Taxation I Case Assignments

Taxation I Case Assignments

chapter 1

1. Gr 92585 caltex vs coa 2. GR 125704 philex vs CIR 3. Gr 76778 chavez vs ongpin 4. Gr 122480 bpi vs ca

chapter 2

1. GR L-60126 cagayan electic vs cir 2. GR 124043 CIR vs CA

Chapter 3

1. GR 88291 maceda vs macaraig 2. GR 119786 atlas vs cir

EN BANC

G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner, vs. THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation

(MAR-COPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

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

Considering, however, that the allegations that the COA acted with: (a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings of the administrator of the fund itself and in disallowing a claim which is still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the importance of the issues raised, the error in the designation of the remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:

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

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum

products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy;

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

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

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

The Fund herein created shall be used for the following:

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

2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of

Finance. "Cost underrecovery" shall include the following:

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

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

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

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

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

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

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

1986 — P233,190,916.00 1987 — 335,065,650.00 1988 — 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and government-owned or controlled corporations. 8

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

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

We, therefore, very respectfully propose the following:

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

(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF,

similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.

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

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

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same directive but further advising the firms to desist from offsetting collections against their claims with the notice that "this Commission will hold in abeyance the audit of all . . . claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending with the then Ministry of Energy, the government entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of reimbursements from the OPSF

against all categories of remittances, advised these oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration and in support thereof clearly manifest their intent to make arrangements for the remittance to the Office of Energy Affairs of the amount of collections equivalent to what has been previously offset, provided that this Commission authorizes the Office of Energy Affairs to prepare the corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance of collections due to the OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from each other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms.

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

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

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price

Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted claims). In addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which are presented hereunder: . . .

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

Disallowance of COA Particulars Amount

Recovery of financing charges P162,728,475 /a Product sales 48,402,398 /b Inventory losses Borrow loan arrangement 14,034,786 /c Sales to Atlas/Marcopper 32,097,083 /d Sales to NPC 558 —————— P257,263,300

Disallowances of OEA 130,420,235 ————————— —————— Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery of financing

charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.

b. Product Sales –– Sales to International Vessels/Airlines

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

c. Inventory losses –– Settlement of Ad Valorem

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

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in distress to the national and local governments." It is our opinion that LOI

1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party has 30 days within which to appeal the decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

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

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

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

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

We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule of

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

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

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

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

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

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the following errors: 16

I

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF.

V

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10) days from notice. 18

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

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

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

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

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

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

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

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



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

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides:

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

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

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

Financing Period Reimbursement Rate Pesos per Barrel

Less than 180 days None 180 days to 239 days 1.90 241 (sic) days to 299 4.02 300 days to 369 (sic) days 6.16 360 days or more 8.28

The above rates shall be subject to review every sixty days. 22

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

HON. VICENTE T. PATERNO Deputy Executive Secretary For Energy Affairs Office of the President Makati, Metro Manila

Dear Sir:

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

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

unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the provisions of the attached Department of Finance circular. 23

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

B. FINANCE CHARGES

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

Financing Period Reimbursement Rate (PBbl.)

Less than 180 days None 180 days to 239 days 1.90 240 days to 229 (sic) days 4.02 300 days to 359 days 6.16 360 days to more 8.28

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

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

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

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

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

3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not utilized, subject to availability of funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26

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

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

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

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

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

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

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

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow reimbursement of financing charges. 29

We find no merit in the first assigned error.

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

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

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,

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

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

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

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including government-owned or controlled corporations, keep the general accounts of the Government and, for such

period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and property. 31

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

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

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and regulations to prevent the same. His was merely to bring that matter to the attention of the proper administrative officer.

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

There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains that

same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures of public funds but could only "bring [the matter] to the attention of the proper administrative officer," under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can "promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties." Hence, since the Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for disapproving the payment of a proposed expenditure.

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

The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137,

authorizing it to determine "other factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF.

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

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

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



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

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

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of the same

kind or class as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products.

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

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or define "other factors" is to uphold an undue delegation of legislative

power, it clearly appearing that the subject provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority. 39

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

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

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

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

(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and finished petroleum products

resulting from foreign exchange rate adjustments and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the Supreme Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power Corporation.

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

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

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

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

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

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the Notional and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues.

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

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

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

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential

issuances which are of general application, and unless so published they shall have no binding force and effect.

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

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

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

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become effective only after fifteen days from their publication, or on another date specified by the legislature, in accordance with Article 2 of the Civil Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or at any time after the decision in the abovementioned cases.

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

Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette

or in a newspaper of general circulation in the Philippines, unless it is otherwise provided.

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

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

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

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

An examination of the records of this case shows that petitioner failed to prove or substantiate its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents that said amount has already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that it should be

allowed to offset its claims from the OPSF against its contributions to the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

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

(4) they be liquidated and demandable;

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

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

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

With costs against petitioner.

SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado, Romero and Nocon, JJ., concur.

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

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

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

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

————— ————— —————— ——————

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

————— ————— —————— ——————

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

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

————— ————— —————— ——————

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

————— ————— —————— ——————

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT

input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:

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

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

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

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

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

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

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

1989 007732 11 July 1996 P37,322,799.19

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

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

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. 17 There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot be subject to set-off or compensation, thus:

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

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

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

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet

been approved by the Commissioner, 21 is no longer without any support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the required documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals: 36

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

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

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

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it

wishes to remain true to its mission of hastening the country's development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Kapunan and Purisima, JJ., concur.

EN BANC

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner, vs. JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for petitioner.

Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

MEDIALDEA, J.:

The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows (78 O.G. 5861):

EXECUTIVE ORDER No. 73

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED

WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;

WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978 revised values obsolete;

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people;

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection.

SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive Order are hereby repealed or modified accordingly.

SEC. 5. This Executive Order shall take effect immediately.

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73 until June 30, 1987.

The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property brought about by the revision of real property values and assessments would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; that the General Revision of Assessments does not meet the requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative

regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. (emphasis supplied)

The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which provides, as follows:

SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a calendar year 1978, the provincial or city general revision of real property assessments in the province or city to take effect January 1, 1979, and once every five years thereafter: Provided; however, That if property values in a province or city, or in any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in the province or city, or in any municipality before the fifth year from the effectivity of the last general revision.

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez

failed to raise any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be questioned:

SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal.

xxx xxx xxx

SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of Assessment Appeals shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision rendered must be based on substantial evidence presented at the hearing or at least contained in the record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate to support the conclusion.

In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-necessarily adhering to technical rules applicable in judicial proceedings.

The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the property owner of such fact using the form

prescribed for the purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.

Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the Chairman thereof.

xxx xxx xxx

SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment Appeals shall have jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision by the appellant.

In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and issue subpoenas and subpoenas duces tecum.

The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the conduct of its business.

Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the assessment of his

property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date of receipt of the decision.

Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).

The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.

Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:

SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection and assessment provided herein and in order to alleviate the condition of the people, including real property owners, as a result of temporary economic difficulties. (emphasis supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988

to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows:

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; (emphasis supplied)

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).

We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Regalado, JJ., concur.

Padilla, J., took no part.

Griño-Aquino, J., is on leave.

G.R. No. 122480 April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL REVENUE, respondents.

PANGANIBAN, J.:

If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself at the expense of another.

The Case

Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals1 (CA) in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision2 of the Court of Tax Appeals (CTA). The CA disposed as follows:

WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of merit.3

http://www.lawphil.net/judjuris/juri2000/apr2000/gr_122480_2000.html#fnt1



On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:

WHEREFORE, in [view of] all the foregoing, Petitioner's claim for refund is hereby DENIED and this Petition for Review is DISMISSED for lack of merit.4

Also assailed is the November 8, 1995 CA Resolution5 denying reconsideration.

The Facts

The facts of this case were summarized by the CA in this wise:

This case involves a claim for tax refund in the amount of P112,491.00 representing petitioner's tax withheld for the year 1989.

In its Corporate Annual Income Tax Return for the year 1989, the following items are reflected:

Income P1,017,931,831.00

Deductions P1,026,218,791.00

Net Income (Loss) (P8,286,960.00)

Taxable Income (Loss) (P8,286,960.00)

Less:

1988 Tax Credit P185,001.00

1989 Tax Credit P112,491.00

TOTAL AMOUNT P297,492.00

REFUNDABLE

It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case. However, petitioner declared in the same 1989 Income



Tax Return that the said total refundable amount of P297,492.00 will be applied as tax credit to the succeeding taxable year.

On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with the respondent Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities due to the alleged business losses it incurred for the same year.

Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund, petitioner filed a petition for review with respondent Court of Tax Appeals, seeking the refund of the amount of P112,491.00.

The respondent Court of Tax Appeals dismissed petitioner's petition on the ground that petitioner failed to present as evidence its corporate Annual Income Tax Return for 1990 to establish the fact that petitioner had not yet credited the amount of P297,492.00 (inclusive of the amount P112,491.00 which is the subject of the present controversy) to its 1990 income tax liability.

Petitioner filed a motion for reconsideration, however, the same was denied by respondent court in its Resolution dated May 6, 1994.6

As earlier noted, the CA affirmed the CTA. Hence, this Petition.7

Ruling of the Court of Appeals

In affirming the CTA, the Court of Appeals ruled as follows:

It is incumbent upon the petitioner to show proof that it has not credited to its 1990 Annual income Tax Return, the amount of P297,492.00 (including P112,491.00), so as to refute its previous declaration in the 1989 Income Tax Return that the said amount will be applied as a tax credit in the



succeeding year of 1990. Having failed to submit such requirement, there is no basis to grant the claim for refund. . . .

Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. In other words, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund.8

Issue

In their Memorandum, respondents identify the issue in this wise:

The sole issue to be resolved is whether or not petitioner is entitled to the refund of P112,491.90, representing excess creditable withholding tax paid for the taxable year 1989.9

The Court's Ruling

The Petition is meritorious.

Main Issue:

Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to P112,491. Pursuant to Section 69 10 of the 1986 Tax Code which states that a corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year, petitioner indicated in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund, instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the Court of Tax Appeals.




The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption because it did not present its 1990 Return, which would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA concluded that petitioner was not entitled to a tax refund.

We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding on this Court. This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. 11 This case is one such exception.

In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioner's accounting department, testified to this fact. It likewise presented its claim for refund and a certification issued by Mr. Gil Lopez, petitioner's vice-president, stating that the amount of P112,491 "has not been and/or will not be automatically credited/offset against any succeeding quarters' income tax liabilities for the rest of the calendar year ending December 31, 1990." Also presented were the quarterly returns for the first two quarters of 1990.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR could have easily disproved petitioner's claim. To repeat, it did not do so.

More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration filed before the CTA. 12 A final adjustment return shows whether a corporation incurred a loss or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.



Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to petitioner's Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not pass upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial.1âwphi1 The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." 13 The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error.

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. 14 But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. 15 To repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the petitioner.

Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was not the final adjustment Return, but petitioner's first two quarterly returns for 1990. 16 This allegation is wrong. An examination of the records shows that the 1990 Final Adjustment Return was attached to the Motion for Reconsideration. On the other hand, the two quarterly returns for 1990 mentioned by respondent were





in fact attached to the Petition for Review filed before the CTA. Indeed, to rebut respondents' specific contention, petitioner submitted before us its Surrejoinder, to which was attached the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment Return for 1990. 17

CTA Case No. 4897

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year 1990. In that case, the Tax Court held that "petitioner suffered a net loss for the taxable year 1990 . . . ." 18 Respondent, however, urges this Court not to take judicial notice of the said case. 19

As a rule, "courts are not authorized to take judicial notice of the contents of the records of other cases, even when such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been heard or are actually pending before the same judge." 20

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to be known to judges because of their judicial functions. In this case, the Court notes that a copy of the Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this Court. Significantly, respondents do not claim at all that the said Decision was fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision, claiming merely that the Court cannot take judicial notice thereof.

To our mind, respondents' reasoning underscores the weakness of their case. For if they had really believed that petitioner is not entitled to a tax refund, they could have easily proved that it did not suffer any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the fact appearing therein — that petitioner suffered a net loss in 1990 — in the same way that it refused to controvert the same fact established by petitioner's other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case. It is merely one more bit of information showing the stark truth: petitioner did not use its 1989 refund to pay its taxes for 1990.





Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness.

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the Court of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to refund to petitioner the amount of P112,491 as excess creditable taxes paid in 1989. No costs.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur. Vitug, J., abroad on official business.

G.R. No. L-60126 September 25, 1985

CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

Quasha, De Guzman Makalintal & Barot for petitioner.

AQUINO, J.:

This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax.

The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3).

On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were subjected to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax exemption in its original charter or neutralized the modification made by Republic Act No. 5431 more than a year before.

By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter dated February 15, 1973 required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitioner contested the assessments. The Commissioner

cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and 1969.

The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only for the income tax for the period from January 1 to August 3, 1969 or before the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealed to this Court.

It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax which already includes the income tax; (2) in holding that Republic Act No. 5431 as amended, altered or repealed petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal and (4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government.

We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.

The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),

Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress.

Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption from income tax.

The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.

It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying income tax in addition to the franchise tax.

However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax exemption in its franchise.

For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.)

WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the tax proper and that it should not pay the delinquency penalties. No costs.

SO ORDERED.

Concepcion, Jr., Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.

G.R. No. 124043 October 14, 1998

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG

MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES,

INC., respondents.

PANGANIBAN, J.:

Is the income derived from rentals of real property owned by the Young

Men's Christian Association of the Philippines, Inc. (YMCA) —

established as "a welfare, educational and charitable non-profit

corporation" — subject to income tax under the National Internal

Revenue Code (NIRC) and the Constitution?

The Case

This is the main question raised before us in this petition for review on

certiorari challenging two Resolutions issued by the Court of Appeals 1 on

September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007.

Both Resolutions affirmed the Decision of the Court of Tax Appeals

(CTA) allowing the YMCA to claim tax exemption on the latter's income

from the lease of its real property.

The Facts

The facts are undisputed. 4 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.

In 1980, private respondent earned, among others, an income of

P676,829.80 from leasing out a portion of its premises to small shop

owners, like restaurants and canteen operators, and P44,259.00 from

parking fees collected from non-members. 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.

Private respondent formally protested the assessment and, as a

supplement to its basic protest, filed a letter dated October 8, 1985. In

reply, the CIR denied the claims of YMCA.

Contesting the denial of its protest, the YMCA 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:

. . . [T]he 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]. It appears

from the testimonies of the witnesses for the [private respondent]

particularly Mr. James C. Delote, former accountant of YMCA, that these

facilities were leased to members and that they have to service the needs

of its members and their guests. The rentals were minimal as for example,

the barbershop was only charged P300 per month. He also testified that

there was actually no lot devoted for parking space but the parking was

done at the sides of the building. The parking was primarily for members

with stickers on the windshields of their cars and they charged P.50 for

non-members. The rentals and parking fees were just enough to cover the

costs of operation and maintenance only. The earning[s] from these

rentals and parking charges including those from lodging and other

charges for the use of the recreational facilities constitute [the] bulk of its

income which [is] channeled to support its many activities and attainment

of its objectives. As pointed out earlier, the membership dues are very

insufficient to support its program. We find it reasonably necessary

therefore for [private respondent] to make [the] most out [of] its existing

facilities to earn some income. It would have been different if under the

circumstances, [private respondent] will purchase a lot and convert it to a

parking lot to cater to the needs of the general public for a fee, or

construct a building and lease it out to the highest bidder or at the market

rate for commercial purposes, or should it invest its funds in the buy and

sell of properties, real or personal. Under these circumstances, we could

conclude that the activities are already profit oriented, not incidental and

reasonably necessary to the pursuit of the objectives of the association

and therefore, will fall under the last paragraph of Section 27 of the Tax

Code and any income derived therefrom shall be taxable.

Considering our findings that [private respondent] was not engaged in the

business of operating or contracting [a] parking lot, we find no legal basis

also for the imposition of [a] deficiency fixed tax and [a] contractor's tax

in the amount[s] of P353.15 and P3,129.73, respectively.

xxx xxx xxx

WHEREFORE, in view of all the foregoing, the following assessments

are hereby dismissed for lack of merit:

1980 Deficiency Fixed Tax — P353,15;

1980 Deficiency Contractor's Tax — P3,129.23;

1980 Deficiency Income Tax — P372,578.20.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax — P1,798.93;

1980 Deficiency Withholding Tax on Wages — P33,058.82

plus 10% surcharge and 20% interest per annum from July 2, 1984 until

fully paid but not to exceed three (3) years pursuant to Section 51(e)(2) &

(3) of the National Internal Revenue Code effective as of 1984. 5

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court

of Appeals (CA). In its Decision of February 16, 1994, the CA 6 initially

decided in favor of the CIR and disposed of the appeal in the following

manner:

Following the ruling in the afore-cited cases of Province of Abra vs. Hernando

and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court

of Tax Appeals that "the leasing of petitioner's (herein 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

petitioners, and the income derived therefrom are tax exempt, must be

reversed.

WHEREFORE, the appealed decision is hereby REVERSED in so far as

it dismissed the assessment for:

1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractor's Tax P 3,129.23, &

1980 Deficiency Income Tax P 372,578.20

but the same is AFFIRMED in all other respect. 7

Aggrieved, the YMCA asked for reconsideration based on the following

grounds:

I

The findings of facts of the Public Respondent Court of Tax Appeals

being supported by substantial evidence [are] final and conclusive.

II

The conclusions of law of [p]ublic [r]espondent exempting [p]rivate

[r]espondent from the income on rentals of small shops and parking fees

[are] in accord with the applicable law and jurisprudence. 8

Finding merit in the Motion for Reconsideration filed by the YMCA, the

CA reversed itself and promulgated on September 28, 1995 its first

assailed Resolution which, in part, reads:

The Court cannot depart from the CTA's findings of fact, as they are

supported by evidence beyond what is considered as substantial.

xxx xxx xxx

The second ground raised is that the respondent CTA did not err in saying

that the rental from small shops and parking fees do not result in the loss

of the exemption. Not even the petitioner would hazard the suggestion

that YMCA is designed for profit. Consequently, the little income from

small shops and parking fees help[s] to keep its head above the water, so

to speak, and allow it to continue with its laudable work.

The Court, therefore, finds the second ground of the motion to be

meritorious and in accord with law and jurisprudence.

WHEREFORE, the motion for reconsideration is GRANTED; the

respondent CTA's decision is AFFIRMED in toto. 9

The internal revenue commissioner's own Motion for Reconsideration

was denied by Respondent Court in its second assailed Resolution of

February 29, 1996. Hence, this petition for review under Rule 45 of the

Rules of Court. 10

The Issues

Before us, petitioner imputes to the Court of Appeals the following errors:

I

In holding that it had departed from the findings of fact of Respondent

Court of Tax Appeals when it rendered its Decision dated February 16,

1994; and

II

In affirming the conclusion of Respondent Court of Tax Appeals that the

income of private respondent from rentals of small shops and parking

fees [is] exempt from taxation. 11

This Court's Ruling

The petition is meritorious.

First Issue:

Factual Findings of the CTA

Private respondent contends that the February 16, 1994 CA Decision

reversed the factual findings of the CTA. On the other hand, petitioner

argues that the CA merely reversed the "ruling of the CTA that the leasing

of private respondent's facilities to small shop owners, to restaurant and

canteen operators and the operation of parking lots are reasonably

incidental to and reasonably necessary for the accomplishment of the

objectives of the private respondent and that the income derived

therefrom are tax exempt." 12 Petitioner insists that what the appellate

court reversed was the legal conclusion, not the factual finding, of the CTA. 13 The commissioner has a point.

Indeed, it is a basic rule in taxation that the factual findings of the CTA,

when supported by substantial evidence, will be disturbed on appeal

unless it is shown that the said court committed gross error in the

appreciation of facts. 14 In the present case, this Court finds that the

February 16, 1994 Decision of the CA did not deviate from this rule. The

latter merely applied the law to the facts as found by the CTA and ruled

on the issue raised by the CIR: "Whether or not the collection or earnings

of rental income from the lease of certain premises and income earned

from parking fees shall fall under the last paragraph of Section 27 of the

National Internal Revenue Code of 1977, as amended." 15

Clearly, the CA did not alter any fact or evidence. It merely resolved the

aforementioned issue, as indeed it was expected to. That it did so in a

manner different from that of the CTA did not necessarily imply a reversal

of factual findings.

The distinction between a question of law and a question of fact is clear-

cut. It has been held that "[t]here is a question of law in a given case when

the doubt or difference arises as to what the law is on a certain state of

facts; there is a question of fact when the doubt or difference arises as to

the truth or falsehood of alleged facts." 16 In the present case, the CA did

not doubt, much less change, the facts narrated by the CTA. It merely

applied the law to the facts. That its interpretation or conclusion is

different from that of the CTA is not irregular or abnormal.

Second Issue:

Is the Rental Income of the YMCA Taxable?

We now come to the crucial issue: Is the rental income of the YMCA

from its real estate subject to tax? At the outset, we set forth the relevant

provision of the NIRC:

Sec. 27. Exemptions from tax on corporations. — The following organizations

shall not be taxed under this Title in respect to income received by them

as such —

xxx xxx xxx

(g) Civic league or organization not organized for profit but operated

exclusively for the promotion of social welfare;

(h) Club organized and operated exclusively for pleasure, recreation, and

other non-profitable purposes, no part of the net income of which inures

to the benefit of any private stockholder or member;

xxx xxx xxx

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 the tax imposed under this Code. (as amended by Pres.

Decree No. 1457)

Petitioner argues that while the income received by the organizations

enumerated in Section 27 (now Section 26) of the NIRC is, as a rule,

exempted from the payment of tax "in respect to income received by them

as such," the exemption does not apply to income derived ". . . 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 .

. . ."

Petitioner adds that "rental income derived by a tax-exempt organization

from the lease of its properties, real or personal, [is] not, therefore, exempt

from income taxation, even if such income [is] exclusively used for the

accomplishment of its objectives." 17 We agree with the commissioner.

Because taxes are the lifeblood of the nation, the Court has always applied

the doctrine of strict in interpretation in construing tax exemptions. 18

Furthermore, a claim of statutory exemption from taxation should be

manifest. and unmistakable from the language of the law on which it is

based. Thus, the claimed exemption "must expressly be granted in a

statute stated in a language too clear to be mistaken." 19

In the instant case, the exemption claimed by the YMCA is expressly

disallowed by the very wording of the last paragraph of then Section 27

of the NIRC which mandates that the income of exempt organizations

(such as the YMCA) from any of their properties, real or personal, be

subject to the tax imposed by the same Code. Because the last paragraph

of said section unequivocally subjects to tax the rent income of the YMCA

from its real property, 20 the Court is duty-bound to abide strictly by its

literal meaning and to refrain from resorting to any convoluted attempt at

construction.

It is axiomatic that where the language of the law is clear and

unambiguous, its express terms must be applied. 21 Parenthetically, a

consideration of the question of construction must not even begin,

particularly when such question is on whether to apply a strict

construction or a liberal one on statutes that grant tax exemptions to

"religious, charitable and educational propert[ies] or institutions." 22

The last paragraph of Section 27, the YMCA argues, should be "subject

to the qualification that the income from the properties must arise from

activities 'conducted for profit' before it may be considered taxable." 23

This argument is erroneous. As previously stated, a reading of said

paragraph ineludibly shows that the income from any property of exempt

organizations, as well as that arising from any activity it conducts for

profit, is taxable. The phrase "any of their activities conducted for profit"

does not qualify the word "properties." This makes from the property of

the organization taxable, regardless of how that income is used —

whether for profit or for lofty non-profit purposes.

Verba legis non est recedendum. Hence, Respondent Court of Appeals

committed reversible error when it allowed, on reconsideration, the tax

exemption claimed by YMCA on income it derived from renting out its

real property, on the solitary but unconvincing ground that the said

income is not collected for profit but is merely incidental to its operation.

The law does not make a distinction. The rental income is taxable

regardless of whence such income is derived and how it is used or

disposed of. Where the law does not distinguish, neither should we.

Constitutional Provisions

On Taxation

Invoking not only the NIRC but also the fundamental law, private

respondent submits that Article VI, Section 28 of par. 3 of the 1987

Constitution, 24 exempts "charitable institutions" from the payment not

only of property taxes but also of income tax from any source. 25 In

support of its novel theory, it compares the use of the words "charitable

institutions," "actually" and "directly" in the 1973 and the 1987

Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of

the 1935 Constitution, on the other hand. 26

Private respondent enunciates three points. First, the present provision is

divisible into two categories: (1) "[c]haritable institutions, churches and

parsonages or convents appurtenant thereto, mosques and non-profit

cemeteries," the incomes of which are, from whatever source, all tax-

exempt; 27 and (2) "[a]ll lands, buildings and improvements actually and

directly used for religious, charitable or educational purposes," which are

exempt only from property taxes. 28 Second, Lladoc v. Commissioner of Internal

Revenue, 29 which limited the exemption only to the payment of property

taxes, referred to the provision of the 1935 Constitution and not to its

counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase

"actually, directly and exclusively used for religious, charitable or

educational purposes" refers not only to "all lands, buildings and

improvements," but also to the above-quoted first category which

includes charitable institutions like the private respondent. 31

The Court is not persuaded. The debates, interpellations and expressions

of opinion of the framers of the Constitution reveal their intent which, in

turn, may have guided the people in ratifying the Charter. 32 Such intent

must be effectuated.

Accordingly, Justice Hilario G. Davide, Jr., a former constitutional

commissioner, who is now a member of this Court, stressed during the

Concom debates 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." 33 Father Joaquin G. Bernas, an eminent authority on the

Constitution and also a member of the Concom, adhered to the same view

that the exemption created by said provision pertained only to property

taxes. 34

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that

"[t]he tax exemption covers property taxes only." 35 Indeed, the income tax

exemption claimed by private respondent finds no basis in Article VI,

Section 26, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the

Character, 36 claiming that the YMCA "is a non-stock, non-profit

educational institution whose revenues and assets are used actually,

directly and exclusively for educational purposes so it is exempt from

taxes on its properties and income." 37 We reiterate that private

respondent is exempt from the payment of property tax, but not income

tax on the rentals from its property. The bare allegation alone that it is a

non-stock, non-profit educational institution is insufficient to justify its

exemption from the payment of income tax.

As previously discussed, laws allowing tax exemption are construed

strictissimi juris. Hence, for the YMCA to be granted the exemption it

claims under the aforecited provision, it must prove with substantial

evidence that (1) it falls under the classification non-stock, non-profit

educational institution; and (2) the income it seeks to be exempted from

taxation is used actually, directly, and exclusively for educational purposes.

However, the Court notes that not a scintilla of evidence was submitted

by private respondent to prove that it met the said requisites.

Is the YMCA an educational institution within the purview of Article XIV,

Section 4, par. 3 of the Constitution? We rule that it is not. The term

"educational institution" or "institution of learning" has acquired a well-

known technical meaning, of which the members of the Constitutional

Commission are deemed cognizant. 38 Under the Education Act of 1982,

such term refers to schools. 39 The school system is synonymous with

formal education, 40 which "refers to the hierarchically structured and

chronologically graded learnings organized and provided by the formal

school system and for which certification is required in order for the

learner to progress through the grades or move to the higher levels." 41

The Court has examined the "Amended Articles of Incorporation" and

"By-Laws" 43 of the YMCA, but found nothing in them that even hints

that it is a school or an educational institution. 44

Furthermore, under the Education Act of 1982, even non-formal

education is understood to be school-based and "private auspices such as

foundations and civic-spirited organizations" are ruled out. 45 It is settled

that the term "educational institution," when used in laws granting tax

exemptions, refers to a ". . . school seminary, college or educational

establishment . . . ." 46 Therefore, the private respondent cannot be

deemed one of the educational institutions covered by the constitutional

provision under consideration.

. . . Words used in the Constitution are to be taken in their ordinary

acceptation. While in its broadest and best sense education embraces all

forms and phases of instruction, improvement and development of mind

and body, and as well of religious and moral sentiments, yet in the

common understanding and application it means a place where systematic

instruction in any or all of the useful branches of learning is given by

methods common to schools and institutions of learning. That we

conceive to be the true intent and scope of the term [educational

institutions,] as used in the

Constitution. 47

Moreover, without conceding that Private Respondent YMCA is an

educational institution, the Court also notes that the former did not

submit proof of the proportionate amount of the subject income that was

actually, directly and exclusively used for educational purposes. Article

XIII, Section 5 of the YMCA by-laws, which formed part of the evidence

submitted, is patently insufficient, since the same merely signified that

"[t]he net income derived from the rentals of the commercial buildings

shall be apportioned to the Federation and Member Associations as the

National Board may decide." 48 In sum, we find no basis for granting the

YMCA exemption from income tax under the constitutional provision

invoked.

Cases Cited by Private

Respondent Inapplicable

The cases 49 relied on by private respondent do not support its cause.

YMCA of Manila v. Collector of Internal Revenue 50 and Abra Valley College, Inc.

v. Aquino 51 are not applicable, because the controversy in both cases

involved exemption from the payment of property tax, not income tax.

Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either, because

it involves a claim for exemption from the payment of regulatory fees,

specifically electrical inspection fees, imposed by an ordinance of Pasay

City — an issue not at all related to that involved in a claimed exemption

from the payment of income taxes imposed on property leases. In Jesus

Sacred Heart College v. Com. of Internal Revenue, 53 the party therein, which

claimed an exemption from the payment of income tax, was an

educational institution which submitted substantial evidence that the

income subject of the controversy had been devoted or used solely for

educational purposes. On the other hand, the private respondent in the

present case has not given any proof that it is an educational institution,

or that part of its rent income is actually, directly and exclusively used for

educational purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy with

private respondent. It appreciates the nobility of its cause. However, the

Court's power and function are limited merely to applying the law fairly

and objectively. It cannot change the law or bend it to suit its sympathies

and appreciations. Otherwise, it would be overspilling its role and

invading the realm of legislation.

We concede that private respondent deserves the help and the

encouragement of the government. It needs laws that can facilitate, and

not frustrate, its humanitarian tasks. But the Court regrets that, given its

limited constitutional authority, it cannot rule on the wisdom or propriety

of legislation. That prerogative belongs to the political departments of

government. Indeed, some of the members of the Court may even believe

in the wisdom and prudence of granting more tax exemptions to private

respondent. But such belief, however well-meaning and sincere, cannot

bestow upon the Court the power to change or amend the law.

WHEREFORE, the petition is GRANTED. The Resolutions of the

Court of Appeals dated September 28, 1995 and February 29, 1996 are

hereby REVERSED and SET ASIDE. The Decision of the Court of

Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled

that the income derived by petitioner from rentals of its real property is

subject to income tax. No pronouncement as to costs.

SO ORDERED.

Davide, Jr., Vitug and Quisumbing, JJ., concur.

Bellosillo, J., Please see Dissenting Opinion.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,

vs.

HON. CATALINO MACARAIG, JR., in his capacity as Executive

Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET

AL., respondents.

Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell

Petroleum Corporation.

Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:

Just like lightning which does strike the same place twice in some

instances, this matter of indirect tax exemption of the private respondent

National Power Corporation (NPC) is brought to this Court a second

time. Unfazed by the Decision We promulgated on May 31, 1991 1

petitioner Ernesto Maceda asks this Court to reconsider said Decision.

Lest We be criticized for denying due process to the petitioner. We have

decided to take a second look at the issues. In the process, a hearing was

held on July 9, 1992 where all parties presented their respective arguments.

Etched in this Court's mind are the paradoxical claims by both petitioner

and private respondents that their respective positions are for the benefit

of the Filipino people.

I

A Chronological review of the relevant NPC laws, specially with respect

to its tax exemption provisions, at the risk of being repetitious is,

therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating

the National Power Corporation, a public corporation, mainly to develop

hydraulic power from all water sources in the Philippines. 2 The sum of

P250,000.00 was appropriated out of the funds in the Philippine Treasury

for the purpose of organizing the NPC and conducting its preliminary

work. 3 The main source of funds for the NPC was the flotation of bonds

in the capital markets 4 and these bonds

. . . issued under the authority of this Act shall be exempt from the

payment of all taxes by the Commonwealth of the Philippines, or by any

authority, branch, division or political subdivision thereof and subject to

the provisions of the Act of Congress, approved March 24, 1934,

otherwise known as the Tydings McDuffle Law, which facts shall be

stated upon the face of said bonds. . . . . 5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00

the funds needed for the initial operations of the NPC and reiterating the

provision of the flotation of bonds as soon as the first construction of any

hydraulic power project was to be decided by the NPC Board. 6 The

provision on tax exemption in relation to the issuance of the NPC bonds

was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the

provision on the payment of the bond's principal and interest in "gold

coins" but adding that payment could be made in United States dollars. 7

The provision on tax exemption in relation to the issuance of the NPC

bonds was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the

President of the Philippines to guarantee, absolutely and unconditionally,

as primary obligor, the payment of any and all NPC loans. 8 He was also

authorized to contract on behalf of the NPC with the International Bank

for Reconstruction and Development (IBRD) for NPC loans for the

accomplishment of NPC's corporate objectives 9 and for the

reconstruction and development of the economy of the country. 10 It was

expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts,

charges, contributions and restrictions of the Republic of the Philippines,

its provinces, cities and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the

NPC, for the first time, to incur other types of indebtedness, aside from

indebtedness incurred by flotation of bonds. 12 As to the pertinent tax

exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation

shall be exempt from all taxes, duties, fees, imposts, charges, and

restrictions of the Republic of the Philippines, its provinces, cities and

municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in

that, aside from the IBRD, the President of the Philippines was authorized

to negotiate, contract and guarantee loans with the Export-Import Bank

of of Washigton, D.C., U.S.A., or any other international financial

institution. 14 The tax provision for repayment of these loans, as stated in

R.A. No. 357, was not amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw

NPC's tax exemption for real estate taxes. As enacted, the law states as

follows:

To facilitate payment of its indebtedness, the National Power Corporation

shall be exempt from all taxes, except real property tax, and from all

duties, fees, imposts, charges, and restrictions of the Republic of the

Philippines, its provinces, cities, and municipalities. 15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC

projects to be funded by the increased indebtedness 16 should bear the

National Economic Council's stamp of approval. The tax exemption

provision related to the payment of this total indebtedness was not

amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount

of foreign loans NPC was authorized to incur to US$100,000,000.00 from

the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision

related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of

NPC to December 31, 2000. 18 All laws or provisions of laws and

executive orders contrary to said R.A. No. 2058 were expressly repealed.

19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from

a public corporation into a stock corporation with an authorized capital

stock of P100,000,000.00 divided into 1,000.000 shares having a par value

of P100.00 each, with said capital stock wholly subscribed to by the

Government. 20 No tax exemption was incorporated in said Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-

mentioned authorized capital stock to P250,000,000.00 with the increase

to be wholly subscribed by the Government. 21 No tax provision was

incorporated in said Act.

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was

increased again to P300,000,000.00, the increase to be wholly subscribed

by the Government. No tax provision was incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter

of the NPC, C.A. No. 120, as amended. Declared as primary objectives of

the nation were:

Declaration of Policy. — Congress hereby declares that (1) the

comprehensive development, utilization and conservation of Philippine

water resources for all beneficial uses, including power generation, and (2)

the total electrification of the Philippines through the development of

power from all sources to meet the needs of industrial development and

dispersal and the needs of rural electrification are primary objectives of

the nation which shall be pursued coordinately and supported by all

instrumentalities and agencies of the government, including the financial

institutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into

sections 8 (a) (Authority to incur Domestic Indebtedness) and Section 8

(b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a),

states as follows:

The bonds issued under the authority of this subsection shall be exempt

from the payment of all taxes by the Republic of the Philippines, or by

any authority, branch, division or political subdivision thereof which facts

shall be stated upon the face of said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph

No. 5, Section 8(b), states as follows:

The loans, credits and indebtedness contracted under this subsection and

the payment of the principal, interest and other charges thereon, as well

as the importation of machinery, equipment, materials and supplies by the

Corporation, paid from the proceeds of any loan, credit or indebtedeness

incurred under this Act, shall also be exempt from all taxes, fees, imposts,

other charges and restrictions, including import restrictions, by the

Republic of the Philippines, or any of its agencies and political

subdivisions. 25

A new section was added to the charter, now known as Section 13, R.A.

No. 6395, which declares the non-profit character and tax exemptions of

NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from

its capital investment, as well as excess revenues from its operation, for

expansion. To enable the Corporation to pay its indebtedness and

obligations and in furtherance and effective implementation of the policy

enunciated in Section one of this Act, the Corporation is hereby declared

exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and

service fees in any court or administrative proceedings in which it may be

a party, restrictions and duties to the Republic of the Philippines, its

provinces, cities, and municipalities and other government agencies and

instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to

the National Government, its provinces, cities, municipalities and other

government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax,

and wharfage fees on import of foreign goods required for its operations

and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces,

cities, municipalities and other government agencies and instrumentalities,

on all petroleum products used by the Corporation in the generation,

transmission, utilization, and sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring

that the electrification of the entire country was one of the primary

concerns of the country. And in connection with this, it was specifically

stated that:

The setting up of transmission line grids and the construction of

associated generation facilities in Luzon, Mindanao and major islands of

the country, including the Visayas, shall be the responsibility of the

National Power Corporation (NPC) as the authorized implementing

agency of the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate

as a single integrated system all generating facilities supplying electric

power to the entire area embraced by any grid set up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the

NPC to enable it to fulfill its role under aforesaid P.D. No. 40. Its

authorized capital stock was raised to P2,000,000,000.00, 29 its total

domestic indebtedness was pegged at a maximum of P3,000,000,000.00 at

any one time, 30 and the NPC was authorized to borrow a total of

US$1,000,000,000.00 31 in foreign loans.

The relevant tax exemption provision for these foreign loans states as

follows:



as the importation of machinery, equipment, materials, supplies and

services, by the Corporation, paid from the proceeds of any loan, credit

or indebtedness incurred under this Act, shall also be exempt from all

direct and indirect taxes, fees, imposts, other charges and restrictions,

including import restrictions previously and presently imposed, and to be

imposed by the Republic of the Philippines, or any of its agencies and

political subdivisions. 32 (Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

(a) From the payment of all taxes, duties, fees, imposts, charges and

restrictions to the Republic of the Philippines, its provinces, cities,

municipalities and other government agencies and instrumentalities

including the taxes, duties, fees, imposts and other charges provided for

under the Tariff and Customs Code of the Philippines, Republic Act

Numbered Nineteen Hundred Thirty-Seven, as amended, and as further

amended by Presidential Decree No. 34 dated October 27, 1972, and

Presidential Decree No. 69, dated November 24, 1972, and costs and

service fees in any court or administrative proceedings in which it may be

a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed

directly or indirectly by the Republic of the Philippines, its provinces,



transmission, utilization and sale of electric power. 33 (Emphasis

supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain

restrictions in the NPC's sale of electricity to its different customers. 34

No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00

would be appropriated annually to cover the unpaid subscription of the

Government in the NPC authorized capital stock, which amount would

be taken from taxes accruing to the General Funds of the Government,

proceeds from loans, issuance of bonds, treasury bills or notes to be issued

by the Secretary of Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and

transmission facilities which includes nuclear power generation, the

present capitalization of National Power Corporation (NPC) and the

ceilings for domestic and foreign borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised

Charter, the non-profit character of NPC has not been fully utilized

because of restrictive interpretation of the taxing agencies of the

government on said provisions; 37

xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the

declared objective of total electrification of the country, further

amendments of certain sections of Republic Act No. 6395, as amended

by Presidential Decrees Nos. 380, 395 and 758, have become imperative;

38

Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total

domestic indebtedness ceiling was increased to P12,000,000,000.00, 40

the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and

Section 13 of R.A. No. 6395, was amended to read as follows:


its capital investment as well as excess revenues from its operation, for

expansion. To enable the Corporation to pay to its indebtedness and


enunciated in Section one of this Act, the Corporation, including its

subsidiaries, is hereby declared exempt from the payment of all forms of

taxes, duties, fees, imposts as well as costs and service fees including filing

fees, appeal bonds, supersedeas bonds, in any court or administrative

proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are

P.D. Nos. 882, 1177, 1931 and Executive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax

exemption of NPC with regard to imports as follows:

WHEREAS, importations by certain government agencies, including

government-owned or controlled corporation, are exempt from the

payment of customs duties and compensating tax; and

WHEREAS, in order to reduce foreign exchange spending and to protect

domestic industries, it is necessary to restrict and regulate such tax-free

importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, and

do hereby decree and order the following:

Sec. 1. All importations of any government agency, including

government-owned or controlled corporations which are exempt from

the payment of customs duties and internal revenue taxes, shall be subject

to the prior approval of an Inter-Agency Committee which shall insure

compliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient

quantity and comparable quality at reasonable prices;

(b) That the articles to be imported are directly and actually needed and

will be used exclusively by the grantee of the exemption for its operations

and projects or in the conduct of its functions; and

(c) The shipping documents covering the importation are in the name of

the grantee to whom the goods shall be delivered directly by customs

authorities.

xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the

tax-free importation of government agencies in accordance with the

conditions set forth in Section 1 hereof and the regulations to be

promulgated to implement the provisions of this Decree. Provided,

however, That any government agency or government-owned or

controlled corporation, or any local manufacturer or business firm

adversely affected by any decision or ruling of the Inter-Agency

Committee may file an appeal with the Office of the President within ten

days from the date of notice thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar

provisions of all general and special laws and decrees are hereby amended

accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National

Budget that is an instrument of national development, reflective of

national objectives, strategies and plans. The budget shall be supportive

of and consistent with the socio-economic development plan and shall be

oriented towards the achievement of explicit objectives and expected

results, to ensure that funds are utilized and operations are conducted

effectively, economically and efficiently. The national budget shall be

formulated within a context of a regionalized government structure and

of the totality of revenues and other receipts, expenditures and

borrowings of all levels of government-owned or controlled corporations.

The budget shall likewise be prepared within the context of the national

long-term plan and of a long-term budget program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled

corporations, shall pay income taxes, customs duties and other taxes and

fees are imposed under revenues laws: provided, that organizations

otherwise exempted by law from the payment of such taxes/duties may

ask for a subsidy from the General Fund in the exact amount of

taxes/duties due: provided, further, that a procedure shall be established

by the Secretary of Finance and the Commissioner of the Budget, whereby

such subsidies shall automatically be considered as both revenue and

expenditure of the General Fund. 44

The law also declared that —

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof

which are inconsistent with the provisions of the Decree are hereby

repealed and/or modified accordingly. 45

On July 11, 1984, most likely due to the economic morass the

Government found itself in after the Aquino assassination, P.D. No. 1931

was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed

the grant of tax privileges to any government-owned or controlled

corporation and all other units of government; 46

and since there was a

. . . need for government-owned or controlled corporations and all other

units of government enjoying tax privileges to share in the requirements

of development, fiscal or otherwise, by paying the duties, taxes and other

charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes, fees,

imposts and other charges heretofore granted in favor of government-

owned or controlled corporations including their subsidiaries, are hereby

withdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance,

upon the recommendation of the Fiscal Incentives Review Board created

under Presidential Decree No. 776, is hereby empowered to restore,

partially or totally, the exemptions withdrawn by Section 1 above, any

applicable tax and duty, taking into account, among others, any or all of

the following:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation

effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other

laws, decrees, executive orders, administrative orders, rules, regulations or

parts thereof which are inconsistent with this Decree are hereby repealed,

amended or modified accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to

correct presidential restoration or grant of tax exemption to other

government and private entities without benefit of review by the Fiscal

Incentives Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11,

1984 and October 14, 1984, respectively, withdrew the tax and duty

exemption privileges, including the preferential tax treatment, of

government and private entities with certain exceptions, in order that the

requirements of national economic development, in terms of fiscals and

other resources, may be met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were

restored by the Fiscal Incentives Review Board (FIRB), a number of

affected entities, government and private, had their tax and duty

exemption privileges restored or granted by Presidential action without

benefit or review by the Fiscal Incentives Review Board (FIRB);

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided

where necessary by explicit subsidy and budgetary support rather than tax

and duty exemption privileges if only to improve the fiscal monitoring

aspects of government operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary

notwithstanding, all tax and duty incentives granted to government and

private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the

Government of the Republic of the Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789, as

amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential

Decree No. 66 as amended;

(iii) the Philippine Veterans Investment Development Corporation

Industrial Authority pursuant to Presidential Decree No. 538, was

amended.

d) those enjoyed by the copper mining industry pursuant to the provisions

of Letter of Instructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the

Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential

Decree No. 776, as amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or

in part;

b) revise the scope and coverage of tax and/or duty exemption that may

be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax

and/or duty exemption;

e) formulate and submit to the President for approval, a complete system

for the grant of subsidies to deserving beneficiaries, in lieu of or in

combination with the restoration of tax and duty exemptions or

preferential treatment in taxation, indicating the source of funding

therefor, eligible beneficiaries and the terms and conditions for the grant

thereof taking into consideration the international commitment of the

Philippines and the necessary precautions such that the grant of subsidies

does not become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives

Review Board shall take into account any or all of the following

considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof

inconsistent with this Executive Order are hereby repealed or modified

accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation

of the rules and regulations, to be issued by the Ministry of Finance. 49

Said rules and regulations were promulgated and published in the Official

Gazette

on February 23, 1987. These became effective on the 15th day after

promulgation 50 in the Official Gasetter, 51 which 15th day was March

10, 1987.

III

Now to some definitions. We refer to the very simplistic approach that all

would-be lawyers, learn in their TAXATION I course, which fro

convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:

a. Direct Tax — the where the person supposed to pay the tax really pays

it. WITHOUT transferring the burden to someone else.

Examples: Individual income tax, corporate income tax, transfer taxes

(estate tax, donor's tax), residence tax, immigration tax

b. Indirect Tax — that where the tax is imposed upon goods BEFORE

reaching the consumer who ultimately pays for it, not as a tax, but as a

part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage

taxes, (VAT) and the tariff and customs indirect taxes (import duties,

special import tax and other dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for

reconsideration can be reduced to the following:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?

V

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption

of NPC as the phrase "all forms of taxes etc.," in its section 10, amending

Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not

expressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the

lawmaker's intention that the NPC was to be completely tax exempt from

all forms of taxes — direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to

float to finance its operations upon its creation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign

financing, any loans obtained were to be completely tax exempt.

After the NPC was authorized to borrow from other sources of funds —

aside issuance of bonds — it was again specifically exempted from all

types of taxes "to facilitate payment of its indebtedness." Even when the

ceilings for domestic and foreign borrowings were periodically increased,

the tax exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically

withdrawn by Rep. Act No. 987, as above stated. The exemption was,

however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of

the tax exemptions allowed NPC. Its section 13(d) is the starting point of

this bone of contention among the parties. For easy reference, it is

reproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by

the Republic of the Philippines, its provinces, cities, municipalities and

other government agencies and instrumentalities, on all petroleum

products used by the Corporation in the generation, transmission,

utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d),

which now reads as follows:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed

directly or indirectly by the Republic of the Philippines, its provinces,



transmission, utilization and sale of electric power. (Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into

one very simple paragraph as follows:


its capital investment as well as excess revenues from its operation, for

expansion. To enable the Corporation to pay its indebtedness and


enunciated in Section one of this Act, the Corporation, including its

subsidiaries, is hereby declared exempt from the payment of ALL

FORMS OF taxes, duties, fees, imposts as well as costs and service fees

including filing fees, appeal bonds, supersedeas bonds, in any court or

administrative proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and

Legislative. 53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would

have been very easy for him to retain the same or similar language used in

P.D. No. 380 P.D. No. 938 if his intention were to preserve the indirect

tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President

Marcos no matter what his fault were. It should be noted that section 13,

R.A. No. 6395, provided for tax exemptions for the following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL

FORMS OF TAXES, ETC.,", included 13(a) under the "as well as" clause

and added PNOC subsidiaries as qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC

laws in the order of enactment or issuance as narrated above in part I

hereof. President Marcos must have considered all the NPC statutes from

C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395

and P.D. No. 759, AND came up 55 with a very simple Section 13, R.A.

No. 6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to

pay its indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total

domestic indebtedness, at any one time, and U$4 Billion in total foreign

loans at any one time. The NPC must be and has to be exempt from all

forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It

must be remembered that to pay the government share in its capital stock

P.D. No. 758 was issued mandating that P200 Million would be

appropriated annually to cover the said unpaid subscription of the

Government in NPC's authorized capital stock. And significantly one of

the sources of this annual appropriation of P200 million is TAX MONEY

accruing to the General Fund of the Government. It does not stand to

reason then that former President Marcos would order P200 Million to

be taken partially or totally from tax money to be used to pay the

Government subscription in the NPC, on one hand, and then order the

NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13

(b), 13 (c) and (d) into the phrase "All FORMS OF" is supported by the

fact that he did not do the same for the tax exemption provision for the

foreign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395,

reads as follows:



as the importation of machinery, equipment, materials and supplies by the

Corporation, paid from the proceeds of any loan, credit or indebtedness

incurred under this Act, shall also be exempt from all taxes, fees, imposts,

other charges and restrictions, including import restrictions, by the

Republic of the Philippines, or any of its agencies and political

subdivisions. 57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the

payment of the principal, interest and other charges thereon, as well as the

importation of machinery, equipment, materials, supplies and services, by

the Corporation, paid from the proceeds of any loan, credit or

indebtedness incurred under this Act, shall also be exempt from all direct

and indirect taxes, fees, imposts, other charges and restrictions, including

import restrictions previously and presently imposed, and to be imposed

by the Republic of the Philippines, or any of its agencies and political

subdivisions. 58 (Emphasis supplied)

P.D. No. 938 did not amend the same 59 and so the tax exemption

provision in Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380,

still stands. Since the subject matter of this particular Section 8 (b) had to

do only with loans and machinery imported, paid for from the proceeds

of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER

TO LUMP IT UP WITH, and so, the tax exemption stood as is — with

the express mention of "direct

and indirect" tax exemptions. And this "direct and indirect" tax exemption

privilege extended to "taxes, fees, imposts, other charges . . . to be

imposed" in the future — surely, an indication that the lawmakers wanted

the NPC to be exempt from ALL FORMS of taxes — direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption

privileges for both direct and indirect taxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government

decided to rationalize government receipts and expenditures by

formulating and implementing a National Budget. 60 The NPC, being a

government owned and controlled corporation had to be shed off its tax

exemption status privileges under P.D. No. 1177. It was, however,

allowed to ask for a subsidy from the General Fund in the exact amount

of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free

importation privileges. It allowed, however, NPC to appeal said repeal

with the Office of the President and to avail of tax-free importation

privileges under its Section 1, subject to the prior approval of an Inter-

Agency Committed created by virtue of said P.D. No. 882. It is presumed

that the NPC, being the special creation of the State, was allowed to

continue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court,

the matter of the abolition of NPC's tax exemption privileges by P.D. No.

1177 61 only in his Common Reply/Comment to private Respondents'

"Opposition" and "Comment" to Motion for Reconsideration, four (4)

months AFTER the motion for Reconsideration had been filed. During

oral arguments heard on July 9, 1992, he proceeded to discuss this tax

exemption withdrawal as explained by then Secretary of Justice Vicente

Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of

petitioner's senate Blue Ribbon Committee Report No. 474, the basis of

the petition at bar, fails to yield any mention of said P.D. No. 1177's effect

on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs.

Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing

NPC's tax exemption privileges was not seasonably invoked 65 by the

petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177

on the NPC tax exemption privileges as this statute has been reiterated

twice in P.D. No. 1931. The express repeal of tax privileges of any

government-owned or controlled corporation (GOCC). NPC included,

was reiterated in the fourth whereas clause of P.D. No. 1931's preamble.

The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent

with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal

Incentives Revenue Board was tasked with recommending the partial or

total restoration of tax exemptions withdrawn by Section 1, P.D. No.

1931.

The records before Us do not indicate whether or not NPC asked for the

subsidy contemplated in Section 23, P.D. No. 1177. Considering,

however, that under Section 16 of P.D. No. 1177, NPC had to submit to

the Office of the President its request for the P200 million mandated by

P.D. No. 758 to be appropriated annually by the Government to cover its

unpaid subscription to the NPC authorized capital stock and that under

Section 22, of the same P.D. No. NPC had to likewise submit to the

Office of the President its internal operating budget for review due to

capital inputs of the government (P.D. No. 758) and to the national

government's guarantee of the domestic and foreign indebtedness of the

NPC, it is clear that NPC was covered by P.D. No. 1177.

There is reason to believe that NPC availed of subsidy granted to exempt

GOCC's that suddenly found themselves having to pay taxes. It will be

noted that Section 23, P.D. No. 1177, mandated that the Secretary of

Finance and the Commissioner of the Budget had to establish the

necessary procedure to accomplish the tax payment/tax subsidy scheme

of the Government. In effect, NPC, did not put any cash to pay any tax

as it got from the General Fund the amounts necessary to pay different

revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC

lost all its duty and tax exemptions, whether direct or indirect. And so

there was nothing to be withdrawn or to be restored under P.D. No. 1931,

issued on June 11, 1984. This is evident from sections 1 and 2 of said P.D.

No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes, fees,

imports and other charges heretofore granted in favor of government-

owned or controlled corporations including their subsidiaries are hereby

withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of Finance,

upon the recommendation of the Fiscal Incentives Review Board created

under P.D. No. 776, is hereby empowered to restore partially or totally,

the exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's

status. Since it had already lost all its tax exemptions privilege with the

issuance of P.D. No. 1177 seven (7) years earlier or on July 30, 1977, there

were no tax exemptions to be withdrawn by section 1 which could later

be restored by the Minister of Finance upon the recommendation of the

FIRB under Section 2 of P.D. No. 1931. Consequently, FIRB resolutions

No. 10-85, and 1-86, were all illegally and validly issued since FIRB acted

beyond their statutory authority by creating and not merely restoring the

tax exempt status of NPC. The same is true for FIRB Res. No. 17-87

which restored NPC's tax exemption under E.O. No. 93 which likewise

abolished all duties and tax exemptions but allowed the President upon

recommendation of the FIRB to restore those abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially

the same terms the provisions of the act or acts so revised and

consolidated, the revision and consolidation shall be taken to be a

continuation of the former act or acts, although the former act or acts

may be expressly repealed by the revised and consolidated act; and all

rights

and liabilities under the former act or acts are preserved and may be

enforced. 66

the Court rules that when P.D. No. 1931 basically reenacted in its Section

1 the first half of Section 23, P.D. No. 1177, on withdrawal of tax

exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was

deemed to be a continuation of the first half of Section 23, P.D. No. 1177,

although the second half of Section 23, P.D. No. 177, on the subsidy

scheme for former tax exempt GOCCs had been expressly repealed by

Section 2 with its institution of the FIRB recommendation of partial/total

restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were,

therefore, the same NPC tax exemption privileges withdrawn by Section

23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it

had to pay. It could, however, under P.D. No. 1931, ask for a total

restoration of its tax exemption privileges, which, it did, and the same

were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as

approved by the Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions

Nos. 10-85 and 1-86 were both legally and validly issued by the FIRB

pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption

status but merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally

issued under the now rather infamous Amendment No. 6 70 as there was

no showing that President Marcos' encroachment on legislative

prerogatives was justified under the then prevailing condition that he

could legislate "only if the Batasang Pambansa 'failed or was unable to act

inadequately on any matter that in his judgment required immediate

action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue

decrees not only when the Interim Batasang Pambansa failed or was

unable to act adequately on any matter for any reason that in his (Marcos')

judgment required immediate action, but also when there existed a grave

emergency or a threat or thereof. It must be remembered that said

Presidential Decree was issued only around nine (9) months after the

Philippines unilaterally declared a moratorium on its foreign debt

payments 72 as a result of the economic crisis triggered by loss of

confidence in the government brought about by the Aquino assassination.

The Philippines was then trying to reschedule its debt payments. 73 One

of the big borrowers was the NPC 74 which had a US$ 2.1 billion white

elephant of a Bataan Nuclear Power Plant on its back. 75 From all

indications, it must have been this grave emergency of a debt rescheduling

which compelled Marcos to issue P.D. No. 1931, under his Amendment

6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a

tax exemption shall be passed without the concurrence of a majority of all

the members of the Batasang Pambansa" 77 does not apply as said P.D.

No. 1931 was not passed by the Interim Batasang Pambansa but by then

President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos

under his Amendment No. 6 authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again

clipped by, this time, President Aquino. Its section 2 allowed the NPC to

apply for the restoration of its tax exemption privileges. The same was

granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which

restored NPC's tax exemption privileges effective, starting March 10,

1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October

5, 1987. 79 There is no indication, however, from the records of the case

whether or not similar approvals were given by then President Marcos for

FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to

believe that a "travesty of justice" might have occurred when the Minister

of Finance approved his own recommendation as Chairman of the Fiscal

Incentives Review Board as what happened in Zambales Chromate vs.

Court of Appeals 80 when the Secretary of Agriculture and Natural

Resources approved a decision earlier rendered by him when he was the

Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential

Executive Assistant Clave affirmed, on appeal to Malacañang, his own

decision as Chairman of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about

"due process" being violated when FIRB Resolutions Nos. 10-85 and 1-

86 were approved by the Minister of Finance when the same were

recommended by him in his capacity as Chairman of the Fiscal Incentives

Review Board. 84

In Zambales Chromite and Anzaldo, two (2) different parties were

involved: mining groups and scientist-doctors, respectively. Thus, there

was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other

comparable entity — not even a single public or private corporation —

whose rights would be violated if NPC's tax exemption privileges were to

be restored. While there might have been a MERALCO before Martial

Law, it is of public knowledge that the MERALCO generating plants were

sold to the NPC in line with the State policy that NPC was to be the State

implementing arm for the electrification of the entire country. Besides,

MERALCO was limited to Manila and its environs. And as of 1984, there

was no more MERALCO — as a producer of electricity — which could

have objected to the restoration of NPC's tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption

privileges for the first time. It was just asking that its tax exemption

privileges be restored. It is for these reasons that, at least in NPC's case,

the recommendation and approval of NPC's tax exemption privileges

under FIRB Resolution Nos. 10-85 and 1-86, done by the same person

acting in his dual capacities as Chairman of the Fiscal Incentives Review

Board and Minister of Finance, respectively, do not violate procedural due

process.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by

President Aquino on October 5, 1987, the view has been expressed that

President Aquino, at least with regard to E.O. 93 (S'86), had no authority

to sub-delegate to the FIRB, which was allegedly not a delegate of the

legislature, the power delegated to her thereunder.

A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising

both Executive and Legislative powers. Thus, there was no power

delegated to her, rather it was she who was delegating her power. She

delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a

delegate of the legislature. Clearly, she was not sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it

set forth the policy to be carried out 85 and it fixed the standard to which

the delegate had to conform in the performance of his functions, 86 both

qualities having been enunciated by this Court in Pelaez vs. Auditor

General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption

privileges restored from June 11, 1984 up to the present.

VII

The next question that projects itself is — who pays the tax?

The answer to the question could be gleamed from the manner by which

the Commissaries of the Armed Forces of the Philippines sell their goods.

By virtue of P.D. No. 83, 88 veterans, members of the Armed of the

Philippines, and their defendants but groceries and other goods free of all

taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the

unchargeable specific, ad valorem and other taxes on the goods earmarked

for AFP Commissaries as an added cost of operation and distribute it over

the total units of goods sold as it would any other cost. Thus, even the

ordinary supermarket buyer probably pays for the specific, ad valorem and

other taxes which theses suppliers do not charge the AFP Commissaries.

89

IN MUCH THE SAME MANNER, it is clear that private respondents-

oil companies have to absorb the taxes they add to the bunker fuel oil they

sell to NPC.

It should be stated at this juncture that, as early as May 14, 1954, the

Secretary of Justice renders an opinion, 90 wherein he stated and We

quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all

taxes, duties, fees, imposts, charges, and restrictions of the Republic of

the Philippines and its provinces, cities, and municipalities." This

exemption is broad enough to include all taxes, whether direct or indirect,

which the National Power Corporation may be required to pay, such as

the specific tax on petroleum products. That it is indirect or is of no

amount [should be of no moment], for it is the corporation that ultimately

pays it. The view which refuses to accord the exemption because the tax

is first paid by the seller disregards realities and gives more importance to

form than to substance. Equity and law always exalt substance over from.

xxx xxx xxx

Tax exemptions are undoubtedly to be construed strictly but not so

grudgingly as knowledge that many impositions taxpayers have to pay are

in the nature of indirect taxes. To limit the exemption granted the

National Power Corporation to direct taxes notwithstanding the general

and broad language of the statue will be to thwrat the legislative intention

in giving exemption from all forms of taxes and impositions without

distinguishing between those that are direct and those that are not.

(Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil

companies which supply bunker fuel oil to NPC have to pay the taxes

imposed upon said bunker fuel oil sold to NPC. By the very nature of

indirect taxation, the economic burden of such taxation is expected to be

passed on through the channels of commerce to the user or consumer of

the goods sold. Because, however, the NPC has been exempted from both

direct and indirect taxation, the NPC must beheld exempted from

absorbing the economic burden of indirect taxation. This means, on the

one hand, that the oil companies which wish to sell to NPC absorb all or

part of the economic burden of the taxes previously paid to BIR, which

could they shift to NPC if NPC did not enjoy exemption from indirect

taxes. This means also, on the other hand, that the NPC may refuse to

pay the part of the "normal" purchase price of bunker fuel oil which

represents all or part of the taxes previously paid by the oil companies to

BIR. If NPC nonetheless purchases such oil from the oil companies —

because to do so may be more convenient and ultimately less costly for

NPC than NPC itself importing and hauling and storing the oil from

overseas — NPC is entitled to be reimbursed by the BIR for that part of

the buying price of NPC which verifiably represents the tax already paid

by the oil company-vendor to the BIR.

It should be noted at this point in time that the whole issue of who WILL

pay these indirect taxes HAS BEEN RENDERED moot and academic

by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad

valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER

CENTUM. Said E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE

NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY

REVISING THE EXCISE TAX RATES OF CERTAIN

PETROLEUM PRODUCTS.

xxx xxx xxx

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue

Code, as amended, is hereby amended to read as follows:

Par. (b) — For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE

1. . . .

2. . . .

3. . . .

4. Fuel oil, commercially known as bunker oil and on similar fuel oils

having more or less the same generating power 0%

xxx xxx xxx

Sec. 3. This Executive Order shall take effect immediately.

Done in the city of Manila, this 17th day of June, in the year of Our Lord,

nineteen hundred and eighty-seven. (Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having

to worry about who is going to bear the economic burden of the ad

valorem taxes. What this Court will now dispose of are petitioner's

complaints that some indirect tax money has been illegally refunded by

the Bureau of Internal Revenue to the NPC and that more claims for

refunds by the NPC are being processed for payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal

Revenue in favor of the NPC last July 7, 1986 for P58.020.110.79 which

were for "erroneously paid specific and ad valorem taxes during the period

from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare

this Tax Credit Memo illegal as the PNC did not have indirect tax

exemptions with the enactment of P.D. No. 938. As We have already

ruled otherwise, the only questions left are whether NPC Is entitled to a

tax refund for the tax component of the price of the bunker fuel oil

purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal

Revenue properly refunded the amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the

tax exemptions of all GOCCs — NPC included, it was only on May 8,

1985 when the BIR issues its letter authority to the NPC authorizing it to

withdraw tax-free bunker fuel oil from the oil companies pursuant to

FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was

retroactive to June 11, 1984 there was a need. therefore, to recover said

amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and

ad valorem taxes on the bunker oil it sold NPC during the period above

indicated and had billed NPC correspondingly. 93 It should be noted that

the NPC, in its letter-claim dated September 11, 1985 to the

Commissioner of the Bureau of Internal Revenue DID NOT

CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid

the P58.020,110.79 as part of the bunker fuel oil price it purchased from

Caltex (Phils) Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is

section 230 of the National Internal Revenue Code of 1977, as amended

which reads as follows:

Sec. 230. Recover of tax erroneously or illegally collected. — No suit or

proceeding shall be maintained in any court for the recovery of any

national internal revenue tax hereafter alleged to have been erroneously

or illegally assessed or collected, or of any penalty claimed to have been

collected without authority, or of any sum alleged to have been excessive

or in any Manner wrongfully collected. until a claim for refund or credit

has been duly filed with the Commissioner; but such suit or proceeding

may be maintained, whether or not such tax, penalty, or sum has been

paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration

of two years from the date of payment of the tax or penalty regardless of

any supervening cause that may arise after payment; Provided, however,

That the Commissioner may, even without a written claim therefor,

refund or credit any tax, where on the face of the return upon which

payment was made, such payment appears clearly, to have been

erroneously paid.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11,

1985, 95 the Commissioner correctly issued the Tax Credit Memo in view

of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting

favorably on NPC's claim for P410.580,000.00 which represents specific

and ad valorem taxes paid by the oil companies to the BIR from June 11,

1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached

thereto does not reveal when the alleged claim for a P410,580,000.00 tax

refund was filed. It is only stated In paragraph No. 2 of the Deed of

Assignment 97 executed by and between NPC and Caltex (Phils.) Inc., as

follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the

Bureau of Internal Revenue amounting to P442,887,716.16.

P58.020,110.79 of which is due to Assignor's oil purchases from the

Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff."

We cannot restrain the BIR from refunding said amount because of Our

ruling that NPC has both direct and indirect tax exemption privileges.

Neither can We order the BIR to refund said amount to NPC as there is

no pending petition for review on certiorari of a suit for its collection

before Us. At any rate, at this point in time, NPC can no longer file any

suit to collect said amount EVEN IF lt has previously filed a claim with

the BIR because it is time-barred under Section 230 of the National

Internal Revenue Code of 1977. as amended, which states:

In any case, no such suit or proceeding shall be begun after the expiration

of two years from the date of payment of the tax or penalty

REGARDLESS of any supervening cause that may arise after payment. .

. . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to

assume that payment by NPC for the amount of P410,580,000.00 had

been made on said date. it is clear that more than two (2) years had already

elapsed from said date. At the same time, We should note that there is no

legal obstacle to the BIR granting, even without a suit by NPC, the tax

credit or refund claimed by NPC, assuming that NPC's claim had been

made seasonably, and assuming the amounts covered had actually been

paid previously by the oil companies to the BIR.

WHEREFORE, in view of all the foregoing, the Motion for

Reconsideration of petitioner is hereby DENIED for lack of merit and

the decision of this Court promulgated on May 31, 1991 is hereby

AFFIRMED.

SO ORDERED.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo,

JJ., concur.

Padilla and Quiason, JJ. took no part.

G.R. No. 119786 September 22, 1998

ATLAS CONSOLIDATED MINING AND DEVELOPMENT

CORPORATION, petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX

APPEALS and COURT OF APPEALS, respondents.

PANGANIBAN, J.:

In Davao Gulf Lumber Corporation v. Commissioner of Internal

Revenue and Court of Appeals, 1 the Court en banc unequivocally held

that the tax refund under Republic Act No. 1435 is computed on the basis

of the specific tax deemed paid under Sections 1 and 2 thereof, not on the

increased rates actually paid under the 1977 NIRC. We adhere to such

ruling.

The Case

Petitioner challenges, under Rule 45 of the Rules of Court, the March 30,

1995 Decision of the Court of Appeals 2 in CA-GR SP No. 34081, which

affirmed the December 24, 1991 Decision 3 of the Court of Tax Appeals

(CTA), which in turn denied the claim of the petitioner for refund/tax

credit of 25 percent of the specific tax it actually paid for the petroleum

products purchased for its mining operations.

The Facts

The antecedent facts are summarized by the Court of Appeals as

follows: 4

(1) Petitioner is a domestic corporation engaged in the business of mining

copper from its mineral land and concessions in Toledo City, Cebu.

During the periods under review, beginning from September 1974

through July 1983, petitioner purchased from its suppliers, Petrophil

Corporation and Mobil Oil Philippines, referred to hereinafter

respectively as Petrophil and Mobil Oil, quantities of manufactured oil

and other fuels, like diesel and coco-diesel. It actually used these oils and

fuels in its mining operations to run various items of machinery and

equipment, motors and vehicles;

(2) Petrophil and Mobil Oil paid the specific taxes imposed by Sections

153 and 156 (formerly Section 142 and 145) of the 1977 National Internal

Revenue Code (NIRC) on all the oils and fuels they manufactured from

which was drawn the quantity sold to the petitioner for use in its

operations;

(3) On June 14, 1956 Republic Act No. 1435, [An Act to Provide Means

for Increasing the Highway Discretionary Funds], granted in Section 5

thereof, a refund of 25% of the specific taxes paid on oil products used

by miners and forest concessionaires in their operations, to wit:

The proceeds of the additional tax on manufactured oils shall accure to

the road and bridges funds of the political subdivision for whose benefit

the tax is collected; provided, however, that whenever any oils mentioned

above are used by miners or forest concessionaires in their operations,

twenty-five percentum (25%) of the specific tax paid thereon shall be

refunded by the Collector of Internal Revenue upon submission of proof

of actual use of oils under similar conditions enumerated in subparagraphs

one and two of Section one hereof, amending section one hundred forty-

two of the Internal Revenue Code; Provided, further, that no new road

shall be constructed unless the routes or location thereof shall have been

approved by the Commissioner of Public Works and Highways after a

determination that such road can be made part of an integral and

articulated route in the Philippine Highway System, as required in section

twenty-six of the Philippine Highway Act of 1953.

(4) Invoking Section 5 of Republic Act 1435, petitioner filed with the

Court of Tax Appeals several petitions seeking the refund of 15% of

specific taxes paid on oil products which it purchased and used in its

mining operations at various times in the following amounts:

C.T.A. Case No. Amount Claimed Period Covered

2840 P3,928,614.19 Sept. 1974 — June 1976

3091 10,311,887.34 May 1978 — Feb. 1980

3426 8,972,165.34 March 1980 — Dec. 1981

3696 11,220,895.07 Jan. 1982 — July 1983

——————

Total P34,433,563.94

(5) The aforecited cases were consolidated. On December 24, 1991, the

Tax Court rendered a Decision denying the claims for refund on the basis

of the Decision of the Supreme Court in Commissianer of Internal

Revenue vs. Rio Tuba Nickel Mining Corporation and Court of Tax

Appeals, G.R. Nos. 83583-84, September 30, 1991, wherein it was held

that the refund privilege granted by Section 5 of R.A. 1435 was impliedly

repealed with the issuance of Presidential Decree No. 711, which took

effect on July 1, 1975, abolishing all special and fiduciary funds;

(6) Petitioner appealed the Tax Court's Decision to this Court under CA-

G.R. Sp. No. 27676, entitled "Atlas Consolidated Mining and

Development Corp. vs. Commissioner of Internal Revenue and Court of

Tax Appeals." On March 31, 1993, the Eleventh Division of this Court

rendered a Decision setting aside the Tax Court's Decision and remanding

the cases to the Tax Court for proper determination of the total amount

of specific taxes paid and the corresponding tax refund or credit to which

petitioner is entitled;

(7) The decision of this Court was based on a Supreme Court Resolution

dated March 25, 1992 and a Resolution dated June 15, 1992 modifying the

Decision in Rio Tuba (supra), in that the refund privilege granted under

Section 5 of R.A. 1435 was available up to 1985 since the Highway Special

Fund was abolished only in 1986. Furthermore, said Resolutions ruled

that the amount of specific taxes refundable should be computed on the

basis of the rates of specific tax prescribed under Sections 1 and 2 of R.A.

1435 and not on the increased rates mandated under Sections 153 and 156

of the Tax Code:

(8) Thus, this Court said:

Thus, the respondent court's decision of December 24, 1991 should be

SET ASIDE. The instant tax cases should be remanded to the respondent

court for proper evaluation of the petitioner's evidence to determine the

total amount of specific taxes and the 25% refund or tax credit based on

the specific tax rates prescribed in Sections 1 and 2 of RA 1435 in view of

the allegation of the petitioner in the instant petition that the respondent

court failed to consider certain exhibits or cited wrong exhibits. (emphasis

ours)

(9) On April 29, 1993, an Entry of Judgment was issued in CA - G.R. SP

No. 27676 stating that the Decision therein had already become final and

executory;

(10) On April 18, 1994, after hearing, the Tax Court issued a Resolution

computing the 25% specific tax refund based on the rates of specific tax

prescribed in Sections 1 and 2 of RA 1435 and came out with the

following amounts refundable:

1) CTA Case No. 2840 — P208,129.57

2) CTA Case No. 3091 — 358,864.83

3) CTA Case No. 3426 — 270,369.02

4) CTA Case No. 3696 — 264,315.46

——————

Total P1,101,678.88

As earlier noted, the Court of Appeals affirmed the CTA Decision. Hence,

this petition for review. 5

The Ruling of the Court of Appeals

In affirming the Decision of the Court of Tax Appeals, Respondent Court

relied on the Supreme Court ruling in CIR v. Rio Tuba 6 that the refund

should be computed on the basis of the rates deemed paid under RA 1435,

not on the increased rates actually paid under the NIRC. Respondent

Court ruled:

Moreover, the latest ruling of the Supreme Court on the matter is its

Decision dated May 10, 1994 in Commissioner of Internal Revenue vs.

Hon. Court of Appeals and Atlas Consolidated Mining and Development

Corporation, G.R. No. 106913. This case also involves petitioner's claim

for refund of 25% of specific taxes paid on oil products used in its mining

operations for the periods July-December 1976, January-December 1977

and January-May 1978, pursuant to Section 5 of R.A. 1435. The Supreme

Court, applying Rio Tuba, held:

We rule, therefore, that since [Atlas'] claims for refund cover specific taxes

paid before 1985, it should be granted the refund based on the rates

specified by Sections 1 and 2 of R.A. No. 1435 and not on the increased

rates under Sections 153 and 156 of the Tax Code of 1977, provided the

claims are not yet barred by prescription.

The case at bar is no different from Rio Tuba and the aforecited G.R. No.

106913. Hence, the instant petition is devoid of merit.

Notably, therefore, the decision of the Supreme Court in Insular Lumber

Co. vs. CTA (G.R. No. L-31057, 29 May 1981) and in Commissioner of

Internal Revenue vs. Atlas Consolidated Mining and Development

Corporation, et al. (G.R. No. 93631, 12 November 1990) have been

superseded by the decision of the Supreme [C]ourt in Commissioner of

Internal Revenue vs. Rio Tuba Nickel Mining Corp. and the Court of Tax

Appeals and Atlas Consolidated Mining and Development Corp. (G.R.

No. 106913, dated May 10, 1994). 7

The Issues

Petitioner argues that Respondent Court of Appeals committed the

following errors:

I

Upholding the Tax Court decision and failing to apply the Supreme

Court's En Banc decision in insular Lumber Co. vs. CTA, thereby making

as basis for its decision the Supreme Court's decision sitting in a division,

in the Rio Tuba case.

II

Failing to apply the increase in rates imposed by succeeding amendatory

laws, under which petitioner paid the specific taxes on manufactured oils

and other fuels.

III

Unnecessarily interpreting Section 5 of Republic Act No. 1435, contrary

to established legal principles.

IV

Failing to apply Sections 142 and 145 of the National Internal Revenue

Code, as amended, making the decision contrary to existing law and

jurisprudence, resulting [in] unfair, erroneous, arbitrary, inequitable and

oppressive consequences.

In sum, the main issue here is whether petitioner is entitled to the refund

of 25 percent of specific taxes it actually paid on various refined and

manufactured mineral oils and other oil products taxed under Sections

153 and 156 of the 1977 National Internal Revenue Code (Sections 142

and 145, respectively, of the 1939 NIRC).

The Court's Ruling

The petition is devoid of merit.

Issue: Computation of Tax Refund

Petitioner is a duly licensed domestic corporation engaged in the business

of mining copper from its concessions. Because the petroleum products

it had purchased were used in its mining operations, it is entitled to claim

a tax refund pursuant to RA 1435. The petroleum products were originally

subject to specific tax under Sections 142 and 145 of the 1939 NIRC,

which were amended by Sections 1 and 2 of RA 1435, respectively. At the

time of the purchase of the petroleum products, Sections 142 and 145

were respectively renumbered Sections 153 and 156 of the 1977 NIRC,

which imposed the higher rate of taxes petitioner paid.

It is undisputed that the refund privilege existed at the date the entitlement

was being availed of Commissioner of Intemal Revenue v. Rio Tuba

Nickel Mining Corpordtion 8 held that the Highway Special Fund retained

its status as a special fund up to 1985 or for 10 years after the effectivity

of Presidential Decree 711, which mandated that all funds that had

accrued from various special funds would be channeled to the general

fund.

PD 711, which took effect on July 1, 1975, was invoked in previous cases

as having impliedly repealed RA 1435, thereby abolishing the refund

privilege accorded to miners and loggers. Rio Tuba, however, ruled that

the privilege existed until 1985.

The only question in the present case, therefore, is the computation of the

tax refund. As stated earlier, petitioner contends that the 25 percent

refund should be based on the increased rates of specific tax it had actually

paid under the 1977 NIRC, not on the prescribed rates under RA 1435.

The issue presented before us is already settled. In Davao Gulf Lumber

Corporation v. Commissioner of Internal Revenue and Court of Appeals,

9 the Court en banc unanimourly reiterated Rio Tuba and categorically

held that the tax refund must be computed on the basis of the specific tax

deemed paid under Sections 1 and 2 of RA 1435, not on the increased

rates actually paid by the petitioners pursuant to Sections 153 and 156 of

the NIRC. The Court held:

A tax cannot be imposed unless it is supported by the clear and express

language of a statute[;] on the other hand, once the tax is unquestionably

imposed, "[a] claim of exemption from tax payments must be clearly

shown and based on language in the law too plain to be mistaken." Since

the partial refund authorized under Section 5, RA 1435, is in the nature of

a tax exemption, it must be construed strictissimi juris against the grantee.

Hence, petitioner's claim of refund on the basis of the specific taxes it

actually paid must expressly be granted in a statute stated in a language

too clear to be mistaken.

We have carefully scrutinized RA 1435 and the subsequent pertinent

statutes and found no expression of a legislative will authorizing a refund

based on the higher rates claimed by petitioner. The mere fact that the

privilege of refund was included in Section 5, and not in Section 1, is

insufficient to support petitioner's claim. When the law itself does not

explicitly provide that a refund under RA 1435 may be based on higher

rates which were nonexistent at the time of its enactment, this Court

cannot presume otherwise. A legislative lacuna cannot be filled by judicial

fiat.

The issue is not really novel. In Commissioner of Internal Revenue vs.

Court of Appeals and Atlas Consolidated Mining and Development

Corporation (the second Atlas case), the CIR contended that the refund

should be based on Sections 1 and 2 of RA 1435, not Sections 153 and

156 of the NIRC of 1977. In categorically ruling that Private Respondent

Atlas Consolidated Mining and Development Corporation was entitled to

a refund based on Sections 1 and 2 of RA 1435, the Court, through Mr.

Justice Hilario G. Davide, Jr., reiterated our pronouncement in

Commissioner of Internal Revenue vs. Rio Tuba Nickel and Mining

Corporation:

Our Resolution of 25 March 1992 modifying our 30 September 1991

Decision in the Rio Tuba case sets forth the controlling doctrine. In that

Resolution, we stated:

Since the private respondent's claim for refund covers specific taxes paid

from 1980 to July 1983 then we find that the private respondent is entitled

to a refund. It should be made clear, however, that Rio Tuba is not entitled

to the whole amount it claims as refund.

The specific taxes on oils which Rio Tuba paid for the aforesaid period

were no longer based on the rates specified by Sections 1 and 2 of R.A.

No. 1435 but on the increased rates mandated under Sections 153 and

156 of the National Internal Revenue Code of 1977. We note however,

that the latter law does not specifically provide for a refund to these

mining and lumber companies of specific taxes paid on manufactured and

diesel fuel oils.

In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]),

the Court held that the authorized partial refund under Section 5 of R.A.

No. 1435 partakes of the nature of a tax exemption and therefore cannot

be allowed unless granted in the most explicit and categorical language.

Since the grant of refund privileges must be strictly construed against the

taxpayer, the basis for the refund shall be the amounts deemed paid under

Sections 1 and 2 of R.A. No. 1435.

ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby

MODIFIED. The private respondent's CLAIM for REFUND is

GRANTED, computed on the basis of the amounts deemed paid under

Sections 1 and 2 of R.A. No. 1435, without interest.

We rule, therefore, that since Atlas's claims for refund cover specific taxes

paid before 1985, it should be granted the refund based on the rates

specified by Sections 1 and 2 of R.A. No. 1435 and not on the increased

rates under Sections 153 and 156 of the Tax Code of 1977, provided the

claims are not yet barred by prescription. (Emphasis supplied.) 10

Petitioner also calls attention to the apparent conflict between Insular

Lumber v. Court of Appeals 11 and Commissioner of Internal Revenue

v. Atlas Consolidated Mining and Development Corporation 12 (First

Atlas Case), on the one hand, and Rio Tuba and the Second Atlas Case,

on the other. This issue has been laid to rest by the Court in Davao Gulf:

. . . . Neither Insular Lumber Co. nor the first Atlas case ruled on the issue

of whether the refund privilege under Section 5 should be computed

based on the specific tax deemed paid under Sections 1 and 2 of RA 1435,

regardless of what was actually paid under the increased rates. Rio Tuba

and the second Atlas case did.

Insular Lumber Co. decided a claim for refund on specific tax paid on

petroleum products purchased in the year 1963, when the increased rates

under the NIRC of 1977 were not yet in effect. Thus, the issue now before

us did not exist at the time, since the applicable rates were still those

prescribed under Sections 1 and 2 of RA 1435.

On the other hand, the issue raised in the first Atlas case was whether the

claimant was entitled to the refund under Section 5, notwithstanding its

failure to pay any additional tax under municipal or city ordinance.

Although Atlas purchased petroleum products in the years 1976 to 1978

when the rates had already been changed, the Court did not decide or

make any pronouncement on the issue in that case.

Clearly, it is impossible for these two decisions to clash with our

pronouncement in Rio Tuba and second Atlas case, in which we ruled

that the refund granted be computed on the basis of the amounts deemed

paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for

petitioner's invocation of the constitutional proscription that "no doctrine

or principle of law laid down by the Court in a decision rendered en banc

or in a division may be modified or reversed except by the Court sitting

en banc.

Likewise, Davao Gulf has already debunked petitioner's argument that not

applying Sections 142 and 145 of the NIRC rendered the CTA Decision

unfair and arbitrary. The Court ruled:

Finally, petitioner asserts that "equity and justice demand that the

computation of the tax refunds be based on actual amounts paid under

Sections 153 and 156 of the NIRC." We disagree. According to an

eminent authority on taxation, "there is no tax exemption solely on the

ground of equity."

WHEREFORE, the petition is hereby DENIED and the assailed

Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.

Documents

Taxation I Case Assignments