indeed exempts from similar taxes
petroleum products sold to Philippine carriers, petitioner nevertheless failed to comply with
the second requirement under Section 135 (a) of the 1997 Tax Code as it failed to prove
that the jet fuel delivered by Petron came from the latter’s bonded storage tank.
Its motion for reconsideration having been denied by the CTA, petitioner elevated the
case to the CA.
The CA affirmed the denial of the claim for tax refund and dismissed the petition. It ruled
that while petitioner is exempt from paying excise taxes on petroleum products purchased
in the Philippines by virtue of Section 135 (b), petitioner is not the proper party to seek for
the refund of the excise taxes paid. Petitioner’s motion for reconsideration was likewise
denied by the appellate court.
ISSUE/S:
Whether petitioner is the proper party to seek the refund of excise taxes paid on its
purchase of aviation fuel from a local manufacturer/seller.
RULING:
No. The excise tax is due from the manufacturers of the petroleum products and is
paid upon removal of the products from their refineries. Even before the aviation jet fuel is
purchased from Petron, the excise tax is already paid by Petron. Petron, being the
manufacturer, is the “person subject to tax.” In this case, Petron, which paid the excise tax
upon removal of the products from its Bataan refinery, is the “person liable for tax.”
Petitioner is neither a “person liable for tax” nor “a person subject to tax.” There is also no
legal duty on the part of petitioner to pay the excise tax; hence, petitioner cannot be
considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the tax is billed as a
separate item in the aviation delivery receipts and invoices issued to its customers, Petron
remains the taxpayer because the excise tax is imposed directly on Petron as the
manufacturer. Hence, Petron, as the statutory taxpayer, is the proper party that can claim
the refund of the excise taxes paid to the BIR.

PASCUAL VS. SECRETARY OF PUBLIC WORKS
110 PHIL. 331
FACTS:
Governor Wenceslao Pascual of Rizal instituted an action for declaratory relief, with
injunction upon the ground that RA 920: An Act Appropriating Funds for Public Works, contained an
item P85,000.00, for the construction, reconstruction, repair, extension and improvement of Pasig
feeder road terminals. He alleged that the feeder roads were nothing but projected and planned
subdivision roads, not yet constructed, within the Antonio Subdivision situated at Pasig, Rizal, which
projected feeder roads do not connect any government property or any important premises to the
main highway.
Gov. Pascual prayed that the contested item of RA 920 be declared null and void, and the
alleged deed of donation of the feeder roads in question be declared unconstitutional and therefore
illegal.
Secretary of Public Works moved to dismiss the petition upon the ground that petitioner had
no legal capacity to sue and that the petition did not state a cause of action. Also, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its Provincial Governor, should represent the
Province of Rizal.
The CFI of Rizal rendered decision that the construction and improvement of the feeder
roads in question, if such roads were private property, would not be a public purpose, and the
condition stipulated in the donation in question is onerous, hence the deed of donation is illegal, that
the legality of said donation may not be contested, however, by Gov. Pascual because his interest
are not directly affected thereby and that accordingly, the appropriation in question should be
upheld and the case dismissed.
ISSUE/S:
1. Whether or not Gov. Pascual has legal capacity to sue despite does not sustain a direct
injury of its enforcement.
2. Whether or not public purpose should be present when a law was enacted.
RULING:
1. Yes.
It is well settled that the validity of a statute may be contested only by one who will sustain a direct
injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of
taxpayers, laws providing for the disbursement of public funds, upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering an
unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer

In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute the general rule is that not only persons individually affected, but also
taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation
and may therefore question the constitutionality of statutes requiring expenditure of public moneys.
In the instant case, Gov. Pascual is not merely a taxpayer. The Province of Rizal, which represents
officials as its Provincial Governor, is our most populated political subdivision, and the taxpayers
therein bear a substantial portion of the burden of taxation in the Philippines.
2. Yes.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consist of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, later on, became Republic Act No. 920, was passed
by Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result
is that said appropriation sought a private purpose, and, hence, was null and void. The donation to
the Government, over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in
question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.

ERNESTO M. MACEDA VS. HON. CATALINO MACARAIG, JR
G.R. NO. 88291
Commonwealth Act No. 120 created the NPC as a public corporation to undertake the
development of hydraulic power and the production of power from other sources. 1971, Republic
Act No. 6395 revised the charter of the NPC wherein Congress declared as a national policy the
total electrification of the Philippines through the development of power from all sources to meet the
needs of industrial development and rural electrification.
The corporate existence of NPC was extended to carry out this policy, specifically to
undertake the development of hydro electric generation of power and the production of electricity
from nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis. Being a non-profit corporation, the law provided in detail the exemption of the
NPC from all taxes, duties, fees, imposts and other charges by the government and its
instrumentalities including indirect tax thru decisions, orders, rulings, and resolutions (under RA
358, RA 6395 and PD 380 ) of respondents Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review
Board FIRB.
Senator Ernesto Maceda sought to nullify these decisions, orders, rulings, and resolutions
for exempting the National Power Corporation (NPC) from indirect tax and duties. The main
objective of Senator Maceda for questioning the tax exemption given to NPC was improve the
revenue of the government.
ISSUE/S:
Whether or not NPC as a public corporation, mandated by law to carry out the total
electrification of the Philippines is entitled for tax exemption ( particularly indirect tax)?
RULING:
Yes. It is entitled for tax exemption.
The NPC is a non-profit public corporation created for the general good and welfare wholly
owned by the government. From the very beginning, the NPC enjoyed preferential tax
treatment to enable the Corporation to pay the indebtedness and obligation and in furtherance
and effective implementation of the policy RA No.6395. In the earlier law, R.A. No. 358 the
exemption was worded in general terms, and 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.
The purpose of the laws that provide tax-exempt status of NPC is to maintain the tax
exemption of NPC from all forms of taxes including indirect taxes for the NPC to attain its goals.
This tax exemption is intended not only to ensure that the NPC shall continue to generate electricity

for the country but more importantly, to assure cheaper rates to be paid by the consumers.( pulic
use talaga heheh)
PLANTERS PRODUCTS, INC. V. FERTIPHIL CORPORATION

G.R. NO. 166006
FACTS:
Planter’s Products Inc. (PPI) and Fertiphil Corp. (FC) are private corporations incorporated
under Philippine laws and both engaged in the importation and distribution of fertilizers.
On June, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued
LOI No. 1465 which provided for the imposition of a capital recovery component (CRC) on the
domestic sale of all fertilizers in the Philippines. Said capital contribution is to be collected until
adequate capital is raised to make PPI viable.In compliance, the Administrator of the Fertilizer and
Pesticide Authority (FPA) included in its pricing formula the amount of P10 per bag which the FPA
applied on all the domestic sales of fertilizers in the Philippines.
Because of this FC paid P10 for every bag of fertilizer it sold in the domestic market to the
FPA. Said payments were in turn remitted by FPA to the Far East Bank and Trust Company
(FEBTC), the depositary bank of PPI.With the return of democracy in 1986, FPA stopped the
imposition of the P10 levy while FC demanded from PPI a refund on the amounts it paid under LOI
No. 1465.Facing PPI’s refusal to refund the payments, FC filed for collection and damages with the
Regional Trial Court (RTC) against both FPA and PPI on the ground of unconstitutionality of LOI No.
1465.
ISSUE/S:
Whether or not the P10 CRC (levy) imposed by LOI 1465 was a valid exercise of the State’s
inherent power of taxation?
RULING:
No, the P10 CRC (levy) imposed by LOI 1465 was not a valid exercise of the State’s
inherent power of taxation. The power of taxation by the state is plenary. However, it is
circumscribed by inherent and constitutional limitations. In the case at bar, the P10 levy was
imposed to give undue benefit to PPI, a private corporation. It is a violation of the inherent limitation
on the purpose of taxes to be imposed.
The power to tax exists for the general welfare, hence, implicit in its power is the limitation
that it should be used only for a public purpose. Funds cannot be exacted under the guise of
taxation to promote a purpose that is not of public interest.

LA SUERTE CIGAR & CIGARETTE FACTORY V . COURT OF
APPEALS AND COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 125346
FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased
by cigarette manufacturers for use as raw material in the manufacture of their cigarettes. Under the
Tax Code, if it is to be exported or to be used in the manufacture of cigars, cigarettes, or other
tobacco products on which the excise tax will eventually be paid on the finished product. La Suerte
was assessed by the BIR for excise tax deficiency amounting to more than 34 million pesos. La
Suerte protested invoking the Tax Code which allows the sale of stemmed leaf tobacco as raw
material by one manufacturer directly to another without payment of the excise tax. However, the
CIR insisted that stemmed leaf tobacco is subject to excise tax "unless there is an express grant of
exemption from the payment of tax."
La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR) which
limits the exemption from payment of specific tax on stemmed leaf tobacco to sales transactions
between manufacturers classified as L-7 permittees.
ISSUE/S:
Whether or not the revenue regulation has exceeded, on constitutional grounds, the
allowable limits of legislative delegation
RULING:
The revenue regulation did not exceed the allowable limits of legislative delegation.
The power of taxation is inherently legislative and may be imposed or revoked only by the
legislature. Moreover, this plenary power of taxation cannot be delegated by Congress to any other
branch of government or private persons, unless its delegation is authorized by the Constitution
itself. Hence, the discretion to ascertain the following — (a) basis, amount, or rate of tax; (b) person
or property that is subject to tax; (c) exemptions and exclusions from tax; and (d) manner of
collecting the tax — may not be delegated away by Congress.
However, it is well-settled that the power to fill in the details and manner as to the
enforcement and administration of a law may be delegated to various specialized administrative
agencies like the Secretary of Finance in this case.
This court in Maceda v. Macaraig, Jr. explained the rationale behind the permissible
delegation of legislative powers to specialized agencies like the Secretary of Finance:
The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern life

and many technical fields of governmental functions as in matters pertaining to tax exemptions. This
is coupled by the growing inability of the legislature to cope directly with the many problems
demanding its attention.
COMMISSIONER OF INTERNAL REVENUE vs. FRANK ROBERTSON

G.R. Nos. 70116-19
FACTS:
The instant case is a Petition for Review of the consolidated decision of the Court of Tax
Appeals cancelling the assessments for deficiency income tax for taxable years 1969-1972,
inclusive of interests and penalties against: Frank Robertson (Frank), James W. Robertson (James),
Robert H. Cathey (Robert), and John L. Garrison (John).
All the respondents are citizens of the United States; they are holders of an American
passports and is admitted in the Philippines as Special Temporary Visitors under Section 9 (a) visa
of the Philippine Immigration Act of 1940; They are all civilian employees in the U.S. Military Base in
the Philippines in connection with its construction, maintenance, operation, and defense; and
incomes are solely derived from salaries from the U.S. government by reason of their employment
in the U.S. Bases in the Philippines.
The Court a quo after due hearing, rendered its judgment in favor of respondents cancelling
and setting aside the assessments for deficiency income taxes of respondents.
ISSUE/S:
Whether or not the respondents are exempt from Philippine income tax by virtue of Article
XII, Par 2 of the RP-US Military Bases Agreement of 1947
RULING:
Yes. the respondents are exempt from Philippine income tax by virtue of Article XII, Par 2 of
the RP-US Military Bases Agreement of 1947
The law and the facts of the case are so clear that there is no room left for the Court to doubt
the validity of private respondents' defense. In order to avail oneself of the tax exemption under the
RP-US Military Bases Agreement: he must be a national of the United States employed in
connection with the construction, maintenance, operation or defense, of the bases, residing in the
Philippines by reason of such employment, and the income derived is from the U.S. Government
In the instant case, all circumstances are present. Hence, Court finds no justifiable reason to
disturb the findings and rulings of the lower court. An examination of the words used and the
circumstances in which they were used, shows the basic intendment to exempt all U.S. citizens
working in the Military Bases from the burden of paying Philippine Income Tax without distinction as
to whether born locally or born in their country of origin.
Moreover, the ruling has altered a satisfactorily settled application of the exemption clause
and has fallen short of measuring up to the familiar principle of International Law that, "The

obligation to fulfill in good faith a treaty engagement requires that the stipulations be observed in
their spirit as well as according to their letter and that what has been promised be performed without
evasion, or subterfuge, honestly and to the best of the ability of the party which made the promise."
DEUTSCHE BANK VS. COMMISSIONER OF INTERNAL REVENUE

G.R. NO. 188550
FACTS:
This is a Petition for Review filed by Deutsche Bank AG (DB AG) Manila Branch under Rule
45 of Rules of Civil Procedure assailing the CTA En Banc Decision.In accordance with Section
28(a)(5) of the NIRC, DB AG withheld and remitted to BIR the amount of P67Million which
represented the 15% branch profit remittance tax (BPRT) on its regular banking unit (RBU) net
income remitted to DB Germany for 2002 and prior taxable year.
Believing that it made an overpayment of BPRT, DB AG Manila filed with the BIR Large
Taxpayers Assessment and Investigation Division an administrative claim for refund or issuance of
tax credit certificate in the total amount of P22Million. Also, DB AG Manila requested from the
International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate
of 10% under the RP-Germany Tax Treaty.
Alleging the inaction of the BIR, DB AG Manila filed a Petition for Review with the CTA and
reiterated its claim for the refund or issuance of tax credit certificate. The CTA Second Division ruled
that the claim of DB AG Manila for a refund was denied on the ground that the application for a tax
treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual
remittance of its branch profit to DB Germany, or prior to its availment of the preferential rate of 10%
under the RP-Germany Tax Treaty provision. The court a quo held that DB AG Manila violated the
15 day period mandated under Revenue Memorandum Order (RMO) No. 1-2000.
The CTA En Banc affirmed the decision of the CTA Second Division.
ISSUE/S:
Whether or not the failure to strictly comply with RMO No. 1-2000 will deprive persons or
corporations of the benefit of a tax treaty.
RULING:
No. As held in CIR v. S.C. Johnson and Son, Inc. further clarifies that “tax conventions are
drafted with a view towards the elimination of international juridical double taxation, which is defined
as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the
same subject matter and for identical periods. The apparent rationale for doing away with double
taxation is to encourage the free flow of goods and services and the movement of capital,
technology and persons between countries, conditions deemed vital in creating robust and dynamic
economies. Foreign investments will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial in creating such a climate.”

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax treaty or
double tax agreements
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony
with the objectives of the contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
The obligation to comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000. Logically, noncompliance with tax treaties has negative implications on international
relations, and unduly discourages foreign investors. While the consequences sought to be
prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine or penalty. But we
cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply
with an administrative issuance requiring prior application for tax treaty relief.

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS vs. HON.
APOLINARIO B. SANTOS
G.R. No. 119252
FACTS:
Petitioner in this case, the Commissioner of Internal Revenue and the Commissioner of
Customs jointly seek the reversal of the Decision of herein public respondent, Hon. Apolinario B.
Santos, Presiding Judge of RTC Pasig City, declaring Section 150(a) of Executive Order No. 273
inoperative and without force and effect insofar as petitioners are concerned. This EO subjected
jewelry to a 20% excise tax in addition to a 10% value-added tax under the old law.
Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers
engaged in the manufacture of jewelries and allied undertakings, with private respondent Antonio M.
Marco is the President of the Guild.
Some members of the Guild of Philippine Jewelers were ordered not to sell the jewelries and
other articles displayed in their respective establishments until it can be proven that the necessary
taxes thereon have been paid. In response, Private Respondent prayed that Regional Trial Court
declare Sections 126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg.
No. 71.01, 71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines
unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be
prevented or enjoined from issuing mission orders and other orders of similar nature. It even
submitted a position paper purporting to be an exhaustive study of the tax rates on jewelry
prevailing in other Asian countries, in comparison to tax rates levied on the same in the Philippines.
ISSUE/S:
Can the Regional Trial Courts declare a law inoperative and without force and effect or
otherwise unconstitutional?
RULING:
No. This is a matter on which the RTC is not competent to rule. As Cooley observed:
“Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of
conflicting issues.” In Angara vs. Electoral Commission, Justice Laurel made it clear that “the
judiciary does not pass upon questions of wisdom, justice or expediency of legislation.” And fittingly
so, for in the exercise of judicial power, we are allowed only “to settle actual controversies involving
rights which are legally demandable and enforceable,” and may not annul an act of the political
departments simply because we feel it is unwise or impractical. This is not to say that Regional Trial
Courts have no power whatsoever to declare a law unconstitutional. In J.M. Tuason and Co. v.
Court of Appeals, we said that “plainly the Constitution contemplates that the inferior courts should
have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate

review of final judgments of inferior courts in cases where such constitutionality happens to be in
issue.”
This authority of lower courts to decide questions of constitutionality in the first instance was
reaffirmed in Ynot v. Intermediate Appellate Court. But this authority does not extend to deciding
questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private
respondents. The arguments they presented focus on the wisdom of the provisions of law which
they seek to nullify. Regional Trial Courts can only look into the validity of a provision, that is ,
whether or not it has been passed according to the procedures laid down by law, and thus cannot
inquire as to the reasons for its existence. Granting arguendo that the private respondents may
have provided convincing arguments why the jewelry industry in the Philippines should not be taxed
as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies
the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs(place) of taxation. This Court cannot freely delve into those matters which, by
constitutional fiat, rightly rest on legislative judgment.
As succinctly put in Lim vs. Pacquing: “Where a controversy may be settled on a platform
other than one involving constitutional adjudication, the court should exercise becoming modesty
and avoid the constitutional question.” As judges, we can only interpret and apply the law and,
despite our doubts about its wisdom, cannot repeal or amend it.
The respondents presented an exhaustive study on the tax rates on jewelry levied by
different Asian countries. This is meant to convince us that compared to other countries, the tax
rates imposed on said industry in the Philippines is oppressive and confiscatory. This Court,
however, cannot subscribe to the theory that the tax rates of other countries should be used as a
yardstick in determining what may be the proper subjects of taxation in our own country. It should
be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the
legislative and executive branches, is exercising its sovereign prerogative. It is inherent in the power
to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
“inequalities which result from a singling out of one particular class for taxation, or exemption,
infringe no constitutional limitation.”

BRITISH AMERICAN TOBACCO VS. CAMACHO
G.R. NO. 163583 4-15-09
FACTS:
The Court rendered a Decision partially granting the petition in this case and the decision of
the Regional Trial Court of Makati is AFFIRMED with MODIFICATION. The Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and
that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers
Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to
cigarettes packed by machine, are INVALID insofar as they grant the BIR the power to reclassify or
update the classification of new brands every two years or earlier.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1) violate the
equal protection and uniformity of taxation clauses of the Constitution, (2) contravene Section 19,1
Article XII of the Constitution on unfair competition, and (3) infringe the constitutional provisions on
regressive and inequitable taxation. Petitioner further argues that assuming the assailed provisions
are constitutional, petitioner is entitled to a downward reclassification of Lucky Strike from the
premium-priced to the high-priced tax bracket.
ISSUE/S:
1. Whether or not the assailed provisions violate the equal protection and uniformity of
taxation clauses of the Constitution;
2. Whether or not the assailed provisions contravene Section 19,1 Article XII of the
Constitution on unfair competition; and
3. Whether or not the assailed provisions infringe the constitutional provisions on
regressive and inequitable taxation.
RULINGS:
1. No, the assailed law does not violate the equal protection and uniformity of taxation
clauses.
As held in the case of Ormoc Sugar Co. v. Treasurer of Ormoc City, the instant case neither
involves a suspect classification nor impinges on a fundamental right. Consequently, the rational
basis test was properly applied to gauge the constitutionality of the assailed law in the face of an
equal protection challenge. It has been held that "in the areas of social and economic policy, a

statutory classification that neither proceeds along suspect lines nor infringes constitutional rights
must be upheld against equal protection challenge if there is any reasonably conceivable state of
facts that could provide a rational basis for the classification."3 Under the rational basis test, it is
sufficient that the legislative classification is rationally related to achieving some legitimate State
interest.
A legislative classification that is reasonable does not offend the constitutional guaranty of
the equal protection of the laws. The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all
things being equal, to both present and future conditions; and (4) it applies equally to all those
belonging to the same class.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities (citations omitted). Uniformity does not forfend classification as long as: (1) the standards
that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve
the legislative purpose, (3) the law applies, all things being equal, to both present and future
conditions, and (4) the classification applies equally well to all those belonging to the same class
(citations omitted).
In the instant case, there is no question that the classification freeze provision meets the
geographical uniformity requirement because the assailed law applies to all cigarette brands in the
Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the above four-
fold test has been met in the present case.
2. No, the assailed provisions do not violate the constitutional prohibition on unfair competition.
In Tatad we ruled that a law which imposes substantial barriers to the entry and exit of new
players in our downstream oil industry may be struck down for being violative of Section 19, Article
XII of the Constitution.14 However, we went on to say in that case that "if they are insignificant
impediments, they need not be stricken down." As we stated in our August 20, 2008 Decision,
petitioner failed to convincingly prove that there is a substantial barrier to the entry of new brands in
the cigarette market due to the classification freeze provision. We further observed that several new
brands were introduced in the market after the assailed law went into effect thus negating
petitioner’s sweeping claim that the classification freeze provision is an insurmountable barrier to
the entry of new brands. We also noted that price is not the only factor affecting competition in the
market for there are other factors such as taste, brand loyalty, etc.
In sum, the totality of the evidence presented by petitioner before the trial court failed to
convincingly establish the alleged violation of the constitutional prohibition on unfair competition. It is
a basic postulate that the one who challenges the constitutionality of a law carries the heavy burden
of proof for laws enjoy a strong presumption of constitutionality as it is an act of a co-equal branch
of government. Petitioner failed to carry this burden.
3. No, the assailed law does not transgress the constitutional provisions on regressive and
inequitable taxation.

In Tolentino v. Secretary of Finance, Regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to do is to "evolve a progressive system of
taxation." This is a directive to Congress, just like the directive to it to give priority to the enactment
of laws for the enhancement of human dignity and the reduction of social, economic and political
inequalities [Art. XIII, Section 1] or for the promotion of the right to "quality education" [Art. XIV,
Section 1]. These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
GARCIA VS. EXECUTIVE SECRETARY

211 SCRA 219
FACTS:
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in
addition to any other duties, taxes and charges imposed by law on all articles imported into the
Philippines, an additional duty of five percent (5%) ad valorem. This additional duty was imposed
across the board on all imported articles, including crude oil and other oil products imported into the
Philippines. This additional duty was subsequently increased from five percent (5%) ad valorem to
nine percent (9%) ad valorem by the promulgation of Executive Order No. 443, dated 3 January
1991.
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the
process required by the Tariff and Customs Code for the imposition of a specific levy on crude oil
and other petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104
of the Tariff and Customs Code as amended. Accordingly, the Tariff Commission, following the
procedure set forth in Section 401 of the Tariff and Customs Code, scheduled a public hearing to
give interested parties an opportunity to be heard and to present evidence in support of their
respective positions.
Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate
of additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem,
except in the cases of crude oil and other oil products which continued to be subject to the
additional duty of nine percent (9%) ad valorem. Upon completion of the public hearings, the Tariff
Commission submitted to the President a “Report on Special Duty on Crude Oil and Oil Products”
dated 16 August 1991, for consideration and appropriate action.
The President issued Executive Order No. 478, dated 23 August 1991, which levied (in
addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other existing
ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and
P1.00 per liter of imported oil products. Petitioner contends that since the Constitution vests the
authority to enact revenue bills in Congress, the President may not assume such power by issuing
Executive Orders Nos. 475 and 478 which are in the nature of revenue-generating measures.
He further argues that Executive Orders No. 475 and 478 contravene Section 401 of the
Tariff and Customs Code, which Section authorizes the President, according to petitioner, to
increase, reduce or remove tariff duties or to impose additional duties only when necessary to
protect local industries or products but not for the purpose of raising additional revenue for the
government. Petitioner is contending that the President is authorized to act under the Tariff and
Customs Code only “to protect local industries and products for the sake of the national economy,
general welfare and/or national security.”

ISSUE/S:
WON EO 475 and 478 are unconstitutional.
RULING:
The petitioner’s entire contention was anchored in just two words, one found in Section 401.
We believe that the words “protective” and “protection” are simply not enough to support the very
broad and encompassing limitation which petitioner seeks to rest on those two (2) words. 2.
In the second place, petitioner’s singular theory collides with a very practical fact of which this Court
may take judicial notice—that the Bureau of Customs which administers the Tariff and Customs
Code, is one of the two (2) principal traditional generators or producers of governmental revenue,
the other being the Bureau of Internal Revenue.
Customs duties which are assessed at the prescribed tariff rates are very much like taxes
which are frequently imposed for both revenue—raising and for regulatory purposes. Thus, it has
been held that “customs duties” is “the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign
country.” The levying of customs duties on imported goods may have in some measure the effect of
protecting local industries— where such local industries actually exist and are producing
comparable goods.
The additional duty in the nature of ad valorem imposed on all imported articles prescribed
by the provisions of Executive Order No. 443, as amended, is hereby lifted; Provided, however, that
the selected articles covered by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and
Customs Code, as amended, subject of Annex ‘A’ hereof, shall continue to be subject to the
additional duty of nine (9%) percent ad valorem.” Under the above quoted provision, crude oil and
other oil products continue to be subject to the additional duty of nine percent (9%) ad valorem
under Executive Order No. 475 and to the special duty of P0.95 per liter of imported crude oil and
P1.00 per liter of imported oil products under Executive Order No. 478.

CITY ASSESSOR OF CEBU CITY VS. ASSOCIATION OF BENEVOLA DE CEBU, INC
G.R. NO. 152904
FACTS:
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization
and the owner of Chong Hua Hospital (CHH) in Cebu City. Respondent constructed the CHH
Medical Arts Center (CHHMAC). Assessor of Cebu assessed the medical arts center as
“commercial” with a market value of Php 28,060,520 and an assessed value of Php 9,821,180 at
the assessment level of 35% for commercial buildings, and not at the 10% special assessment
currently imposed for CHH and its other separate buildings.The respondent filed for a letter petition
with the Cebu City Local Board of Assessment Appeals (LBAA) for reconsideration that CHHMAC is
part of CHH and ought to be imposed the same special assessment level of 10%.
The LBAA directed the Assessor of Cebu City to submit their respective position papers and
in its position paper, petitioner argued that CHHMAC is newly a constructed five-storey building
situated about 100 meters away from CHH and based on inspection, it was ascertained that it is not
a part of the CHH building but a separate building which is actually used as commercial clinic/room
spaces for renting out to physicians, thus classified as “ commercial”. LBAA ruled in favor of the
respondent and reasoned that it is of public knowledge that hospitals have plenty of spaces leased
out to medical practitioners and LBAA held that it is inconsequential that a separate building was
constructed for that purpose pointing out that departments are also not always housed in the same
building. LBAA also pointed out the fact that respondent’s Dietary and Records Departments which
are housed in separate buildings were similarly imposed with CHH the special assessment of 10%.
The Central Board of Assessment Appeals (CBAA) rendered a decision affirming in toto the
LBAA decision. The Court of Appeals ruled the same, hence a petition for review on certiorari under
rule 45to the Supreme Court.
ISSUE/S:
Whether or not the medical arts center built by a hospital to house its doctors a separate
commercial establishment subject to a 35% assessment?
RULING:
The CHHMAC is an integral part of CHH and thus entitled to a10% assessment rate. Section
10 of the Local Assessment Regulations provide that Real Property shall be classified, valued and
assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever

uses it. Actual use refers to the purpose for which the property is principally or predominantly
utilized by the person in possession of the property.
Constructing the CHHMAC is expected of and required of CHH since it is a duly licensed
tertiary hospital. CHHMAC is an integral part of CHH, as CHH is mandated by law to equip itself of
the service and capabilities needed to support certified medical specialists in various fields of
medicine. The ICCU and ancillary services needed by CHH is the primary function of CHHMAC.
Thus, being an integral part of CHH, CHHMAC should be under the same special assessment level
of as that of the former and thus ,is entitled to the 10% assessment rate and not 35%.
COMMISSIONER OF INTERNAL REVENUE VS. ST. LUKE’S MEDICAL CENTER

G.R. NO. 195909
FACTS:
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-
profit corporation. The Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes for
the year 1998 which comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. St. Luke's filed an administrative protest with the BIR
against the deficiency tax assessments. The BIR did not act on the protest within the 180-day
period under Section 228 of the NIRC. Thus, St. Luke's appealed to the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10%
preferential tax rate on the income of proprietary non-profit hospitals, should be applicable to St.
Luke's. St. Luke's contended that the BIR should not consider its total revenues, because its free
services to patients was 65.20% of its 1998 operating income (i.e., total revenues less operating
expenses). St. Luke's maintained that it is a non-stock and non-profit institution for charitable and
social welfare purposes under Section 30(E) and (G) of the NIRC.
The ruling of the Court of Tax Appeals ordered the petitioner to pay deficiency income tax
and deficiency expanded withholding tax for the taxable year 1998.
ISSUE/S:
Whether or not St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-profit
hospitals.
RULING:
Yes, St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
In this case, there is no dispute that St. Luke's is organized as a non-stock and non-profit
charitable institution. However, this does not automatically exempt St. Luke's from paying taxes.
This only refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity, a
charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Section
28(3), Article VI of the Constitution requires that a charitable institution use the property "actually,
directly and exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E) of

the NIRC requires that a charitable institution must be "organized and operated exclusively" for
charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires
that the institution be "operated exclusively" for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and
operated exclusively" by providing that: Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code.
Thus, even if the charitable institution must be "organized and operated exclusively" for
charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit" without
losing its tax-exempt status for its not-for-profit activities. The only consequence is that the "income
of whatever kind and character" of a charitable institution" from any of its activities conducted for
profit, regardless of the disposition made of such income, shall be subject to tax." Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of ₱1,730,367,965 from services to paying patients. It
cannot be disputed that a hospital which receives approximately ₱1.73 billion from paying patients
is not an institution "operated exclusively" for charitable purposes. Clearly, revenues from paying
patients are income received from "activities conducted for profit."
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are concerned.
This ruling is based not only on a strict interpretation of a provision granting tax exemption, but also
on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that
an institution be "operated exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if
it earns income from its for-profit activities. Such income from for-profit activities, under the last
paragraph of Section 30, is merely subject to income tax, previously at the ordinary corporate rate
but now at the preferential 10% rate pursuant to Section 27(B).
Therefore, St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC.

COMMISSIONER OF INTERNAL REVENUE VS. COURT OF APPEALS
298 SCRA 83
FACTS:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.
On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to
private respondent, in the total amount of P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages.
YMCA then filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989.
In due course, the CTA issued this ruling in favor of the YMCA:
The leasing of [private respondent's] facilities to small shop owners, to restaurant and
canteen operators and the operation of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the [private respondents]. Thus, finding no
basis for the imposition of a deficiency income tax, fixed tax and contractor’s tax but sustaining
withholding taxes.
Upon appeal with the CA, it sustained the CTA’s decision.
ISSUE/S:
WON private respondents YMCA exempts “charitable institutions” from the payment not only
of property taxes but also of income tax from any source?
RULING:
No. The Court is not persuaded. Justice Hilario Davide Jr., a former constitutional
commissioner, who is now a member of the Court, stressed that “what is exempted is not the
institution itself, those exempted from real estate taxes are lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational purposes.”
Hence, the constitutional provision on Article VI, section 28 par. 3 pertain only to property
taxes. The income tax exemption claimed by private respondent finds no basis.

LA SALLIAN EDUCATIONAL INNOVATORS FOUNDATION (DE LA SALLE
UNIVERSITYCOLLEGE OF ST. BENILDE) INC. v. COMMISIONER OF INTERNAL REVENUE
G.R. No. 202792
FACTS:
Petitioner La Sallian Educational Innovators Foundation, Inc. (De La Salle University-College
of St. Benilde Foundation) is a non-stock, non-profit domestic corporation. Respondent CIR, issued
two (2) Assessment Notices, the notices have demand letters against petitioner for deficiency
income tax. On the same date, a separate demand letter was also sent by respondent to petitioner
for a compromise penalty in deficiency VAT.
To contest the deficiency taxes assessed, petitioner Foundation filed a Protest or Request
for Reconsideration to respondent. After the petitioner Foundation has submitted all the documents
in support of its protest, and in view of respondent's inaction thereto, petitioner Foundation filed a
Petition for Review before the Special First Division of the CTA Division. It was sent through
registered mail on April 17, 2006, the last day of filing the appeal. However, petitioner was only able
to pay the docket and other legal fees nine days after or on April 26, 2006. Notably, petitioner
Foundation executed an Agreement Form with the Bureau of Internal Revenue (BIR) on April 21,
2006, and paid the deficiency VAT liability of P601,487.70 on May 9, 2006. However, respondent
alleged that the petitioner Foundation has already lost its tax-exempt status, malting it liable to
deficiency income tax.
On July 16, 2010, the CTA Division promulgated a Decision ruling in favor of petitioner
Foundation, and cancelling Assessment Notice with demand letter. The CTA Division also ruled
that there's nothing in the Foundation's books that will show that it operated for profit or that any of
its income inured to the benefit of its members or trustees. The CTA Division found that (1)
petitioner Foundation maintained its tax-exempt status under Section 4, Article XIV of the 1987
Constitution, and (2) the Final Assessment Notices issued by respondent against petitioner
Foundation are not valid for failing to state their legal and factual basis hence, all other issues raised
are moot and academic.
Dissatisfied with CTA Division's decision, respondent filed a Motion for Reconsideration. The
CTA Division resolved it by promulgating a Resolution denying respondent's motion for lack of merit.
Thereafter, respondent filed a petition for review before the CTA En Banc against the
resolution denying its Motion for Reconsideration, to which the CTA En Banc promulgated a
Decision granting respondent's petition for review and reversing the decision of the CTA Division.
The CTA En Banc ruled that the CTA Division should not have given due course to petitioner
Foundation's petition for review. Payment of docket fees and other legal fees within the thirty (30)-
day reglementary period to appeal is mandatory and jurisdictional. The late payment of docket fees
prevented the CTA Division from acquiring jurisdiction. Petitioner Foundation's appeal was allegedly
not perfected because the payment of the docket fees was made only on April 26, 2006 or nine (9)
days after April 17, 2006, the last day for filing the appeal. As a result, the assailed assessment has

allegedly become final and executory. Aggrieved, petitioner Foundation filed its Motion for
Reconsideration, but it was likewise denied by the CTA En Banc.
ISSUE/S:
Whether the petitioner foundation has lost its tax-exempt status under the 1987 constitution
RULING:
The petition is meritorious. No less than the 1987 Constitution expressly exempt all revenues
and assets of non-stock, non-profit educational institutions from taxes provided that they are
actually, directly and exclusively used for educational purposes, to wit:
Section 4. (1) The State recognizes the complementary roles of public and private
institutions in the educational system and shall exercise reasonable supervision and regulation of all
educational institutions.
Petitioner Foundation firmly and adequately argued that none of its income inured to the
benefit of any officer or entity. Instead, its income has been actually, exclusively and directly used
for performing its purpose as an educational institution. Undoubtedly, petitioner Foundation has also
proven this second requisite.
Thus, the tax-exempt status of petitioner Foundation under the 1987 Constitution is clear.

ANGELES UNIVERSITY FOUNDATION V CITY OF ANGELES
FACTS:
Petitioner Angeles University Foundation (AUF) is an educational institution established on
May 25, 1962 and was converted into a non-stock, non-profit education foundation under the
provisions of Republic Act (RA) No. 6055 on December 4, 1975.
On August 2005, petitioner filed with the Office of the City Building Official in the City of
Angeles Pampanga an application for a building permit for the construction of an 11-storey building
in its main Campus. A Building Permit Fee Assessment and an order of payment for Locational
Clearance Fees was issued by the said office.Petitioner claimed, through a letter addressed to
respondents City Treasurer and Acting City Building Official, that it is exempted from the payment of
the building permit and locational clearance fees and cited legal opinions rendered by the
Department of Justice (DOJ)
Respondents referred the matter to the Bureau of Local Government Finance (BLGF) of the
Department of Finance, which in turn endorsed the query to the DOJ. DOJ replied and affirmed the
claim of the petitioner.
Despite the petitioner’s plea, however, respondents refused to issue the building permit.
Petitioner then appealed the matter to the City Mayor but received no written response.
Consequently, petitioner paid under protest a total of P826,662.99 and the Building Permit and
other documents were issued afterwards.Petitioner formally requested the respondents to refund
the fees it paid under protest through letters dated June 15, 2006 and August 7, 2006. But the
respondents denied the claim for refund.On August 31, 2006, petitioner filed a Complaint before the
trial court seeking for the refund of P826,662.99 plus interest at a rate of 12% per annum, and for
attorneys fee in the amount of P300,000.00 and litigation expenses.
On September 21, 2007, the trial court rendered judgment in favor of the petitioner.
Respondents appeal to the CA which reversed the trial court’s decision. Petitioner filed a motion for
reconsideration but was denied.
So the petitioner filed a petition for review on certiorari before the Supreme Court.
ISSUE/S:
1. Whether petitioner is exempt from the payment of building permit and related fees
imposed under the National Building Code; and
2. Whether the parcel of land owned by petitioner which has been assessed for real
property tax is likewise exempt.
RULING:

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations.
On February 19, 1977, P.D 1096 was issued adopting the National Building Code of the
Philippines. The said Code requires every person, firm or corporation, including any agency or
instrumentality of the government to obtain a building permit for any construction, alteration or repair
of any building or structure.
Exempted from the payment of building permit fees are:

(1) Public buildings and
(2) Traditional indigenous family dwellings.
Not being expressly included in the enumeration of structures to which the building permit
fees do not apply, petitioner’s claim for exemption rests solely on its interpretation of the term “other
charges imposed by the National Government” in the tax exemption clause of R.A. No. 6055.
A “charge” is broadly defined as the “price of, or rate for, something,” while the word “fee”
pertains to a “charge fixed by law for services of public officers or for use of a privilege under control
of government.” As used in the LGC, charges refers to pecuniary liability, as rents or fees against
persons or property, while fee means a charge fixed by law or ordinance for the regulation or
inspection of a business or activity.
Note that the “other charges” mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words
“imposed by the Government on all property used exclusively for the educational activities of the
foundation.”
Building permit fees are not impositions on property but on the activity subject of government
regulation. While it may be argued that the fees relate to particular properties, i.e., buildings and
structures, they are actually imposed on certain activities the owner may conduct either to build
such structures or to repair, alter, renovate or demolish the same.That a building permit fee is a
regulatory imposition.
Thus, ancillary permits such as electrical permit, sanitary permit and zoning clearance must
also be secured and the corresponding fees paid before a building permit may be issued.Since
building permit fees are not charges on property, they are not impositions from which petitioner is
exempt.
As to petitioner’s argument that the building permit fees collected by respondents are in
reality taxes because the primary purpose is to raise revenues for the local government unit, the
same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation
may be held to be a tax rather than an exercise of the police power. In this case, the Secretary of
Public Works and Highways who is mandated to prescribe and fix the amount of fees and other
charges that the Building Official shall collect in connection with the performance of regulatory
functions, has promulgated and issued the Implementing Rules and Regulations which provide for
the bases of assessment of such fees
Petitioner failed to demonstrate that the bases of assessment were arbitrarily determined or
unrelated to the activity being regulated. Neither has petitioner adduced evidence to show that the
rates of building permit fees imposed and collected by the respondents were unreasonable or in
excess of the cost of regulation and inspection.

In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it will be
deemed a tax even though the measure results in some form of regulation. On the other hand, if the
purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power
of the state, even though incidentally, revenue is generated.
Concededly, in the case of building permit fees imposed by the National Government under
the National Building Code, revenue is incidentally generated for the benefit of local government
units.
Section 208: the Building Official is hereby authorized to retain not more than twenty percent of his
collection for the operating expenses of his office.
The remaining eighty percent shall be deposited with the provincial, city or municipal
treasurer and shall accrue to the General Fund of the province, city or municipality concerned.
Now, on petitioner’s claim that it is exempted from the payment of real property tax assessed
against its real property presently occupied by informal settlers.
Petitioner failed to discharge its burden to prove that its real property is actually, directly and
exclusively used for educational purposes. While there is no allegation or proof that petitioner
leases the land to its present occupants, still there is no compliance with the constitutional and
statutory requirement that said real property is actually, directly and exclusively used for educational
purposes. The respondents correctly assessed the land for real property taxes for the taxable period
during which the land is not being devoted solely to petitioner’s educational activities.

COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC.
G.R. No. 195909
FACTS:
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-
profit corporation. The Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes
amounting to ₱76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax,
withholding tax on compensation and expanded withholding tax.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10%
preferential tax rate on the income of proprietary non-profit hospitals, should be applicable to St.
Luke's. It is a specific provision which prevails over the general exemption on income tax granted
under Section 30(E) and (G) for non-stock, non-profit charitable institutions and civic organizations
promoting social welfare. The BIR claimed that St. Luke's was actually operating for profit in 1998
because only 13% of its revenues came from charitable purposes. Moreover, the hospital's board of
trustees, officers and employees directly benefit from its profits and assets.
St. Luke's contended that the BIR should not consider its total revenues, because its free
services to patients ( charity) was 20% of its operating income . St. Luke's also claimed that its
income does not inure to the benefit of any individual. St. Luke's maintained that it is a non-stock
and non-profit institution for charitable and social welfare purposes under Section 30(E) and (G) of
the NIRC. It argued that the making of profit per se does not destroy its income tax exemption.
The Court of Tax Appeals sided with St. Lukes
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by
Section 30(E) and (G) of the NIRC. This would exempt all income derived by St. Luke's from
services to its patients, whether paying or non-paying. The CTA held that Section 27(B) of the
present NIRC does not apply to St. Luke's.
ISSUE/S:
WON St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
RULING:
Yes.
Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-
profit hospitals under Section 30(E) and (G).

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only
qualifications for hospitals are that they must be proprietary and non-profit. "Proprietary" means
private, following the definition of a "proprietary educational institution" as "any private school
maintained and administered by private individuals or groups" with a government permit. "Non-
profit" means no net income or asset accrues to or benefits any member or specific person, with all
the net income or asset devoted to the institution's purposes and all its activities conducted not for
profit.
"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club
Filipino Inc. de Cebu, this Court considered as non-profit a sports club organized for recreation and
entertainment of its stockholders and members. The club was primarily funded by membership fees
and dues. If it had profits, they were used for overhead expenses and improving its golf course. 38
The club was non-profit because of its purpose and there was no evidence that it was engaged in a
profit-making enterprise.
The Court defined "charity" in Lung Center of the Philippines v. Quezon City as "a gift, to be
applied consistently with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by assisting them to
establish themselves in life or [by] otherwise lessening the burden of government."
An organization may be considered as non-profit if it does not distribute any part of its
income to stockholders or members. However, despite its being a tax exempt institution, any
income such institution earns from activities conducted for profit is taxable, as expressly provided in
the last paragraph of Section 30.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying taxes. To be exempt
from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be
"organized and operated exclusively" for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be "operated exclusively" for social
welfare.
St. Luke's had total revenues of ₱1,730,367,965 from services to paying patients. It cannot
be disputed that a hospital which receives approximately ₱1.73 billion from paying patients is not an
institution "operated exclusively" for charitable purposes. Clearly, revenues from paying patients are
income received from "activities conducted for profit."
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are concerned.
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-
profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit
activities.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC.

CESAR BENGZON ET AL. V. HON. FRANKLIN N. DRILON ET AL.
G.R. NO. 103524
FACTS:
Republic Act No. 1797 provided for the adjustment of pensions of retired Justices which
privilege was extended to retired members of Constitutional Commissions by Republic Act No.
3595.
On January, 1975, President Marcos issued Presidential Decree No. 644 which repealed
Republic Acts 1797 and 3595. Subsequently, automatic readjustment of pensions for retired Armed
Forces officers and men was surreptitiously restored through Presidential Decree Nos. 1638 and
1909.It was the impression that Presidential Decree No. 644 had reduced the pensions of Justices
and Constitutional Commissioners which led Congress to restore the repealed provisions through
House Bill No. 16297 in 1990.
President Aquino, however, vetoed HB 16297 in 1990.On the other hand, in 1991, a
letter/petition was filed as Administrative Matter No. 91-8-225-CA by several retired Justices asking
the Court far a readjustment of their monthly pensions in accordance with RA 1797 on the ground
that PD 644 did not become law as there was no valid publication pursuant to Tañada v. Tuvera.
In a resolution, the Court acted favorably on the request. Pursuant to this, Congress included
in the General Appropriations Bill for Fiscal Year 1992 certain appropriations for the Judiciary
intended for the payment of the adjusted pension rates due the retired Justices of the Supreme
Court and Court of Appeals.
When then President Aquino’s finance and budget advisers gave the wrong information that
the questioned provisions in the 1992 General Appropriations Act were simply an attempt to
overcome her earlier 1990 veto, she issued the veto now challenged; she vetoed parts if not whole
of sections 1 and 4 of the 1992 General Appropriations Act.
ISSUE/S:
Whether or not the veto by the President on the 1992 General Appropriations Act was a
valid exercise of the veto power which the Constitution accorded her office?
RULING:
No, the veto by the President on the 1992 General Appropriations Act was an invalid
exercise of the veto power which the Constitution accorded her office.
The act of the Executive in vetoing the particular provisions is an exercise of a
constitutionally vested power. But even as the Constitution grants the power, it also provides
limitations to its exercise. The veto power is not absolute.
The pertinent provision of the Constitution reads: The President shall have the power to veto
any particular item or items in an appropriation, revenue or tariff bill... (Section 27(2), Article VI,
Constitution) The Constitution provides that only a particular item or items may be vetoed. An
examination of the entire sections and the underlined portions of the law which were vetoed will
show that the vetoed portions are not items. They are provisions.
In the exercise of the veto power, it is generally all or nothing. The President is, therefore,
compelled to approve into law the entire bill, including its undesirable parts. It is for this reason that
the Constitution has wisely provided the "item veto power" to avoid inexpedient riders being
attached to an indispensable appropriation or revenue measure.
Moreover, it turns out that P.D. No. 644 never became valid law. If P.D. No. 644 was not law,
it follows that RA 1797 was not repealed and continues to be effective up to the present. From the
foregoing discussion, it can be seen that when the President vetoed certain provisions of the 1992
General Appropriations Act, she was actually vetoing Republic Act No. 1797 which, of course, is
beyond her power to accomplish.

AQUILINO Q. PIMENTEL JR. v. Hon. ALEXANDER AGUIRRE
G.R. No. 132988
FACTS:
President Ramos issued Administrative Order 372 (Adoption of Economic Measures in
Government for Fiscal Year 1998). AO 372 requires all government departments and agencies,
including state universities and colleges, GOCCs and LGUs will identify and implement measures to
reduce their expenditures by 25% of their authorized regular appropriations for non-personal
services (Sec. 1); and allows the LGUs to withhold a portion of their internal revenue allotments.
Petitioner filed to the SC a petition for certiorari and prohibition, contending that the
President, in issuing the said AO, was in effect exercising the power of control over LGUs; & that
the directive to withhold a portion of their IRA is in contravention of Sec. 286 of the LGC & Sec. 6,
Art. X of the Constitution.
ISSUE/S:
Whether or not Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures
by 25% is valid
RULING:
Yes. Section 1 of AO 372, insofar as it “directs” LGUs to reduce expenditures by at least
25% is a valid exercise of the President’s power of general supervision over LGUs as it is advisory
only. “Supervisory power, when contrasted with control, is the power of mere oversight over an
inferior body; it does not include any restraining authority over such body.” Under existing law, LGU,
in addition to having administrative autonomy, enjoy fiscal autonomy as well. Fiscal autonomy
means that local governments have the power to create their own sources of revenue in addition to
their equitable share in the national taxes released by the national government, as well as the
power to allocate their resources in accordance with their own priorities. It extends to the
preparation of their budgets, and local officials in turn have to work within the constraints thereof.
Local fiscal autonomy does not however rule out any manner of national government
intervention by way of supervision, in order to ensure that local programs, fiscal and otherwise, are
consistent with national goals.

HERMILANDO I. MANDANAS, ET AL. VS. EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR
G.R. NO. 199802
FACTS:
The instant case are consolidated petition challenging the manner in which the just share in
the national taxes of the local government units (LGUs) has been computed.
Pursuant to the constitutional mandate for decentralization and local autonomy, Congress
enacted Republic Act No. 7160, otherwise known as the Local Government Code (LGC) in order to
guarantee the fiscal autonomy of the LGUs.
The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA), has been
regularly released to the LGUs. According to the implementing rules and regulations of the LGC, the
IRA is determined on the basis of the actual collections of the National Internal Revenue Taxes
(NIRTs) as certified by the Bureau of Internal Revenue (BIR).
In GR No. 199802 (Mandanas, et al.) a special civil action for certiorari, prohibition and
mandamus is filed assailing the manner the General Appropriations Act (GAA) for FY 2012
computed the IRA for the LGUs. They allege that certain collections of NIRTs by the Bureau of
Customs (BOC), specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes
(DSTs) - have not been included in the base amounts for the computation of the IRA.
On the other hand, In G.R. No. 208488, peitioner Congressman Enrique Garcia, Jr. seeks
the writ of mandamus to compel the respondents thereat to compute the just share of the LGUs on
the basis of all national taxes. He also contends that the insertion by Congress of the words internal
revenue in the phrase national taxes found in Section 284 of the LGC caused the diminution of the
base for determining the just share of the LGUs, and should be declared unconstitutional.
ISSUE/S:
Whether or not the exclusion of certain national taxes from the base amount for the
computation of the just share of the LGUs in the national taxes is constitutional.
RULING:
No. The exclusion of certain national taxes from the base amount for the computation of the
just share of the LGUs in the national taxes is unconstitutional.
The Fiscal decentralization of the LGUs emanates from a specific constitutional mandate
that is expressed in the provisions of Article X (Local Government) of the 1987 Constitution, namely:
Sections 5, 6, and 7.
Section 6, Article X the 1987 Constitution textually commands the allocation to the LGUs of a
just share in the national taxes. When parsed, Section 6 embodies three mandates, namely: (1) the
LGUs shall have a just share in the national taxes; (2) the just share shall be determined by law;
and (3) the just share shall be automatically released to the LGUs. Congress has sought to carry
out the second mandate of Section 6 by enacting Section 284, Title III (Shares of Local Government
Units in the Proceeds of National Taxes), of the LGC.
Section 6 of Article X of the 1987 Constitution mentions national taxes as the source of the
just share of the LGUs while Section 284 of the LGC ordains that the share of the LGUs be taken
from national internal revenue taxes instead.
The contention that Congress has exceeded its constitutional boundary by limiting to the
NIRTs the base from which to compute the just share of the LGUs is tenable. The phrase “national
internal revenue taxes” engrafted in Section 284 is undoubtedly more restrictive than the term
“national taxes” written in Section 6. As such, Congress has actually departed from the letter of the
1987 Constitution stating that national taxes should be the base from which the just share of the
LGU comes.
Congress can validly exclude taxes that will constitute the base amount for the computation
of the IRA only if a Constitutional provision allows such exclusion.

BATANGAS CITY VS. PILIPINAS SHELL
G.R. NO. 187631
FACTS:
Bantangas City sent a notice of assessment to Pilipinas Shell Petroleum Corporation
demanding the payment of P92.3 Million and P312.6Million for business taxes for its manufacturing
and distribution of petroleum products. In addition, Pilipinas Shell was also required and assessed
to pay the amount of P4.2Million gross sales of its Tabagao Refinery. The assessment was
allegedly pursuant to LGC and Batangas City Tax Code of 2002.
Pilipinas Shell filed a protest before the Bantangas City, but it was denied. Then, Pilipinas
Shell filed a Petition for Review before the RTC of Batangas City, and rendered its decision
sustaining the imposition of business taxes by Pilipinas Shell upon the manufacture and distribution
of petroleum products by Batangas City.
A motion for Partial Reconsideration was filed before the RTC, but it was denied due to lack
of merit. Aggrieved, Pilipinas Shell filed a Petition for Review with Extremely Urgent Application for a
Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction with the CTA Second
Division, and due to its urgency, the Writ of Preliminary Injunction was granted.As held by the CTA
Second Division, Pilipinas Shell is not subject to the business taxes on the manufacture and
distribution of petroleum products because of the express limitation provided under the LGC.
Batangas City filed a motion for reconsideration against the said decision, but the same was
denied by the CTA Second Division. Consequently, they filed a Petition for Review before the CTA
En Banc, but its decision was still in favour of Pilipinas Shell.
ISSUE/S:
Whether or not a LGU is empowered under the LGC to impose business taxes on persons or
entities engaged in the business or manufacturing and distribution of petroleum products.
RULING:
No.
Section 133(h) of the LGC makes a plain that the prohibition with respect to petroleum
products extends not only to excise taxes thereon, but all “taxes, fees or charges”. While LGUS are
authorized to burden all such other class of goods with “taxes, fees, and charges”, excepting excise
taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to
petroleum products.

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the
petroleum products per se or even the activity or privilege related to the petroleum products, such
as manufacturing and distribution of said products, it is covered by the said limitation and thus, no
levy can be imposed.16 On the contrary, Section 143 of the LGC defines the general power of
LGUs to tax businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs under
Section 143(h)of the LGC cannot overcome the specific exception or exemption in Section 133(h) of
the same Code. This is in accord with the rule on statutory construction that specific provisions must
prevail over general ones. A special and specific provision prevails over a general provision
irrespective of their relative positions in the statute. Generalia specialibus non derogant. Where
there is in the same statute a particular enactment and also a general one which in its most
comprehensive sense would include what is embraced in the former, the particular enactment must
be operative, and the general enactment must be taken to affect only such cases within its general
language as are not within the provisions of the particular enactment.
Hence, LGU is not empowered under the LGC to impose business taxes on persons or
entities engaged in the business or manufacturing and distribution of petroleum products.

LUCENA D. DEMAALA VS. COMMISSION ON AUDIT
G.R. NO. 199752
FACTS:
The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, Series
of 1995, entitled “An Ordinance Approving and Adopting the Code Governing the Revision of
Assessments, Classification and Valuation of Real Properties in the Province of Palawan”
(Ordinance). Chapter 5, Section 48 of the Ordinance provides for an additional levy on real property
tax for the special education fund at the rate of one-half percent or 0.5% as follows:Section 48.
Additional Levy on Real Property Tax for Special Education Fund. — There is hereby levied an
annual tax at the rate of one-half percent (1/2%) of the assessed value property tax. The proceeds
thereof shall exclusively accrue to the Special Education Fund (SEF).
In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory an annual tax
as special education fund at the rate of 0.5% of the assessed value of the property subject to tax.
This collection was effected through the municipal treasurer.
On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation
Memorandum (AOM) No. 03-005 dated August 7, 2003 in which he noted supposed deficiencies in
the special education fund collected by the Municipality of Narra. He questioned the levy of the
special education fund at the rate of only 0.5% rather than at 1%, the rate stated in Section 235 of
Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (Local
Government Code).
After evaluating AOM No. 03-005, Regional Cluster Director Sy issued NC No. 2004-04-101
dated August 30, 2004 in the amount of P1,125,416.56. He held Demaala, the municipal treasurer
of Narra, and all special education fund payors liable for the deficiency in special education fund
collections.
ISSUE/S:
Whether a municipality within Metropolitan Manila, city or province may impose an additional
levy on real property for the SpecialEducation Fund at the rate of less than 1% as prescribed under
Sec. 235 of the LGC?
RULING:
Yes. Setting the rate of the additional levy for the special education fund at less than 1% is
within the taxing power of local government units. It is consistent with the guiding constitutional
principle of local autonomy.

At most, there is a seeming ambiguity in Section 235. Consistent with what has earlier been
discussed however, any such ambiguity must be read in favor of local fiscal autonomy. As in San
Juan v. Civil Service Commission, the scales must weigh in favor of the local government unit.
Fiscal autonomy entails “the power to create . . . own sources of revenue.” In turn, this power
necessarily entails enabling local government units with the capacity to create revenue sources in
accordance with the realities and contingencies present in their specific contexts. The power to
create must mean the local government units’ power to create what is most appropriate and optimal
for them; otherwise, they would be mere automatons that are turned on and off to perform
prearranged operations.
Devolving power but denying its necessary incidents and accessories is tantamount to not
devolving power at all. A local government unit with a more affluent constituency may thus realize
that it can levy taxes at rates greater than those which local government units with more austere
constituencies can collect. For the latter, collecting taxes at prohibitive rates may be
counterproductive. High tax rates can be a disincentive for doing business, rendering it unattractive
to commerce and thereby stunting, rather than facilitating, their development. In this sense, insisting
on uniformity would be a disservice to certain local government units and would ultimately
undermine the aims of local autonomy and decentralization.
Of course, fiscal autonomy entails “working within the constraints.” To echo the language of
Article X, Section 5 of the 1987 Constitution, this is to say that the taxing power of local government
units is “subject to such guidelines and limitations as the Congress may provide.” It is the 1% as a
constraint on which the respondent Commission on Audit is insisting.
There are, in this case, three (3) considerations that illumine our task of interpretation: (1)
the text of Section 235, which, to reiterate, is cast in permissive language; (2) the seminal purpose
of fiscal autonomy; and (3) the jurisprudentially established preference for weighing the scales in
favor of autonomy of local government units. We find it to be in keeping with harmonizing these
considerations to conclude that Section 235’s specified rate of 1% is a maximum rate rather than an
immutable edict.
Therefore , it was well within the power of the Sangguniang Panlalawigan of Palawan to
enact an ordinance providing for additional levy on real property tax for the special education fund at
the rate of 0.5% rather than at 1%.

FILM DEVELOPMENT COUNCIL VS. COLON HERITAGE REALTY CORP.
G.R. NO. 203754
FACTS:
Cebu City passed City Ordinance No. LXIX: Revised Omnibus Tax Ordinance of the City of
Cebu, Sections 42 and 43, Chapter XI of the Ordinance required proprietors, lessees or operators of
theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement to pay
amusement tax equivalent to 30% of the gross receipts of the admission fees to the Office of the
City Treasurer of Cebu City.Congress passed RA 9167,5 creating the Film Development Council qf
the Philippines (FDCP) and abolishing the Film Development Foundation of the Philippines, Inc. and
the Film Rating Board. Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded
films.
In City of Cebu v. FDCP, the RTC, issued the challenged Decision declaring Secs. 13 and
14 of RA 9167 unconstitutional.
ISSUE/S:
Whether or not the doctrine of operative fact in relation to the declaration of Sections 13 and
14 of RA 9167 as invalid and unconstitutional.
RULING:
Yes, the doctrine of operative fact in relation to the declaration of Sections 13 and 14 of RA
9167 as invalid and unconstitutional.
The operative fact doctrine equally applies to the non-remittance by said proprietors since
the law produced legal effects prior to the declaration of the nullity of Secs. 13 and 14 in these
instant petitions. It can be surmised, however, that the proprietors were at a loss whether or not to
remit said amounts to FDCP considering the position of the City of Cebu for them to remit the
amusement taxes directly to the local government. For this reason, the proprietors shall not be liable
for surcharges.
In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all
amusement taxes remitted to petitioner FDCP prior to the date of the finality of this decision shall
remain legal and valid under the operative fact doctrine. Amusement taxes due to petitioner but
unremitted up to the finality of this decision shall be remitted to petitioner within thirty (30) days from
date of finality. Thereafter, amusement taxes previously covered by RA 9167 shall be remitted to
the local governments.

COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF CUSTOMS VS.
HON. APOLINARIO B. SANTOS
G.R. NO. 119252
FACTS:
Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers
engaged in the manufacture of jewelries and allied undertakings, with private respondent Antonio M.
Marco is the President of the Guild. Guild of Philippine Jewelers, Inc. questions the constitutionality
of certain provisions of the NIRC and Tariff and Customs Code of the Philippines. It’s in their
contention that the present Tariff and tax structure increases manufacturing costs and render local
jewelry manufactures uncompetitive against other countries. It even submitted a position paper
purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries,
in comparison to tax rates levied on the same in the Philippines.
In response, Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory
and oppressive and declared them inoperative and without force and effect insofar as petitioners
are concerned. Petitioner CIR assailed decision rendered by respondent Judge contending that the
latter has no authority to pass judgment upon the taxation policy of the Government.
ISSUE/S:
Whether or not the Regional Trial Courts declare a law inoperative and without force and
effect or otherwise unconstitutional?
RULING:
No. This is a matter on which the RTC is not competent to rule.
The respondents presented an exhaustive study on the tax rates on jewelry levied by
different Asian countries. This is meant to convince us that compared to other countries, the tax
rates imposed on said industry in the Philippines is oppressive and confiscatory. This Court,
however, cannot subscribe to the theory that the tax rates of other countries should be used as a
yardstick in determining what may be the proper subjects of taxation in our own country. It should
be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the
legislative and executive branches, is exercising its sovereign prerogative. It is inherent in the power
to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
“inequalities which result from a singling out of one particular class for taxation, or exemption,
infringe no constitutional limitation.”

TIU VS. COURT OF APPEALS
G.R. NO. 127410
FACTS:
The Congress, with the approval of the President, passed into law RA 7227, entitled "An Act
Accelerating the Conversion of Military Reservations into Other Productive Uses, Creating the
Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor, and for
Other Purposes."
Section 12 thereof created the Subic Special Economic Zone (SSEZ) and granted there
special privileges such as tax exemptions and duty-free importation of raw materials, capital, and
equipment to business enterprises and residents located and residing in the said zones.
Then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying the
application of the tax and duty incentives. Nine days later, the President issued Executive Order No.
97-A (EO 97-A), specifying the area within which the tax-and-duty-free privilege was operative. The
petitioners, challenged before the Supreme Court the constitutionality of EO 97-A for allegedly being
violative of their right to equal protection of the laws.
The Supreme Court referred the matter to the Court of Appeals. Incidentally, Proclamation
No. 532 was issued by President Ramos. It delineated the exact metes and bounds of the Subic
Special Economic and Free Port Zone, pursuant to Section 12 of RA 7227. The Court of Appeals
denied the petition.
ISSUE/S:
Whether or not EO 97-A violates the equal protection clause of the Constitution in confining
the application of R.A. 7227 within the secured area.
RULING:
No, EO 97-A does not violate the equal protection clause of the Constitution in confining the
application of R.A. 7227 within the secured area.
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class. Increating the SSEZ, the law declared it a policy to develop the zone
into a "self-sustaining, industrial, commercial, financial and investment center." From the provisions
of the law, it can easily be deduced that the real concern of RA 7227 is to convert the lands formerly
occupied by the US military bases into economic or industrial areas. In furtherance of such
objective, Congress deemed it necessary to extend economic incentives to attract and encourage
investors, both local and foreign. It was reasonable for the President to have delimited the
application of some incentives to the confines of the former Subic military base. It is this specific

area which the government intends to transform and develop from its status quo ante as an
abandoned naval facility into a self-sustaining industrial and commercial zone, particularly for big
foreign and local investors to use as operational bases for their businesses and industries. The
classification is, therefore, germane to the purposes of the law. And as the legal maxim goes, "The
intent of a statute is the law."
The classification applies equally to all the resident individuals and businesses within the
"secured area." The residents, being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not categorized further. Instead, they are all
similarly treated, both in privileges granted and in obligations required
The classification occasioned by EO 97-A was not unreasonable, capricious or unfounded.
To repeat, it was based, rather, on fair and substantive considerations that were germane to the
legislative purpose.

TOLENTINO VS. SEC. OF FINANCE
249 SCRA 628
FACTS:
This case are various suits for certiorari and prohibition, challenging the constitutionality of
Republic Act No. 7716.
Petitioner Chamber of Real Estate and Builder’s Association, Inc. (CREBA) argued that the
provisions of RA 7716 imposing a 10% value-added tax on the gross selling price or gross value in
money of every sale, barter or exchange of goods or properties, among others, violate the equal
protection and due process of law.
ISSUE/S:
WON RA 7716 violate Article III section 1 of the Constitution?
RULING:
No. The Court held that in the absence of clear showing that the tax violates the due process
and equal protection clauses of the Constitution, the Court, in keeping with the doctrine of
separation of powers, has to defer to the discretion and judgment of Congress on this point.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC v
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 81311
FACTS:
These petitions, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the
President of the Philippines which amended certain sections of the National Internal Revenue Code
and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is
not allegedly within the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and other provisions of the
1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the
petitioners have failed to show justification for the exercise of its judicial powers, viz. (1) the
existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the
constitutional questions; (3) the constitutional question should be raised at the earliest opportunity;
and (4) the question of constitutionality is directly and necessarily involved in a justiciable
controversy and its resolution is essential to the protection of the rights of the parties. According to
the Solicitor General, only the third requisite — that the constitutional question should be raised at
the earliest opportunity — has been complied with. He also questions the legal standing of the
petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being
no justiciable controversy for resolution.
ISSUE/S:
Whether or not EO 273 is unconstitutional for being oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution.
RULING:
No. Petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in
violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
“Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.”
The petitioners’ assertions in this regard are not supported by facts and circumstances to
warrant their conclusions. They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay
and have evidentiary value. To justify the nullification of a law there must be a clear and
unequivocal breach of the Constitution, not a doubtful and argumentative implication.

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. There
was no occasion in that case to consider the possible effect on such a constitutional requirement
where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil.
852, 862). Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.
The Court is on record as accepting the view in a leading American case (Carmichael v.
Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98
Phil. 148, 153). The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.

COCONUT OIL REFINERS INC. V HON. RUBEN TORRES
FACTS:
This is a Petition to enjoin and prohibit the public respondent Ruben Torres in his capacity as
Executive Secretary from allowing other private respondents to continue with the operation of tax
and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark Special
Economic Zone (CSEZ). The petitioner seeks to declare RA 7227 as unconstitutional on the ground
that it allowed only tax-free (and duty-free) importation of raw materials, capital and equipment.
Petitioners contend that the wording of RA 7227 clearly limits the grant of tax incentives to the
importation of raw materials, capital and equipment only thereby violating the equal protection
clause of the Constitution. He also assailed the constitutionality of EO 97-A for being violative of
their right to equal protection. They asserted that private respondents operating inside the SSEZ are
not different from the retail establishments located outside. The respondent moves to dismiss the
petition on the ground of lack of legal standing and unreasonable delay in filing of the petition.
ISSUE/S:
Whether or not there is a violation of equal protection clause?
RULING:
NO.
The phrase “tax and duty-free importations of raw materials, capital and equipment” was
merely cited as an example of incentives that may be given to entities operating within the zone.
Public respondent SBMA correctly argued that the maxim “expressio unius est exclusio alterius”, on
which petitioners impliedly rely to support their restrictive interpretation, does not apply when words
are mentioned by way of example. The petition with respect to declaration of unconstitutionality of
EO 97-A cannot be, likewise, sustained. The guaranty of the equal protection of the laws is not
violated by a legislation based which was based on reasonable classification.
A classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class. Applying the foregoing test to the present case, the Court finds no
violation of the right to equal protection of the laws. There is a substantial distinctions lying between
the establishments inside and outside the zone.

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), vs. THE BUREAU OF
INTERNAL REVENUE
G.R. No. 172087
FACTS:
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2. Simultaneous to
its creation, P.D. No. 1067-B3 was issued exempting PAGCOR from the payment of any type of
tax, except a franchise tax of five percent (5%) of the gross revenue. Thereafter, P.D. No. 1399
was issued expanding the scope of PAGCOR's exemption. PAGCOR's tax exemption was removed
in June 1984 through P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430,
which was issued in September 1984.
On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue
Code of 1997, took effect. R.A. No. 8424 provides that government-owned and controlled
corporations (GOCCs) shall pay corporate income tax, except PAGCOR, the Government Service
and Insurance Corporation, the Social Security System, the Philippine Health Insurance
Corporation, and the Philippine Charity Sweepstakes Office,
However, with the enactment of R.A. No. 933710 on May 24, 2005, certain sections of the
National Internal Revenue Code of 1997 were amended. Section 1 of R.A. No. 9337, which
amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from
the enumeration of GOCCs that are exempt from payment of corporate income tax.
PAGCOR went to SC via petitions for certiorari and prohibition assailing the validity and
constitutionality of R.A. No. 9337.
ISSUE/S:
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.
RULING :
The non-impairment clause is contained in Section 10, Article III of the Constitution, which
provides that no law impairing the obligation of contracts shall be passed. The non-impairment
clause is limited in application to laws that derogate from prior acts or contracts by enlarging,
abridging or in any manner changing the intention of the parties. There is impairment if a
subsequent law changes the terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the
parties.30

While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless, are far from being strictly contractual in nature.
The tax exemptions given to PAGCOR are not to be confused with tax exemptions granted
under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos,
clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football,
lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines.36 Under Section 11, Article XII of the Constitution, PAGCOR’s franchise is subject to
amendment, alteration or repeal by Congress such as the amendment under Section 1 of R.A. No.
9377. Hence, the provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424
by withdrawing the exemption of PAGCOR from corporate income tax, which may affect any
benefits to PAGCOR’s transactions with private parties, is not violative of the non-impairment clause
of the Constitution.

COMMISSIONER OF INTERNAL REVENUE V.S.C. JOHNSON AND SON, INC., AND COURT OF
APPEALS
309 SCRA 87 G.R. NO. 127105
FACTS:
Respondent, a domestic corporation organized and operating under the Philippine laws,
entered into a license agreement with SC Johnson and Son, United States of America (USA), a
non-resident foreign corporation based in the U.S.A. and was granted the right to use the
trademark, patents and technology owned by the latter including the right to manufacture, package
and distribute the products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, U. S. A. The said License Agreement was
duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and
Technology Transfer under Certificate of Registration No. 8064.
For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson
and Son, USA royalties based on a percentage of net sales and subjected the same to 25%
withholding tax on royalty payments which [respondent] paid for the period of July 1992 to May
1993.
In October, 1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the
BIR a claim for refund of overpaid withholding tax on royalties arguing that, "the antecedent facts
attending [respondent's] case fall squarely within the same circumstances under which said
MacGeorge and Gillete rulings were issued. Since the agreement was approved by the Technology
Transfer Board, the preferential tax rate of 10% should apply to the [respondent]. It was therefore
submitted that royalties paid by the [respondent] to SC Johnson and Son, USA is only subject to
10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13
Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)]"
The Commissioner did not act on said claim for refund. Thus, private respondent S.C.
Johnson & Son, Inc. (S.C. Johnson) filed a petition for review before the Court of Tax Appeals
(CTA) to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May
1993.
In May, 1996, the Court of Tax Appeals decided in favor of S.C. Johnson and ordered the
Commissioner of Internal Revenue to issue a tax credit certificate in the amount representing
overpaid withholding tax on royalty payments, beginning July, 1992 to May, 1993.
The Court of Appeals, on appeal by the Commissioner, affirmed in toto the CTA ruling.
ISSUE/S:
Whether or not SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of
10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax
Treaty.

RULING:
No, SC Johnson and Son, USA is not entitled to the "most favored nation" tax rate of 10% on
royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty.
The purpose of a “most favored nation” clause is to grant to the contracting party treatment
not less favorable than that which has been or may be granted to the "most favored" among other
countries. The clause is intended to establish the principle of equality of international treatment by
providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded
by either party to those of the most favored nation. The essence of the principle is to allow the
taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the
country of residence of such taxpayer is also a party provided that the subject matter of taxation, in
this case royalty income, is the same as that in the tax treaty under which the taxpayer is liable
In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for this particular
investment is not taxed by the other country.
The tax rates on royalties and the circumstances of payment thereof are the same for all the
recipients of such royalties and there is no disparity based on nationality in the circumstances of
such payment. On the other hand, a cursory reading of the various tax treaties will show that there
is no similarity in the provisions on relief from or avoidance of double taxation as this is a matter of
negotiation between the contracting parties. As in the case at bar, this dissimilarity is true
particularly in the treaties between the Philippines and the United States and between the
Philippines and West Germany.
The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax
crediting. Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against
German income and corporation tax of 20% of the gross amount of royalties paid under the law of
the Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart
provision with respect to relief for double taxation, does not provide for similar crediting of 20% of
the gross amount of royalties paid. the impact of double taxation by different jurisdictions.
The RP-US Tax Treaty contains no similar "matching credit" as that provided under the RP-
West Germany Tax Treaty. Hence, the tax on royalties under the RP-US Tax Treaty is not paid
under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. Therefore, the
"most favored nation" clause in the RP-West Germany Tax Treaty cannot be availed of in
interpreting the provisions of the RP-US Tax Treaty.

REPUBLIC BANK, v. COURT OF TAX APPEALS AND THE COMMISSIONER OF INTERNAL
REVENUE
G.R. Nos. 62554-55
FACTS:
On 14 September 1971, respondent Commissioner assessed petitioner the amount of
P1,060,615.06, plus 25% surcharge in the amount of P265,153.76, or a total of P1,325,768.82, as
1% monthly bank reserve deficiency tax for taxable year 1969. In a letter dated 6 October 1971,
petitioner requested reconsideration of the assessment which respondent Commissioner denied in
a letter dated 26 February 1973.
On 5 April 1973, respondent Commissioner assessed petitioner the amount of
P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or a total of P1,953,132.67, as
1% monthly bank reserve deficiency tax for taxable year 1970. In a letter dated 16 May 1973,
petitioner requested reconsideration of the assessment which respondent Commissioner denied in
a letter dated 6 May 1974.
Petitioner contends that Section 249 of the Tax Code is no longer enforceable, because
Section 126 of Act 1459, which was allegedly the basis for the imposition of the 1% reserve
deficiency tax, was repealed by Section 90 of Republic Act 337, the General Banking Act, and by
Sections 100 and 101 of Republic Act 265. On 28 March 1973, petitioner filed a petition for review
with the Tax Court, docketed as C.T.A. Case No. 2506, contesting the assessment for the taxable
year 1969. On 3 July 1974, a similar petition, docketed as C.T.A. Case No. 2618. was filed
contesting the assessment for the taxable year 1970.
The cases, involving similar issues, were consolidated. After hearing, the Tax Court
rendered a decision dated 30 September 1982 dismissing the petitions for review and upholding the
validity of the assessments. Still not satisfied, petitioner filed this petition for review.
ISSUE/S:
Whether or not there was double taxation.
RULING:
It is clear from the statutes then in force that there was no double taxation involved — one
was a penalty and the other was a tax. At any rate, We have upheld the validity of double taxation.
The payment of 1/10 of 1% for incurring reserve deficiencies (Section 106, Central Bank Act) is a
penalty as the primary purpose involved is regulation, while the payment of 1% for the same
violation (Second Paragraph, Section 249, NIRC) is a tax for the generation of revenue which is the
primary purpose in this instance. Petitioner should not complain that it is being asked to pay twice

for incurring reserve deficiencies. It can always avoid this predicament by not having reserve
deficiencies. Petitioner’s case is covered by two special laws — one a banking law and the other, a
tax law. These two laws should receive such construction as to make them harmonize with each
other and with the other body of pre-existing laws.
COMMISSIONER OF INTERNAL REVENUE VS. BANK OF THE PHILIPPINE ISLANDS,

G.R. NO. 147375
FACTS:
Domestic corporate taxpayers, including banks, are levied a 20% final withholding tax on
bank deposits under Section 24(e)(1) in relation to Section 50(a) of Presidential Decree No. 1158 or
the National Internal Revenue Code of 1977 (Tax Code). Banks are also liable for a tax on gross
receipts derived from sources within the Philippines under Section 119 of the Tax Code.
As a domestic corporation, the interest earned by respondent Bank of the Philippine Islands
(BPI) from deposits and similar arrangements are subjected to a final withholding tax of 20%.
Consequently, the interest income it receives on amounts that it lends out are always net of the 20%
withheld tax. As a bank, BPI is furthermore liable for a 5% gross receipts tax on all its income.
For the four (4) quarters of the year 1996, BPI computed its 5% gross receipts tax payments
by including in its tax base the 20% final tax on interest income that had been withheld and remitted
directly to the Bureau of Internal Revenue (BIR).
On January 30, 1996, the CTA rendered a decision in Asian Bank Corporation v.
Commissioner of Internal Revenue, holding that the 20% final tax withheld on a bank’s interest
income did not form part of its taxable gross receipts for the purpose of computing gross receipts
tax. Hence, BPI wrote the BIR a letter dated July 15, 1998 requesting a refund of alleged
overpayment.
Inaction by the BIR on this request prompted BPI to file a Petition for Review against the
Commissioner of Internal Revenue (Commissioner) with the Court of Tax Appeals (CTA). BPI
conceded its claim that the first three quarters of 1996 have been barred by prescription. The CTA
rendered a Decision holding that the 20% final tax withheld did not form part of the respondent’s
taxable gross receipts and are therefore refundable. On appeal, the Court of Appeals (CA) affirmed
the CTA Decision.
ISSUE/S:
(1) Whether or not the 20% final tax on a bank’s passive income, withheld from the bank at
source, still forms part of the bank’s gross income for the purpose of computing its gross receipts
tax liability
(2) Whether or not the 20% final tax withheld in its gross receipts tax base would be to tax
twice its passive income and would constitute double taxation.
RULING:

On the first issue, yes, the 20% final tax on a bank’s passive income, withheld from the bank
at source, still forms part of the bank’s gross income for the purpose of computing its gross receipts
tax liability.
The Tax Code does not provide a definition of the term "gross receipts”. Furthermore, the
legislature has not established a definition of the term "gross receipts." Absent a statutory definition
of the term, the BIR had consistently applied it in its ordinary meaning. Deducting any amount from
the gross receipts changes the result, and the meaning, to net receipts.
The exclusion of the 20% final tax on passive income the tax base is effectively a tax
exemption. The rule is that whoever claims an exemption must justify by the clearest grant law. In
the instant case, BPI’s contention that Section 4(e) of Revenue Regulations No. 12-80 establishes
the exclusion of the 20% final tax withheld from the bank’s taxable gross receipts is not tenable.
BPI presented a misconstruction of the provision. The subject provision further goes on to
distinguish actual receipt from accrual, i.e., that "mere accrual shall not be considered, but once
payment is received, then the amount actually received shall be included in the tax base of such
financial institutions." Hence, Section 4(e) does not exclude accrued interest income from gross
receipts but merely postpones its inclusion until actual payment of the interest to the lending bank.
Furthermore, Section 4(e) has been superseded by Section 7 of Revenue Regulations No.
17-84 which categorically provides that if the recipient of interest subjected to withholding taxes is a
financial institution, the interest shall be included as part of the tax base upon which the gross
receipts tax is imposed. The implied repeal of Section 4(e) is undeniable. Clearly, then, the current
revenue regulations requires interest income, whether actually received or merely accrued, to form
part of the bank’s taxable gross receipts.
On the second issue, no, the 20% final tax withheld in its gross receipts tax base would not would
constitute as double taxation.
Granted that interest income is being taxed twice, this, however, does not amount to double
taxation. There is no double taxation if the law imposes two different taxes on the same income,
business or property. Double taxation means taxing the same property twice when it should be
taxed only once; that is, "taxing the same person twice by the same jurisdiction for the same thing."
In the instant case, the taxes herein are imposed on two different subject matters. The
subject matter of the Final Withholding Tax (FWT) is the passive income generated in the form of
interest on deposits and yield on deposit substitutes, while the subject matter of the Gross Receipts
Tax (GTR) is the privilege of engaging in the business of banking.
Also, the taxing periods they affect are different. The FWT is deducted and withheld as soon
as the income is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid
only after every taxable quarter in which it is earned.

NURSERY CARE CORP VS. ACEVEDO
G.R. NO. 180651
FACTS:
The City of Manila assessed and collected taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila. At the same time, the City of Manila imposed additional taxes upon the
petitioners pursuant to Section 21 of the Revenue Code of Manila, as amended, as a condition for
the renewal of their respective business licenses for the year 1999.
Section 21 of the Revenue Code of Manila stated: Section 21. Tax on Business Subject to
the Excise, Value-Added or Percentage Taxes under the NIRC - On any of the following businesses
and articles of commerce subject to the excise, value-added or percentage taxes under the National
Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT
(50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar
year is hereby imposed:
A) On person who sells goods and services in the course of trade or businesses; x x x
PROVIDED, that all registered businesses in the City of Manila already paying the aforementioned
tax shall be exempted from payment thereof.
To comply with the City of Manila’s assessmentof taxes under Section 21, supra, the
petitioners paid under protest the following amounts corresponding to the first quarter of 1999.
By letter, the petitioners formally requested the Office of the City Treasurer for the tax credit
or refund of the local business taxes paid under protest. However, then City Treasurer Anthony
Acevedo (Acevedo) denied the request as well as the reconsideration.
Thereafter, petitioners filed their respective petitions for certiorari in the Regional Trial Court
(RTC) in Manila which dismissed the petitions. Upon appeal, the Court of Appeals dismissed the
instant petition for lack of jurisdiction. The petitioners moved for reconsideration, but the CA denied
their motion.
ISSUE/S:
Whether the additional business tax under Section 21 of Ordinance No. 7794 is constitutive
of double taxation.
RULING:
Yes. Double taxation means taxing the same property twice when it should be taxed only
once; that is, "taxing the same person twice by the same jurisdiction for the same thing." It is
obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as
"direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period;
and the taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject matter – the privilege of doing business in
the City of Manila; (2) for the same purpose – to make persons conducting business within the City
of Manila contribute tocity revenues; (3) by the same taxing authority – petitioner Cityof Manila; (4)
within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods – per calendar year; and (6) of the same kind or character – a local business
tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of
Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of
the power of municipalities and cities to impose a local business tax, and to which any local
business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal
thereof that when a municipality or city has already imposed a business tax on manufacturers, etc.of
liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the
LGC, said municipality or city may no longer subject the same manufacturers, etc.to a business tax
under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentagetax under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same way, businesses such as respondent’s, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on
Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 of
the same Tax Ordinance [which is based on Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner should not have been subjected to taxes under
Section 21 of the Manila Revenue Code for the fourth quarter of 2001, considering thatit had
already been paying local business tax under Section 14 of the same ordinance.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish Match
Philippines, Inc., the Court now holds that all the elements of double taxation concurred upon the
City of Manila’s assessment on and collection from the petitioners of taxes for the first quarter of
1999 pursuant to Section 21 of the Revenue Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person
who sold goods and services in the course of trade or business based on a certain percentage ofhis
gross sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise
imposed the tax on a person who sold goods and services in the course of trade or business but
only identified such person with particularity, namely, the wholesaler, distributor or dealer (Section
15), and the retailer (Section 17), all the taxes – being imposed on the privilege of doing business in
the City of Manila in order to make the taxpayers contribute to the city’s revenues – were imposed
on the same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and
within the same jurisdiction in the same taxing period (i.e., per calendar year)
Thirdly, the taxes were all in the nature of local business taxes.
We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines,
Inc. involved Section 21 vis-à-vis Section 14 (Tax on Manufacturers, Assemblers and Other
Processors)39 of the Revenue Code of Manila, the legal principles enunciated therein should
similarly apply because Section 15 (Tax on Wholesalers, Distributors, or Dealers)and Section 17

(Tax on Retailers) of the Revenue Code of Manila imposed the same nature of tax as that imposed
under Section 14, i.e., local business tax, albeit on a different subject matter or group of taxpayers.
In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila constituted
double taxation, and the taxes collected pursuant thereto must be refunded.
LA SUERTE CIGAR & CIGARETTE FACTORY VS. COURT OF APPEALS AND
COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 125346
FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased
by cigarette manufacturers for use as raw material in the manufacture of their cigarettes. Under the
Tax Code, if it is to be exported or to be used in the manufacture of cigars, cigarettes, or other
tobacco products on which the excise tax will eventually be paid on the finished product.
La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34
million pesos. La Suerte protested invoking the Tax Code which allows the sale of stemmed leaf
tobacco as raw material by one manufacturer directly to another without payment of the excise tax.
However, the CIR insisted that stemmed leaf tobacco is subject to excise tax "unless there is an
express grant of exemption from [the] payment of tax."
La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR) which
limits the exemption from payment of specific tax on stemmed leaf tobacco to sales transactions
between manufacturers classified as L-7 permittees.
ISSUE:
WON the imposition of excise tax on stemmed leaf tobacco under Section 141 of the 1986
Tax Code constitute double taxation, considering they are paying the specific tax on the raw
material and on the finished product in which the raw material was a part?
RULING:
No. Double taxation in the objectionable or prohibited sense to exist, "the same property
must be taxed twice, when it should be taxed but once." "Both taxes must be imposed on the same
property or subject- matter, for the same purpose, by the same. . . taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be the same kind or
character of tax."
In this case, there is no double taxation in the prohibited sense because the specific tax is
imposed by explicit provisions of the Tax Code on two different articles or products: (1) on the
stemmed leaf tobacco; and (2) on cigar or cigarette. Thus, the imposition of excise tax under Sec.

CIR VS. ESTATE OF BENIGNO TODA
FACTS:
▪ March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. Toda Jr., President
and Owner of 99.991% of outstanding capital stock, to sell the Cibeles Building and 2 parcels of
land which he sold to Rafael A. Altonaga on August 30, 1987 for P 100M who then sold it on the
same day to Royal Match Inc. for P 200M.
▪ CIC included gains from sale of real property of P 75,728.021 in its annual income tax return
while Altonaga paid a 5% capital gains tax of P 10M
▪ July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M evidenced by a deed of
sale of shares of stock which provides that the buyer is free from all income tax liabilities for 1987,
1988 and 1989.
▪ Toda Jr. died 3 years later.
▪ March 29, 1994: BIR sent an assessment notice and demand letter to CIC for deficiency of
income tax of P 79,099, 999.22
▪ January 27, 1995: BIR sent the same to the estate of Toda Jr.
▪ Estate filed a protest which was dismissed - fraudulent sale to evade the 35% corporate
income tax for the additional gain of P 100M and that there is in fact only 1 sale.
▪ Since it is falsity or fraud, the prescription period is 10 years from the discovery of the falsity
or fraud as prescribed under Sec. 223 (a) of the NIRC
▪ CTA: No proof of fraudulent transaction so the applicable period is 3 years after the last day
prescribed by law for filing the return
ISSUE:
Is this a case of tax evasion or tax avoidance?
RULING:
It is case of tax evasion.
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when
it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in
"bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action
which is unlawful

COMMISSIONER OF CUSTOMS vs. MARINA SALES, INC.
G.R. No. 183868
FACTS:
Marina Sales Inc. (Marina) is engaged in the manufacture of Sun quick juice concentrates
and appointed to be its manufacturing arm in the Philippines. As such, Marina usually imports raw
materials into the country for the purpose. In the past, the Bureau of Customs (BOC) assessed said
type of importations with a 1% import duty rate.
Marina’s importation arrived at the Manila International Container Port (MICP) on board
vessel. So, Marina computed and paid the duties under Tariff Harmonized System Heading H.S.
2106.90 10 at 1% import duty rate. However, the BOC examiners contested the tariff classification
of Marina’s Import. Another importation of Marina arrived at the MICP and gain, the BOC examiners
disputed the tariff classification of Import and recommended with the corresponding 7% duty rate.
Valuation and Classification Review Committee (VCRC) reclassified the two Imports at 7%
import duty rate. Marina, then appealed before the Commissioner challenging the reclassification.
VCRC then modified its earlier ruling and classified Marina’s Imports, however, it is still at 7% duty
rate. So, Marina again interposed a petition for review before the CTA.
CTA 2nd Division ruled in favor of Marina. The Commissioner disagreed and elevated the
case to the CTA-En Banc via a petition for review. CTA En Banc dismissed the petition and held
that petitioner failed to file before the Second Division the required Motion for Reconsideration
before elevating his case to the CTA En Banc. Hence, this petition.
ISSUE:
Whether or not the filing of a motion for reconsideration or new trial with the CTA division
mandatory.
RULING:
YES. The Court agrees with the CTA En Banc that the Commissioner failed to comply with
the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax
Appeals requiring that "the petition for review of a decision or resolution of the Court in Division
must be preceded by the filing of a timely motion for reconsideration or new trial with the Division."
The word "must" clearly indicates the mandatory -- not merely directory -- nature of a requirement."
The rules are clear. Before the CTA En Banc could take cognizance of the petition for review
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new trial with the concerned CTA division.

ASIATRUST DEVELOPMENT BANK, INC., VS. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 201530
FACTS:
On separate dates in February 2000, Asiatrust Development Bank, Inc. (Asiatrust) received
from the Commissioner of Internal Revenue (CIR) three Formal Letters of Demand (FLD) with
Assessment Notices for deficiency internal revenue taxes. Asiatrust timely protested the
assessment notices. Due to the inaction of the CIR on the protest, Asiatrust filed before the CTA a
Petition for Review praying for the cancellation of the tax assessments for deficiency income tax,
documentary stamp tax (DST) - regular, DST - industry issue, final withholding tax, expanded
withholding tax, and fringe benefits tax issued against it by the CIR.
On December 28, 2001, the CIR issued against Asiatrust new Assessment Notices for
deficiency taxes covering the fiscal years ending June 30, 1996, 1997, and 1998, respectively. On
the same day, Asiatrust partially paid said deficiency tax assessments. On April 19, 2005, the CIR
approved Asiatrust's Offer of Compromise of DST - regular assessments for the fiscal years ending
June 30, 1996, 1997, and 1998.
During the trial, Asiatrust manifested that it availed of the Tax Abatement Program for its
deficiency final withholding tax - trust assessments for fiscal years ending June 30, 1996 and 1998;
and that on June 29, 2007, it paid the basic taxes for the said fiscal years. Asiatrust also claimed
that it availed of the provisions of Republic Act (RA) No. 9480, otherwise known as the Tax Amnesty
Law of 2007.
On January 20, 2009, the CTA Division rendered a Decision partially granting the Petition.
The CTA Division declared void the tax assessments for fiscal year ending June 30, 1996 for having
been issued beyond the three-year prescriptive period. However, due to the failure of Asiatrust to
present documentary and testimonial evidence to prove its availment of the Tax Abatement
Program and the Tax Amnesty Law, the CTA Division affirmed the deficiency DST- Special Savings
Account (SSA) assessments for the fiscal years ending June 30, 1997 and 1998 and the deficiency
DST - Interbank Call Loans (IBCL) and deficiency final withholding tax - trust assessments for fiscal
year ending June 30, 1998, in the total amount of ₱142,777,785.91.
Asiatrust filed a Motion for Reconsideration. The CIR, on the other hand, filed a Motion for
Partial Reconsideration of the assessments. The CTA Division issued a Resolution denying the
motion of the CIR while partially granting the motion of Asiatrust..The CIR appealed before the CTA
EnBanc via a Petition for Review. The CTA En Banc however dismissed the Petition for being
premature considering that the proceedings before the CTA Division was still pending.
Asiatrust filed a Manifestation informing the CTA Division that the BIR issued a Certification
certifying that Asiatrust paid at the Development Bank of the Philippines in connection with the One-
Time Administrative Abatement under Revenue Regulations (RR) No. 15-2006.
The CTA Division rendered an Amended Decision finding that Asiatrust is entitled to the
immunities and privileges granted in the Tax Amnesty Law. However, it reiterated its ruling that in
the absence of a termination letter from the BIR, it cannot consider Asiatrust's availment of the Tax
Abatement Program.

Still unsatisfied, Asiatrust moved for partial reconsideration insisting that the Certification
issued by the BIR is sufficient proof of its availment of the Tax Abatement Program. The CTA
Division issued a Resolution denying Asiatrust's motion.
Both parties appealed to CTA En Banc. The CTA En Banc denied both appeals. It denied
the CIR' s appeal for failure to file a prior motion for reconsideration of the Amended Decision, while
it denied Asiatrust's appeal for lack of merit. The CTA En Banc denied the motions for partial
reconsideration of the CIR and Asiatrust.
ISSUE/S:
Whether or not the CTA En Banc correctly denied the appeal of the CIR.
RULING:
Yes, the CTA En Banc correctly denied the appeal of the CIR.
Section 1, Rule 8 of the Revised Rules of the CTA states:
SECTION 1. Review of cases in the Court en bane. - In cases falling under the exclusive
appellate jurisdiction of the Court en bane, the petition for review of a decision or resolution of the
Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial
with the Division.
Thus, in order for the CTA En Banc to take cognizance of an appeal via a petition for review,
a timely motion for reconsideration or new trial must first be filed with the CTA Division that issued
the assailed decision or resolution. Failure to do so is a ground for the dismissal of the appeal as
the word "must" indicates that the filing of a prior motion is mandatory, and not merely directory.
In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the
CTA Division is a ground for the dismissal of its Petition for Review before the CTA En Banc. Thus,
the CTA En Banc did not err in denying the CIR's appeal on procedural grounds.Due to this
procedural lapse, the Amended Decision has attained finality insofar as the CIR is concerned. The
CIR, therefore, may no longer question the merits of the case before the Supreme Court.
Accordingly, there is no reason for the Court to discuss the other issues raised by the CIR.As the
Court has often held, procedural rules exist to be followed, not to be trifled with, and thus, may be
relaxed only for the most persuasive reasons.

CITY OF MANILA AND OFFICE OF THE CITY TREASURER OF MANILA V. COSMOS
BOTTLING CORPORATION
G.R. NO. 196681
FACTS:
For the first quarter of 2007, the City of Manila assessed (Cosmos) local business taxes and
regulatory fees in the total amount of ₱1,226,781.05. Cosmos protested the assessment through a
letter dated January 18, 2007, arguing that Tax Ordinance Nos. 7988 and 8011, amending the
Revenue Code of Manila (RCM), have been declared null and void. Cosmos also argued that the
collection of local business tax under Section 21 of the RCM in addition to Section 14 of the same
code constitutes double taxation.
Cosmos tendered payment of only P131,994.23 which they posit is the correct computation
of their local business tax for the first quarter of 2007. This payment was refused by the City
Treasurer. On March 8, 2007, Cosmos filed its complaint with the RTC of Manila praying for the
refund or issuance of a tax credit certificate in the amount of ₱1,094,786.82. The RTC in its decision
ruled in favor of [Cosmos] but denied the claim for refund.Cosmos' motion for partial reconsideration
was also denied, hence, the Petition for Review and was raffled to the CTA Division, of which ruled
in favor of Cosmos.Instead of filing a motion for reconsideration or new trial, the petitioners directly
filed with the CTA En Banc a petition for review praying that the decision of the CTA Division be
reversed or set aside. The CTA En Banc, ruled that direct resort to it without a prior motion for
reconsideration before the CTA Division violated Sec. 18 of RA 1125 as amended by RA 9282 and
RA 9503. The petitioners sought reconsideration, but their motion was denied by the CTA En Banc.
Hence, the appeal before this Court.
ISSUE:
W/N the CTA En Banc correctly dismissed the petition for review before it for failure of the
petitioners to file a motion for reconsideration or new trial with the CTA Division.
RULING:
Yes. The filing of a motion for reconsideration or new trial before the CTA Division is an
indispensable requirement for filing an appeal before the CTA En Banc. The CTA En Banc was
correct in interpreting Section 18 of R.A. No. 1125, as amended by R.A. 9282 and R.A. No. 9503,
which states –Section 18. Appeal to the Court of Tax Appeals En Banc. – No civil proceeding
involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or
the Local Government Code shall be maintained, except as herein provided, until and unless an
appeal has been previously filed with the CTA and disposed of this Act.A party adversely affected
by a resolution of a Division of the CTA on motion for reconsideration or new trial, may file a petition
for review with the CTA en banc. As requiring a prior motion for reconsideration or new trial before
the same division of the CTA that rendered the assailed decision before filing a petition for review
with the CTA En Banc. Failure to file such motion for reconsideration or new trial is cause for
dismissal of the appeal before the CTA En Banc.
Corollarily, Section 1, Rule 8 of the CTA Rules provides:Section 1. Review of cases in the Court en
banc. — In cases falling under the exclusive appellate jurisdiction of the Court en banc, the petition
for review of a decision or resolution of the Court in Division must be preceded by the filing of a
timely motion for reconsideration or new trial with the Division. (emphasis supplied)

Clear it is from the cited rule that the filing of a motion for reconsideration or new trial is mandatory –
not merely directory – as indicated by the word "must."
DEUTSCHE KNOWLEDGE SERVICES PTE. LTD. V. COMMISSIONER OF INTERNAL REVENUE

G.R. Nos. 238931-32
FACTS:
The Court, Second Division, issued a Resolution dated 03 June 2019 regarding the
consolidated petitions
"G.R. Nos. 238931-32 (Deutsche Knowledge Services Pte. Ltd. v. Commissioner of Internal
Revenue)
and G.R. No. 239379 (Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte.
Ltd).
ISSUE:
Whether or not petition for review of a decision or resolution of the CTA Division must be
preceded by the filing of a timely motion for reconsideration or new trial with the CTA Division
RULING;
The Court resolves to DENY the instant consolidated petitions and AFFIRM the October 18,
2017 Decision and the April 11, 2018 Resolution of the Court of Tax Appeals (CTA) in CTA EB Nos.
1376 & 1378 for failure of the parties to sufficiently show that the CTA En Banc (EB) committed any
reversible error in dismissing the petitions outright for lack of jurisdiction.
The CTA EB ruled that, the requirement under Section 1. Rule 8 of the Revised Rules of the
CTA is clear that: "the petition for review of a decision or resolution of the Court in Division must be
preceded by the filing of a timely motion for reconsideration or new trial with the Division." This
likewise applies to an Amended Decision of the CTA Division pursuant to the doctrine laid down by
the Court in CE Luzon Geothermal Power Company, Inc. v. Commissioner of Internal Revenue
(CIR), as echoed by Asiatrust Development Bank, Inc. v. CIR, that an amended decision is a
different decision altogether and is a proper subject of a motion for reconsideration. Thus, the CTA
EB correctly found that the parties' failure to file their respective motions for reconsideration from the
CTA Division's Amended Decision rendered their petitions for review dismissible on the ground of
lack of jurisdiction.

DR. JOEL C. MENDEZ VS. PEOPLE OF THE PHILIPPINES
G.R. NO. 179962
FACTS:
The (BIR) filed a complaint-affidavit4 with the Department of Justice against the DR.
MENDEZ, . the BIR alleged that petitioner failed to file his income tax returns for taxable years 2001
to 2003 and, consequently evaded his obligation to pay the correct amount of taxes due the
government.
After a preliminary investigation, State Prosecutor Juan Pedro Navera found probable cause
against petitioner for non-filing of income tax returns for taxable years 2001 and 2002 and for failure
to supply correct and accurate information as to his true income for taxable year 2003, in violation of
the National Internal Revenue Code.
The accused was arraigned and pleaded not guilty .the prosecution filed a "Motion to
Amend Information with Leave of Court.The Mendez failed to file his comment to the motion within
the required period; thus on June 12, 2007,the CTA First Division granted the prosecution’s
motion.15 The CTA ruled that the prosecution’s amendment is merely a formal one as it "merely
states with additional precision something already contained in the original information. The
petitioner failed to show that the defenses applicable under the original information can no longer be
used under the amended information since both the original and the amended information charges
the petitioner with the same offense (violation of Section 255
The petitioner filed a petition for certiorari under Rule 651 after the CTA denied his motion
for reconsideration.
The respondents claim that the petitioner availed of the wrong remedy in questioning the
CTA resolutions. Under Rule 9, Section 9 of the Revised Rules of CTA, the remedy of appeal to the
CTA en banc is the proper remedy, to be availed of within fifteen days from receipt of the assailed
resolution.
ISSUE:
WON the remedy of certiorari under Rule 65 proper?
RULING:
Yes . the petition for certiorari under Rule 65 is proper
Dr Mendez correctly availed of the remedy of certiorari. Under Rule 65 of the Rules of Court,
certiorari is available when there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law. After failing in his bid for the CTA to reconsider its admission of the
amended information, the only remedy left to the petitioner is to file a petition for certiorari with this
Court.

Contrary to the prosecution’s argument, the remedy of appeal to the CTA en banc is not
available to the petitioner. In determining the appropriate remedy or remedies available, a party
aggrieved by a court order, resolution or decision must first correctly identify the nature of the order,
resolution or decision he intends to assail. What Section 9 Rule 922 of the Rules of the CTA
provides is that appeal to the CTA en banc may be taken from a decision or resolution of the CTA
division in criminal cases by filing a petition for review under Rule 43 of the Rules of Court. Under
Section 1, Rule 43, the remedy of a petition for review is available only against a judgments or a
final order.
A judgment or order is considered final if it disposes of the action or proceeding completely,

or terminates a particular stage of the same action; in such case, the remedy available to an
aggrieved party is appeal. If the order or resolution, however, merely resolves incidental matters
and leaves something more to be done to resolve the merits of the case, as in the present case, the
order is interlocutory and the aggrieved party’s only remedy after failing to obtain a reconsideration
of the ruling is a petition for certiorari under Rule 65.

COMMISSIONER OF INTERNAL REVENUE VS. COURT OF TAX APPEALS
G.R. Nos. 203054-55
FACTS:
Respondent CBK Power Company Limited is a special purpose entity engaged in the
design, financing, construction, testing, commissioning, operation, maintenance, management, and
ownership of Kalayaan I and II hydroelectric power plants and their related facilities.
Respondent filed with the CTA two judicial claim for the issuance of a tax credit certificate
representing unutilized input taxes including unutilized amortized input taxes on capital goods
exceeding one million all attributable to zero rated sales. The cases were docketed as CTA Case
No. 8246 and CTA Case No. 8302, for the first and second quarters of 2009, respectively. Private
rspondent filed a motion to consolidate the two cases. In a Resolution dated October 14, 2011, the
CTA granted the motion for consolidation and set the pre-trial conference on November 3, 2011.
Petitioner’s lawyer for CTA Case No. 8302 is Atty. Mauricio, while its counsel for the
consolidated cases is Atty. Saldico. Atty. Mauricio failed to appear at the scheduled pre-trial
conference. The pretrial was reset to December 1, 2011. Atty. Sandico, who was then assigned to
handle the consolidated cases failed to appear, thus respondent moved that petitioner be declared
in default which was granted in December 23, 2011. Petitioner filed a Motion to Lift Order of Default.
CTA issued in April 19, 2012 a Resolution denying the motion to lift order of default. An eventual
Motion for reconsideration was denied in June 13, 2012.
Aggrieved, petitioner filed a petition for certiorari under Rule 65 before the Supreme Court.
Respondent claims petitioner chose an erroneous remedy since the proper remedy on any adverse
resolution of any division of the CTA is an appeal by way of a petition for review with the CTA en
banc.
ISSUE:
Whether or not a petition for certiorari under Rule 65 of the Rules of Court and not a review
with the CTA en banc is the proper remedy.
RULING:
Yes, a petition for certiorari under Rule 65 of the Rules of Court is the proper remedy for
petitioner.
Section 1, Rule 41 of the 1997 Rules of Civil Procedure, as amended, which applies suppletory to
proceedings before the Court of Tax Appeals, provides: “An appeal may be taken from a judgment

or final order that completely disposes of the case, or of a particular matter therein when declared
by these Rules to be appealable. No appeal may be taken from an interlocutory order.”
Hence, petitioner's filing of the instant petition for certiorari assailing the interlocutory orders issued
by the CTA is in conformity with the above-quoted provision. The petition for certiorari is
granted.The consolidated cases were remanded to the CTA Third Division to give petitioner the
chance to present evidence.
JUDY ANNE L. SANTOS, VS. PEOPLE OF THE PHILIPPINES
G.R. NO. 173176
FACTS:
On 19 May 2005, then Bureau of Internal Revenue (BIR) Commissioner Guillermo L.
Parayno, Jr. wrote to the Department of Justice (DOJ) Secretary Raul M. Gonzales a letter
regarding the possible filing of criminal charges against petitioner. Prosecution Attorney issued a
Resolution finding probable cause and recommending the filing of a criminal information against
petitioner for violation of Section 255 in relation to Sections 254 and 248(B) of the NIRC, as
amended.
Pursuant to the resolution, an Information for violation of Section 255 in relation to Sections
254 and 248(B) of the NIRC, as amended, was filed with the CTA. The petitioner filed with the CTA
First Division a Motion to Quash.
The CTA First Division denied petitioner's Motion to Quash. The petitioner filed with the CTA
en banc a Motion for Extension of Time to File Petition for Review. However, in its Resolution, the
CTA en banc denied petitioner’s Motion for Extension of Time to File Petition for Review,
ratiocinating that a resolution denying a motion to quash is not a proper subject of an appeal to the
Court En Banc under Section 11 of R.A. No. 9282 because a ruling denying a motion to quash is
only an interlocutory order, as such, it cannot be made the subject of an appeal pursuant to said law
and the Rules of Court.
ISSUE:
Whether a resolution of a CTA division denying a motion to quash is a proper subject of an
appeal to the CTA En Banc
RULING:
The denial of a motion to quash is an interlocutory order which is not the proper subject of an
appeal or a petition for certiorari.
According to Section 1, Rule 41 of the Revised Rules of Court, governing appeals from the
Regional Trial Courts (RTCs) to the Court of Appeals, an appeal may be taken only from a judgment
or final order that completely disposes of the case or of a matter therein when declared by the Rules
to be appealable. Said provision, thus, explicitly states that no appeal may be taken from an
interlocutory order.
There is no dispute that a court order denying a motion to quash is interlocutory. The denial
of the motion to quash means that the criminal information remains pending with the court, which
must proceed with the trial to determine whether the accused is guilty of the crime charged therein.

Equally settled is the rule that an order denying a motion to quash, being interlocutory, is not
immediately appealable, nor can it be the subject of a petition for certiorari. Such order may only be
reviewed in the ordinary course of law by an appeal from the judgment after trial.
COMMISSIONER OF INTERNAL REVENUE vs. STANDARD INSURANCE CO., INC.,

G.R. No. 219340
FACTS:
On February 13, 2014, respondent Standard Insurance Co. Inc.'s (Standard Insurance)
received from the BIR a Preliminary Assessment Notice (PAN) regarding its liability amounting to
P377,038,679.55 arising from a deficiency in the payment of documentary stamp taxes (DST) for
taxable year 2011. Standard Insurance contested the PAN but the CIR nonetheless sent it a formal
letter of demand On December 4, 2014 the it received Final Decision on Disputed Assessment
(FDDA).
On December 11, 2014, it sought reconsideration of the FDDA, and objected to the tax
imposed pursuant to Section 184 of the NIRC as violative of the constitutional limitations on
taxation. Meanwhile, respondent also received a demand for the payment of its deficiency income
tax, value-added tax (VAT), premium tax, DST, expanded withholding tax, and fringe benefit tax for
taxable year 2012.
On December 19, 2014, Standard Insurance commenced a Civil Case in the RTC Makati
with prayer for issuance of a temporary restraining order (TRO) and a writ of preliminary injunction
(WPI) for the judicial determination of the constitutionality of Sections 108 and 184 of the NIRC with
respect to the taxes charged against the non-life insurance companies. On December 23, 2014, the
RTC issued a TRO enjoining the BIR from implementing the provisions of the NIRC adverted.
On May 8, 2015, the RTC rendered its Decision permanently enjoining the BIR from
proceeding with the implementation or enforcement of Sections 108 and 184 of the NIRC against
Standard Insurance Co., Inc. until the Congress shall have enacted and passed into law House Bill
No. 3235 in conformity with the provisions of the Constitution.
The petitioner then filed a Petition for Certiorari before the CA pursuant to Rule 65 of the
Rules of Court, but was dismissed. Hence, the petitioner filed a Petition for Review on Certiorari
before the Supreme Court, which was granted. The Court ruled that the RTC grossly erred and
acted without jurisdiction in giving due course to the petition for declaratory relief.
ISSUE:
Whether or not the RTC had the jurisdiction to take cognizance of respondent's petition for
declaratory relief and issue injunctive relief against the implementation of Sections 108 and 184 of
the NIRC
RULING:

No, the RTC had no jurisdiction to take cognizance of respondent's petition for declaratory
relief and cannot issue injunctive relief against the implementation of Sections 108 and 184 of the
NIRC.
To begin with, Commonwealth Act No. 55 (CA 55) provides that petitions for declaratory
relief do not apply to cases where a taxpayer questions his liability for the payment of any tax under
any law administered by the BIR. The Court has previously clarified that CA 55 has not been
repealed by another statute and remains to be good law. Thus, the courts have no jurisdiction over
petitions for declaratory relief against the imposition of tax liability or validity of tax assessments.
More importantly, under the lifeblood principle, the government should be collected promptly,
without unnecessary hindrance or delay. Section 218 of the NIRC expressly provides that no court
shall have the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by the code. An exception to this rule is only when in the
opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the
government and/or the taxpayer.
Even assuming arguendo that the RTC had jurisdiction over the petition, the RTC should
have dismissed respondent's Petition for Declaratory Relief for failure to comply with the requisites
for the said action. (1) There are is already a breach of the documents in question, undisputed that
respondent had already received assessments; (2) there are no actual justiciable controversy and
the issue is not ripe for judicial determination, the tespondent's petition failed to demonstrate that its
legal rights are subject of an imminent or threatened violation that should be prevented by the
declaratory relief sought; and (3) adequate relief is available through other proceeding, the
respondent adequate remedy was to was to file an appeal in due course with the CTA instead of
resorting to a petition for declaratory relief.

TRIDHARMA MARKETING CORP. V. CTA,
G.R. NO. 215950
FACTS:
Tridharma Marketing Corp. (Tirdharma) received PAN from the BIR assessing it with various
deficiency taxes – income tax, VAT, withholding tax on compensation, expanded withholding tax
and DST. A substantial portion of the deficiency income tax and VAT arose from the complete
disallowance by the BIR of the Tridharma’s purchases from Etheria Trading in 2010.
Tridharma received from BIR a Formal Letter of Demand, which it filed a protest against the
said Letter. A FDDA was later on received. Tridharma protested to CIR through Request for
Reconsideration, but it was denied.
An appeal was filed before the CTA with Motion to Suspend Collection of Tax, and it was granted.
Tridharma filed its Motion for Partial Reconsideration praying, among others, for the reduction of the
bond to an amount it could obtain, and the CTA Division issued its second assailed resolution
reducring the amount of surety bond
Hence, CIR has commenced this special civil action for certiorari.
ISSUE/S:
Whether or not the CTA in Division commit grave abuse of discretion in requiring the
petitioner to file a surety bond despite the supposedly patent illegality of the assessment that was
beyond the petitioner's net worth but equivalent to the deficiency assessment for IT and VAT.
RULING:
Yes.Section 11 of RA 1125, as amended by RA 9282, provides that the CTA may order the
suspension of the collection of taxes provided that the taxpayer either: (1) deposits the amount
claimed; or (2) filed a surety bond for not more than double the amount.
The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within the
parameters delineated in Section 11 of R.A. 1125, as amended. The Court holds, however, that the
CTA in Division gravely abused its discretion under Section 11 because it fixed the amount of the
bond at nearly five times the net worth of the petitioner without conducting a preliminary hearing to
ascertain whether there were grounds to suspend the collection of the deficiency assessment on the
ground that such collection would jeopardize the interests of the taxpayer. Although the amount of
P4,467,391,881.76 was itself the amount of the assessment, it behoved the CTA in Division to

consider other factors recognized by the law itself towards suspending the collection of the
assessment, like whether or not the assessment would jeopardize the interest of the taxpayer, or
whether the means adopted by the CIR in determining the liability of the taxpayer was legal and
valid. Simply prescribing such high amount of the bond like the initial 150% of the deficiency
assessment of P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing the amount of
the bond to equal the deficiency assessment would practically deny to the petitioner the meaningful
opportunity to contest the validity of the assessments, and would likely even impoverish it as to
force it out of business.
Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of the bond
as a condition precedent to suspension of the collection applies only in cases where the processes
by which the collection sought to be made by means thereof are carried out in consonance with the
law, not when the processes are in plain violation of the law that they have to be suspended for
jeopardizing the interests of the taxpayer.
Consequently, to prevent undue and irreparable damage to the normal business operations
of the petitioner, the remand to the CTA of the question involving the suspension of collection and
the correct amount of the bond is the proper course of action.

EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO VS. COURT OF TAX APPEALS
G.R. No. 213394
FACTS:
The case is a petition for review on certiorari of the resolutions of the Court of Tax Appeals
(CTA). In 2010, Pacquiao failed to include his US earnings in his 2009 income tax return as well as
the filling of his VAT for 2008 – 2009. The Commissioner of Internal Revenue (CIR) then authorized
the Bureau of Internal Revenue’s (BIR) to examine the tax documents of the petitioners from 1995 –
2009. Despite the petitioners’ complaints, the investigation was justified as a “fraud investigation”
under the “Run After Tax Evaders” program. After its investigation, the CIR found the petitioners
liable for deficiency in income tax and non-payment of VAT liabilities. The BIR then issued the Final
Decision on Disputed Assessment (FDDA) and eventually the Preliminary Collection Letter (PCL)
demanding the payment of P2,261,217,439.92.
A petition for review was filed with the Court of Tax Appeals (CTA) arguing against CIR’s
allegations that the petitioners were guilty of fraud, collection of deficiency tax from Jinkee, and
CIR’s assessment based on the “best possible source” instead of actual transaction documents. In
its resolution, the CTA desisted the collection of tax payment but instead opined that the
petitioners were still required to deposit a payment of P3,298,514, 894.35 or post a bond
of P4,917,772,341.53. The petitioners then asked for partial reconsideration for the reduction of the
amount to be paid which the CTA denied hence, this petition.
ISSUE:
Whether CTA may issue injunctive writs to restrain the collection of tax.
RULING:
YES. The CTA has ample authority to issue injunctive writs to restrain the collection of tax
and to even dispense with the deposit of the amount claimed or the filing of the required bond
whenever the method employed by the CIR in the collection of tax jeopardizes the interests of the
taxpayer for being patently in violation of the law. Such authority emanates from the jurisdiction
conferred to it not only by Section 11 of R.A. No. 1125, but also by Section 7 of the same law which,
as amended provides that the CTA shall exercise exclusive appellate jurisdiction to review by
appeal "other matters arising under the National Internal Revenue Code or other laws administered
by the Bureau of Internal Revenue."

PRIVATIZATION AND MANAGEMENT OFFICE, v. COURT OF TAX APPEALS AND CITY
GOVERNMENT OF TACLOBAN
G.R. No. 211839
FACTS:
The PMO (petitioner), the Province of Leyte and the PTA are the owners of the Leyte Park
Hotel, Inc. (LPHI), a real property with improvement situated within the territorial and taxing
jurisdiction of private respondent City Government of Tacloban (respondent City).
The facilities of LPHI were leased out to Unimaster Conglomeration, Inc. (UCI).Respondent
City filed a complaint for Collection of Sum of Money before the CTA Special First Division, against
the LPHI and UCI.
After trial, the CTA Special First Division rendered a Decision holding UCI liable for the
payment of the unpaid real property taxes. UCI moved to reconsider but the same was denied.
Aggrieved, UCI filed a Petition for Review with the CTA En Banc.
Petitioner filed a Motion for Suspension of Collection of Real Property Tax and Cancellation
of Warrants of Levy before the CTA En Banc which was granted. Petitioner filed a Motion for
Exemption from Posting of Surety Bond on the ground that national government agencies and
instrumentalities, which was considered by the CTA En Banc, such as petitioner, are not, and
should not be required to file any bond as there should be no doubt as to the solvency of the
Republic of the Philippines.
ISSUE:
Whether or not petitioner, as an agency of the government, is exempt from posting a surety
bond as a condition to the suspension of collection of real property tax.
RULING:
No, the petitioner, as an agency of the government, is not exempt from posting a surety
bond as a condition to the suspension of collection of real property tax.
In the recent case of Spouses Pacquiao v. Court of Tax Appeals,17 when the Court held:
From all the foregoing, it is clear that the authority of the courts to issue injunctive writs to
restrain the collection of tax and to dispense with the deposit of the amount claimed or the filing of
the required bond is not simply confined to cases where prescription has set in. As explained by the
Court in those cases, whenever it is determined by the courts that the method employed by the
Collector of Internal Revenue in the collection of tax is not sanctioned by law, the bond requirement
under Section 11 of R.A. No. 1125 should be dispensed with.

In the instant case, there was a clear showing that the method employed by the respondent
City in the collection of the real property taxes contravened existing law and jurisprudence. It must
be underscored that the petitioner filed the motion to suspend the collection of tax, not so much to
stay the collection thereof, but actually to thwart the threat of the property being sold in public
auction which may effectively divest the petitioner, the PTA and the Province of Leyte of the
ownership over the property.
PSALM CORP. V. CIR
G.R. NO. 198146
FACTS:
PSALM is a GOCC created under RA 9136 (Electric Power Industry Reform Act of 2001 or
EPIRA). Its principal purpose is to manage the ordinary sale, disposition and privatization of the
National Power Corporation (NPC) generation assets, real estate and other disposable assets and
independent power producer contracts with the objective of liquidating all NPC financial obligations
and stranded contract costs in an optimal manner. In 2006, PSALM conducted public biddings for
privatization of Pantabangan-Masiway Hydroelectric Power Plant (Pantabangan Plant) and Magat
Hydorelectric Power Plant (Magat Plant).
The highest bidder for Pantabangan Plant was First Gen Hydropower Corporation, while the
highest bidder for the Magat Plant was SN Aboitiz Power Corporation.On 28 August 2007, NPC
received a demand letter from BIR for the immediate payment of P3.8B deficiency VAT for sale of
Pantabangan and Magat, which it endorsed to PSALM.Two days after the receipt of the demand
letter, BIR, NPC and PSALM executed a MOA wherein they agreed that NPC/PSALM shall remit
under protest to the BIR the amount of the deficiency tax.In compliance with the MOA, PSALM
remitted under protest to the BIR P3.8B representing the total basic VAT due.
On 21 September 2007, PSALM filed before DOJ a petition for adjudication of dispute with
BIR to resolve the issue of whether the sale of power plants to private entities should be subject to
VAT. DOJ ruled in favor of PSALM. The DOJ ruled that the disposition of Pantabangan and Magat
Plants was not in the regular conduct or pursuit of a commercial or an economic activity, but was
effected by the mandate of the EPIRA upon PSALM to direct the orderly sale, disposition, and
privatization of NPC generation assets, real estate and other disposable assets, and IPP contracts,
and afterward, to liquidate the outstanding obligations of the NPC.
BIR then filed a petition for certiorari with the CA, seeking to set aside the DOJ’s decision for
lack of jurisdiction.CA ruled that DOJ Secretary gravely abused discretion amounting to lack of
jurisdiction in assuming jrudisdction over the case. According to CA, CIR has the jurisdiction in
resolving cases involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto or other matters arising under the NIRC or other laws
administered by the BIR. CA also denied Motion for Reconsideration of PSALM.
ISSUE:
Whether the sale of the power plants is subject to VAT.
RULING:
NO - PSALM' s sale of assets is not subject to VAT.

The SC first resolved whether the sale of power plants by PSALM to private entities is in the
ordinary course of trade or business which is subject to VAT. Sec. 105. Persons Liable – The
phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial
activity or an economic activity, including transactions incidental thereto, by any person regardless
of whether or not the person engaged therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to members or
their guests), or government entity.
The sale of the power plants is not “in the course of trade or business” as contemplated
under Section 105 of the NIRC.
Under Sec. 50 of the EPIRA law, PSALM’s principal purpose is to manage the orderly sale,
disposition, and privatization of the NPC’s generation assets, real estate and other disposable
assets, and IPP’s contracts with the objective of liquidating all NPC’s financial obligations and
stranded contract costs in an optimal manner. The sale of the power plants is a governmental
function mandated by law to privatize NPC generation assets AND not in pursuit of a commercial or
economic activity.
PSALM was created primarily to liquidate all NPC financial obligations and stranded contract
costs in an optimal manner. PSALM is tasked to sell and privatize the NPC assets within the term of
its existence. The EPIRA law even requires PSALM to submit a plan for the endorsement by the
Joint Congressional Power Commission and the approval of the President of the total privatization
of the NPC assets and IPP contracts.
The sale of the power plants is not subject to VAT.

CITY OF MANILA VS. HON. CARIDAD GRECIA- CUERDO
G.R NO. 175723
FACTS:
Petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed
taxes for the taxable period from January to December 2002 against the private respondents. In
addition to the taxes purportedly due from private respondents pursuant to Section 14, 15, 16, 17 of
the Revised Revenue Code of Manila (RRCM), said assessment covered the local business taxes.
Private respondents were constrained to pay the P 19,316,458.77 assessment under protest.
Private respondents filed before the RTC of Pasay City the complaint denominated
as one for “Refund or Recovery of Illegally and/or Erroneously–Collected Local Business Tax,
Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction.
The RTC granted private respondents’ application for a writ of preliminary
injunction.Petitioners filed a Motion for Reconsideration but the RTC denied. Petitioners then filed a
special civil action for certiorari with the CA but the CA dismissed petitioners’ petition for certiorari
holding that it has no jurisdiction over the said petition.
The CA ruled that since appellate jurisdiction over private respondents’ complaint
for tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant
to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for
certiorari seeking nullification of an interlocutory order issued in the said case should, likewise, be
filed with the CTA. Petitioners filed a Motion for Reconsideration, but the CA denied it in its
Resolution hence, this petition
ISSUE:
Whether or not the CTA has jurisdiction over a special civil action for certiorari
assailing an interlocutory order issued by the RTC in a local tax case.
RULING:
Yes. The CTA has jurisdiction over a special civil action for certiorari assailing an
interlocutory order issued by the RTC in a local tax case. In order for any appellate court to
effectively exercise its appellate jurisdiction, it must have the authority to issue, among others, a
writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is deemed necessary,
if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the
transfer should only be considered as partial, not total.
Consistent with the above pronouncement, the Court has held as early as the
case of J.M.Tuason & Co., Inc. v. Jaramillo, et al. [118 Phil. 1022 (1963)] that “if a case may be
appealed to a particular court or judicial tribunal or body, then said court or judicial tribunal or body
has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction.” This
principle was affirmed in De Jesus v. Court of Appeals (G.R. No. 101630, August 24, 1992) where
the Court stated that “a court may issue a writ of certiorari in aid of its appellate jurisdiction if said

court has jurisdiction to review, by appeal or writ of error, the final orders or decisions of the lower
court.
SOUTHERN CROSS CEMENT CORPORATION, vs. CEMENT MANUFACTURERS

ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF THE DEPARTMENTOF TRADE
AND INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE and
THECOMMISSIONER OF THE BUREAU OF CUSTOMS,
G.R. No. 158540
FACTS:
Philcemcor, an association of at least eighteen (18) domestic cement
manufacturers filed with the Department of Trade and Industry (DTI) a petition seeking the
imposition of safeguard measures on gray Portland cement, in accordance with the Safeguard
Measures Act (SMA). After the (DTI) issued a provisional safeguard measure, the application was
referred to the Tariff Commission for a formal investigation pursuant to Section 9 of the SMA and its
Implementing Rules and Regulations, in order to determine whether or not to impose a definitive
safeguard measure on imports of gray Portland cement. The Tariff Commission held public hearing
and conducted its own investigation and issued its Formal Investigation Report that ―no definitive
general safeguard measure be imposed on the importation of gray Portland cement.
The DTI Secretary then promulgated a decision expressing its disagreement with
the conclusions of the Tariff Commission but at the same time denying Philcemcor‘s application for
safeguard measures in light of the Tariff Commission‘s negative findings.
Philcemcor challenged this decision of the DTI Secretary by filing with the Court
of Appeals a Petition for Certiorari, Prohibition and Mandamus seeking to set aside the DTI Decision
as well as the Tariff Commission‘s Report. The appellate court partially granted the petition and
ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of discretion
and also held that DTI Secretary was not bound by the factual findings of the Tariff Commission.
The Southern Cross then filed the present petition, arguing that the Court of
Appeals has no jurisdiction over Philcemcor‘s petition. Despite the fact the Court of Appeal‘s
Decision had not yet became final, its binding force was cited by the DTI Secretary when he issued
a new Decision, wherein he imposed a definitive safeguard measure on the importation of gray
Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for
three years on imported gray Portland Cement.
Southern Cross filed a Temporary Restraining Order and/or A Writ of Preliminary
Injunction with the Court, seeking to enjoin the DTI Secretary from enforcing his new issued
Decision. Philcemcor then filed its opposition stating that it is not the Court of Appeals (CA) but the
Court of Tax Appeals (CTA) that has jurisdiction over the application under the law.
Southern Cross then filed with the CTA a Petition for Review against the Decision
which imposed the definite safeguard measure but did not promptly inform CA about the filing.
Philcemcor argued with the CTA that Southern Cross resorted to forum shopping. The Court in its
decision granted Southern Cross‘s Petition.

The Court ruled that the Court of Appeals had no jurisdiction over Philcemcor’s
Petition, the proper remedy under Section 29 of the SMA being a petition for review with the CTA;
and that the Court of Appeals erred in ruling that the DTI Secretary was not bound by the negative
determination of the Tariff Commission and could therefore impose the general safeguard
measures, since Section 5 of the SMA precisely required that the Tariff Commission make a positive
final determination before the DTI Secretary could impose these measures. Anent the argument that
Southern Cross had committed forum-shopping, the Court concluded that there was no evident
malicious intent to subvert procedural rules so as to match the standard under Section 5, Rule 7 of
the Rules of Court of willful and deliberate forum shopping. Accordingly, the Decision of the Court of
Appeals dated 5 June 2003 was declared null and void.
Both respondents promptly filed their respective motions for reconsideration. The Court En Banc
resolved, upon motion of respondents, to accept the petition and resolve the Motions for
Reconsideration. The Court directed the parties to maintain the status quo effective of even date,
and until further orders from this Court.
ISSUE/S:
Whether or not the Court of Appeals had jurisdiction over the special civil action
for Certiorari filed by Philcemcor assailing the Decision of the DTI Secretary.
RULING:
No, the Court of Appeals had no jurisdiction over the special civil action for
Certiorari filed by Philcemcor assailing the Decision of the DTI Secretary. The Court of Tax Appeal
has jurisdiction.
The answer hinged on the proper interpretation of Section 29 of the SMA, which
reads:Section 29. Judicial Review. – Any interested party who is adversely affected by the ruling of
the Secretary in connection with the imposition of a safeguard measure may file with the CTA, a
petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that
the filing of such petition for review shall not in any way stop, suspend or otherwise toll the
imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard
measures, as the case may be.
The petition for review shall comply with the same requirements and shall follow
the same rules of procedure and shall be subject to the same disposition as in appeals in
connection with adverse rulings on tax matters to the Court of Appeals.
Under Section 29 of the SMA, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated therein: (i) there must be a ruling by
the DTI Secretary; (ii) the petition must be filed by an interested party adversely affected by the
ruling; and (iii) such ruling must be "in connection with the imposition of a safeguard measure."
Obviously, there are differences between "a ruling for the imposition of a safeguard measure," and
one issued "in connection with the imposition of a safeguard measure." The first adverts to a
singular type of ruling, namely one that imposes a safeguard measure. The second does not
contemplate only one kind of ruling, but a myriad of rulings issued "in connection with the imposition
of a safeguard measure."

Respondents argue that the Court has given an expansive interpretation to
Section 29, contrary to the established rule requiring strict construction against the existence of
jurisdiction in specialized courts. But it is the express provision of Section 29, and not the Supreme
Court, that mandates CTA jurisdiction to be broad enough to encompass more than just a ruling
imposing the safeguard measure.
The key phrase remains "in connection with." It has connotations that are obvious even to
the layman. A ruling issued "in connection with" the imposition of a safeguard measure would be
one that bears some relation to the imposition of a safeguard measure. Obviously, a ruling imposing
a safeguard measure is covered by the phrase "in connection with," but such ruling is by no means
exclusive. Rulings which modify, suspend or terminate a safeguard measure are necessarily in
connection with the imposition of a safeguard measure. So does a ruling allowing for a provisional
safeguard measure. So too, a ruling by the DTI Secretary refusing to refer the application for a
safeguard measure to the Tariff Commission. It is clear that there is an entire subset of rulings that
the DTI Secretary may issue in connection with the imposition of a safeguard measure, including
those that are provisional, interlocutory, or dispositive in character. By the same token, a ruling not
to impose a safeguard measure is also issued in connection with the imposition of a safeguard
measure.
It should be emphasized again that by utilizing the phrase "in connection with," it
is the SMA that expressly vests jurisdiction on the CTA over petitions questioning the non-imposition
by the DTI Secretary of safeguard measures. The Court is simply asserting, as it should, the clear
intent of the legislature in enacting the SMA. Without "in connection with" or a synonymous phrase,
the Court would be compelled to favor the respondents’ position that only rulings imposing
safeguard measures may be elevated on appeal to the CTA. But considering that the statute does
make use of the phrase, there is little sense in delving into alternate scenarios.

BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION, METROPOLITAN
BANK & TRUST COMPANY, PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE
NATIONAL BANK, PHILIPPINE VETERANS BANK AND PLANTERS DEVELOPMENT BANK vs.
REPUBLIC OF THE PHILIPPINES
G.R. No. 198756
FACTS:
The case involves the proper tax treatment of the discount or interest income arising from
the ₱35 billion worth of 10-year zero-coupon treasury bonds issued by the Bureau of Treasury on
October 18, 2001 (denominated as the Poverty Eradication and Alleviation Certificates or the
PEACe Bonds by the Caucus of Development NGO Networks).
On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling No. 370-
20111 (2011 BIR Ruling), declaring that the PEACe Bonds being deposit substitutes are subject to
the 20% final withholding tax. Pursuant to this ruling, the Secretary of Finance directed the Bureau
of Treasury to withhold a 20% final tax from the face value of the PEACe Bonds upon their payment
at maturity on October 18, 2011.
Like petitioners, petitioners-intervenors RCBC and RCBC Capital also contend that
respondent Commissioner of Internal Revenue violated their rights to due process when she
arbitrarily issued the 2011 BIR Ruling without prior notice and hearing, and the oppressive timing of
such ruling deprived them of the opportunity to challenge the same.
Thus, respondents argue that Petition for Certiorari under Rule 65 of the Rules of Court is improper
for:
1) there is no grave abuse of discretion on the part of BIR ruling;

2) petitioners had the basic remedy of filing a claim for refund of the 20% final withholding tax
they allege to have been wrongfully collected; and
3) non-observance of the doctrine of exhaustion of administrative remedies and of hierarchy of
courts.
ISSUE:
WON there was non-observance of the doctrine of exhaustion of administrative remedies
and hierarchy of courts.
RULING:

No. It was held that "[i]f superior administrative officers [can] grant the relief prayed for,
[then] special civil actions are generally not entertained." The remedy within the administrative
machinery must be resorted to first and pursued to its appropriate conclusion before the court’s
judicial power can be sought.
Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of

administrative remedies.
The exceptions under (2) and (11) are present in this case.
Under (2) The question involved is purely legal, namely: (a) the interpretation of the 20-
lender rule in the definition of the terms public and deposit substitutes under the 1997 National
Internal Revenue Code; and (b) whether the imposition of the 20% final withholding tax on the
PEACe Bonds upon maturity violates the constitutional provisions on non-impairment of contracts
and due process. (11) Judicial intervention is likewise urgent with the impending maturity of the
PEACe Bonds on October 18, 2011.
The rule on exhaustion of administrative remedies also finds no application when the
exhaustion will result in an exercise in futility.
In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling
would be a futile exercise because it was upon the request of the Secretary of Finance that the
2011 BIR Ruling was issued by the Bureau of Internal Revenue. It appears that the Secretary of
Finance adopted the Commissioner of Internal Revenue’s opinions as his own.
We agree with respondents that the jurisdiction to review the rulings of the Commissioner of
Internal Revenue pertains to the Court of Tax Appeals. While the Court of Appeals correctly
took cognizance of the petition for certiorari, however, let it be stressed that the jurisdiction to review
the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the
RTC.
Finally, non-compliance with the rules on exhaustion of administrative remedies and
hierarchy of courts had been rendered moot by this court’s issuance of the temporary restraining
order enjoining the implementation of the 2011 BIR Ruling. The temporary restraining order
effectively recognized the urgency and necessity of direct resort to this court.

COMMISSIONER OF INTERNAL REVENUE, vs. KEPCO ILIJAN CORPORATION.
G.R. No. 199422
FACTS:
Respondent filed its Quarterly value-added tax (VAT) returns with the Bureau of Internal
Revenue (BIR). It also filed the Application for Zero Rated Sales for calendar year 2000 which was
duly approved by the BIR.
Thereafter, respondent filed with the BIR its claim for refund representing input tax incurred
for the first and second quarters of the calendar year 2000 from its importation and domestic
purchases of capital goods and services preparatory to its production and sales of electricity to the
National Power Corporation. Petitioner did not act upon respondent's claim for refund or issuance of
tax credit certificate for the first and second quarters of the calendar year 2000. Consequently,
respondent filed a Petition for Review on March 21, 2002, and an Amended Petition for Review on
September 12, 2003.
In her Answer, petitioner alleged the following Special and Affirmative Defenses: (1)
respondent is not entitled to the refund of the amounts prayed for; (2) the petition was prematurely
filed for respondent's failure to exhaust administrative remedies; (3) respondent failed to show that
the taxes paid were erroneously or illegally collected; and (4) respondent has no cause of action.
Respondent, thereafter, filed its Memorand.um on September 1, 2008. For failure of petitioner to file
the required Memorandum despite notice, the CTA First Division issued a Resolution dated
September 12, 2008 submitting the case for decision.
Subsequently, Court of Tax Appeals (CTA) First Division rendered a Decision, holding that
respondent is entitled to a refund for its unutilized input VAT paid. There being no motion for
reconsideration filed by the petitioner, the said decision became final and executory.
Aggrieved, petitioner filed a petition for annulment of judgment with the CTA en banc but the
same was dismissed, and its motion for reconsideration was likewise denied. Petitioner elevated the
case to the Supreme Court via petition for review.
ISSUE:
THE COURT OF TAX APPEALS (EN BANC) HAS JURISDICTION TO TAKE
COGNIZANCE OF THE PETITION FOR ANNULMENT OF JUDGMENT.
RULING:

The Revised Rules of the CTA and even the Rules of Court which apply suppletorily thereto
provide for no instance in which the en banc may reverse, annul or void a final decision of a
division. Verily, the Revised Rules of the CTA provide for no instance of an annulment of judgment
at all. On the other hand, the Rules of Court, through Rule 47, provides, with certain conditions, for
annulment of judgment done by a superior court, like the Court of Appeals, against the final
judgment, decision or ruling of an inferior court, which is the Regional Trial Court, based on the
grounds of extrinsic' fraud and lack of .jurisdiction. The Regional Trial Court, in turn, also is
empowered to, upon a similar action, annul a judgment or ruling of the Metropolitan or Municipal
Trial Courts within its territorial jurisdiction. But, again, the said Rules are silent as to whether a
collegial court sitting en banc may annul a final judgment of its own division.
The silence of the Rules may be attributed to the need to preserve the principles that there
can be no hierarchy within a collegial court between its divisions and the en banc, and that a court's
judgment, once final, is immutable.
A direct petition for annulment of a judgment of the CTA to the Supreme Court, meanwhile,
is likewise unavailing, for the same reason that there is no identical remedy with the High Court to
annul a final and executory judgment of the Court of Appeals. RA No. 9282, Section l puts the CTA
on the same level as the Court of Appeals, so that if the latter's final judgments may not be annulled
before the Supreme Court, then the CTA's own decisions similarly may not be so annulled. And
more importantly, it has been previously discussed that am1ulment of judgment is an original action,
yet, it is not among the cases enumerated in the Constitution's Article VIII, Section 5 over which the
Supreme Court exercises original jurisdiction. Annulment of judgment also often requires an
adjudication of facts, a task that the Court loathes to perform, as it is not a trier of facts.

COMMISSIONER OF INTERNAL REVENUE- versus SONY PHILIPPINES, INC
G.R. No. 178697
FACTS:
The CIR issued a Letter of Authority authorizing certain revenue officers to examine Sony’s
books of accounts and other accounting records regarding revenue taxes for “the period 1997 and
unverified prior years.” A preliminary assessment for 1997 deficiency taxes and penalties was
issued by the CIR which Sony protested.
Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter
of demand and the details of discrepancies citing a deficiency Value Added Tax, deficiency
Expanded Witholding Tax, deficency of VAT on royalty payments, late remittance of Final
Witholding Tax and late remittance of income payments with a grand total of P15,895,632.65. Sony
sought re-evaluation of the aforementioned assessment by filing a protest. Sony submitted relevant
documents in support of its protest on the 16th of that same month, and within 30 days after the
lapse of 180 days from submission of the said supporting documents to the CIR, Sony filed a
petition for review before the CTA.
In sum, the CTA-First Division partly granted Sony’s petition by cancelling the deficiency
VAT assessment but upheld a modified deficiency EWT assessment as well as the penalties. Thus,
the dispositive portion reads: The CIR sought a reconsideration of the above decision.
The CTA-First Division denied the motion for reconsideration. Unfazed, the CIR filed a
petition for review with the CTA-EB raising identical issues. Finding no cogent reason to reverse the
decision of the CTA-First Division, the CTA-EB dismissed CIR’s petition.
CIR’s motion for reconsideration was denied by the CTA-EB. The CIR is now before this
Court via this petition for review relying on the very same grounds it raised before the CTA-First
Division and the CTA-EB.
ISSUE./S:
(1) Is Petitioner liable for deficiency Value Added Tax?
(2) Was the investigation of its 1998 Final Withholding Tax return valid?
RULING:
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it
paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and
where the money came from to satisfy said advertising billings is another matter but does not alter
the VAT effect. In the same way, Sony Philippines can not be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony
Philippines by SIS in view of the company’s “dire or adverse economic conditions”. More

importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT
nature of the reimbursement. This was distinguished from the COMASERCO case where even if
there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an
underlying service. Here, the advertising services were rendered in favor of Sony Philippines not
SIS.
(2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to
indicate that it covers ‘unverified prior years’ should be enough to invalidate it. In addition, even if
the Final Withholding Tax was covered by Sony Philippines’ fiscal year ending March 1998, the
same fell outside of ‘the period 1997’ and was thus not validly covered by the Letter of Authority.

COMMISSIONER OF INTERNAL REVENUE, v. MCDONALD'S PHILIPPINES REALTY CORP.,
G.R. No. 242670
FACTS:
On August 31, 2007, the BIR Large Taxpayers Service issued LOA No. 00006717 (August
31, 2007 LOA) to the following revenue officers: Eulema Demadura (Demadura), Lover Loveres,
Josa Gomez, and Emalyn dela Cruz. The LOA authorized the said revenue officers to examine the
books of accounts and other accounting records of the McDonald's Philippines Realty Corporation
for all internal revenue taxes for January 1, 2006 to December 31, 2006.
On December 2, 2008, the BIR transferred the assignment of Demadura and, directed and
designated Rona Marcellano (Marcellano) to continue the audit of the respondent's books of
accounts.No new LOA was issued in the name of Marcellano to continue the conduct of audit of the
respondent's books of accounts. Moreover, the August 31, 2007 LOA was not amended or modified
to include the name of Marcellano. The referral memorandum states that Marcellano will continue
the pending audit of Demadura pursuant to the August 31, 2007 LOA.
On January 25, 2011, the petitioner issued a Formal Letter of to the respondent. The FLD
demands payment of deficiency income tax and VAT liabilities . The respondent filed a protest letter
with the petitioner, requesting the cancellation and withdrawal of the deficiency income tax and VAT
assessments . the petitioner issued the Final Decision on Disputed Assessment (FDDA).14 The
FDDA (i) granted the respondent's request for cancellation of deficiency income tax assessments
for, and (ii) reiterated the petitioner's demand for payment of the respondent's deficiency VAT for
C.Y. 2006 in the total amount of P16,229,506.83.15
The respondent filed a petition for review with the CTA Division.16 The CTA Division
declared the C.Y. 2006 assessment void on the ground that Marcellano was not authorized by way
of an LOA to investigate the books of accounts of the respondent.17 The petitioner filed a motion for
reconsideration with the CTA Division.18 The CTA Division denied the motion.19
ISSUE:
Whether a separate or amended LOA must be issued in the name of a substitute or
replacement revenue officer in case of reassignment or transfer of a revenue officer originally
named in a previously issued LOA.
RULING:
Yes. A separate or amended LOA must be issued in the name of a substitute or replacement
revenue officer in case of reassignment or transfer of a revenue officer before examining the
taxpayer's books of accounts.

This case is an occasion for the Court to rule on a disturbing trend of tax audits or
investigations conducted by revenue officers who are not specifically named or authorized in the
LOA, under the pretext that the original revenue officer authorized to conduct the audit or
investigation has been reassigned or transferred to another case or place of assignment, or has
retired, resigned or otherwise removed from handling the audit or investigation.
An LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions.51 It empowers and enables said revenue officer to examine the books of
accounts and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax.52 The issuance of an LOA is premised on the fact that the examination of a taxpayer
who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his
duly authorized representatives.53
Unless authorized by the CIR himself or by his duly authorized representative, an
examination of the taxpayer cannot be undertaken.54 Unless undertaken by the CIR himself or his
duly authorized representatives, other tax agents may not validly conduct any of these kinds of
examinations without prior authority.55 There must be a grant of authority, in the form of a LOA,
before any revenue officer can conduct an examination or assessment.56 The revenue officer so
authorized must not go beyond the authority given.57 In the absence of such an authority, the
assessment or examination is a nullity.58
The issuance of an LOA prior to examination and assessment is a requirement of due
process. It is not a mere formality or technicality.
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taxation law i i case digest
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COMMISSIONER OF INTERNAL REVENUE V. YUMEX PHILIPPINES CORPORATION
G.R. NO. 222476
FACTS:
A Notice of Informal Conference was issued by the Revenue District Officer (RDO) to
respondent, Yumex Phil., Co. (YPC) informing the latter that the investigation of its accounting
records for the taxable year 2007 resulted in a preliminary assessment.
A Preliminary Assessment Notice (PAN) dated December 16, 2010 was issued by the
Bureau of Internal Revenue (BIR), finding YPC liable to pay deficiency income tax, fringe benefits
tax, IAET, and compromise penalty. A Formal Letter of Demand (FLD) dated January 10, 2011 was
likewise issued by the RD.
On January 20, 2011, respondent filed a protest on the FLD asserting its status as a PEZA-
registered entity. Eventually, YPC informed the CIR of its payment of its other assessments except
the IAET. After a reinvestigation, the RDO acknowledged the payment but stood by the assessment
of the IAET.
YPC filed a Petition for Review before the CTA Division. The CTA Division set aside the
assessment issued against YPC saying that the assessment is invalid and illegal because they were
issued without giving respondent an opportunity to answer the PAN, which is a violation of
procedural due process. Petitoner’s motion for reconsideration was denied by the CTA Division.
On a petition for review, the CTA En Banc held that the CTA Division did not err in
considering the propriety or impropriety of the issuance of the PAN and FLD/FAN. Petitioner’s
motion for reconsideration was likewise denied by the CTA En Banc.
ISSUES:
(1) whether or not the PAN and FLD/FAN are invalid because they were issued by the BIR in
violation of respondent's right to due process; and
(2) whether or not respondent can be assessed for deficiency IAET.
RULING:
(1) The PAN and FLD/FAN are invalid because they were issued by the BIR in violation of
respondent's right to due process. Sec. 228 of the NIRC mandates the BIR to inform the taxpayers
in writing of the law and the facts on which the assessment is made; otherwise, the assessment is
void.
10
1
To implement the procedural and substantive rules on assessment of national internal
revenue taxes, the BIR issued RR No. 12-99 of which Sec. 3.1.2 provides: If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be caused to be issued by the
said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties.
Per evidence on record, the PAN and FLD/FAN were both received by the respondent on
January 18, 2011. Under the circumstances, respondent was not given any notice of the preliminary
assessment at all and was deprived of the opportunity to respond to the same before being given
the final assessment.
(2) No. respondent cannot be assessed for deficiency IAET.

Sec. 4(g) of RR No. 2-2001 provides, Sec. 4 ..however, that Improperly Accumulated Earnings Tax
shall not apply to the following corporations: (g) Enterprises duly registered with the Philippine
Economic Zone Authority (PEZA) under R.A. 7916...
It is undisputed that respondent is registered with the PEZA as an Ecozone Export
Enterprise and, as such, it asserts exemption from IAET by virtue of Sec. 4(g) of RR No. 2-2001.
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ASIAN TRANSMISSION CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 230861
FACTS:
On the strength of a Letter of Authority (LOA), the BIR commenced its audit and
investigation of ATC's books of account and other accounting records pertaining to taxable year
2002. Thereafter, CIR issued a Preliminary Assessment Notice (PAN) to ATC. Consequently, on
various dates, ATC, through its Vice President for Personnel and Legal Affairs, Mr. Roderick M.
Tan, executed several documents denominated as "Waiver of the Defense of Prescription under the
Statute of Limitations of the National Internal Revenue Code". This allowed the CIR to serve a
Formal Letter of Demand assessing ATC for deficiency withholding tax on compensation, expanded
withholding tax , and final withholding tax.
In its administrative protest, ATC raised only two main objections: first, the BIR violated
ATC's right to due process and second, the BIR's details of discrepancies in the FLD, are erroneous
and must be reconsidered. The CIR denied ATC's protest. Subsequently, the ATC proceeded to file
a judicial protest before the CTA where it introduced the following arguments: first, the LOA became
invalid due to lack of revalidation; and second, the first, second, and third Waivers were defective;
thus, these did not validly extend the assessment period.
The CTA in Division rendered its decision granting the petition for review of ATC. It held that
ATC was not estopped from raising the invalidity of the waivers inasmuch as the Bureau of Internal
Revenue (BIR) had itself caused the defects thereof. CTA En Banc reversed the decision of CTA
Division. CTA En Banc promulgated the assailed decision reversing and setting aside the decision
of the CTA in Division, and holding that the waivers were valid.
ISSUE:
Whether the waivers executed by ATC are valid?
RULING:
Yes. The Court upheld the waivers as effective because, although both parties caused
separate defects, the taxpayer contested the waivers' validity only on appeal. The taxpayer's
contributory fault or negligence coupled with estoppels will render effective an otherwise flawed
waiver, regardless of the physical number of mistakes attributable to a party.
In other words, while a waiver may have been deficient in formalities, the taxpayer's belated
action on questioning its validity tilts the scales in favor of the tax authorities. The Waivers had
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always been marred by defects and, yet, ATC continued to correspond with the tax authorities and
allowed them to proceed with their investigation, as extended by the Waivers in question.
When the CIR issued the FLD, ATC did not question the Waivers' validity. It raised this
argument for the first time in its appeal to the CTA, after obtaining an unfavorable CIR decision on
their administrative protest.
That ATC acquiesced to the BIR's extended investigation and failed to assail the Waivers'
validity at the earliest opportunity gives rise to estoppel. Moreover, ATC's belated attempt to cast
doubt over the Waivers' validity could only be interpreted as a mere afterthought to resist possible
tax liability.
REPUBLIC OF THE PHILIPPINES VS. FIRST GAS POWER CORP.

G.R. NO. 214933
FACTS:
First Gas Corp. received a Letter of Authority from the BIR then received a Notice to
Taxpayer to appear for an informal conference. Thereafter, First Gas received Preliminary
Assessment Notice (PAN) dated December 15, 2003 and January 28, 2004, wherein the deficiency
taxes and penalties for the year 2000 and 2001 were indicated. First Gas filed its preliminary Reply
to the PAN. First Gas received Final Assessment Notice and Formal Letters of Demand all dated
July 19, 2004.First Gas was assessed deficiency income tax for the year 2000 and 2001 for its
unreported income and for the disallowed interest expense, respectively. And it was penalized for
late payment of withholding tax for the year 2001.
The BIR executed three Waivers of the Defense of Prescription, first on April 12, then June
14, lastly on August 14, all of the same year, 2004.
First Gas filed a Letter of Protest with the BIR however it was not acted upon. That prompted
First Gas to file a Petition for Review before the CTA. CTA granted the Petition for Review whereby
the FAN and Formal Letters of Demand for the year 2000 and 2001 were cancelled and withdrawn.
BIR moved for reconsideration but was denied, it then filed a Petition for Review with the CTA En
Banc and was still denied, hence, the instant petition.
ISSUE:
Whether the deficiency tax assessments for taxable years 2000 and 2001 issued by
petitioner against respondent are valid.
RULING:
The tax assessments were all invalid because the period of petitioner to issue the same for
taxable year 2000 has already prescribed, and the assessments for taxable year 2001 did not
contain a definite due date for payment by respondent.
Section 222(b) of the NIRC authorizes the extension of the original three-year prescriptive
period upon the execution of a valid waiver between the taxpayer and the BIR, provided: (1) the
agreement was made before the expiration of the three-year period, and (2) the guidelines in the
proper execution of the waiver are strictly followed.
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In this case, Respondent filed two ITRs for 2000, one on October 16, 2000, and the other on
April 16, 2001, due to a change in accounting period. Petitioner had until October 16, 2003, and
April 16, 2004 to assess deficiency income tax for the taxable year 2000.
The failure to indicate the date of acceptance by petitioner in the First Waiver means that the
same is defective, and therefore, the original three-year prescriptive period to assess the deficiency
income tax of respondent for the taxable year 2000 was never extended. Petitioner's contention that
the date of the notarization should be presumed as the date of acceptance is also untenable as
those dates refer to different aspects.
CIR VS. FITNESS BY DESIGN

G.R. NO. 215957
FACTS:
Fitness filed its Annual Income Tax Return for taxable year 1995, and it was still in
its pre-operating stage during the covered period.Fitness received a copy of the FAN on the ground
of tax deficiency. A protest to the FAN was filed by Fitness, on the ground that it had already
prescribed and the company was only incorporated on 30 May 1995. However, the CIR issued a
Warrant of Distraint and/or Levy. Fitness filed before the CTA Division a Petition for Review with
Motion to Suspend Collection of the Tax Deficiency.
The CTA Division granted the petition on the ground that the assessment has
alreadyprescribed and also it cancelled and set aside the FAN as well as the Warrant of Distraint
and/or Levy.A Motion for Reconsideration was filed by the CIR, but it was denied. Aggrieved, the
CIR filed Petition for Review before the CTA En Banc, but it was also denied.
ISSUE/S:
1. Whether or not the tax assessment starts with the filing of tax return and
payment of tax by the taxpayer.
2. Whether or not affording taxpayers with sufficient written notice of their tax
liability is an indispensable requirement.
RULING:
1. Yes. An assessment “refers to the determination of amounts due from a person
obligated to make payment.” “In the context of national internal revenue collection, it refers to the
determination of the taxes due from a taxpayer under the National Internal Revenue Code of 1997.”
The assessment process starts with the filing of tax return and payment of tax by the taxpayer. The
initial assessment evidenced by the tax return is a self-assessment of the taxpayer. The tax is
primarily computed and voluntarily paid by the taxpayer without need of any demand from
government.
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If tax obligations are properly paid, the Bureau of Internal Revenue may dispense
with its own assessment. After filing a return, the Commissioner or his or her representative may
allow the examination of any taxpayer for assessment of proper tax liability. The failure of a
taxpayer to file his or her return will not hinder the Commissioner from permitting the taxpayer’s
examination. The Commissioner can examine records or other data relevant to his or her inquiry in
order to verify the correctness of any return, or to make a return in case of noncompliance, as well
as to determine and collect tax liability.
2. Yes. The indispensability of affording taxpayers sufficient written notice of his or

her tax liability is a clear definite requirement. Section 228 of the National Internal Revenue Code
and Revenue Regulations No. 12-99, as amended, transparently outline the procedure in tax
assessment. Section 3 of Revenue Regulations No. 12-99, the then prevailing regulation regarding
the due process requirement in the issuance of a deficiency tax assessment, requires a notice for
informal conference.
The revenue officer who audited the taxpayer’s records shall state in his or her
report whether the taxpayer concurs with his or her findings of liability for deficiency taxes. If the
taxpayer does not agree, based on the revenue officer’s report, the taxpayer shall be informed in
writing of the discrepancies in his or her payment of internal revenue taxes for “Informal
Conference.”
The informal conference gives the taxpayer an opportunity to present his or her
side of the case. The taxpayer is given 15 days from receipt of the notice of informal conference to
respond. If the taxpayer fails to respond, he or she will be considered in default. The revenue officer
endorses the case with the least possible delay to the Assessment Division of the Revenue
Regional Officer or the Commissioner or his or her authorized representative. The Assessment
Division of the Revenue Regional Office or the Commissioner or his or her authorized
representative is responsible for the “appropriate review and issuance of a deficiency tax
assessment, if warranted.”
If, after the review conducted, there exists sufficient basis to assess the taxpayer
with deficiency taxes, the officer shall issue a preliminary assessment notice showing in detail the
facts, jurisprudence, and law on which the assessment is based. The taxpayer is given 15 days
from receipt of the pre-assessment notice to respond. If the taxpayer fails to respond, he or she will
be considered in default, and a formal letter of demand and assessment notice will be issued.
The formal letter of demand and assessment notice shall state the facts,
jurisprudence, and law on which the assessment was based; otherwise, these shall be void. The
taxpayer or the authorized representative may administratively protest the formal letter of demand
and assessment notice within 30 days from receipt of the notice.
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COMMISSIONER OF INTERNAL REVENUE, VS. TRANSITIONS OPTICAL PHILIPPINES, INC.,
G.R. NO. 227544
FACTS:
On April 28, 2006, Transitions Optical Philippines, Inc. (Transitions Optical) received Letter
of Authority from Revenue Region No. 9, San Pablo City, of the Bureau of Internal Revenue (BIR),
to examine Transition Optical's books of accounts for internal revenue tax purposes for taxable year
2004.On October 9, 2007, the parties allegedly executed a Waiver of the Defense of Prescription
(First Waiver) where the prescriptive period for the assessment for the year 2004 was extended to
June 20, 2008. This was followed by another supposed Waiver of the Defense of Prescription
(Second Waiver) whrerein the prescriptive period was supposedly extended to November 30, 2008.
Thereafter, the Commissioner of Intenal Revenue issued a Preliminary Assessment Notice
(PAN) dated November 11, 2008 assessing Transitions Optical for its deficiency taxes for taxable
year 2004. On November 28, 2008, a Final Assessment Notice (FAN) and a Formal Letter of
Demand was given for deficiency income tax, value-added tax, expanded withholding tax, and final
tax for taxable year 2004 amounting to Php19, 701,849.68. In its Protest Letter, Transitions Optical
alleged that the demand for deficiency taxes had already prescribed at the time the FAN was mailed
on December 2, 2008.
On March 16, 2012, Transitions Optical filed a Petition for Review before the Court of Tax
Appeals (CTA). The First Division rendered a Decision which finds the subject Waivers to be
defective and therefore void and the subject assessment must be cancelled for being issued beyond
the prescriptive period provided by law to assess. The Court of Tax Appeals En Banc affirmed the
First Division Decision.
ISSUES:
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(1) Whether or not the two (2) Waivers of the Defense of Prescription entered into by the
parties on October 9, 2007 and June 2, 2008 were valid.
(2) Whether or not the assessment of deficiency taxes against respondent Transitions
Optical Philippines, Inc. for taxable year 2004 had prescribed.
RULING:
On the first issue, yes, the two (2) Waivers of the Defense of Prescription entered into by the
parties on October 9, 2007 and June 2, 2008 were valid.
In the instant case, the CTA declared as defective and void the two (2) Waivers of the
Defense of Prescription for non-compliance with the requirements for the proper execution of a
waiver as provided in RMO No. 20-90 and RDAO No. 05-01. The Waivers were not accompanied by
a notarized written authority from respondent. Also, neither the RDOs acceptance date nor
respondent's receipt of the Bureau of Internal Revenue's acceptance was indicated in either
document
Nonetheless, respondent's acts also show its implied admission of the validity of the waivers.
First, respondent never raised the invalidity of the Waivers at the earliest opportunity. Respondent
only raised the issue of these Waivers' validity in its Petition for Review filed with the Court of Tax
Appeals. Second, respondent does not dispute petitioner's assertion that respondent repeatedly
failed to comply with petitioner's notices.
Thus, having benefitted from the Waivers executed at its instance, respondent is estopped
from claiming that they were invalid and that prescription had set in.
On the second issue, yes, the assessment of deficiency taxes against respondent
Transitions Optical Philippines, Inc. for taxable year 2004 had prescribed.But, even as respondent is
estopped from questioning the validity of the Waivers, the assessment is nonetheless void because
it was served beyond the supposedly extended period.
The First Division of the Court of Tax Appeals found that "the date indicated in the
envelope/mail matter containing the FAN and the FLD is December 4, 2008, which is considered as
the date of their mailing." Since the validity period of the second Waiver is only until November 30,
2008, prescription had already set in at the time the FAN and the FLD were actually mailed on
December 4, 2008.
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ALLIED BANKING CORPORATION VS. CIR
G.R. NO. 175097
FACTS:
The Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) and Gross
Receipts Tax (GRT) on industry issue for the taxable year 2001. Petitioner received the PAN and
filed a protest against it.The BIR wrote a Formal Letter of Demand with Assessment Notices to
petitioner which was received by the latter.
Petitioner filed a Petition for Review with the CTA Division.Respondent CIR filed his Answer and
thereafter, filed a Motion to Dismiss on the ground that petitioner failed to file an administrative
protest on the Formal Letter of Demand with Assessment Notices which was granted by the CTA
and the Petition for Review is hereby DISMISSED for lack of jurisdiction.
ISSUE:
Whether or not the Formal Letter of Demand can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.
RULING:
Yes, the Formal Letter of Demand can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.
In the case of Vda. De Tan v. Veterans Backpay Commission, the respondent contended
that before filing a petition with the court, petitioner should have first exhausted all administrative
remedies by appealing to the Office of the President. However, we ruled that respondent was
estopped from invoking the rule on exhaustion of administrative remedies considering that in its
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Resolution, it said, "The opinions promulgated by the Secretary of Justice are advisory in nature,
which may either be accepted or ignored by the office seeking the opinion, and any aggrieved party
has the court for recourse". The statement of the respondent in said case led the petitioner to
conclude that only a final judicial ruling in her favor would be accepted by the Commission.
Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition
for Review was premature because petitioner failed to exhaust all administrative remedies.
The Formal Letter of Demand with Assessment Notices which was not administratively
protested by the petitioner can be considered a final decision of the CIR appealable to the CTA
because the words used, specifically the words "final decision" and "appeal", taken together led
petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final
decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the
same to the CTA.
LASCONA LAND CO., INC. VS. CIR

GR NO. 171251
FACTS:
On March 27, 1998, the CIR issued an Assessment Notice against Lascona Land Co., Inc.
(Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of
₱753,266.56.
On April 20, 1998, Lascona filed a letter protest, but was denied through a letter dated March
3, 1999 by the Regional Director of the BIR for the reason that the case was not elevated to the
Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax
Code. Hence, the said assessment notice has become final, executory and demandable. (in case of
the inaction by the Commissioner on the protested assessment within the 180-day reglementary
period, petitioner should have appealed the inaction to the CTA).
On April 12, 1999, Lascona appealed the decision before the CTA. CTA, in its Decision,
nullified the subject assessment. It held that in cases of inaction by the CIR on the protested
assessment, Section 228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA
within thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2) wait until the
Commissioner decides on his protest before he elevates the case.
The CIR moved for reconsideration. pursuant to Section 3 (3.1.5) of Revenue Regulations
No. 12-99 dated September 6, 1999 which provides that: If the Commissioner or his duly authorized
representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date
of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer
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may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day
period; otherwise, the assessment shall become final, executory and demandable.
The CTA denied the MR of CIR and held that Revenue Regulations No. 12-99 must
conform to Section 228 of the NIRC.
Consequently, the CIR filed an appeal to the CA. The CA granted the CIR’s petition and set
aside the decision of CTA.
ISSUE:
Whether the subject assessment has become final, executory and demandable due to the
failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One
Hundred Eighty (180) – day pursuant to Section 228 of the NIRC.
RULING:
As established in RCBC vs. CIR, the SC ruled that that in case the Commissioner failed to
act on the disputed assessment within the 180-day period from date of submission of documents, a
taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after
the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days
after receipt of a copy of such decision.
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of
the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-
day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects
the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to
wait for the final decision of the CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR will decide on the protested
assessment.
Accordingly, considering that Lascona opted to await the final decision of the Commissioner
on the protested assessment, it then has the right to appeal such final decision to the Court by filing
a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the
expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the
disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA,
after its receipt of the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made
as it was filed within 30 days after receipt of the copy of the decision.
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SAMAR-I ELECTRIC COOPERATIVE VS. CIR
GR No. 193100
FACTS:
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office
at Barangay Carayman, Calbayog City.On July 13, 1999 and April 17, 2000, petitioner filed its 1998
and 1999 income tax returns. Petitioner filed its 1997, 1998, and 1999 Annual Information Return of
Income Tax Withheld on Compensation, Expanded and Final Withholding Taxes on February 17,
1998, February 1, 1999, and February 4, 2000, in that order.
On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No. 1998
00023803.Petitioner cooperated in the audit and investigation conducted by the Special
Investigation Division of the BIR by submitting the required documents on December 5, 2000.
On October 19, 2001, respondent sent a Notice for Informal Conference which was received
by petitioner in November 2001; indicating the allegedly income and withholding tax liabilities of
petitioner for 1997 to 1999.In response, petitioner sent a letter dated November 26, 2001 to
respondent maintaining its indifference to the latter’s findings and requesting details of the
assessment.On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription
under the Statute of Limitations, good until March 29, 2002.
On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The
PAN was received by petitioner on April 9, 2002, which was protested on April 18, 2002.On July 8,
2002, respondent dismissed petitioner’s protest and recommended the issuance of a Final
Assessment Notice. On September 15, 2002, petitioner received a demand letter and assessments
notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999 deficiency withholding tax
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in the amount of Php 3,760,225.69, as well as deficiency income tax covering the years 1998 to
1999 in the amount of Php 440,545.71, or in the aggregate amount of Php 4,200,771.40.
On April 10, 2003, Final Decision on Disputed Assessment, petitioner was still held liable for
the alleged tax liabilities
CTA First Division ordered petitioner to pay CIR deficiency withholding tax on compensation
in the aggregate amount of Php 2,690,850.91.
ISSUE:
Whether the 1997 and 1998 assessments on withholding tax on compensation were issued
within the prescriptive period provided by law
whether the assessments were issued in accordance with Section 228 of the NIRC of 1997.
RULING:
Yes. . On the issue of prescription, petitioner contends that the subject 1997 and 1998
witholding tax assessments on compensation were issued beyond the prescriptive period of three
(3) years under Section 203 of the NIRC of 1997. Under this period , the government is allowed a
period of only three years to assess the correct tax liability of a taxpayer.
SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, that in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from
the day the return was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day.
Section 203 sets the three-year prescriptive period to assess, the following exceptions are provided
under Section 222 of the NIRC of 1997, viz.:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the
tax may be assessed within the period agreed upon. The period so agreed upon may be extended
by subsequent written agreement made before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5)
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years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the five (5)-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of the
period previously agreed upon.
(e) Provided, however, that nothing in the immediately preceding Section and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax return filed
in accordance with the provisions of any tax amnesty law or decree. (Emphasis supplied.)
It was petitioner’s substantial underdeclaration of withholding taxes in the amount of

P2,690,850.91 which constituted the “falsity” in the subject returns – giving respondent the benefit of
the period under Section 222 of the NIRC of 1997 to assess the correct amount of tax “at any time
within ten (10) years after the discovery of the falsity, fraud or omission.”
The proper and reasonable interpretation of said provision should be that in the three
different cases of:
1. false return;
2. fraudulent return with intent to evade tax;
3. failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the (1) falsity, (2) fraud, AND (3) omission.
There is a difference between “false return” and “fraudulent return” cannot be denied. While
the first merely implies deviation from the truth, whether intentional or not, the second implies
intentional or deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec.
331 of the NIRC should be applicable to normal circumstances, but whenever the government is
placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities
due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the
period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity,
fraud or omission even seems to be inadequate and should be the one enforced.
Evidence on record shows that the petitioner failed to withhold taxes from its employees 13 th
month pay and other benfits in excess of thirty thousand pesos (30,000 pesos) amounting to P2,
690,850.91 for the taxable years 1997-1999 which resulted to its filling of the false subject returns.
Petitioner failed to refute this finding, both in fact and in law. In fact, the witness for the CIR
testified that SAMELCO -1 did not file an accurate return.
SEC. 228. Protesting of Assessment. –

The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void.
Formal Letter of Demand and Assessment Notice. – The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts,
the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the
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formal letter of demand and assessment notice shall be void. The same shall be sent to the
taxpayer only by registered mail or by personal delivery.
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments. A void
assessment bears no valid proof.
Considering the exchange of correspondence and documents between the parties, the Court
finds that the requirement of Section 228 was substantially complied with. Respondent had fully
informed petitioner in writing of the factual and legal basis of the deficiency tax assessment.
Hence, petitioner’s right to due process was not violated.
COMMISSIONER OF INTERNAL REVENUE VS. METRO STAR SUPERAMA, INC.
FACTS:
Revenue District Officer of Legazpi City issued a Preliminary 15-day Letter, which Metro Star
received on November 9, 2001, stating that there was deficiency value-added and withholding taxes
due from Metro Star. On April 11,2002, Metro Star received a Formal Letter of Demand dated April
3, 2002 assessing it an amount for deficiency value-added and withholding taxes for the taxable
year 1999.
Subsequently, a Final Notice of Seizure dated May 12, 2003 was sent to Metro Star, which it
received on May 15, 2003, giving it the last opportunity to settle its deficiency tax liabilities within 10
days from receipt thereof.
On February 6, 2004, Metro Star received a Warrant of Distraint/Levy dated May 12, 2003
demanding payment of deficiency value-added tax and withholding tax payment. On July 30, 2004,
Metro Star filed with the Office of the CIR a MR which was denied. Denying that it received a
Preliminary Assessment Notice(PAN) and claiming that it was not accorded with due process, Metro
Star filed a petition for review with the CTA. The CTA-Second Division granted Metro Stars petition
for review. A reconsideration was sought by the CIR but it was denied. On appeal to the CTA-En
Banc, the petition was dismissed.
ISSUE:
Whether failure to send the PAN would render the assessment null and void
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HELD:
Yes, on the matter of service of a tax assessment, a further perusal of our ruling in Barcelon
is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having
received an assessment from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was indeed received by the addressee. The onus
probandi was shifted to respondent to prove by contrary evidence that the Petitioner
received the assessment in the due course of mail. The Supreme Court has consistently
held that while a mailed letter is deemed received by the addressee in the course of
mail, this is merely a disputable presumption subject to controversy and a direct denial
thereof shifts the burden to the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee (Republic vs. Court of Appeals,
149SCRA 351).
The Court agrees with the CTA that the CIR failed to discharge its duty and present any
evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could have
simply presented the registry receipt or the certification from the postmaster that it mailed the PAN,
but failed. Neither did it offer any explanation on why it failed to comply with the requirement of
service of the PAN. Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first
be informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present their case and adduce supporting
evidence.
The sending of a PAN to taxpayer to inform him of the assessment made is but part of the
due process requirement in the issuance of a deficiency tax assessment, the absence of which
renders nugatory any assessment made by the tax authorities.
The persuasiveness of the right to due process reaches both substantial and procedural
rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Stars right to due process. Thus, for its failure to send the PAN stating the
facts and the law on which the assessment was made as required, the assessment made by the
CIR is void.
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FISHWEALTH CANNING CORP. VS. CIR
G.R. NO. 179343
FACTS:
The Commissioner of Internal Revenue (respondent), by Letter of Authority
ordered the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth
Canning Corp. (petitioner). The investigation disclosed that petitioner was liable for tax deficiencies.
Petitioner eventually settled these obligations on August 30, 2000.On August 25, 2000, respondent
reinvestigated petitioner’s books of accounts and other records of internal revenue taxes covering
the same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to
submit its records and books of accounts. Petitioner requested the cancellation of the subpoena on
the ground that the same set of documents had previously been examined.
On August 6, 2003, respondent sent to petitioner a Final Assessment Notice for
the taxable year 1999. Petitioner contested by letter of September 23, 2003. Respondent thereafter
issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received
on August 4, 2005, denying its letter of protest and requesting the immediate payment thereof.
Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA)
within thirty (30) days from date of receipt.
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Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter
of Reconsideration dated August 31, 2005. By a Preliminary Collection Letter dated September 6,
2005, respondent demanded payment of petitioner's tax liabilities, drawing petitioner to file on
October 20, 2005 a Petition for Review before the CTA. In his Answer, respondent argued that the
petition was filed out of time.
The First Division of the CTA dismissed the petition. Petitioner filed a Motion for
Reconsideration which was denied. Petitioner filed a petition for review before the CTA En Banc
which was also denied.
ISSUE/S:
Whether or not the petition for review filed before the CTA First Division and CTA
En Banc was filed out of time.
RULING:
Yes, the petition for review filed before the CTA First Division and CTA En Banc
was filed out of time.
Section 228 of the 1997 Tax Code provides that an assessment may be protested administratively
by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable.
In the case at bar, petitioner's administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner
received on August4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner
had 30 days to appeal respondent's denial of its protest to the CTA.
Since petitioner received the denial of its administrative protest on August 4,
2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of
the denial of the administrative protest does not toll the 30-day period to appeal to the CTA.
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COMMISSION OF INTERNAL REVENUE, vs.HANTEX TRADING CO., INC
G.R. No. 136975
FACTS:
The respondent is a corporation duly organized and existing under the laws of the
Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and other
chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry
and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section
1301 of the Tariff and Customs Code.
Sometime in October 1989, the Economic Intelligence and Investigation Bureau (EIIB)
received confidential information that the respondent had imported synthetic resin amounting
P115,599,018.00 but only declared P45,538,694.57, all based on photocopies of 77 Consumption
Entries furnished by an informer.
Thus, an investigation was conducted, where in EIIB Commissioner Almonte transmitted the
entire docket of the case to the BIR and recommended the collection of the total tax assessment
from the respondent. The BIR Regional Director concurred with the report and demanded from the
respondent to pay its tax liability due.
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Respondent forthwith filed a petition for review in the CTA of which ruled that respondent
was burdened to prove not only that the assessment was erroneous, but also to adduce the correct
taxes be paid by it. Upon appeal, the CA granted the petition and reversed the decision of the CTA.
The Ca held that the income and sales tax deficiency assessments issued by the petitioner
were unlawful and baseless since the copies of the import entries relied upon in computing the
deficiency tax of the respondent were not duly authenticated by the public officer charged with their
custody, nor verified under oath by the EIIB and the BIR investigators.
ISSUE:
WON the final assessment of the petitioner against the respondent for deficiency income tax
and sales tax for the latter’s 1987 importation is based on competent evidence and the law?
RULING:
No. The petitioner acted arbitrarily and capriciously in relying on and giving weight to the
machine copies of the Consumption Entries in fixing the tax deficiency assessments against the
respondent.
The rule is that in the absence of the accounting records of a taxpayer, his tax liability may
be determined by estimation. The petitioner is not required to compute such tax liabilities with
mathemateical exactness. Approximation in the calculation of the taxes due is justified. However,
the rule does not apply where the estimation is arrived at arbitrarily and capriciously
We agree with the contention of the petitioner that, as a general rule, tax assessments by tax
examiners are presumes correct and made in good faith. All presumption are in favor of the
correctness of a tax assessment. It is to be presumed, however, that such assessment was based
on sufficient evidence. If a taxpayer files a petition for review in the CTA and assails the
assessment, the prima facie presumption is that the assessment made by the BIR is correct.
However, the prima facie correctness of a tax assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is arbitrarily and capricious.
Hence, the determination by the CTA must rest on all the evidence introduced and its
ultimate determination must find support in credible evidence.
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ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL V. CIR
G.R. NO. 155541
FACTS:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two
days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income
Tax Return for 1978. The return did not indicate that the decedent had died. On May 22, 1979,
Philtrust also filed a verified petition for appointment as Special Administrator with the Regional Trial
Court of Manila. The court a quo appointed one of the heirs as Special Administrator. Philtrust’s
motion for reconsideration was denied by the probate court.
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent. On June 18, 1984,
respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce
collection of the decedent’s deficiency income tax liability, which were served upon her heir,
Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of Claim and
for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a
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letter of protest with the Litigation Division of the BIR, which was not acted upon because the
assessment notice had allegedly become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIR’s Motion for Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR
filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that
the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive
period for assessment and collection of taxes under Section 318 of the 1977 National Internal
Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondent’s claim against
the Estate, after finding that there was no notice of its tax assessment on the proper party.
On July 2, 1986, respondent filed an appeal with the Court of Appeals assailing the Order of
the probate court. It was claimed that Philtrust, in filing the decedent’s 1978 income tax return on
April 5, 1979, two days after the taxpayer’s death, had "constituted itself as the administrator of the
estate of the deceased at least insofar as said return is concerned." Claiming that Philtrust had been
remiss in not notifying respondent of the decedent’s death, respondent therefore argued that the
deficiency tax assessment had already become final, executory and incontestable, and that
petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the
respondent. Although acknowledging that the bond of agency between Philtrust and the decedent
was severed upon the latter’s death, it was ruled that the administrator of the Estate had failed in its
legal duty to inform respondent of the decedent’s death, pursuant to Section 104 of the National
Internal Revenue Code of 1977. Consequently, the BIR’s service to Philtrust of the demand letter
and Notice of Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-
day period to question this claim, the assessment became final, executory and incontestable.
ISSUE:
Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid
service in order to bind the Estate;
RULING:
The relationship between the decedent and Philtrust was one of agency, which is a personal
relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the
agent or principal automatically terminates the agency. In this instance, the death of the decedent
on April 3, 1979 automatically severed the legal relationship between her and Philtrust, and such
could not be revived by the mere fact that Philtrust continued to act as her agent when, on April 5,
1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed at the
moment of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate of the
Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was improperly done.
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It must be noted that Philtrust was never appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be thus appointed.
As of November 18, 1982, the date of the demand letter and Assessment Notice, the legal
relationship between the decedent and Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed
the legal obligation on Philtrust to inform respondent of the decedent’s death. Since there was never
any valid notice of this assessment, it could not have become final, executory and incontestable,
and, for failure to make the assessment within the five-year period provided in Section 318 of the
National Internal Revenue Code of 1977, respondent’s claim against the petitioner Estate is barred.
Respondent argues that an assessment is deemed made for the purpose of giving effect to
such assessment when the notice is released, mailed or sent to the taxpayer to effectuate the
assessment, and there is no legal requirement that the taxpayer actually receive said notice within
the five-year period. It must be noted, however, that the foregoing rule requires that the notice be
sent to the taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period, due process requires
at the very least that such notice actually be received.
In this case, the assessment was served not even on an heir of the Estate, but on a
completely disinterested third party. This improper service was clearly not binding on the petitioner.
LIGHT RAIL TRANSIT AUTHORITY V. BUREAU OF INTERNAL REVENUE

G.R. NO. 231238
FACTS:
The LRTA is a government-owned and controlled corporation created and organized under
Executive Order No. 603, dated July 12, 1980 'x x x primarily responsible for the construction,
operation, maintenance and/or lease of light rail transit system in the Philippines, giving due regard
to the
By reason of Executive Order 603, LRTA acquired real properties x x x constructed
structural improvements, such as buildings, carriageways, passenger terminal stations, and installed
various kinds of machinery and equipment and facilities for the purpose of its operations; x x [F]or x
x x an effective maintenance, operation and management, it entered into a Contract of Management
with the Meralco Transit Organization (METRO) in which the latter undertook to manage, operate
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and maintain the Light contained in said agreement, including payments of a management fee and
real property taxes.
That it commenced its operations in 1984, and that sometime that year, Respondent-
Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting of lands,
buildings, carriageways and passenger terminal stations, machinery and equipment which he
considered real property] under the Real Property Tax Code, to commence with the year 1985;
That [petitioner paid its real property taxes on all its real property holdings, except the
carriageways and passenger terminal stations including the land where it is constructed on the
ground that the same are not real properties under the Real Property Tax Code, and if the same are
real property, these are for public use/purpose, therefore, exempt from realty taxation, which claim
was denied by the Respondent-Appellee City Assessor of Manila.
ISSUE:
Whether or not the Court of Tax Appeals had jurisdiction over petitioner Light Rail Transit
Authority's Petition for Review. Subsumed in this issue is whether or not the Final Decision on the
Disputed Assessment is the final decision of the respondent Commissioner of Internal Revenue
appealable to the Court of Tax Appeals
RULING:
Yes.The June 30, 2014 Letter deny ing petitioner's appeal was the final decision on the
protest that is appealable to the Court of Tax Appeals. With petitioner having filed its Petition for
Review within 30 days from receipt of the June 30, 2014 Letter, the Court of Tax Appeals had
jurisdiction over the petitioner's Petition for Review.||| Decisions of the Commissioner in cases
involving disputed assessments" mean decisions of the Commissioner on the protest to the
assessment, not the assessment itself. The protest may either be a request for reconsideration or a
request for reinvestigation, and the decision on the protest, which may also be rendered by a duly
authorized representative of the Commissioner — must be final, i.e., not merely tentative in
character. Here, there was inaction on the part of the respondent on the petitioner's appeal of the
Final Decision on a Disputed Assessment. And under the circumstances, this Court finds that the
petitioner genuinely chose to await the Commissioner's final decision on its appeal. To our mind, the
option was made in good faith, not as an afterthought or "legal maneuver" to claim that the
assessment had not yet become final. This is shown by the petitioner's replies to the Revenue
District Officer when the latter issued the Preliminary Collection Letter and Final Notice Before
Seizure. In both reply letters, petitioner said that "it will act on the matter as soon as we receive the
Commissioner's decision on our appeal." Indeed, petitioner filed the Petition for Review with the
Court of Tax Appeals only after the issuance of the June 30, 2014 Letter that decided its May 6,
2011 appeal to the Office of the Commissioner.
Enforcement of collection remedies pending appeal with the CIR is void and should be of no force
and effect. Subsection 3.1.5 of Revenue Regulations No. 12-99 is clear that if the protest is elevated
to the Commissioner of Internal Revenue (CIR), "the latter's decision shall not be considered final,
executory and demandable, in which case, the protest shall be decided by the Commissioner.
The issuance therefore of a Preliminary
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Collection Letter, the Final Notice Before Seizure, and the Warrant of Distraint and/or Levy
pending appeal with the Commissioner of Internal Revenue shall not be considered a decision of
the latter. More importantly, all of these were issued on the premise that "delinquent taxes" exist, an
incorrect premise. Thus, the enforcement of collection remedies denying the request for
reconsideration all emanated from a non-demandable assessment. As such, all were void and
should be of no force and effect
ANGELES CITY V ANGELES CITY ELECTRIC CORPORATION ET. AL.

G.R. NO. 166134
FACTS:
In 1964, AEC was granted a legislative franchise under RA 4079. Pursuant to Section 3-A
thereof, AEC’s payment of franchise tax for gross earnings from electric current sold was in lieu of
all taxes, fees and assessments.
In 1974, PD 551 reduced the franchise tax of electric franchise holders. Section 1 of PD 551
provides: Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax
payable by all grantees of franchises shall be two percent (2%) of their gross receipts. Such
franchise tax shall be payable to the CIR or his duly authorized representative.
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On January 1, 1992, the LGC took effect, conferring upon provinces and cities the power to
impose tax on businesses enjoying franchise. In accordance with the LGC, the Sangguniang
Panlungsod of Angeles City enacted in December 1993 Revised Revenue Code of Angeles City
(RRCAC), TO No. 33, S-93.
In 1994, a petition seeking the reduction of the tax rates and a review of the provisions of the
RRCAC was filed with the Sangguniang Panlungsod. The SB did not act on the petition thus it was
elevated to the Secretary of Finance which referred the same to the Bureau of Local Government
Finance (BLGF). Acting on the petition, the BLGF instructed the City Treasurer of Angeles City to
make the appropriate amendment of the RRCAC in order to ensure compliance with the provisions
of the LGC. Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office
of the City Treasurer on a quarterly basis, in addition to the national franchise tax it pays every
quarter to the Bureau of Internal Revenue (BIR).
On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for payment
of business tax, license fee and other charges for the period 1993 to 2004, AEC protested the
assessment. The City Treasurer denied the protest for lack of merit. Aggrieved, AEC appealed the
denial of its protest to the RTC of Angeles City via a Petition for Declaratory Relief.
On April 2004, the City Treasurer levied on the real properties of AEC. A Notice of Auction
Sale was published and posted announcing that a public auction of the levied properties of AEC
would be held on May 7, 2004. This prompted AEC to file with the RTC, where the petition for
declaratory relief was pending, an Urgent Motion for Issuance of Temporary Restraining Order
and/or Writ of Preliminary Injunction to enjoin Angeles City and its City Treasurer from levying,
annotating the levy, seizing, confiscating, garnishing, selling and disposing at public auction the
properties of AEC.
After due notice and hearing, the RTC issued a Temporary Restraining Order (TRO)
followed by an Order granting the issuance of a Writ of Preliminary Injunction, conditioned upon the
filing of a bond. Upon AEC’s posting of the required bond, the RTC issued a Writ of Preliminary
Injunction.
On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for Dissolution of
Preliminary Injunction and Motion for Reconsideration of the Order dated May 24, 2004," which was
opposed by AEC.
ISSUE:
Whether or not RTC gravely abused its discretion in issuing the writ of preliminary injunction
enjoining Angeles City and its City Treasurer from levying, selling, and disposing the properties of
AEC.
RULING:
No because the LGC does not specifically prohibit an injunction enjoining the collection of
taxes.
Unlike the National Internal Revenue Code, the Local Tax Code does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Such statutory lapse
or intent, however it may be viewed, may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural rules and requirements under Rule 58. Under Rule 58
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two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely: (1) the
existence of a clear and unmistakable right that must be protected; and (2) an urgent and
paramount necessity for the writ to prevent serious damage.
It appearing that the two essential requisites of an injunction have been satisfied, as there
exists a right on the part of the petitioner to be protected, its right[s] of ownership and possession of
the properties subject of the auction sale, and that the acts (conducting an auction sale) against
which the injunction is to be directed, are violative of the said rights of the petitioner, the Court has
no other recourse but to grant the prayer for the issuance of a writ of preliminary injunction
considering that if the respondent will not be restrained from doing the acts complained of, it will
preempt the Court from properly adjudicating on the merits the various issues between the parties,
and will render moot and academic the proceedings before this court.
In assailing the injunction, petitioner primarily relied on the prohibition on the issuance of a
writ of injunction to restrain the collection of taxes. But as we have already said, there is no such
prohibition in the case of local taxes. Records also show that before issuing the injunction, the RTC
conducted a hearing where both parties were given the opportunity to present their arguments.
During the hearing, AEC was able to show that it had a clear and unmistakable legal right over the
properties to be levied and that it would sustain serious damage if these properties, which are vital
to its operations, would be sold at public auction. As we see it then, the writ of injunction was
properly issued.
COMMISSIONER OF INTERNAL REVENUE, VS. COURT OF TAX APPEALS SECOND DIVISION

AND QL DEVELOPMENT, INC.,.
G.R. NO. 258947
FACTS:
On November 12, 2012, QLDI received a Letter of Authority (LOA) which covers taxable
year 2010 for deficiency taxes. On November 28, 2014, the Preliminary Assessment Notice
(PAN) with the Details of Discrepancies was served by the CIR to QLDI. QLDI filed its reply to the
PAN on December 15, 2014. On Dec. 12, 2014, CIR sent the Formal Assessment Notice or Formal
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Letter of Demand (FAN/FLD) with Details of Discrepancies to QLDI. However, QLDI failed to file a
protest within the 30-day period provided by law. Since there was no protest filed, the CIR
issued a Final Decision on Disputed Assessment (FDDA) which was received by QLDI on March 3,
2015. QLDIÕs request for reconsideration with the CIR was denied and the CIR ordered QLDI to
pay the deficiency taxes and the compromise penalty for taxable year 2010. Hence, QLDI filed a
Petition for Review on June 30, 2020 before the CTA Division questioning the validity of the
assessment against it and the prescription of the CIRÕs right to collect taxes.
CTA Division: Held that the period within which the CIR may collect deficiency taxes
had already lapsed. When an assessment is timely issued, the CIR has five years to collect
the assessed tax, reckoned from the date of the assessment notice had been released,
mailed, or sent by the BIR to the taxpayer. In this case, the CIR had five years from December 12,
2014 or until December 12, 2019 to collect the deficiency taxes. However, the CIR only issued
the BIR letters for the collection of taxes on various dates in 2020, which were all beyond
December 12, 2019. Accordingly, CTA Division cancelled the assessment for deficiency taxes
against QLDI for taxable year 2010.
Petitioner’s Argument: CIR avers that the FDDA received by QLDI on March 3, 2015
effectively operated as a collection letter for the satisfaction of deficiency tax liabilities
Respondent’s Argument: The right of the CIR to collect taxes had already prescribed on
December 12, 2019 or five years from the date of mailing/release/sending of the FAN/FLD
on December 12, 2014.
ISSUE /S:
1. WON CTA has jurisdiction over the issue of prescription (YES)
2. WON the CIR’s right to collect taxes had already prescribed on December 12, 2019
or five years form the date of sending the FAN/FLD (NO)
RULING:
1. Yes. The issue of prescription is within the jurisdiction of the CTA, being a
matter provided for by the NIRC. Sec. 7 (a) (1) of RA No. 1125, as amended by RA No. 9282,
confers upon the CTA the jurisdiction to decide not only cases on disputed assessments and
refunds of internal revenue taxes, but also other matters arising under the NIRC. As previously
held by the Court in CIR vs. Hambrecht & Quist Philippines, Inc., the issue of prescription
of the CIRÕs right to collect taxes is covered by the term Òother mattersÓ which the CTA
has appellate jurisdiction.
2. No. The five-year period for collection of taxes only applies to assessments
issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to
file a return, as provided for under Sec. 222 of the NIRC.
As held by the Court in CIR vs. United Salvage and Towage (Phils.), Inc., in cases of
assessments issued within the three-year ordinary period, the CIR has another three years
within which to collect taxes.Since the subject assessment was issued within the three-year
ordinary prescriptive period to assess, the CIR had another three years to initiate the collection of
taxes by distraint, levy, or court proceeding. In this case, the FAN/FLD was mailed on
December 12, 2014. Thus, the CIR had another three years reckoned from said date or until
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December 12, 2017 to enforce the collection of the assessed deficiency taxes. Consequently,
when the CIR initiated its collection efforts only in 2020, the prescription had already set it. The
CIR’s claim that the FDDA received by QLDI effectively operated as a collection letter for
the satisfaction of deficiency tax liabilities is untenable since the CIRÕs collection efforts are
initiated by distraint, levy or court proceeding. The distraint or levy proceedings are validly
commenced by the issuance of a warrant of distraint and levy and service thereof on the
taxpayer. On the other hand, a judicial action for the collection of a tax is initiated by: a. Filing of a
complaint with the court of competent jurisdiction b. Where the assessment is appealed to the CTA,
by filing an answer to the taxpayer’s petition for review wherein payment of the tax is prayed for. In
this case, no warrant of distraint and/or levy was served on QLDI, and no judicial
proceedings were initiated by the CIR within the prescriptive period to collect
DEVELOPMENT BANK OF THE PHILIPPINES v. NATIONAL LABOR RELATIONS

COMMISSION and LEONOR A. ANG
G.R. No. 108031
FACTS:
Private respondents filed with DOLE- Daet, Camarines Norte, 17 individual complaints
against Republic Hardwood Inc. (RHI) for unpaid wages and separation pay. These complaints
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were thereafter endorsed to Regional Arbitration Branch of the NLRC since the petitioners had
already been terminated from employment. RHI alleged that it had ceased to operate in 1983 due to
the government ban against tree-cutting and that in May 24, 1981, its sawmill was totally burned
resulting in enormous losses and that due to its financial setbacks, RHI failed to pay its loan with the
DBP. RHI contended that since DBP foreclosed its mortgaged assets on September 24,1985, then
any adjudication of monetary claims in favor of its former employees must be satisfied against DBP.
Private respondent impleaded DBP.
Labor Arbiter favored private respondents and held RHI and DBP jointly and severally liable
to private respondents. DBP appealed to the NLRC. NLRC affirmed LA’s judgment. DBP filed M.R.
but it was dismissed. Thus, this petition for certiorari.
ISSUE:
Whether the private respondents’ separation pay should be preferred than the DBP’s lien
over the RHI’s mortgaged assets.
RULING:
No. Article 110 must be read in relation to the Civil Code concerning the classification,
concurrence and preference of credits, which is application in insolvency proceedings where the
claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. Before
the workers’ preference provided by Article 110 may be invoked, there must first be a declaration of
bankruptcy or a judicial liquidation of the employer’s business.
A distinction should be made between a preference of credit and a lien. A preference applies
only to claims which do not attach to specific properties. A lien creates a charge on a particular
property. The right of first preference as regards unpaid wages recognized by Article 110 does not
constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of
credit in their favor, a preference in application. It is a method adopted to determine and specify the
order in which credits should be paid in the final distribution of the proceeds of the insolvent’s
assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.
HON. KIM S. JACINTO-HENARES, vs. PHILIPPINE PLAZA HOLDINGS, INC

G.R. No. 247662
FACTS
The Court of Tax Appeals (CTA) En Banc affirmed the finding of the CTA Division that
Philippine Plaza Holdings Inc. (PPHI) is entitled to a refund in the amountof P807,951.22.
The Commissioner of Internal Revenue (CIR) insist that (1) the CTA Division has no
jurisdiction to take cognizance of the Amended Petition because the Philippine Plaza Holdings, Inc.
(PPHI) failed to exhaust administrative remedies; (2) assuming arguendo that CTA En Banc has
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jurisdiction, PPHI failed to support its request for abatement under Revenue Regulations No. 13-
2001.
ISSUE:
Whether or not the CTA-Division has jurisdiction over the case, even without first exhausting
the administrative remedies.
RULING:
Yes, the CTA-Division has jurisdiction over the case, even without first exhausting the
administrative remedies.
The Petition lacks merit. An administrative claim for refund is not necessary before the CTA
Division may take cognizance of PPHI’s amended petition for review claiming for refunds of the
erroneously paid Value-Added Tax (VAT) surcharge.
In the case of Vda. De San Agustin vs. CIR, the taxpayer paid under protest the deficiency
assessment issued by the CIR and then filed a petition for review with the CTA praying for the
refund of the said amount, the Court allowed the refund case to prosper even without prior
administrative claim. Thus, applying the foregoing jurisprudence, the CTA Division aptly took
cognizance of the Amended Petition.
Also the CIR is incorrect to insist on the Doctrine of Administrative Remedies. The Doctrine
of exhaustion of administrative remedies is not an iron-clad rule but recognizes certain exceptions,
including among others, when the requirement thereof would be unreasonable.
As correctly pointed out by the CTA ED, the filing of an administrative claim in this case
would be an exercise infutility because the same office where the said administrative claim will be
filed is the very same office which denied PPHI’S application for abatement.
The Court noted that in the Memorandum issued by the Large Taxpayers Service Sub-
Technical Working Committee of the BIR, the system error in the Electronic Filing and Payment
System (EFPS) and the diligent efforts exerted by PPHI to timely file its tax return were
acknowledged, prompting the latter to unanimously recommend the
approval of PPHI’s request for abatement.
Indeed, while tax refunds are strictly construed against that taxpayer, the government should not
resort to technicalities and legalisms, much less frivolous appeals, to keep the money it is not
entitled to at the expense of the taxpayers
QATAR AIRWAYS V. CIR

FACTS:
Qatar Airways with limited liability filed through eFPS of the BIR, its 2nd QITR for the fiscal
year ending March 31, 2012, and paid the corresponding tax due thereon. The said filing was one
day late. Qatar Airways sent a Letter to the CIR requesting for the abatement of surcharge.
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The BIR issued Assessment Notice informing Qatar Airways, surcharges, interest and
compromise penalty.Via eFPS, Qatar Airways paid the compromise penalty and interest for late
payment. For the surcharge, it requested to CIR for its abatement or cancellation on the ground that
is imposition was unjust and excessive. However, the BIR informed Qatar Airways that is
application for abatement has been denied.
Qatar Airways sough reconsideration, but the BIR denied due course.Aggrieved, it filed
Petition for Review to CTA Division, also with CTA En Banc, but it was denied.
ISSUE/S:
Whether or not the CTA En Banc err in assailing the decision of CTA Division.
RULING:
No. The authority of the CIR to abate or cancel a tax liability is enshrined in Section 204(B)
of the NIRC, viz:SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. - The Commissioner may - xxxx (B) Abate or cancel a tax liability, when: (1) The tax
or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and
collection costs involved do not justify the collection of the amount due.
In the present case, the Court finds no abuse of authority on the part of the CTA. Verily, the
findings of the CTA, supported as they are by logic and law, carry great weight in the proper
interpretation of what constitutes as "circumstances beyond control." Undeniably, a technical
malfunction is not a situation too bleak so as to render petitioner completely without recourse. As
correctly observed by the CTA, petitioner would not incur delay in the filing of its ITR if only it filed
the same before the deadline and not at the 11th hour or on the last day of filing. On petitioner's
averment that it had difficulty in interpreting the correct Gross Philippine Billings Computation for
income tax under the then newly-issued RR No. 11-2011, the CTA aptly stated that:
To avoid delay, petitioner could file a tentative quarterly income tax return if it was still
unsure with the figures contained therein to avoid paying the [25%] surcharge for late filing.
Thereafter, it could modify, change, or amend the tentative return already filed if warranted,
pursuant to Section 6(A) of the 1997 NIRC.
Further, the Court agrees that the surcharge imposed upon petitioner was not unjust or
excessive pursuant to Section 248(A)(1) of the 1997 NIRC which provides for the imposition of a
penalty equivalent to 25% of the amount due for failure to timely file any return and pay the tax due
thereon. Dura lex sed lex. While the Court commiserates with the unfortunate plight of petitioner, the
Court, like the CTA, is still bound to apply and give effect to the applicable law and rules.
KOPPEL (PH) INC. VS. THE COLLECTOR OF INTERNAL REVENUE

G.R. L-1977
FACTS:
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On February 14, 1946, plaintiff submitted its percentage tax return for the last quarter of
1941, wherein it appeared that the percentage tax it owed the government amounted to P7,156.40.
This tax should have been paid on or before January 20, 1942, but it was not so paid on account of
the war. Commonwealth Act No. 722 was passed by Congress extending the period of payment to
the last day of February, 1946. In its return abovementioned, plaintiff requested defendant to
authorize postponement of payment so that it may re-establish its business on a more normal basis,
but defendant, in a letter dated February 27, 1946 but received by plaintiff on March 1, 1946, denied
the request for lack of authority to grant the same. Wherefore, plaintiff paid the tax the same day it
received defendant’s reply letter, namely, on March 1, 1946. Defendant demanded payment of
surcharge corresponding to one day delinquency which plaintiff paid under protest, after a
considerable discussion with defendant. The surcharge thus paid was 25 per cent on the aforesaid
percentage tax, and amounted to P1,789.10. Action was filed to recover the amount paid under
protest, and after trial, judgment was rendered for the defendant. Hence, this appeal by plaintiff.
ISSUE:
Whether the Collector of Internal Revenue has authority to extend the period for payment of
percentage taxes.
RULING:
The Collector of Internal Revenue has no authority to extend the period for payment of
percentage taxes. SC provided that if the percentage tax on any business is not paid within the time
prescribed above the amount of the tax shall be increased by twenty-five per centum, the increment
to be a part of the tax. This provision is mandatory. It confers no discretion on the Collector of
Internal Revenue. That official may not disregard the law and substitute therefor his own personal
judgment.
SEC. 309. Provides that Collector of Internal Revenue may compromise any civil or other
case arising under this Code or other law or part of law administered by the Bureau of Internal
Revenue, may credit or refund taxes erroneously or illegally received, or penalties imposed without
authority, and may remit before payment any tax that appears to be unjustly assessed or
excessive."
However, the payment of the percentage taxes owed by plaintiff were not "unjustly assessed
or excessive," for there is absolutely no dispute as to the correctness of the assessment. The
surcharge demanded and paid was not a "penalty imposed without authority."
FR. CHRISTIAN B. BUENAFE VS. COMMISSION ON ELECTIONS, FERDINAND ROMUALDEZ

MARCOS, JR
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G.R. No. 260374.
FACTS:
This case involves a petition to deny due course to or cancel the Certificate of Candidacy
(COC) of Ferdinand "Bongbong" Marcos, Jr. in the 2022 Philippine presidential elections. The case
is divided into two petitions filed by different groups of petitioners.
Buenafe Petition: On November 2, 2021, petitioners Buenafe and others filed a petition
before the Commission on Elections (COMELEC) to deny due course to or cancel Marcos Jr.'s
COC. They claimed that Marcos Jr. made false material representations in his COC, which is a
violation of the election code.
Ilagan Petition: On November 20, 2021, petitioners Ilagan and others filed a separate
petition before the COMELEC seeking the disqualification of Marcos Jr. under a different section of
the election code. They argued that Marcos Jr. should be disqualified due to his prior conviction and
the penalty of perpetual disqualification for public office.
The petitions were based on criminal cases against Marcos Jr. related to his failure to file
income tax returns and pay income taxes for certain years. The Regional Trial Court (RTC) found
him guilty of these charges but imposed a fine rather than imprisonment. The Court of Appeals (CA)
later modified the RTC's decision, and Marcos Jr. was acquitted of some charges.
The COMELEC Second Division reviewed these cases and found that Marcos Jr.'s COC
was valid, stating that his representations were not false, and he was not perpetually disqualified
from public office. They also ruled that failure to file income tax returns did not involve moral
turpitude, and thus, it did not disqualify him from running for President.
The COMELEC Former First Division later considered similar issues raised by a separate
group of petitioners in the Ilagan Petition and reached similar conclusions. They stated that Marcos
Jr. was not penalized with imprisonment or disqualified from holding public office.
Both the Buenafe and Ilagan petitions were appealed to the COMELEC En Banc, which
upheld the earlier decisions.
The petitions were filed just before the 2022 Philippine national elections, and Marcos Jr.
won the election, with his victory being subsequently proclaimed by Congress. The Buenafe and
Ilagan Petitions aimed to disqualify him from running for president based on his prior conviction.
However, the COMELEC and COMELEC En Banc concluded that he was eligible to run for the
position.
This summary provides an overview of the legal proceedings related to the two petitions and
the findings of the COMELEC regarding Marcos Jr.'s eligibility to run for president in the 2022
elections.
ISSUE:
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Whether or not failure to file income tax returns is tax evasion, a crime involving moral
turpitude.
RULING:
No, failure to file income tax returns is not tax evasion. The COMELEC Second Division
reiterated this Court's declaration in Republic v. Ferdinand Marcos II and Imelda R. Marcos that
failure to file an income tax return is not a crime involving moral turpitude. Moreover, failure to file
income tax returns is not tax evasion.
The COMELEC Former First Division found no evidence that respondent Marcos, Jr.
voluntarily and intentionally violated the law. It noted the BIR certification that stated the compliance
by respondent Marcos, Jr. with the CA Decision and the payment of deficiency taxes and fines.
Finally, non¬filing of income tax returns does not equate to moral turpitude
LIM, Sr. vs. Court of Appeals

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190 SCRA 616, G.R. Nos. 48134-37
FACTS:
Petitioner souses Emilio E. Lim and Antonia Sun Lim, with the business address at No.336
Nueva Street, Manial, were engaged in the dealership business of various household appliances.
They filesd income tax returns for the years 1958 and 1959.
On October 5, 1959, a raid was conducted at their business address by the National Bureau
of Investigation by virtue of a search warrant issued by Judge Wenceslao L. Cornejo of the City
Court of Manila. A similar raid was made on petitioners' premises at 111 12th Street, Quezon City.
Seized from the Lim couple were business and accounting records which served as bases for an
investigation undertaken by the Bureau of Internal Revenue (BIR).
On September 30, 1964 Senior Revenue Examiner Raphael S. Daet submitted a
memorandum with the findings that the income tax returns filed by petitioners for the years 1958
and 1959 were false or fraudulent. Daet recommended that an assessment of P835,127.00 be
made against the petitioners.
Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M. Tabios
informed petitioners that there was due from them the amount of P922,913.04 as deficiency income
taxes for 1958 and 1959, giving them until May 7, 1965 to pay the amount.
On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation. The BIR
expressed willingness to grant such request but on condition that within ten days from notice, Lim
would accomplish a waiver of defense of prescription under the Statute of Limitations and that one
half of the deficiency income tax would be deposited with the BIR and the other half secured by a
surety bond. If within the ten-day period the BIR did not hear from petitioners, then it would be
presumed that the request for reinvestigation had been abandoned. Petitioner Emilio E. Lim, Sr.
refused to comply with the above conditions and reiterated his request for another investigation.
On October 10, 1967, the BIR rendered a final decision holding that there was no cause for
reversal of the assessment against the Lim couple. Petitioners were required to pay deficiency
income taxes for 1958 and 1959 amounting to P1,237,190.55 inclusive of interest, surcharges and
compromise penalty for late payment. The final notice and demand for payment was served on
petitioners through their daughter-in-law on July 3, 1968.
Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on September
1, 1969, the matter was referred by the BIR to the Manila Fiscal's Office for investigation and
prosecution. On June 23, 1970, four (4) separate criminal informations were filed against petitioners
in the then Court of First Instance of Manila, Branch VI for violation of Sections 45 and 51 in relation
to Section 73 of the National Internal Revenue Code. 2 Trial ensued. On August 19, 1975, the trial
court rendered two (2) joint decisions finding petitioners guilty as charged. Hence the present
petition for review by certiorari.
Petitioners appealed the decision to CA which affirmed the lower court’s decision. Twenty-
three days later, on September 24, 1977, petitioner Emilio Lim Sr. died.
In their Brief, petitioners contend that the Appellate Court erred in holding that the offenses
charged in Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years, instead of five (5) years;
that the prescriptive period in Criminal Cases Nos. 1788 and 1789 commenced to run only from July
3, 1968, the date of the final assessment; that Section 316 of the Tax Code as amended by
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Presidential Decree No. 69 was applicable to the case at bar; and that the civil obligation of
petitioner Emilio E. Lim, Sr. arising from the crimes charged was not extinguished by his death.
ISSUE:
Whether the 5-year period should be reckoned from the date of final notice and demand
RULING:
Yes.
Section 51 (b) of the Tax Code provides:
(b) Assessment and payment of deficiency tax. — After the return is filed, the Commissioner
of internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency
in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal
Revenue.
Inasmuch as the final notice and demand for payment of the deficiency taxes was served on
petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued.
This is so because prior to the receipt of the letter-assessment, no violation has yet been committed
by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to
pay the taxes due within the alloted period. The two criminal informations, having been filed on June
23, 1970, are well-within the five-year prescriptive period and are not time-barred.
With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing of
fraudulent consolidated income tax returns with intent to evade the assessment decreed by law,
petitioners contend that the said crimes have likewise prescribed. They advance the view that the
five-year period should be counted from the date of discovery of the alleged fraud which, at the
latest, should have been October 15, 1964, the date stated by the Appellate Court in its resolution of
April 4, 1978 as the date the fraudulent nature of the returns was unearthed. 9
On behalf of the Government, the Solicitor General counters that the crime of filing false
returns can be considered "discovered" only after the manner of commission, and the nature and
extent of the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR
rendered its final decision holding that there was no ground for the reversal of the assessment and
therefore required the petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions
were discovered.
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CONGRESSMAN MANDANAS, ET. AL., VS.EXECUTIVE SECRETARY OCHOA,
G.R. NO. 199802
FACTS:
It is the Congress who implements the constitutional mandate for decentralization and local
autonomy through enacting R.A. No.7160, otherwise known as the Local Government Code (LGC),
in order to guarantee the fiscal autonomy of the Local Government Units (LGUs). Share of the
LGUs has been regularly released as the Internal Revenue Allotment (IRA). The implementing rules
and regulations (IRR) of the LGC, the IRA is determined on the basis of actual collections of the
National Internal Revenue Taxes (NIRTs) as certified by the Bureau of Internal Revenue (BIR).
The petitioners hereby challenge the manner in which the just share in the national taxes of
the local government units (LGUs) has been computed.
It is being alleged by the petitioners that certain collections of NIRTs by the Bureau of
Customs (BOC) have not been included in the computation of the IRA. Albeit collection by the BOC
of taxes such as excise taxes, value added taxes (VATs) and document stamp taxes (DSTs), should
form part of the base from which the IRA should be computed because they constitute NIRTs.
ISSUE:
Whether or not the existing shares given to the LGUs by virtue of the GAA is consistent with
the constitutional mandate to give LGU’s a ‘just share’ to national taxes following Article X, Section
6 of the1987 Constitution
RULING:
No. The 1987 Constitution limits Congress’ control over the LGUs by ordaining in Section 25
of its Article II that: “The sate shall ensure the autonomy of local governments.” The constitutional
mandate to ensure local autonomy refers to decentralization wherein it should be instituted through
the LGC in order to enable a more responsive and accountable local government structure. It has
also delegated the power to tax to the LGUs by authorizing them to create their own sources of
income that would make them self-reliant as it has been formalized from Section 128 to Section 133
of the LGC. It further ensures that each and every LGU will have a just share in national taxes as
enacted by the Congress through Section 284 to Section288 of the LGC as well in the development
of the national wealth through the enactment of Section 289 to Section 294 of the LGC. Indeed, the
requirement for the automatic release to the LGUs of their just share in the national taxes is but a
consequence of the constitutional mandate for fiscal decentralization.
Therefore, the court ordered the Secretary of Department of Finance; the Secretary of the
Department of Budget Management; the Commissioner of Internal Revenue; the Commissioner of
Customs; and the National Treasurer to include all collections of national taxes in the computation
of the base of the just share of the Local Government Units according to the ratio provided in the
now-modified Section 284 of R.A. No. 7160 (Local Government Code)except those accruing to
special purpose funds and special allotments for the utilization and development of the national
wealth.
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ALTERNATIVE CENTER FOR ORGANIZATIONAL REFORMS AND DEVELOPMENT, INC.
(ACORD), ET. AL., vs. HON. RONALDO ZAMORA
G.R. No. 144256
FACTS:
Pursuant to Section 22, Article VII of the Constitution mandating the President to submit to
Congress a budget of expenditures within thirty days before the opening of every regular session,
then President Joseph Ejercito Estrada submitted the National Expenditures Program for Fiscal
Year 2000. In the said Program, the President proposed an Internal Revenue Allotment (IRA) in the
amount of ₱121,778,000,000 following the formula provided for in Section 284 of the Local
Government Code of 1992.
On February 16, 2000, the President approved House Bill No. 8374. This bill became
Republic Act No. 8760, "An Act Appropriating Funds for the Operation of the Government of the
Republic of the Philippines from January One to December Thirty-One, Two Thousand, and for
Other Purposes".
The act, otherwise known as the General Appropriations Act (GAA) for the Year 2000,
provides under the heading "Allocations to Local Government Units" that the IRA for local
government units shall amount to ₱111,778,000,000.
In another part of the GAA, under the heading "Unprogrammed Fund," it is provided that an
amount of ₱10,000,000,000 (₱10 Billion), apart from the ₱111,778,000,000 shall be used to fund
the IRA, which amount shall be released only when the original revenue targets submitted by the
President to Congress can be realized based on a quarterly assessment to be conducted by certain
committees which the GAA specifies, namely, the Development Budget Coordinating Committee,
the Committee on Finance of the Senate, and the Committee on Appropriations of the House of
Representatives.
On August 22, 2000, a number of non-governmental organizations (NGOs) and people's
organizations, along with three barangay officials filed with the Supreme Court the present Petition
for Certiorari, Prohibition and Mandamus challenging the constitutionality of provision XXXVII
(Allocations to Local Government Units) referred to by petitioners as Section 1, XXXVII (A), and LIV
(Unprogrammed Fund) Special Provisions 1 and 4 of the GAA (the GAA provisions).
Petitioners contend that the said provisions violate the autonomy of local governments by
unlawfully reducing the IRA allotted by 10B and by withholding its release by placing the same
under “Unprogrammed funds”.
ISSUE/S:
Whether or not the questioned provisions violate the constitutional injunction that the just
share of local governments in the national taxes or the IRA shall be automatically released.
RULING:
Yes, the questioned provisions violate the constitutional injunction that the just share of local
governments in the national taxes or the IRA shall be automatically released.
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Article X, Section 6 of the Constitution provides:
SECTION 6. Local government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them.
As the Constitution lays upon the executive the duty to automatically release the just share
of local governments in the national taxes, so it enjoins the legislature not to pass laws that might
prevent the executive from performing this duty. To hold that the executive branch may disregard
constitutional provisions which define its duties, provided it has the backing of statute, is virtually to
make the Constitution amendable by statute - a proposition which is patently absurd.
Since, under Article X, Section 6 of the Constitution, only the just share of local governments
is qualified by the words "as determined by law," and not the release thereof, the plain implication is
that Congress is not authorized by the Constitution to hinder or impede the automatic release of the
IRA.Additionally, to interpret the term automatic release in such a broad manner would be
inconsistent with the ruling in Pimentel v. Aguirre. In the said case, the executive withheld the
release of the IRA pending an assessment very similar to the one provided in the GAA. This Court
ruled that such withholding contravened the constitutional mandate of an automatic release.
There is no substantial difference between the withholding of IRA involved in Pimentel
and that in the present case, except that here it is the legislature, not the executive, which has
authorized the withholding of the IRA. The distinction notwithstanding, the ruling in Pimentel
remains applicable. As explained above, Article X, Section 6 of the Constitution - the same provision
relied upon in Pimentel – enjoins both the legislative and executive branches of government. Hence,
as in Pimentel, under the same constitutional provision, the legislative is barred from withholding the
release of the IRA.
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ANGELES CITY VS. ANGELES CITY ELECTRIC CORPORATION
G.R. NO. 166134
FACTS:
This Petition for Certiorari under Rule 65 of the Rules of Court seeks to set aside the Writ of
Preliminary Injunction issued by the Regional Trial Court (RTC) of Angeles City, Branch 57, in Civil
Case No. 11401, enjoining Angeles City and its City Treasurer from levying, seizing, disposing and
selling at public auction the properties owned by Angeles Electric Corporation (AEC).
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No. (RA)
40792 to construct, maintain and operate an electric light, heat, and power system for the purpose
of generating and distributing electric light, heat and power for sale in Angeles City, Pampanga.
Pursuant to Section 3-A thereof, AEC’s payment of franchise tax for gross earnings from electric
current sold was in lieu of all taxes, fees and assessments.
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed
into law, conferring upon provinces and cities the power, among others, to impose tax on
businesses enjoying franchise. In accordance with the LGC, the Sangguniang Panlungsod of
Angeles City enacted Tax Ordinance No. 33, S- 93, otherwise known as the Revised Revenue
Code of Angeles City (RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the
provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of
Commerce and Industry Inc. (MACCI) of which AEC is a member. In the petition, MACCI alleged
that the RRCAC is oppressive, excessive, unjust and confiscatory.
On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for payment
of business tax, license fee and other charges for the period 1993 to 2004 in the total amount of
₱94,861,194.10. Within the period prescribed by law, AEC protested the assessment claiming that:
(a) pursuant to RA 4079, it is exempt from paying local business tax;
(b) since it is already paying franchise tax on business, the payment of business tax would
result in double taxation.
On April 5, 2004, the City Treasurer levied on the real properties of AEC. After due notice
and hearing, the RTC issued a Temporary Restraining Order (TRO) on May 4, 2004.
ISSUE:
WON the RTC gravely abuse its discretion in issuing the writ of preliminary injunction
enjoining Angeles City and its City Treasurer from levying, selling, and disposing the properties of
AEC.
RULING:
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No. The RTC did not act with grave abuse of discretion in issuing writ of preliminary
injunction for the collection of local taxes.
The LGC does not specifically prohibit an injunction enjoining the collection of taxes. The
prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to
national internal revenue taxes, and not to local taxes.
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the
government should be collected promptly, without unnecessary hindrance or delay. In line with this
principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall
have the authority to grant an injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by the code. An exception to this rule obtains only when in the opinion of
the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government
and/or the taxpayer.
The situation, however, is different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an injunction to restrain local
governments from collecting taxes. Thus, in the case of Valley Trading Co., Inc. v. Court of First
Instance of Isabela, Branch II, cited by the petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax Code does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes.No grave abuse of
discretion was committed by the RTC.
Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a writ of
preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists
in restraining the commission or continuance of the acts complained of, or in the performance of an
act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during
the litigation would probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely:
(1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and
paramount necessity for the writ to prevent serious damage.
Thus, it is very evident on record that petitioner resorted and filed an urgent motion for
issuance of a temporary restraining order and preliminary injunction to stop the scheduled auction
sale only when a warrant of levy was issued and published in the newspaper setting the auction
sale of petitioner’s property by the City Treasurer, merely few weeks after the petition for declaratory
relief has been filed, because if the respondent will not be restrained, it will render this petition moot
and academic.
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FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. COURT OF APPEALS
G.R. No. 125948
FACTS:
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 and
renewed by the Energy Regulatory Board in 1992.
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code. The respondent City Treasurer assessed a business tax
on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer.On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption
under Section 133 (j) of the Local Government Code.
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint
for tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia,
that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133
of the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include
the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h),
the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and
erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid.
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common carriers
by air, land and water." Respondents assert that pipelines are not included in the term "common
carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like.
Respondents further posit that the term "common carrier" under the said code pertains to the mode
or manner by which a product is delivered to its destination.
On October 3, 1994, the trial court rendered a decision dismissing the complaint.
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication. On November 29, 1995, the respondent court rendered a decision affirming the trial
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court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July
18, 1996.
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. Petitioner moved for a reconsideration which was granted by this Court in a
Resolution of January 22, 1997. Thus, the petition was reinstated.
ISSUE:
Whether or not oil pipe line operators are “common carriers” and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code.
RULING:
Yes. The test for determining whether a party is a common carrier of goods is: 1. He must be
engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods for person generally as a business
and not as a casual occupation; 2. He must undertake to carry goods of the kind to which his
business is confined; 3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and 4. The transportation must be for hire.
Based on the above definitions and requirements, there is no doubt that petitioner is a
"common carrier", of the Local Government Code. It is engaged in the business of transporting or
carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for
all persons indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation, and, therefore, exempt from the business tax as provided for
in Section 133 (j).
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LAND TRANSPORTATION OFFICE VS CITY OF BUTUAN
322 SCRA 805
FACTS:
Respondent city of Butuan asserts that one of the salient provisions introduced by the local
government code is in the area of local taxation which allows LGUs to collect registration fees or
charges along with, its view, the corresponding issuance of all kinds of licenses or permits for the
driving of tricycles. Relying on the provisions of the local government code, the Sangguniang
Panlungsod of Butuan, on August 16, 1992 passed SP Ordinance no. 916-42 entitled “An
Ordinance Regulating The Operation Of Tricycles-For-Hire, Providing Mechanism For The Issuance
of Franchise, Registration and Permit and Imposing Penalties For Violations Thereof and for Other
Purposes.”
The ordinance provided for among other things, the payment of franchise fees for the grant of
the franchise of tricyles-for-hire, fees for the registration of the vehicle, and fees for the issuance of
a permit for the driving thereof. Petitioner LTO explains that one of the functions of the national
government that, indeed, has been transferred to local government units is the franchising authority
over tricycles-for-hire of the land transportation franchising and regulatory board but not, it
asseverates, the authority of LTO to register all motor vehicles and to issue qualified persons of
licenses to drive such vehicles.
ISSUE:
Whether or not respondent city of Butuan may issue license and permit and collect fees for the
operation of tricycle.
RULING:
No. LGU’s indubitably now have the power to regulate the operation of tricycles-for-hire
and to grant franchises for the operation thereof. “To regulate” means to fix, establish or control; to
adjust by rule, method or established made; to direct by rule or restriction; or to subject to governing
principles of law. A franchise is defined to be a special privilege to do certain things conferred by
government on an individual or corporation and which does not belong to citizens generally of
common right.
On the other hand, to register means to record formally and exactly, to enroll, or to enter
precisely in a list or the like, and a driver’s license is the certificate or license issued by the
government which authorizes a person to operate a motor vehicle. The devolution of the functions
of the DOTC, performed by the LTFRB, to the LGUs, as so aptly observed by the solicitor general is
aimed at curbing the alarming in on case of accidents in national highways involving tricycles. It has
been the perception that local governments are in good position to achieve the end desired by the
law making body because of their proximity to the situation that can enable them to address that
serious concern better than the national government.
It may not be amiss to state nevertheless, that under article 458 (a) [3-VI] of the local
government code, the power of the LGUs to regulate the operation of tricycles and to grant
franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. In
compliance therewith, the Department of Transportation and Communications (DOTC) issued
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guidelines to implement the devolution of LTFRBs franchising authority over tricycles-for-hire to
local government units pursuant to the local government code.
The reliance made by the respondents on the broad taxing power of local government units,
specifically under section 133 of the local government code, is tangential. Police power and
taxation, along with eminent domain, are inherent powers of sovereignty which the state might
share with local government units by delegation or given under a constitutional or a statutory fiat. All
these inherent powers are for a public purpose and legislative in nature but the similarities just
about end there. The basic aim of police power is public good and welfare. Taxation, in its case,
focuses on the power of government to raise revenue in order to support its existence and carry out
its legitimate objectives. Although correlative to each other in many respects, the grant of one does
not necessarily carry with it the grant of the other. The two powers are by tradition and
jurisprudence separate and distinct powers, varying in their respecting concepts, character, scopes,
and limitations. To construe the tax provisions of section 133 (1) indistinctively would result in the
repeal to that extent of LTOs regulatory power which evidently has not been intended. If it were
otherwise, the law could have just said so in section 447 and 458 of Book III of the local government
code in the same manner that the specific devolution of LTFRBs power on franchising of tricycles
has been provided. Repeal by implication is not favored. The power over tricycles granted under
section 458 (8) (3) (VI) of the local government code to LGUs is the power to regulate their
operation and to grant franchises for the operation thereof. The government’s exclusionary clause
contained in the tax provisions of section 133 (1) of the local government code must be held to have
had the effect of withdrawing the express powers of LTO to cause the registration of all motor
vehicles and the issuance of license for the driving thereof. These functions of the LTO are
essentially regulatory in nature, exercised pursuant to the police power of the state, whose basic
objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and
the competence of drivers prescribed by RA 4136. Not insignificant is the rule that a statute must
not be construed in isolation but must be taken in harmony with the extent body of laws.
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PHILIPPINE HEART CENTER PETITIONER V THE LOCAL GOVERNMENT OF QUEZON
G.R. NO. 225409
FACTS:
In 1975, the PHC was established under PD 673. To enable the PHC to perform its
mandate, the national government provided the initial land, building, equipment and facilities
needed for its establishment. PD 673 also authorized the PHC to acquire properties; to enter into
contracts; and to mortgage, encumber, lease, sell, convey or dispose of its properties. More, it
exempted the PHC from "the payment of all taxes, charges, fees imposed by the Government or
any political subdivision or instrumentality thereof" for a period of ten (10) years. In 1985, then
President Marcos issued Letter of Instruction (LOI) 1455 extending the tax exemption "without
interruption."
Among the properties owned by the PHC were eleven (11) land and buildings in Quezon
City.In 2004 respondent Quezon City Government issued three (3) final Notices of Delinquency for
unpaid real property taxes pertaining to the eleven (11) afore-cited properties of the PHC. The
notices were unheeded, thus, respondent Quezon City Treasurer levied on the PHC's properties.
Under Memorandum dated August 22, 2006, the Office of the Government Corporate
Counsel (OGCC) informed the PHC of the Court's ruling in Manila International Airport Authority v.
Court of Appeals (MIAA) where the Court declared that government entities are exempt from taxes,
fees or charges of any kind that may be imposed by any local government unit. It also advised all
government instrumentalities under its jurisdiction to suspend any payment of local tax liability
pending the finality of the Court's ruling.
The Quezon City Government, nonetheless, stood firm on its position that the PHC was
and still remained liable for real property taxes since a major portion of its properties were being
leased to private individuals. Thus, on June 1, 2001, it issued two (2) Final Notices of Tax
Delinquency to the PHC. On June 13, 2011, respondent Quezon City Treasurer issued a Warrant of
Levy for the PHC 's failure to pay real property taxes despite due notice. On July 7, 2011, after due
publication, all the properties were sold to the Quezon City Government, the lone bidder during the
public auction.
ISSUE:
Whether or not the PHC exempt from paying real property taxes on its eleven (11)
properties in Quezon City.
RULING:
Yes, the PHC exempt from paying real property taxes on its eleven (11) properties in
Quezon City.
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Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities.
Section 234(a) of RA 7160 further exempts real property owned by the Republic from real property
taxes, viz: Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
Here, the fact that the PHC may have entered into transactions with regard to its
properties, short of alienating them, does not detract from their characterization as properties of
public dominion for public use or public service.
Section 234(a) of RA 7160 exempts real property owned by the Republic from real
property taxes except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person. Thus, the Court has invariably held that a government
instrumentality, though vested with corporate powers, are exempt from real property tax but the
exemption shall not extend to taxable private entities to whom the beneficial use of the government
instrumentality's properties has been vested.
Respondents, therefore, correctly posit that the PHC's properties which are leased to
private individuals are no longer covered by the tax exemption. This, however, does not
automatically validate their acts of assessing, levying, and selling the eleven (11) properties of the
PHC. Respondents' levy and subsequent sale of the PHC's properties, these acts have no basis in
law.
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MANILA ELECTRIC COMPANY v. CITY OF MUNTINLUPA and NELIA A. BARLIS
G.R. No. 198529
FACTS:
Manila Electric Company (Meralco) is a public utility corporation organized under Philippine
laws with a franchise to construct, operate and maintain a distribution system for electricity in the
National Capital Region, among others.
The City of Muntinlupa was converted from a municipality to a highly urbanized city by
Republic Act No. 7926 in 1995. On January 01, 1994, the Revenue Code of the Municipality of
Muntinlupa (MO 93-35) imposed a franchise tax on public utilities operating within its jurisdiction.
In 1999, the City Treasurer of Muntinlupa demanded payment of the franchise tax owed by
Meralco from 1992 to 1999. Meralco ignored the demand and filed a petition in the Regional Trial
Court to declare Section 25 of MO 93-35 as null and void. Meralco argued that municipalities do not
have the authority to impose a franchise tax.
The City of Muntinlupa argued that it has the authority to impose a franchise tax based on
R.A. No. 7160 and its implementing rules and regulations.
The RTC ruled in favor of Meralco, but the Court of Appeals modified the decision and held
that the subject section of MO 93-35 was cured of its legal infirmities when the Municipality of
Muntinlupa was converted to a highly urbanized city. However, the obligation to pay the franchise
tax begins only from March 01, 1995.
ISSUES:
1. WON Section 25 of MO 93-35 is valid.
2. WON the conversion of the Municipality of Muntinlupa to a highly urbanized city
cured the infirmity of Section 25 of MO 93-35?
RULING
1. No. Section 25 of MO 93-35 is null and void.
The two tests used in determining the validity of an ordinance are the Formal Test and the
Substantive Test. The Formal Test checks if the ordinance was enacted within the corporate powers
of the local government unit and if it was passed according to the procedure laid down by law. The
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Substantive Test evaluates the reasonableness and fairness of the ordinance, its compliance with
the Constitution and existing statutes.
The Court held that MO 93-35 failed both tests. The Formal Test was failed as the passage
of the subject ordinance was beyond the corporate powers of the then Municipality of Muntinlupa.
The Substantive Test was failed as the subject section deviated from the provisions of R.A. No.
7160, which only allows provinces and cities to impose a franchise tax. The Municipality of
Muntinlupa had no power to enact the franchise tax ordinance.
2. No. The curative effect of Section 56 of the Charter of Muntinlupa City cannot cure
the infirmity of Section 25 of MO 93-35.
The CA’s ruling that the curative effect of the conversion of Muntinlupa into a highly
urbanized city cured the infirmity of Section 25 of MO 93-35 is incorrect. A legal infirmity cannot be
cured by a mere change of status from a municipality to a highly urbanized city.
In this case, Section 25 of MO 93-35, being ultra vires and in violation of R.A. No. 7160,
remains null and void. The conversion of Muntinlupa into a highly urbanized city cannot give it the
power to impose a franchise tax, which power is exclusively vested in provinces and cities under
R.A. No. 7160.
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CITY OF IRIGA VS. CAMARINES SUR III ELECTRIC COOPERATIVE, INC. (CASURECO III),
G.R. NO. 192945
FACTS:
CASURECO III is an electric cooperative duly organized and existing by virtue of
Presidential Decree (PD) 269. It is engaged in the business of electric power distribution to various
end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi,
Bula and Balatan of the Province of Camarines Sur, otherwise known as the "Rinconada area."
Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a report of its
gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes,
fees and other charges. The latter complied and was subsequently assessed taxes. On January 7,
2004, petitioner made a final demand on CASURECO III to pay the franchise taxes due for the
period 1998-2003 and real property taxes due for the period 1995-2003.
CASURECO III, however, refused to pay said taxes on the ground that it is an electric
cooperative provisionally registered with the Cooperative Development Authority (CDA), and
therefore exempt from the payment of local taxes.
On March 15, 2004, petitioner filed a complaint for collection of local taxes against
CASURECO III before the RTC, citing its power to tax under the Local Government Code (LGC)
and the Revenue Code of Iriga City, alleging that as of December 31, 2003, CASURECO III’s
franchise and real property taxes liability, inclusive of penalties, surcharges and interest, amounted
₱17,037,936.89 and ₱916,536.50, respectively.
In its Decision, the RTC ruled that the real property taxes due for the years 1995-1999 had
already prescribed in accordance with Section 194 of the LGC. However, it found CASURECO III
liable for franchise taxes for the years 2000-2003 based on its gross receipts from Iriga City and the
Rinconada area on the ground that the "situs of taxation is the place where the privilege is
exercised."
CASURECO III appealed from the RTC Decision, questioning its liability for franchise taxes
before the Court of Appeals. The CA found CASURECO III to be a non-profit entity, not falling within
the purview of "businesses enjoying a franchise" pursuant to Section 137 of the LGC. Petitioner
moved for reconsideration, which the CA denied.
Hence, the instant petition.
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ISSUES:
(1) Whether or not the motion for reconsideration of the CA Decision was filed out of time,
the same had attained finality
(2) Whether or not an electric cooperative registered under PD 269 but not under RA 6938 is
liable for the payment of local franchise taxes;
(3) Whether or not the situs of taxation is the place where the franchise holder exercises its
franchise regardless of the place where its services or products are delivered.
RULING:
On the first issue, no, motion for reconsideration of the CA Decision was filed out of time, the
same had not attained finality.
Considering that RA 9282 was already in effect when the RTC rendered its decision on
February 7, 2005, CASURECO III should have filed its appeal, not with the CA, but with the CTA
Division in accordance with the applicable law and the rules of the CTA. Resort to the CA was,
therefore, improper, rendering its decision null and void for want of jurisdiction over the subject
matter. A void judgment has no legal or binding force or efficacy for any purpose or at any place.
The foregoing procedural lapses would have been sufficient to dismiss the instant petition
outright and declare the decision of the RTC final. However, the substantial merits of the case
compel us to dispense with these lapses and instead, exercise the Court’s power of judicial review.
On the second issue, yes, electric cooperative registered under PD 269 but not under RA
6938 is liable for the payment of local franchise taxes.
CASURECO III is not exempt from payment of franchise tax. CASURECO III can no longer
invoke PD 269 to evade payment of local taxes. Moreover, its provisional registration with the CDA
which granted it exemption for the payment of local taxes was extended only until May 4, 1992.
Thereafter, it can no longer claim any exemption from the payment of local taxes, including the
subject franchise tax.
Indisputably, petitioner has the power to impose local taxes. The power of the local
government units to impose and collect taxes is derived from the Constitution itself which grants
them "the power to create its own sources of revenues and to levy taxes, fees and charges subject
to such guidelines and limitation as the Congress may provide."
On the third issue, yes, the situs of taxation is the place where the franchise holder exercises its
franchise regardless of the place where its services or products are delivered.
CASURECO III is liable for franchise tax on gross receipts within Iriga City and Rinconada area.
CASURECO III’s contention that that its liability to pay franchise tax, if any, should be limited to
gross receipts received from the supply of the electricity within the City of Iriga and not those from
the Rinconada area is not tenable.
It should be stressed that what the petitioner seeks to collect from CASURECO III is a
franchise tax, which as defined, is a tax on the exercise of a privilege. As Section 137 of the LGC
provides, franchise tax shall be based on gross receipts precisely because it is a tax on business,
rather than on persons or property. Since it partakes of the nature of an excise tax/ the situs of
taxation is the place where the privilege is exercised, in this case in the City of Iriga, where
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CASURECO III has its principal office and from where it operates, regardless of the place where its
services or products are delivered.
CITY OF PASIG VS. MERALCO

G.R. NO. 181710
FACTS:
On 26 December 1992, the Sangguniang Bayan of the Municipality of Pasig enacted
Ordinance No. 25 which, under its Article 3, Section 32, imposed a franchise tax on all business
venture operations carried out through a franchise within the municipality.
Later on, the Municipality of Pasig was converted into a highly urbanized city to be known as
the City of Pasig.
The Treasurer's Office of the City Government of Pasig informed the Manila Electric
Company (MERALCO), a grantee of a legislative franchise, that it is liable to pay taxes for the
period 1996 to 1999, pursuant to Municipal Ordinance No. 25.MERALCO protested the validity of
the demand "claiming that the same be withdrawn and cancelled.
In view of the inaction by the Treasurer's Office, MERALCO instituted an action before the
RTC for the annulment of the said demand with prayer for a temporary restraining order and a writ
of preliminary injunction. The RTC ruled in favor of the City of Pasig. MERALCO appealed before
the CA, but the court ruled in negative.
ISSUE/S:
1. Whether or not a municipality has authority to levy franchise taxes.
2. Whether or not the subsequent conversion of the Municipality of Pasig into a City does
remove the original infirmity of the said ordinance.
RULING:
1. No. It is not disputed that at the time the ordinance in question was enacted in 1992, the
local government of Pasig, then a municipality, had no authority to levy franchise tax.
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Article 5 of the Civil Code explicitly provides, “acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity.”
Section 32 of Municipal Ordinance No. 25 is, thus, void for being in direct contravention with
Section 142 of the LGC.
Being void, it cannot be given any legal effect. An assessment and collection pursuant to the
said ordinance is, perforce, legally infirm. Consequently, the CA was correct when it declared that
the demand of the City of Pasig upon MERALCO for the payment of the disputed tax was devoid of
legal basis.
2. No. The doctrinal rule on the matter still rings true to this day – that the conversion of the
municipality into a city does not remove the original infirmity of the subject ordinance.
Such doctrine, evoked in Arabay and SMC, is squarely relevant in the case at bar. In these
two separate cases, the sales taxes were paid by the petitioners pursuant to ordinances enacted
prior to the conversion of the respondents into cities, or at which time the latter were without
authority to levy the said taxes.
Finding the municipal ordinances to be void, the Court minced no words in declaring the
payments of taxes under the ordinances to be without basis even if subsequently the respondents
became cities.
Fittingly, the Court ordered the refund of the said taxes to the petitioners. We find the instant
case no different from Arabay and SMC. As in those cases, the cityhood law (R.A. No. 7829) of
Pasig cannot breathe life into Section 32 of Municipal Ordinance No. 25, ostensibly by bringing it
within the ambit of Section 151 of the LGC that authorizes cities to levy the franchise tax under
Section 137 of the same law. It is beyond cavil that Section 32 of Municipal Ordinance No. 25 is an
act that is null and void ab initio. It is even of little consequence that Pasig sought to collect only
those taxes after its conversion into a city.
A void ordinance, or provision thereof, is what it is – a nullity that produces no legal effect. It
cannot be enforced; and no right could spring forth from it. The cityhood of Pasig notwithstanding, it
has no right to collect franchise tax under the assailed ordinance.
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LEPANTO CONSOLIDATED MINING CO. VS. MAURICIO B. AMBANLOC
G.R. 180639
FACTS:
The national government issued to petitioner Lepanto Consolidated Mining Company
(Lepanto) a mining lease contract granting the right to extract and use for its purposes all mineral
deposits within the boundary lines of its mining claim. DENR advised Lepanto that it did not have to
get a permit to extract and use sand and gravel from within the mining claim for its operational and
infrastructure needs.
Lepanto utilized quarried materials to back-fill stopes and construct concrete structures,
utilizing sand and gravel within its mining claim, as it was more practical and cost-effective than
outsourcing.
Respondent Mauricio Ambanloc, the provincial treasurer of Benguet, sent a demand letter to
Lepanto, asking it to pay the province ₱1,901,893.22 as sand and gravel tax, for the quarry
materials that it extracted from its mining site from 1997 to 2000. Lepanto sent a letter-protest to the
provincial treasurer, but the latter denied the same, insisting on payment.
Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question the
assessment. The RTC ruled that Lepanto was liable for the amount assessed, with interest at the
rate of 2 percent per month from the time the tax should have been paid. Lepanto appealed to the
CTA Division where it affirmed the ruling of the RTC with the modification that the interest of 2
percent per month shall not exceed 36 months.
Lepanto again appealed to the CTA En Banc wherein it dismissed the appeal, resulting in
the affirmance of the decision of the Second Division. Lepanto’s motion for reconsideration met the
same fate, hence, this appeal.
ISSUE:
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Whether Lepanto is liable for the tax imposed by the Province of Benguet on the sand and
gravel that it extracted from within the area of its mining claim and used exclusively in its mining
operations.
RULING:
Yes, Lepanto is liable to pay the sand and gravel taxes.
One. Lepanto claims that the tax on sand and gravel applied only to commercial extractions.
In its case, it extracted these materials for use solely in its mining operations. Lepanto did not
supply other users for some profit. Thus, its extractions were not commercial and should not be
subject to provincial tax.
The provincial revenue code provides that the subject tax had to be paid prior to the
issuance of the permit to extract sand and gravel. Its Article D, Section 2, enumerates four kinds of
permits: commercial, industrial, special, and gratuitous. Special permits covered only personal use
of the extracted materials and did not allow the permitees to sell materials coming from his
concession. Among applicants for permits, however, only gratuitous permits were exempt from the
sand and gravel tax. It follows that persons who applied for special permits needed to pay the tax,
even though they did not extract materials for commercial purposes. Thus, the tax needed to be
paid regardless of the applicability of the administrative and reportorial requirements of that revenue
code.
Two. Lepanto claims that the tax can only be levied against extractions by persons or
entities required to apply for permits to remove quarry resources. Since the mining lease contract
with the national government granted it the right to extract and utilize all mineral deposits from within
its mining claim, Lepanto claims that it did not need to apply for a separate permit from the local
government.
But this merely declares that Lepanto’s extraction and use of mineral deposits bears the
consent of the national government, in line with the principle that exploration of natural resources
can only be done under the control and supervision of the State. The contract makes no mention of
any exemption from securing government permits.
The Bureau has no authority to determine the applicability of local ordinances. Besides, even
the Bureau itself states that the exemption from MRD-27 is not absolute as it shall not apply if the
sand and gravel were to be disposed of commercially. Lepanto failed to show its entitlement to such
exemption.
Three. Lepanto relies on the principle that when a company is taxed on its main business, it
is no longer taxable for engaging in an activity that is but a part of, incidental to, and necessary to
such main business. Lepanto points out that, since it did not extract and use sand and gravel as
independent activities but as integral parts of its mining operations, it should not be subjected to a
separate tax on the same.
But in the cases where this principle has been applied, the taxes which were stricken down
were in the nature of business taxes. The reasoning behind those cases was that the incidental
activity could not be treated as a business separate and distinct from the main business of the
taxpayer. Here the tax is an excise tax imposed on the privilege of extracting sand and gravel. And
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it is settled that provincial governments can levy excise taxes on quarry resources independently
from the national government.
THE PROVINCE OF BULACAN, vs. THE HONORABLE COURT OF APPEALS

G.R. No. 126232
FACTS:
On June 26, 1992, the Sangguniang Panlalawigan passed provincial ordinance no. 3 known
as “Ordinance Enacting The Revenue Code Of The Bulacan Province” which was to take effect on
July 1, 1992 Section 21 of the ordinance provides as follows:
Sec 21. Imposition of Tax – There is hereby levied and collected a tax of 10% of the fair
market value in the locality per cubic meter of ordinary stores, sand, gravel, earth and other quarry
resources, such but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate,
extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public
waters within its territorial jurisdiction.
Pursuant thereto, the provincial treasurer of Bulacan in a letter dated November 11, 1992,
assessed private respondent Republic Cement Corporation Php2,524,692.13 for extracting lime
stones, shale and silica from several parcels of private land in the province during the third quarter
of 1992 until the second quarter of 1993. Believing that the province, on the bases of the above-said
ordinance, had no authority to impose taxes on quarry resources extracted from private lands,
Republic Cement formally contested the same on December 23, 1993. The same was, however,
denied by the provincial treasurer on January 17, 1994. Republic Cement, consequently filed a
petition for declaratory relief with the Regional Trial Court (RTC) of Bulacan on February 14, 1993.
The province filed a motion to dismiss Republic Cement’s petition which was granted by the trial
court on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach
of the ordinance had been committed by Republic Cement.
ISSUE:
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WON a province has the authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.
RULING:
No, a province has no authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.
The pertinent provisions of the Local Government Code, Sec. 158 pertaining to “Tax on Sand,
Gravel and Other Quarry Resources” states that the province may levy and collect not more than
ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as
amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and
other public waters within its territorial jurisdiction.
In the instant case, Republic Cement is extracting limestone, shale and silica from several parcels
of private land in the province and under Section 158 of the LGC, a province can collect taxes on
sand, gravel and other quarry resources which is extracted from public lands. Thus, they are
barred from imposing taxes in private lands.
Hence, the province has no authority to impose taxes on stones, sand, gravel and other quarry
resources extracted from private lands.
PBA VS. COURT OF APPEALS
GR NO. 119122
FACTS:
On June 21, 1989, petitioner received an assessment letter from the Commissioner of
Internal Revenue for payment of deficiency amusement tax
On July 18, 1989, petitioner contented the assessment by filing a protest with the
Commissioner who denied the same on November 6, 1989
On January 8, 1990, petitioner files for review with Court of Tax Appeals questioning
denial by Commissioner of its tax protest
CTA dismissed PBA’s petition for lack of merit
Petitioner files a motion for reconsideration but was denied by CTA on April 8, 1994.
Petitioner then appealled the decision to the CA
CA En banc affirmed the CTA division decision
Petitioner filed a motion for reconsideration but was denied by CA on January 31, 1995
Petitioner contended that PD 231, Local Tax Code of 1973, transferred power and authority
to levy and collect amusement taxes from sale of admission of tickets of amusement from
national government to local government
ISSUE
Whether the amusement tax on admission tickets to PBA games are considered national or
local tax
RULING:
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It is considered as national tax.
Sec 13 of the Local Tax Code only covers proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses, and other places of amusement.
The provision indicates that the province can only impose tax on admission from the said
places of amusement. The authority to tax professional basketball games was not included therein,
as the same is expressly embraced in PD 1959 which was amended by PD 1456.
Sec. 268 states that proprietor, lessee, or operator of professional basketball games is
required to pay amusement tax equivalent of 15% of their gross receipts to the Bureau of Internal
Revenue, which payment is a national tax.
FILM DEVELOPMENT COUNCIL (FDCP) V. COLON HERITAGE (CHRC), SM PRIME HOLDINGS

(SMPHI) AND CITY OF CEBU
G.R. NO. 203754
FACTS
In 1993, Cebu City passed City Ordinance No. LXIX requiring cinemas and other places of
amusement to pay amusement taxes equivalent to 30% of the gross receipts of the admission fees
to the Office of the City Treasurer of Cebu City.
On 2022, Congress passed R.A. 9167 declaring that the amusement tax on certain graded
films in Metro Manila and highly urbanized cities in the Philippines during the film’s exhibition
should be remitted instead to the FDCP and the films’ producers by proprietors, operators, or
lessees of theaters and cinemas. However, Cebu City did not comply, prompting cinema proprietors
within the city, like CHRC and SMPHI, to do the same. Consequently, FDCP sent demand letter to
all respondents for the unpaid amusement taxes with surcharge.
In response, Cebu City and CHRC filed a Petition for Declaratory Relief to their respective
RTCs, seeking to declare R.A. 9167 as unconstitutional. Both RTCs then ruled against the
constitutionality of said law.
Aggrieved, FDCP filed two separate petitions for certiorari consolidated in one case.
The Court then rendered its Main Decision confirming the unconstitutionality of the said law
on the ground that such provisions violate the principle of local fiscal autonomy as the FDCPwas
authorized to confiscate funds which should have otherwise accrue to the benefit of LGUs. The
Court further rendered the following dispositions:
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FDCP and film producers need not to return the amounts they received to their LGUs as the
provisions of R.A. 9167 were in effect during that time; 2. In this regard, Cebu City must turn over to
FDCP the amusement taxes it has received (PHP76,836,807.08) that should have been remitted to
FDCP prior to the law being declared unconstitutional; and 3. Cinema proprietors and operators in
Cebu City is not liable for any surcharge as they were acting in good faith.
All parties sought motions for reconsideration on the effects of this decision.
ISSUES:
1. Whether or nor the Court erred in declaring R.A. 9167 unconstitutional?
2. Whether or not the doctrine of operative fact, which relieved FDCP and other cinema
proprietors who followed the invalid law from the burden of remitting the taxes to their municipalities,
properly applied to this case?
3. Whether or not the cinema proprietors like CHRC need to remit amusement taxes to the
FDCP even if it had already “paid and remitted all due taxes to the right authority: Cebu City?”
RULING:
1. No, the Court did not err in declaring R.A. 9167 unconstitutional. The petition of FDCP on
the act’s constitutionality is DENIED;
2. Yes, the doctrine of operative fact was properly applied to this case as a matter of equity
and fair play. The petition of Cebu City against its application in the case is DENIED; and
3. No, CHRC and cinema proprietors do not need to remit the same amusement taxes to the
FDCP, provided that paid and remitted all due taxes to the right authority as demanded to them;
The petition of CHRC is PARTLY GRANTED and REMAMDED to the proper RTC.
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CITY OF DAVAO VS. AP HOLDINGS, INC
G.R. NO. 245887
FACTS:
The Coconut Industry Investment Fund (CIIF) under Presidential Decree 582 (PD 582) is
a fund from part of the levy imposed on the initial sale by coconut farmers of copra and other
coconut products. Pursuant to PD 582's mandate, the CIIF was invested in six (6) oil mills, the CIIF
Oil Mills Group (CIIF OMG).Sometime in 1983, CIIF OMG bought shares of stock from SMC. It also
established fourteen (14) holding companies, one of which is APHI, for the sole purpose of owning
and holding such shares.
Over time, APHI received cash and stock dividends from its SMC preferred shares.
These dividends were deposited in a trust account which earned interest from money market
placements.
In 1986, APHI's SMC shares were sequestered by the Presidential Commission on
Good Government. Subsequently, cases were filed before the Supreme Court questioning the
ownership of the CIIF, CIIF OMG, the fourteen (14) holding companies and the SMC shares held by
them. Consequently, the Supreme Court declared the CIIF companies, including APHI and the CIIF
block of SMC shares, as public funds or property necessarily owned by the government.
In 2011, petitioner City of Davao, through its City Treasurer, issued a Business Tax
Order of Payment directing APID to pay 0.55% local business tax in the amount of P723,531.50.
APHI paid the assessment under protest. Subsequently, it filed an administrative claim for refund or
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tax credit with the City Treasurer. Claiming that the City Treasurer failed to act on the protest, APHI
filed a petition for review with the Regional Trial Court.
The trial court ruled that APHI's primary purpose in its Amended Articles of Incorporation
resembles the definition of a financial intermediary under Section 4101Q.1 of the Manual of
Regulations for Non-Bank Financial Institutions, and, hence, taxable under Section 69(f) of the 2005
Revenue Code of the City of Davao. APHI moved for reconsideration but was denied.
The CTA Division affirmed the trial court's decision. The CTA En Banc reversed and
declared APHI entitled to a tax refund or credit. It found that APHI was not a non-bank financial
intermediary. The CTA En Banc denied petitioners' motion for reconsideration.
ISSUE/S:
Whether or not as a CIIF holding company, APHI is liable to pay local business taxes on
its dividend earnings from its SMC preferred shares.
RULING:
No, as CIIF holding company, APHI is not liable to pay local business taxes on its
dividend earnings from its SMC preferred shares.
In the recent case of City of Davao, et al. v. Randy Allied Ventures, Inc. (RAVI), the
Court ordained that RAVI, a CIIF holding company like APHI, was exclusively established to own
and hold SMC shares of stock. As such, it is not liable to pay local business taxes on the dividends
earned from its SMC preferred shares as the same shares are government assets owned by the
national government for the benefit of the coconut industry.
As observed in the COCOFED case, RAVI is a CIIF holding company. The SMC
preferred shares held by it a reconsidered government assets owned by the National Government
for the coconut industry. As held in the same case, these SMC shares as well as any resulting
dividends or increments from said shares are owned by the National Government and shall be used
only for the benefit of the coconut farmers and for the development of the coconut industry. Thus,
RAVI's management of the dividends from the SMC preferred shares, including placing the same in
a trust account yielding interest, is not tantamount to doing business whether as a bank or other
financial institution, i.e., an NBFI, but rather an activity that is essential to its nature as a CIIF
holding company.
Verily, CIIF holding companies, including APHI itself and the entire CIIF block of SMC
shares, are public assets owned by the Republic of the Philippines. Consequently, dividends and
any income from these shares are also owned by the Republic. On this score, APHI cannot be
considered as a non-bank financial intermediary since its investment and placement of funds are
not done in a regular or recurring manner for the purpose of earning profit. Rather, its management
of dividends from the SMC shares is only in furtherance of its purpose as a CIIF holding company
for the benefit of the Republic.
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Therefore, the City of Davao acted beyond its taxing authority when it imposed the questioned
business tax on APHI.
CITY TREASURER OF MANILA, VS. PHILIPPINE BEVERAGE PARTNERS, INC.,

SUBSTITUTED BY COCA-COLA BOTTLERS PHILIPPINES
G.R. No. 233556,
FACTS:
On January 17, 2007, the petitioner City Treasurer of Manila (petitioner) issued a Statement
of Account (SOA) under Bill No. 012007-33025 to Philippine Beverage Partners, Inc. (respondent).
The SOA showed that respondent is liable to pay petitioner local business taxes and regulatory fees
for the first quarter of 2007. Respondent protested the assessment through a letter dated January
19, 2007, arguing that Tax Ordinances, amending the Revenue Code of Manila (RCM), have been
declared null and void. Respondent also argued that the collection of local business tax under
Section 21 of the RCM in addition to Section 14 of the same code constitutes double taxation.
Thereafter, respondent made a formal tender of payment to the City of Manila on January 22, 2007,
for local business tax and regulatory fees for the first quarter of 2007. On February 2, 2007,
petitioner issued a letter to respondent denying the latter's protest which respondent received on
February 6, 2007.
On February 13, 2007, respondent paid the total amount stated in the SOA. Then, on March
2, 2007, respondent filed a written claim for refund of erroneously/illegally collected tax with
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petitioner. Further, respondent filed a Complaint for the Revision of SOA (Preliminary Assessment)
and for Refund or Credit of LBT Erroneously/Illegally Collected with the Regional Trial Court, Manila,
on March 8, 2007.
On November 18, 2013, the RTC ordered the refund of the overpayment made by
respondent. It held that respondent is already taxed under Section 14 of the RCM, thus, it should no
longer be subjected to tax under Section 21 of the same Code. The trial court added that
respondent properly filed a claim for refund. It noted that the taxes and fees subject of the claim for
refund/tax credit were paid on February 13, 2007 and on March 2, 2007, respondent filed with
petitioner a written claim for refund. The RTC opined that respondent had not only exhausted the
requisite administrative remedy, but it also filed the present case on time, on March 8, 2007, which
is within two years from the payment of the taxes and fees erroneously/illegally collected which
payment was made on February 13, 2007.
Petitioner moved for reconsideration but the same was denied by the RTC in an
Order7 dated July 4, 2014. Aggrieved, petitioner filed a Petition for Review with the CTA Second
Division.
On May 8, 2015, the CTA Second Division affirmed the RTC ruling. Petitioner moved for
reconsideration, but the same was denied by the CTA Second Division in a Resolution dated July
20, 2015. Undaunted, petitioner filed a Petition for Review before the CTA En Banc.
On December 22, 2016, the CTA En Banc ruled that respondent was able to comply with the
requisites for entitlement to a refund/credit of local taxes considering that it filed a written claim for
refund on March 2, 2007, and filed the judicial claim on March 8, 2007, which is within two years
from payment of the tax on February 13, 2007. As regards the deficiency tax of respondent for the
years 2006 and 2007 which petitioner seeks to offset against the amount respondent is entitled to
as tax refund, the CTA En Banc ruled that petitioner waived any additional defenses by its failure to
raise the same in its Answer before the trial court.
Petitioner moved for reconsideration, but the same was denied by the CTA En Banc. Hence,
this Petition for Review on Certiorari.
ISSUE:
Whether or not a taxpayer who protested an assessment may later on institute a judicial
action for refund
RULING:
Yes.
In the case of City of Manila v. Cosmos Bottling Corporation, it must be noted that Cosmos
and the present case involve the same taxing authority (City of Manila), the same taxing period (first
quarter of 2007) and Cosmos, like respondent in the case at bar, was assessed with the tax on
manufacturers under Section 14 and the tax on other businesses under Section 21 of the RCM. The
Court has settled in Cosmos that a taxpayer facing an assessment issued by the local treasurer
may protest it and alternatively: (1) appeal the assessment in court, or (2) pay the tax, and
thereafter, seek a refund. Thus, in Cosmos, the Court declared:
Second, a taxpayer who had protested and paid an assessment is not precluded from later
on instituting an action for refund or credit.
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The taxpayers' remedies of protesting an assessment and refund of taxes are stated in
Sections 195 and 196 of the LGC.
The first provides the procedure for contesting an assessment issued by the local treasurer;
whereas, the second provides the procedure for the recovery of an erroneously paid or illegally
collected tax, fee or charge. Both Sections 195 and 196 mention an administrative remedy that the
taxpayer should first exhaust before bringing the appropriate action in court. In Section 195, it is the
written protest with the local treasurer that constitutes the administrative remedy; while in Section
196, it is the written claim for refund or credit with the same office. As to form, the law does not
particularly provide any for a protest or refund claim to be considered valid. It suffices that the
written protest or refund is addressed to the local treasurer expressing in substance its desired
relief. The title or denomination used in describing the letter would not ordinarily put control over the
content of the letter.
Section 196 does not expressly provide a specific period within which the local treasurer
must decide the written claim for refund or credit.hi ৷ It is, therefore, possible for a taxpayer to submit
an administrative claim for refund very early in the two-year period and initiate the judicial claim
already near the end of such two-year period due to an extended inaction by the local treasurer. In
this instance, the taxpayer cannot be required to await the decision of the local treasurer any longer,
otherwise, his judicial action shall be barred by prescription.
Additionally, Section 196 does not expressly mention an assessment made by the local
treasurer. This simply means that its applicability does not depend upon the existence of an
assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes
even without a prior protest against an assessment that was not issued in the first place. This is not
to say that an application for refund can never be precipitated by a previously issued assessment,
for it is entirely possible that the taxpayer, who had received a notice of assessment, paid the
assessed tax, fee or charge believing it to be erroneous or illegal. Thus, under such circumstance,
the taxpayer may subsequently direct his claim pursuant to Section 196 of the LGC.
Clearly, when a taxpayer is assessed a deficiency local tax, fee or charge, he may protest it
under Section 195 even without making payment of such assessed tax, fee or charge. This is
because the law on local government taxation, save in the case of real property tax, does not
expressly require "payment under protest" as a procedure prior to instituting the appropriate
proceeding in court. This implies that the success of a judicial action questioning the validity or
correctness of the assessment is not necessarily hinged on the previous payment of the tax under
protest.
Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without
payment, or (b) with payment of the assessed tax, fee or charge. Whether there is payment of the
assessed tax or not, it is clear that the protest in writing must be made within sixty (60) days from
receipt of the notice of assessment; otherwise, the assessment shall become final and conclusive.
Additionally, the subsequent court action must be initiated within thirty (30) days from denial or
inaction by the local treasurer; otherwise, the assessment becomes conclusive and unappealable.
Simply put, there are two conditions that must be satisfied in order to successfully prosecute
an action for refund in case the taxpayer had received an assessment. One, pay the tax and
administratively assail within 60 days the assessment before the local treasurer, whether in a letter-
protest or in a claim for refund. Two, bring an action in court within thirty (30) days from decision or
inaction by the local treasurer, whether such action is denominated as an appeal from assessment
and/or claim for refund of erroneously or illegally collected tax.
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In this case, after respondent received the assessment on January 17, 2007, it protested
such assessment on January 19, 2007. After payment of the assessed taxes and charges,
respondent wrote petitioner another letter asking for the refund and reiterating the grounds raised in
the protest letter. Then, on February 6, 2007, respondent received the letter denying its protest.
Thus, on March 8, 2007, or exactly thirty (30) days from its receipt of the denial, respondent
brought the action before the RTC of Manila. Hence, respondent was justified in filing a claim for
refund after timely protesting and paying the assessment.
QUEZON CITY AND ALVIN EMERSON YU V. RIZAL COMMERCIAL BANKING CORPORATION

GR NO. 171033
FACTS:
Spouses roberto and monette naval obtained a loan from rcbc secured by a real estate
mortgage. The real estate mortgage was eventually foreclosed. In an auction sale of tax delinquent
properties, the properties subject of the foreclosed real estate mortgage were included where Yu
was the highest bidder. He was issued a Certificate of Sale and such was registered in the Office of
the Register of Deeds of Quezon City on February 10, 2004. On June 10, 2004 RCBC paid for all
assessed tax delinquencies, interests, and other costs of the subject properties with the City
Treasurer of Quezon City but it refused accepting it.
RCBC filed a petition for the acceptance of its tender of payment and for the subsequent
issuance of the certificate of redemption in its favor but such was denied. It then filed a petition for
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Mandamus with prayer for issuance of a temporary restraining order and a writ of preliminary
injunction before the trial court contending that it had until one year from the date of registration of
the certificate of sale to redeem its properties pursuant to Section 78 of Presidential Decree (PD)
No. 464 or the Real Property Tax Code. The trial court initially denied the petition but granted it
upon RCBC’s motion for reconsideration. It ordered Quezon City to accept tender of redemption
payment and to issue the corresponding certification of redemption in the name of RCBC. Hence,
the appeal.
ISSUE:
Whether or not the one year redemption period shall be reckoned from the date of
registration of the certificate of sale.
RULING:
No.The redemption period shall be reckoned from the date of sale pursuant to Republic Act
7160 of the Local Government Code, Section 261, which repealed PD No. 464. It provides that a
taxpayer has within one year from date of sale from which it could redeem its property upon
payment to the local treasurer of the amount of delinquent tax. However, since Ordinance No. SP-
91, S-93 which is a special law provides that the reckoning period for redemption starts from the
date of annotation of the sale of the property at the proper registry, this shall govern concerning the
reckoning of the period of redemption. When there is a conflict between a general law and a special
which involves the same matter, the special law must prevail since it evinces the legislative intent
more clearly than that of the general statute. Also, it is the policy of the law to aid rather than defeat
the owner’s right to his property in that redemption laws are given a liberal construction. The trial
court’s decision was affirmed by the Supreme Court.
LEILA M. DE LIMA V CITY OF MANILA
FACTS:
The City Council of Manila passed the Revenue Code of Manila of 2013 (Ordinance No.
8331); it took effect on December 9, 2013 and implemented on January 2, 2014.
Retail business operators filed an Appeal before petitioner Secretary of Justice De Lima
claiming that Sec. 104 of Ordinance No. 8331, which imposed percentage tax on gross sales of
retailers from 1% to 3%, is unconstitutional for being violative of Section 5, Article X of the
Constitution, and illegal for being excessive and contrary to limitations set forth under, inter alia,
Sec. 191 of the LGC of 1991.
The retail business operators alleges that the respondent increased the local business tax
rates from 0.20% to 3% and 1%, which is beyond the 10% limit on increase provided for under
Section 191 of the LGC.
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Respondent argued that its imposition of retail tax under the Ordinance is a valid exercise of
its power to impose rates which are within the limits provided for under Section 143(d), and as such,
must be sustained.
On April 7, 2014, the petitioner issued a Resolution declaring Section 104 of Ordinance No.
8331 void for being contrary to Section 191 of the LGC.
ISSUE:
WON Sec. 104 of Ordinance No. 8331 void for being contrary to Section 191 of the LGC.
RULING:
Yes, Sec. 104 of Ordinance No. 8331 insofar as it imposes more than the allowed
adjustment for gross receipts or sales amounting to Php 50,000.00 up to Php 400,000.00 is void for
being contrary to Section 191 of the LGC.
The Court in Mindanao Shopping, et al. v. Rodrigo R. Duterte, et al., ruled that the
application of Sec. 191 requires the concurrence of two elements: (1) there is a tax ordinance that
already imposes a tax in accordance with the provisions of the LGC; and (2) there is a second tax
ordinance that made adjustment on the tax rate fixed by the first tax ordinance.
Anent the first requirement, the respondent has already imposed a tax in accordance with the
provisions of the LGC when it enacted Ordinance No. 7794 in 1993 and its amendment passed two
months thereafter – Ordinance No. 7807. Ordinance No. 7807 being the respondent's initial
implementation of the tax provisions of the LGC.
As the Court explained in National Power Corporation v. City of Cabanatuan, the LGC, in granting
powers upon LGUs the power to tax, does not dictate the tax rate to be imposed by the LGUs but
merely sets the minimum or the maximum, leaving upon the respective sanggunian the
determination of the actual rates to be imposed in accordance with their needs and capabilities.
The second element for the application of Section 191 is also met with the enactment of Ordinance
No. 8331, which amended the retail tax to be imposed. Sec. 104 provides: A percentage tax is
hereby imposed on retailers: On retailers: (1) With gross sales over 50,000 but less than Php
400,000.00, 3% per annum; and (2) Over Php 400,000.00, 1% per annum.
Since the respondent has already exercised its taxing power under the LGC with the enactment of
Ordinance No. 7807, any subsequent increase would therefore have to comply with Section 191
which limits the amount of adjustment to not more than ten percent (10%) of the rates fixed under
the LGC and should be no more frequent than once every five (5) years.
With the rates set by Sec. 143 upon tax on gross sales, the maximum adjusted tax rate that can be
imposed after the initial implementation of the LGC, taking into consideration Sec. 191, would be-
With gross sales or receipts for the preceding calendar year of: (1) P50,001 up to 400,000.00, 2.2%
per annum; and (2) More than P 400,000.00, 1.1% per annum.
Clearly, Ordinance No. 8331 is invalid insofar as it imposes more than the allowed adjustment for
gross receipts or sales amounting to Php 50,000.00 up to Php 400,000.00.
The Court is mindful that the interval of time between the two ordinances is 20 years, Ordinance No.
7807 having been enacted in 1993, and Ordinance No. 8331 in 2013. However, this does not justify
the accumulation of allowable increases and then their subsequent one-time imposition. The option
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to increase the tax rates under the LGC arises every five (5) years reckoned from the enactment of
the ordinance sought to be adjusted.
Were the LGU decides to make such adjustment, the basis for the increase would be the
prevailing tax rate because while the LGUs are granted with a wide latitude to determine the
classification, tax base, tax rate and its corresponding increase, apart from the aforestated
restrictions, the taxing powers of the LGU must be exercised in accordance with fundamental
principles set forth.
MUNICIPALITY OF SAN MATEO, ISABELA, V. SMART COMMUNICATIONS, INC

G.R. NO. 219506
FACTS:
Municipality of San Mateo, Isabela enacted Ordinance No. 2005-491 entitled, "An Ordinance
imposing Regulatory Fee known as Annual Antenna/Tower Fee for the Operation if All Citizens Ban
(CB), Very High Frequency (VHF), Ultra High Frequency (UHF) and Cellular Sites/Relay Stations
Within the Municipality" pursuant to its power under Section 186 the Local Government Code of
1991(LGC) to levy other taxes, fees or charges within its jurisdiction.
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After the subject Ordinance came into effect, Notices of Assessment were sent to SCI and
other affected businesses in the municipality. SCI was required to pay the tower fee of
Php200,000.00 per year. Despite the receipt of said notices, SCI failed to pay the assessed fees.
The SCI, however, filed a Petition for Certiorari with application for Temporary Restraining
Order (TRO) and/or Writ of Preliminary Injunction before the RTC assailing the validity of the subject
ordinance. the RTC issued a TRO, but eventually, it dismissed the petition for SCI's failure to
exhaust the administrative remedies provided by law. SCI filed a Motion for Reconsideration and a
Motion to Inhibit on which was granted. Thereafter, the petition was transferred to the other RTC-
Branch.
An Order was issued by RTC-Branch 19 granting SCI's petition and declaring the subject
Ordinance as null and void.
Dissatisfied, petitioner filed an appeal with the CA but the CA affirmed the RTC’s decision in
declaring Municipal Ordinance No. 2005-491 null and void
In denying the appeal, the CA held that: (1) the subject Ordinance is a tax measure and not
a regulatory fee; (2) non-exhaustion of administrative remedies is excused since the issues pertain
exclusively to legal questions, and (3) the tax which petitioner seeks to impose is unjust, excessive
and confiscatory.
ISSUES
Whether or not the CA erred in ruling that Municipal Ordinance No. 2005-491 is unjust,
excessive and confiscatory.
RULING
Yes. CA erred in ruling that Municipal Ordinance No. 2005-491 is unjust, excessive and
confiscatory.
The Court ultimately rules for petitioner, albeit for different reasons.
The fees imposed under Ordinance No. 2005-491 are not taxes; exhaustion of administrative
remedies is unnecessary
the LGC grants the taxing powers to each local government unit. Specifically, Section 142 of the
LGC grants municipalities the power to levy taxes, fees, and charges not otherwise levied by
provinces. Section 143 of the LGC provides for the scale of taxes on business that may be imposed
by municipalities25 while Section 14726 of the same law provides for the fees and charges that may
be imposed by municipalities on business and occupation.
The term "taxes" has been defined by case law as "the enforced proportional contributions
from persons and property levied by the state for the support of government and for all public
needs." While, under the LGC, a "fee" is defined as "any charge fixed by law or ordinance for the
regulation or inspection of a business or activity."
From the foregoing jurisprudential and statutory definitions, it can be gleaned that the
purpose of an imposition will determine its nature as either a tax or a fee. If the purpose is primarily
revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is
properly classified as an exercise of the power to tax. On the other hand, if the purpose is primarily
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to regulate, then it is deemed an exercise of police power in the form of a fee, even though revenue
is incidentally generated. Simply stated, if generation of revenue is the primary purpose, the
imposition is a tax, but if regulation is the primary purpose, the imposition is properly categorized as
a regulatory fee.
In the case at bar, a cursory reading of the whereas clauses makes it apparent that the
primary purpose of Ordinance No. 2005-491 is "to regulate the proliferation of these CB [Citizens
Band], VHF/UHF [Very High Frequency/ Ultra High Frequency], parabolic discs and towers" erected
within petitioner's municipality "to ensure the safety of their operations." The subject ordinance
underlines that: (1) "due to its location, San Mateo is considered as strategic place for the
installation and operation of repeater / transmitter facilities of communication companies"; (2)
"communication facilities such as cellular sites, towers and parabolic discs intended for commercial
and private uses start to proliferate" and that (3) "these facilities, directly or indirectly, affect the
populace."32 Evidently, the Ordinance was issued to address the concerns grounded on the
proliferation of the enumerated facilities which affect petitioner's populace.
Considering the above, the main purpose of the assailed ordinance is clearly to regulate the
installation and maintenance of the enumerated communication facilities erected within the
Municipality of San Mateo, Isabela. Consequently, the fees imposed in Ordinance No. 2005-491 are
primarily regulatory in nature and not primarily revenue-raising. While the fees contribute to the
revenues of petitioner, this effect is merely incidental. Thus, the fees imposed in Ordinance No.
2005-491 are not taxes.33
SCI failed to establish that Ordinance No. 2005-491 is unjust, excessive and confiscatory
The Court has consistently ruled that in order for an ordinance to be valid, it must not only be
within the corporate powers of the concerned local government unit to enact, but must also be
passed in accordance with the procedure prescribed by law. Moreover, substantively, the
ordinance: (1) must not contravene the Constitution or any statute; (2) must not be unfair or
oppressive; (3) must not be partial or discriminatory; (4) must not prohibit, but may regulate trade;
(5) must be general and consistent with public policy; and (6) must not be unreasonable.37 On the
other hand, settled is the rule that every law, including ordinances, is presumed valid.38 This
presumption may be set aside when invalidity or unreasonableness: (1) appears on the face of the
ordinance, or (2) is established by proper evidence.
CITY TREASURER OF MAKATI CITY vs. BA LEPANTO CONDOMINUM CORPORATION,

G.R. No. 154993
FACTS:
Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized
condominium corporation constituted in accordance with the Condominium Act, which owns and
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holds title to the common and limited common areas of the BA-Lepanto Condominium (the
"Condominium"), situated in Paseo de Roxas, Makati City.
On December 15, 1998, the Corporation received a Notice of Assessment dated December
14, 1998 which states that the Corporation is "liable to pay the correct city business taxes, fees and
charges," computed as totaling ₱1,601,013.77 for the years 1995 to 1997. The Notice of
Assessment was silent as to the statutory basis of the business taxes assessed.
The Corporation responded with a written tax protest dated 12 February 12, 1999,
addressed to the City Treasurer that it was perplexed on the statutory basis of the tax assessment.
It contends that the Corporation is not liable for business taxes and surcharges and interest thereon,
under the Makati Revenue Code or even under the Local Government Code.
The protest was rejected by the City Treasurer in a letter dated March 4, 1999. She insisted
that the collection of dues from the unit owners was effected primarily to sustain and maintain the
expenses of the common areas, with the end in view of getting full appreciative living values for the
individual condominium occupants and to command better marketable prices for those occupants"
who would in the future sell their respective units, constitute a corporation activity which is profit
venture making.
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court
(RTC) of Makati, which rendered a Decision dismissing the appeal for lack of merit, accepting the
premise laid by the City Treasurer.
From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of
the Rules of Civil Procedure with the Court of Appeals. On June 7, 2002, the CA Special Sixteenth
Division rendered the Decision, now assailed before this Court, which reversed the RTC and
declared that the Corporation was not liable to pay business taxes to the City of Makati. In doing so,
the Court of Appeals delved into jurisprudential definitions of profit.
Upon denial of her Motion for Reconsideration, the City Treasurer elevated the present
Petition for Review under Rule 45.
ISSUES:
(1) Whether or not the RTC, in deciding an appeal taken from a denial of a protest by a local
treasurer under Section 195 of the Local Government Code, exercises "original jurisdiction" or
"appellate jurisdiction."
(2) Whether or not the Corporation is engaged in business, for the dues collected from the
different unit owners, utilized towards the beautification and maintenance of the Condominium,
resulting in "full appreciative living values", thereby commanding better market prices should they be
sold in the future.
RULING:
On the first issue, the RTC in deciding an appeal taken from a denial of a protest by a local
treasurer under Section 195 of the Local Government Code exercised its "original jurisdiction". But
the Supreme Court upheld and utilized the discretion of courts to nonetheless take cognizance of
petitions raised on an erroneous mode of appeal.
The Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local
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treasurer. Furthermore, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the
RTC, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal,
and Municipal Circuit Trial Courts. Also, unlike in the case of the CA, B.P. 129 does not confer
appellate jurisdiction on RTC over rulings made by non-judicial entities. Hence, it is evident that the
stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the
Corporation from the RTC judgment is an ordinary appeal under Rule 41.
However, the SC make this pronouncement subject to two important qualifications. First, in
this particular case there are nonetheless significant reasons for the Court to overlook the
procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the CA in this
case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies
that emerged prior to the enactment of RA No. 9282, the law which expanded the jurisdiction of the
CTA.
The Supreme Cour have repeatedly upheld and utilized the discretion of courts to
nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat
these petitions in the manner as they should have appropriately been filed. The CA could very well
have treated the Corporation’s petition for review as an ordinary appeal.
On the second issue,

The Court begins with an overview of the power of an LGU to impose business taxes. The
power of an LGU to impose taxes within its territorial jurisdiction derives from the Constitution itself,
which recognizes the power of these units "to create its own sources of revenue and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may provide – The
Local Government Code of 1991 (the "Code"). On the other hand, the coverage of business taxation
particular to the City of Makati is provided by the Makati Revenue Code ("Revenue Code"), enacted
through Municipal Ordinance No. 92-072.
Upon careful examination of the record reveals a highly disconcerting fact. At no point has
the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or
this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue
Code for the levying of the business tax on petitioner.
On the other hand, the creation of the condominium corporation is sanctioned by Republic
Act No. 4726, otherwise known as the Condominium Act. We can elicit from the Condominium Act
that a condominium corporation is precluded by statute from engaging in corporate activities other
than the holding of the common areas, the administration of the condominium project, and other
acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the
maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible
corporate purposes of a condominium corporation under the Condominium Act.
Even though the Corporation is empowered to levy assessments or dues from the unit
owners, these amounts collected are not intended for the incurrence of profit by the Corporation or
its members, but to shoulder the multitude of necessary expenses that arise from the maintenance
of the Condominium Project.
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But the City Treasurer’s contention that the collection of these assessments and dues are
"with the end view of getting full appreciative living values" for the condominium units, and as a
result, profit is obtained once these units are sold at higher prices are not tenable. The logic on this
point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be
considered as being engaged in business, since the repairs or improvements on the car may be
deemed oriented towards appreciating the value of the car upon resale.
The assessment appears to be based solely on the Corporation’s collection of assessments
from unit owners, such assessments being utilized to defray the necessary expenses for the
Condominium Project and the common areas. There is no contemplation of business, no orientation
towards profit in this case. Hence, the assailed tax assessment has no basis under the Local
Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the
void tax constitutes an attempt at deprivation of property without due process of law.
MACTEL CORP. VS. CITY GOVT OF MAKATI

G.R. NO. 244602
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4
FACTS:
The City Treasurer of Makati issued a Notice of Assessment of deficiency taxes, fees and
charges to Mactel Corp. for the years 2001 to 2004. The Mactel Corp. filed a protest claiming that
there was a gross discrepancy in the amount used as basis in the said assessment.
The City Treasurer denied the protest, prompting it to appeal the case to the RTC which
ruled that the assessment should only cover the actual income derived by Mactel Corp and directed
City Treasurer to compute the tax on the 10% discount given by the telecom operators as
discount.After several years, a Notice of Assessment was issued to Mactel Corp when it tried to
renew its business permit, Makati City refused to issue to business permit due to an alleged
business tax deficiency.A Petition for Declaratory Relief with application for TRO and/or preliminary
injunction was filed to RTC, and it was granted on the condition that Mactel Corp will post a bond. A
motion for reconsideration was filed, but it was denied.
Petition for certiorari under Rule 65 was filed before the CTA Division, but it was denied.
Then, it was elevated to CTA En Banc, where the petition was granted.
ISSUE/S:
Whether or not the CTA has jurisdiction involving local tax assessment decided by the RTC.
RULING:
No. To reiterate, the local tax case that may be elevated to the trial court and eventually to
the CTA is the deficiency business tax assessment for taxable years 2010-2013 which was still
under administrative review at the time petitioner filed the petition for declaratory relief. Upon denial
of petitioner's protest, it would inevitably elevate the same to the court of competent jurisdiction.
Whereas in this case, what are being questioned are the interlocutory orders issued by the
RTC which did not rule on the validity of the assessments but merely ordered respondents to refrain
from proceeding further with the assessments until the computation of petitioner's business taxes
has been determined in accordance with the previous final and executory Decision. Likewise, the
RTC's order for respondents to issue a temporary business permit to petitioner was merely to
prevent grave and irreparable damage to petitioner while the main case before the trial court is still
ongoing. Clearly, the assailed orders of the RTC are not issued in a local tax case contemplated
under Section 7(a)(3) of the R.A. 9282.
In Ignacio case, while the case is directly related to the collection of tax deficiencies, as there
was already a notice of levy and sale at public action to pay for Teresa's deficiency taxes, the Court
ruled that it was not a local tax case to which the CTA can take cognizance of because Teresa's
prayer for recovery of ownership and possession of the property is not anchored on a tax issue but
on due process considerations.
In this case, since petitioner's argument in disputing the local tax assessment does not involve the
application of tax laws but the enforcement of a final and executory judgment, the assailed orders of
the RTC does not fall under the appellate jurisdiction of the CTA.
PHILIPPINE HEART CENTER VS. LOCAL GOV’T OF QUEZON CITY
G.R. 225409
17
5
FACTS:
In 1975, the Philippine Heart Institute (PHI) was established under P.D. 673 to provide
comprehensive cardiovascular care. The government provided initial land, building, equipment, and
facilities. PD 673 allowed the PHC to acquire properties, enter contracts, and dispose of them. It
also exempted the PHC from paying taxes for ten years. In 2004, the Quezon City Government
issued three final Notices of Delinquency for unpaid real property taxes on the PHC's eleven
properties. The PHC wrote to President Gloria M. Macapagal-Arroyo for condonation or reduction of
taxes, but the letter was not acted upon.
The Office of the Government Corporate Counsel informed the PHC that all government
instruments under its jurisdiction should suspend local tax liability payments. The PHC withheld its
MOA with the Quezon City Government, but the PHC remained liable for real property taxes due to
leased properties. In 2001, the City Treasurer issued a Warrant of Levy for the PHC's failure to pay
taxes. All properties were sold to the Quezon City Government in a public auction.
The Philippine Humanitarian Commission (PHC) filed a petition for certiorari before the Court
of Appeals, claiming that the Quezon City Government, Mayor, Treasurer, and Assessor abused
their discretion in assessing, levied, and selling its properties. The PHC argued that it was exempt
from taxes, fees, and charges imposed by a local government unit and that its real properties were
exempt from real property taxes. Respondents moved to dismiss the petition due to the PHC's
failure to exhaust administrative remedies, compliance with verification and certification
requirements against forum shopping, and failure to pay the required deposit.
ISSUE:
Whether PHC is exempt from paying real property taxes on its eleven (11) properties in
Quezon City?
RULING:
No, Quezon City may collect real property taxes not directly against PHC but against private
individuals with beneficial use of the PHC's properties. Since, PHC is a government instrumentality
with corporate powers exempt from local taxes.
Section 234(a) of RA 7160 exempts real property owned by the Republic from real property
taxes except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person. Thus, the Court has invariably held that a government instrumentality, though
vested with corporate powers, are exempt from real property tax but the exemption shall not extend
to taxable private entities to whom the beneficial use of the government instrumentality's properties
has been vested.
In this case, the eleven (11) properties of the PHC in Quezon City are subject to real
property tax since the PHC granted the beneficial use of these properties to commercial
establishments such as Globe Telecom, Inc., Jollibee Foods Corporation, Course Development, Inc.
and Proheart Food Corp.
17
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Therefore, the PHC's properties which are leased to private individuals are no longer
covered by the tax exemption. This, however, does not automatically validate their acts of
assessing, levying, and selling the eleven (11) properties of the PHC.
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM VS. CENTRAL BOARD OF

ASSESSMENT APPEALS
17
7
G.R. NO. 215955
FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) was created under RA No. 6234.
It was created to insure an uninterrupted and adequate supply and distribution of potable water for
domestic and other purposes and the operation and maintenance of sewerage systems. In
1997, MWSS entered into a concessionaire agreement with Maynilad Water Services,
Inc.(Maynilad) to service the West Zone of the Metropolitan area that includes Pasay City.
On February 2008, MWSS received real property tax computations from the Pasay City
Treasurer for taxable year 2008, demanding payment of real property taxes in the amount
of P 166,629.36. MWSS filed its petition arguing that it is a public utility and a government
instrumentality and its properties and facilities are exempt from real property tax.
On February 2008, MWSS received real property tax computations from the Pasay City
Treasurer for taxable year 2008, demanding payment of real property taxes in the amount
of P 166,629.36. MWSS filed its petition arguing that it is a public utility and a government
instrumentality and its properties and facilities are exempt from real property tax. Due to inaction of
the Pasay City Treasurer, MWSS filed an appeal to the Local Board of Assessment Appeals
(LBAA). The LBAA ruled that the assessment against MWSS was reasonable and collectible
because MWSS is a GOCC and not a government instrumentality.
Due to inaction of the Pasay City Treasurer, MWSS filed an appeal to the Local Board of
Assessment Appeals (LBAA). The LBAA ruled that the assessment against MWSS was reasonable
and collectible because MWSS is a GOCC and not a government instrumentality.
MWSS filed an appeal to the Central Board of Assessment Appeals (CBAA).The CBAA
affirmed the finality of the assessment on the ground that MWSS failed to question the legality of the
assessment. The CBAA acknowledged that MWSS is a government instrumentality under the
GOCC Governance Act of 2011. As such it cannot be subjected to local taxes, fees and other
charges under Section 133 of the LGC. However, this is not relevant since the
collections involved are real property taxes.
MWSS appealed the CBAA’s ruling to the CA. The CA dismissed the appeal for MWSS’s
failure to exhaust administrative remedies.
ISSUE:
WON MWSS is liable.
RULING:
No, MWSS is not liable.
The court ruled that MWSS is a government instrumentality with corporate powers, not liable
to the local government of Pasay City for real property taxes. The tax exemption that its properties
carries, however, ceases when their beneficial use has been extended to a taxable person.
The liability to pay real property taxes on government-owned properties, the beneficial or
actual use of which was granted to a taxable entity, devolves on the taxable user.
17
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In this case, there was an allegation that the beneficial use of the MWSS’s
properties in Pasay were given to Maynilad by virtue of a concession agreement. This factual
allegation, however, was not proved and merely based on a sweeping conclusion that when MWSS
entered into a concession agreement, all its properties were effectively turned over to the
concessionaires for their operations. The Court made no judicious determination of such factual
matter due to the insufficiency of evidence on records.
The Court upheld that the tax-exempt status of a government instrumentality is not lost when
it grants the beneficial use of its real properties to a taxable person; only the exemption of the real
property ceases in such case.
HERARC REALTY CORPORATION VS. THE PROVINCIAL TREASURER OF BATANGAS
17
9
G.R. NO. 210736
FACTS:
In August 2004,upon acquisition by virtue of execution of sale, thirteen (13) parcels of land
located in Sta. Ana,Calatagan, Batangas are registered since 2006 in the name of Herarc Realty
Corporation under Transfer Certificate of Title (TCT) Nos. T-105907 to T-105919 (subject property).
From March 2, 2006 up to August 12, 2009, the Subject Property had been in actual
possession of private respondents Dr. Rafael A. Manalo, Grace Oliva, and Freida Rivera Yap in
their capacity as assignees in an involuntary insolvency proceeding against the Spouses Rosario
and Saturnino Baladjay pending before the Muntinlupa City RTC Br. 204. It was only on August 13,
2009 that Herarc was able to take full possession and control of the subject property by virtue of the
July 31, 2009 Order of the Makati City RTC Br. 56 granting the issuance of a writ of execution,
which, in tum, was based on the final and executory Decision of the Court of Appeals in CA G.R.
SPNos. 93818 and 93823.
In a letter dated October 9, 2012, public respondent Provincial Treasurer of Batangas sent to
Herarc a Statement of Real Property Tax (RPT) Liabilities to collect the amount of P8,093,256.89,
which included the unpaid RPT on the subject property for 2007, 2008, and January to August 2009
(covered period). The demand was reiterated in letters dated October 23, 2012 and November 21,
2012.
The assessment was paid under protest on November 20, 2012. Less than a month after,
Herarc filed a petition for prohibition and mandamus against respondents. For Herarc, the RPT
assessment is illegal and erroneous, because the subject property was not in its possession during
the covered period.
RTC denied Herarc’s petition. Herarc then filed a Rule 45 petition before the SC.
ISSUES:
1. Whether or not Herarc availed of the proper remedy (NO).
2. Whether or not the RTC erred in its ruling (NO)
RULING:
1. NO. Herarc's direct recourse to the RTC is warranted since the issue of the legality or
validity of the assessment is a question of law. However, as a taxpayer not satisfied with the RTC
decision, it should have filed a petition for review before the Court of Tax Appeals (CTA). The
decision, ruling or resolution of the CTA, sitting as Division, may further be reviewed by the CTA En
Banc.
Under Section 7 (a) (3) of Republic Act (R.A.) No. 9282, the appellate jurisdiction of the C TA
over decisions, orders, or resolutions of the RTC becomes operative when the latter has ruled on a
local tax case,i.e., one which is in the nature of a tax case or which primarily involves a tax issue.
Local tax cases include those involving RPT, which is governed by Book II, Title II of R.A No. 7160,
or Local Government Code (LGC)of 1991. Among the possible issues are the legality or validity of
the RPT assessment; protests of assessments; disputed assessments, surcharges, or penalties;
legality or validity of a tax ordinance; claims for tax refund/credit; claims for tax exemption; actions
to collect the tax due; and even prescription of assessments.
18
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If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes
due with respect to the property becomes absolute upon the expiration of the period to appeal. The
assessment becomes final, executory and demandable, precluding the taxpayer from assailing the
legality/validity (or reasonableness/correctness) of the assessment.
In real estate taxation, the unpaid tax attaches to the property. The personal liability for the
tax delinquency is generally on whoever is the owner of the real property at the time the tax
accrues. This is a necessary consequence that proceeds from the fact of ownership. Nonetheless,
where the tax liability is imposed on the beneficial use of the real property, such as those owned
but leased to private persons or entities by the government, or when the assessment is made on the
basis of the actual use thereof, the personal liability is on any person who has such beneficial or
actual use at the time of the accrual of the tax. Beneficial use means that the person or entity has
the use and possession of the property. Actual use refers to the purpose for which the property is
principally or predominantly utilized by the person in possession thereof.
As a general rule, real properties are subject to the RPT since the LGC has withdrawn
exemptions from real property taxes of all persons, whether natural or juridical. Entities may be
exempt from payment of the RPT if their charters, which were enacted or reenacted after the
effectivity of the LGC, exempt them payment of the RPT. Likewise, exceptions to the rule are
provided in Section 133(o) of the LGC, which states that local government units have no power to
levy taxes of any kind on the national government, its agencies and instrumentalities and local
government units. Particularly on the RPT, Section 234 enumerates the persons and real property
exempt therefrom.
2.NO. Even if this case is resolved on its substantive merit, the disposition remains the
same. Herarc, an entity that is not tax exempt under the law, is the registered owner of the real
property. Therefore, it is personally liable for the RPT at the time it accrued
18
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taxation law i i case digest 1

MANILA MEMORIAL PARK V. DSWD

COMMISSIONER OF INTERNAL REVENUE V. CENTRAL LUZON DRUG CORPORATION

taxation law i i case digest 2

taxation law i i case digest 3

taxation law i i case digest 4

taxation law i i case digest 5

ABAKADA GURO PARTYLIST VS. EXEC. SEC. ERMITA

taxation law i i case digest 7

taxation law i i case digest 8

The Congress shall evolve a progressive system of taxation. Uniformity in taxation

taxation law i i case digest 9

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)

(ii) National government deficit as a percentage of GDP of the previous year

taxation law i i case digest 10

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive.

taxation law i i case digest 11

taxation law i i case digest 12

Plaintiff is a corporation of a religious nature, organized in accordance with the laws

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taxation law i i case digest 14

DOMINGO VS. GARLITOS

WON a tax and a debt may be compensated?

Compensation, therefore, takes place by operation of law, in accordance with the

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taxation law i i case digest 18

taxation law i i case digest 19

taxation law i i case digest 20

taxation law i i case digest 21

PLANTERS PRODUCTS, INC. V. FERTIPHIL CORPORATION

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COMMISSIONER OF INTERNAL REVENUE vs. FRANK ROBERTSON

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DEUTSCHE BANK VS. COMMISSIONER OF INTERNAL REVENUE

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GARCIA VS. EXECUTIVE SECRETARY

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COMMISSIONER OF INTERNAL REVENUE VS. ST. LUKE’S MEDICAL CENTER

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Exempted from the payment of building permit fees are:

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