TAX Week2 Digests

7/28/2019 TAX Week2 Digests

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MACEDA V MACARAIG

(June 8, 1993)

Facts:

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

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President ofthe Philippines to guarantee, absolutely and unconditionally, as primaryobligor, the payment of any and all NPC loans. The loans shall be exempted

from taxes, duties, fees, imposts, charges and restrictions of the national andlocal governments.

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, forthe first time, to incur other types of indebtedness, aside from indebtednessincurred by flotation of bonds. The law also exempted the NAPOCOR from alltaxes, duties, fees, imposts, charges and restrictions of the national and localgovernments.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's taxexemption for real estate taxes.

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a publiccorporation into a stock corporation with an authorized capital stock ofP100,000,000.00 divided into 1,000.000 shares having a par value of P100.00each, with said capital stock wholly subscribed to by the Government. No tax

exemption was incorporated in said Act. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the

NPC, C.A. No. 120, as amended

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC toenable it to fulfill its role. Also states that NPC shall be exempt from all directand indirect taxes, fees, imposts, other charges and restrictions previously andpresently imposed by the national and local governments.

On May 27, 1976 P.D. No. 938 was issued. integrated the exemptions in favor ofGOCCs including their subsidiaries; however, empowering the President or theMinister of Finance, upon recommendation of the Fiscal Incentives ReviewBoard (FIRB) to restore, partially or completely, the exemptions withdrawn orrevised.

The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and taxexemptions privileges of NAPOCOR for period 11 June 1984- 30June 1985.

Resolution 1-86 (1January 1986) restored such exemption indefinitely effective1 July 1985. EO 93 (1987) again withdrew the exemption.

FIRB issued Resolution 17-87 (24June 1987) restoring NAPOCORs exemption,which was approved by the President on 5 October 1987.

Since 1976, oil firms never paid excise or specific and advalorem taxes forpetroleum products sold and delivered to NAPOCOR. Oil companies started topay specific and ad valorem taxes on their sales of oil products to NAPOCORonly in 1984.NAPOCOR claimed for a refund (P468.58 million). Only portionthereof, corresponding to Caltex, was approved and released byway of a taxcredit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltexamounting to P410.58 million was denied. NAPOCOR moved forreconsideration, stating that all deliveries of petroleum products to NAPOCOR

are tax exempt, regardless of the period of delivery.

Issues:

What kind of tax exemption privileges did NPC have? For what periods in time were these privileges being enjoyed? If there are taxes to be paid, who shall pay for these taxes?

Ratio:

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption ofNPC 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."

A chronological review of the NPC laws will show that it has been thelawmaker's intention that the NPC was to be completely tax exempt from allforms of taxes direct and indirect

NPC's tax exemption from real estate taxes was, however, specificallywithdrawn by Rep. Act No. 987, as above stated. The exemption was,however, restored by R.A. No. 6395.

One common theme in all these laws is that the NPC must be enable to pay itsindebtedness which, as of P.D. No. 938, was P12 Billion in total domesticindebtedness, at any one time, and U$4 Billion in total foreign loans at anyone time. The NPC must be and has to be exempt from all forms of taxes ifthis goal is to be a chieved.

It is crystal clear, therefore, that NPC had been granted tax exemptionprivileges for both direct and indirect taxes under P.D. No. 938. 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 Presidentand to avail of tax-free importation privileges under its Section 1, subject tothe prior approval of an Inter-Agency Committed created by virtue of saidP.D. No. 882. It is presumed that the NPC, being the special creation of theState, was allowed to continue its tax-free importations.

There is reason to believe that NPC availed of subsidy granted to exemptGOCC's that suddenly found themselves having to pay taxes. It will be notedthat Section 23, P.D. No. 1177, mandated that the Secretary of Finance andthe Commissioner of the Budget had to establish the necessary procedure toaccomplish 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 GeneralFund the amounts necessary to pay different revenue collectors for the taxesit had to pay.

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

In the case of the tax exemption restoration of NPC, there is no othercomparable entity not even a single public or private corporation whose rights would be violated if NPC's tax exemption privileges were to berestored. While there might have been a MERALCO before Martial Law, it isof 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 implementingarm for the electrification of the entire country. Besides, MERALCO was


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limited to Manila and its environs. And as of 1984, there was no moreMERALCO as a producer of electricity which could have objected to therestoration of NPC's tax exemption privileges.

While 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.

When E.O No. 93 (S'86) was issued, President Aquino was exercising bothExecutive 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 forththe policy to be carried out and it fixed the standard to which the delegate had to

conform in the performance of his functions, both qualities having been

enunciated by this Court in Pelaez vs. Auditor General.

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

The Court rules and declares that the oil companies which supply bunker fueloil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC.

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. 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. 195issued on June 16, 1987 by virtue of which the ad valoremtax rate on bunkerfuel oil was reduced to Zero (0%) per centum.

The oil companies can now deliver bunker fuel oil to NPC without having toworry 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 someindirect tax money has been illegally refunded by the Bureau of InternalRevenue to the NPC and that more claims for refunds by the NPC are beingprocessed for payment by the BIR.

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11,1985, 95the Commissioner correctly issued the Tax Credit Memo in view of

NPC's indirect tax exemption.

*the highlighted portion I believe is the relevant issue under the heading Delegation to

administrative agencies.

-Ivan

Maceda v. ERB

(July 18, 1991)

Doctrine: The Court reaffirmed in this case its ruling in an earlier case that the ERBs

Board Order authorizing the proceeds generated by the increase in the oil prices to bedeposited to the OPSF is not an act of taxation but is authorized by PD 1956, as amendedby EO 137.

Ponente: Medialdea,J.

Facts:

Petitioner Maceda seeks nullification of the Energy Regulatory Board Ordersdated Dec. 5 and 6, 1990 on the ground that the hearings conducted on thesecond provisional increase in oil prices did not allow him substantial cross-examination, in effect, a denial of due process

Aug. 2, 1990: outbreak of Persian Gulf conflicto Private respondents (Shell, Caltex, and Petrophil Corp.) filed with

the ERB their respective applications on oil price increases

Sept. 21, 1990: ERB issued an order granting a provisional increase of P1.42per litero ERB set the applications for hearing with due notice to all

interested parties on Oct. 16, 1990o Pet. Maceda failed to appear at said hearing as well as on the

second hearing

Petitioner Maceda filed a petition for Prohibitiono Dismissed by SC, reaffirming ERBs authority to grant provisional

increase even without prior hearing, pursuant to Sec. 8 of EO 172

ERB set the continuation of the hearing to Oct. 24, 1990 which waspostponed to Nov. 5 on written notice of petitioner Maceda

ERB admitted the respective supplemental/amended petitions on November6, 1990 at the same time requiring applicants to publish the corresponding

Notices of Public Hearing in two newspapers of general circulation ERB ruled that the testimonies of witnesses were to be in the form of

Affidavits and subsequently outlined the procedure to be observed, whichbasically deferred the cross-examinations of the oil companies witnesses

Petitioner Maceda maintains that this order of proof deprived him of hisright to finish his cross-examination of Petrons witnesses and denied himhis right to cross-examine each of the witnesses of Caltex and Shell.

o This relaxed procedure resulted in the denial of due processIssue: W/N the procedure outlined by the ERB amounted to a denial of due process

W/N the orders of ERB were valid

Held: No.

Ratio/Ruling:

The order of testimony with respect to the examination of the particularwitness and to the general course of the trial is within the discretion of thecourt

o Such a relaxed procedure is especially true in administrativebodies, such as the ERB which in matters of rate or price fixing isconsidered as exercising a quasi-legislative, not quasi-judicialfunction

Petitioner: there is no substantial evidence on record to support theprovisional relief

Court took judicial notice of matters and events related to the oil industrysuch as the OPSF deficit, exchange rate, etc.

Petitioners: the provisional increase amounts over and above that sought bythe petitioning oil companies


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Sol-Gen (cited by Court): aside from the increase in crude oil prices, all theapplications of the respondent oil companies filed with the ERB covered claimsfrom the OPSF

o Court respected the ERBs Order of Dec. 5, 1990 granting a provisionalprice increase premised on:

The oil companies OPSF claims Crude cost peso differentials Forex risk for a subsidy on sale to NPC

o Since the oil companies are entitled to as much relief as the factalleged constituting the course of action may warrant

o Court pointed out the ERB brought back the increases in Premium andRegular gasoline to the levels mandated by the Dec. 5, 1990 Order

Petitioner Original: If the price increase will be used to augment the OPSFthis will constitute illegal taxation

Court: In the Maceda case (Dec. 18,1990), the Court has already ruled that theBoard Order authorizing the proceeds generated by the increase to bedeposited to the OPSF is not an act of taxation but is authorized by PD 1956, asamended by EO 137

Disposition: Petitions dismissed

Vote: En Banc; Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grino-Aquino and

Regalado,JJ. ConcurDavide,J., concurs in the resultFernan, C. J., took no partParas,J., dissents in a separate opinionCruz,J., concurs in Justice Paras and Justice Padillas dissentsPadilla,J., dissents in a separate opinionGutierrez, Jr.,J., concurs in Justice Padillas dissent

Separate Opinions

Paras,J., dissenting

ERB has absolutely no power to tax which is solely the prerogative of Congress This is what the ERB is precisely doing by getting money from the people to

ultimatelysubsidize the ravenous oil companies Votes for complete and effective rollback of all oil prices

Padilla,J., dissenting:

Any increase, provisional or otherwise, should be allowed only after the ERBshall have fully determined, through bona fide and full-dress hearings, that it isabsolutely necessary and by how much it shall be effected

The right to be heard includes the right to confront and cross-examine thewitnesses of the adverse parties

ERB acted hastily in granting the provisional increases sought by the oilcompanies even before the oppositors could submit evidence in support oftheir opposition

o The fact that the questioned orders merely allowed a provisionalincrease is beside the point, for past experiences have shown that so-

called provisional increases allowed by the ERB ultimately becamepermanent

The acts of the ERB (in reducing the prices of fuel) sparked by presidentialrequests demonstrate that the evidence did not, in the first place, justify theprice increases it had ordered in the questioned issuances

Vote to grant the petition and for a roll-ba ck prices of oil productsSarmiento,J., separate opinion:

I agree with Justice Padilla insofar as he refers to the "present scheme of

allowing provisional price increase" as a "scheme [to defraud] the people." Iwould like to go further. As I indicated the ERB does no more than to punchcalculators for the Government-which decides oil price increases. The comedyof December, 1990, when the Board adjusted prices in a matter of days, is aconfirmation of this point. AsJustice Padilla noted, the re-adjustment of December 10, 1990 was in factprompted by "presidential requests" which does not speak well of the Board'sindependence and which in fact bares the truth as to who really makes thedecision. (The readjustment, consisting in the reduction in diesel fuel and acorresponding increase in gasoline, sought to mollify the indignation of thepublic.)

I agree with Justice Padilla that it amounts to fraud on the people to make them

believe that the ERB can give them a fair hearing, indeed, if it can do anythingat all.

I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently,the "ravenous" oil companies Justice Paras refers to, have not helped any. Isubmit however that we have not succeeded in fingering the real villain theletter of intent. Saddam's Middle East folly has nothing to do with that.

-Leah

Osmena v. Orbos, supra

COMMISSIONER OF INTERNAL REVENUE, petitioner,

-versus-HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE

TOBACCO CORPORATION,respondents.

(August 29, 1996 | GR No 119761| 1stDivision)

DOCTRINE:

XXX

Petitioner stresses on the wide and ample authority of the BIR in the issuance ofrulings for the effective implementation of the provisions of the National InternalRevenue Code. Let it be made clear that such authority of the Commissioner is nothere doubted. Like any other government agency, however, the CIR may not disregard

legal requirements or applicable principles in the exercise of its quasi-legislativepowers.


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were therefore still classified as other locally manufactured cigarettes and taxed at 45%or 20% as the case may be.Accordingly, the deficiency ad valorem tax assessment issued on petitioner FortuneTobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge andinterest, is hereby canceled for lack of legal basis.Respondent Commissioner of Internal Revenue is hereby enjoined from collecting thedeficiency tax assessment made and issued on petitioner in relation to theimplementation of RMC No. 37-93.

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motionfor reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning theCTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993,the appellate court's Special Thirteenth Division affirmed in all respects the assaileddecision and resolution.

XXX

ISSUE: (a) Is RMC 37-93 merely an interpretative ruling of the BIR which can thusbecome effective without any prior need for notice and hearing, nor publication, and thatits issuance is not discriminatory since it would apply under similar circumstances to alllocally manufactured cigarettes?

HELD: (a) NO, the BIR not simply intrepreted the law; verily, it legislated under itsquasi-legislativeauthority. The due observance of the requirements of notice, of hearing,and of publication should not have been then ignored. Also, Apparently, RMC 37-93would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and,unless petitioner would be willing to concede to the submission of private respondentthat the circular should, be considered adjudicatoryin nature and thus violative of dueprocess following theAng Tibay doctrine, the measure suffers from lack of uniformity oftaxation.

REASONING:

A.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulingsfor the effective implementation of the provisions of the National Internal Revenue Code.Let it be made clear that such authority of the Commissioner is not here doubted. Likeany other government agency, however, the CIR may not disregard legal requirem ents orapplicable principles in the exercise of its quasi-legislative powers.

Let us first distinguish between two kinds of administrative issuances a legislativerule and aninterpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of FinanceSecretary, the Court expressed:. . . a legislative rule is in the nature of subordinate legislation, designed to implement a

primary legislation by providing the details thereof. In the same way that laws must have

the benefit of public hearing, it is generally required that before a legislative rule is

adopted there must be hearing. In this connection, the Administrative Code of 1987provides:

Public Participation. If not otherwise required by law, an agency shall, as far aspracticable, publish or circulate notices of proposed rules and afford interested partiesthe opportunity to submit their views prior to the adoption of any rule.(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules aredesigned to provide guidelines to the law which the administrative agency is in charge ofenforcing.

It should be understandable that when an administrative rule is merely interpretativein nature, its applicability needs nothing further than its bare issuance for it gives noreal consequence more than what the law itself has already prescribed. When, uponthe other hand, the administrative rule goes beyond merely providing for the meansthat can facilitate or render least cumbersome the implementation of the law butsubstantially adds to or increases the burden of those governed, it behooves theagency to accord at least to those directly affected a chance to be heard, a nd thereafterto be duly informed, before that new issuance is given the force and effect of law.

A reading of RMC 37-93, particularly considering the circumstances under which ithas been issued, convinces us that the circular cannot be viewed simply as a correctivemeasure (revoking in the process the previous holdings of past Commissioners) ormerely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact andmost importantly, been made in order to place "Hope Luxury," "Premium More" and"Champion" within the classification of locally manufactured cigarettes bearingforeign brands and to thereby have them covered by RA 7654. Specifically, the newlaw would have its amendatory provisions applied to locally manufactured cigaretteswhich at the time of its effectivitywere not so classified as bearing foreign brands.Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and"Champion" cigarettes were in the category of locally manufacturedcigarettes notbearing foreign brand subject to 45% ad valorem tax. Hence, withoutRMC 37-93, the enactment of RA 7654, would have had no new tax rate consequenceon private respondent's products. Evidently, in order to place "Hope Luxury,""Premium More," and "Champion" cigarettes within the scope of the amendatory lawand subject them to an increased tax rate, the now disputed RMC 37-93 had to beissued. In so doing, the BIR not simply intrepreted the law; verily, it legislated underits quasi-legislativeauthority. The due observance of the requirements of notice, ofhearing, and of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

It has been observed that one of the problem areas bearing on compliance withInternal Revenue Tax rules and regulations is lack or insufficiency of due notice to the

tax paying public. Unless there is due notice, due compliance therewith may not bereasonably expected. And most importantly, their strict enforcement could possibly


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suffer from legal infirmity in the light of the constitutional provision on "due process oflaw" and the essence of the Civil Code provision concerning effectivity of laws, wherebydue notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).

In order that there shall be a just enforcement of rules and regulations, in conformitywith the basic element of due process, the following procedures are hereby prescribedfor the drafting, issuance and implementation of the said Revenue Tax Issuances:(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue AuditMemorandum Orders; and (c) Revenue Memorandum Circulars and Revenue

Memorandum Orders bearing on internal revenue tax rules and regulations.(2) Except when the law otherwise expressly provides, the aforesaid internal revenue taxissuances shall not begin to be operative until after due notice thereof may be fairlypresumed.Due notice of the said issuances may be fairly presumed only after the followingprocedures have been taken;xxx xxx xxx(5) Strict compliance with the foregoing procedures isenjoined.

Nothing on record could tell us that it was either impossible or impracticable for the BIRto observe and comply with the above requirements before giving effect to its questionedcircular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to beuniform and equitable. Uniformity requires that all subjects or objects of taxation,similarly situated, are to be treated alike or put on equal footing both in privileges andliabilities.Thus, all taxable articles or kinds of property of the same class must be taxedat the same rate and the tax must operate with the same force and effect in every placewhere the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and"Champion" cigarettes and, unless petitioner would be willing to concede to thesubmission of private respondent that the circular should, as in fact my esteemedcolleague Mr. Justice Bellosillo so expresses in his separate opinion, beconsidered adjudicatoryin nature and thus violative of due process following theAngTibay doctrine, the measure suffers from lack of uniformity of taxation. In its decision,the CTA has keenly noted that other cigarettes bearing foreign brands have not beensimilarly included within the scope of the circular.

XXX

DISPOSITIVE: WHEREFORE, the decision of the Court of Appeals, sustaining that of theCourt of Tax Appeals, isAFFIRMED. No costs.

SEPARATE OPINION | Bellosillo,J.:

XXX

That petitioner Commissioner of Internal Revenue is an expert in her filed is notattempted to be disputed; hence, we do not question the wisdom of her act inreclassifying the cigarettes. Neither do we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, theCourt must check the exercise of these powers and ascertain whether petitioner hasgone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority topromulgate rules, or the wisdom of petitioner as Commissioner of Internal Revenue is

reclassifying the cigarettes of private respondents. It is simply the faithful observanceby government by government of the basic constitutional right of a taxpayer to dueprocess of law and equal protection of the laws. This is what distresses me no end the manner and the circumstances under which the cigarettes of private respondentwere reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rulewhich therefore requires reasonable notice and hearing before its issuance. It shouldnot be confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposinginterests, I also voted to uphold the constitutional right of the taxpayer concerned todue process and equal protection of the laws. By a vote of 3-2, that view prevailed.In sequela, we in the First Division who constituted the majority found ourselvesunjustly drawn into the vortex of a nightmarish episode. The strong ripples whippedup by my opinion expressed therein and of the majority have yet to varnishwhen we are again in the imbroglio of a similar dilemma. The unpleasant experienceshould be reason enough to simply steer clear of this controversy and surf on apretendedloss of judicial objectivity. Such would have been an easy way out, a graciousexit, so to speak, albeit lame. But to camouflage my leave with a sham excuse would beto turn away from a professional vow I keep at all times; I would not be true to myself,and to the people I am committed to serve. Thus, as I have earlier expressed, if placedunder similar circumstances in some future time, I shall have to brave again theprospect of another vilification and a tarnished image if only to show proudly to thewhole world thatunder the present dispensation judicial independence in our country isa true component of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as theeffect of such issuance. For it cannot be denied that the circumstances clearlydemonstrate that it was hastily issued without prior notice and hearing, andsingling out private respondent alone when two days before a new tax law was totake effect petitioner reclassified and taxed the cigarette brands of private respondentat a higher rate. Obviously, this was to make it appear that even before the anticipateddate of effectivity of the statute which was undeniably priorly known to petitioner these brands were already currently classified and taxed at fifty-five percent (55%) ,thus shoving them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of thequestioned memorandum circular that its cigarette brands Hope Luxury, PremiumMore and Champion were being reclassified and subjected to a higher tax rate.Naturally, the result would be to lose financially because private respondent was stillselling its cigarettes at a price based on the old, lower tax rate. Had there been

previous notice and hearing, as claimed by private respondent, it could have very wellpresented its side, either by opposing the reclassification, or by acquiescing thereto


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but increasing the price of its cigarettes to adjust to the higher tax rate. Thereclassification and the ensuing imposition of a tax rate increase therefore could not beanything but confiscatory if we are also to consider the claim of private respondent thatthe new tax is even higher than the cost of its cigarettes.

DISSENTING OPINION | Bellosillo,J.:

The majority upholds these claims of private respondent, convinced that the Circular inquestion, in the first place, did not give prior notice and hearing, and so, it could not have

been valid and effective. It proceeds to affirm the factual findings of the Court of TaxAppeals, which findings were considered correct by respondent Court of Appeals, to theeffect that the petitioner Commissioner of Internal Revenue had indeed blatantly failedto comply with the said twin requirements of notice and hearing, thereby rendering theissuance of the questioned Circular to be in violation of the due process clause of theConstitution. It is also its dominant opinion that the questioned Circular discriminatesagainst private respondent Fortune Tobacco Corporation insofar as it seems to affectonly its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettesapparently of the same kind or classification as these cigarettes manufactured by privaterespondent.

With all due respect, I disagree with the majority in its disquisition of the issues and itsresulting conclusions.

XXX

The questioned Circular has undisputedly been issued by petitioner in pursuance of herrule-making powers under Section 245 of the National Internal Revenue Code, asamended. Exercising such powers, petitioner re-classified "Hope," "More" and"Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct interpretation of Section 142 (c) (1)of the said Code. The said legal provision is not accompanied by any penal sanction, andno detail had to be filled in by petitioner. The basis for the classification of cigarettes hasbeen provided for by the legislature, and all petitioner has to do, on behalf of thegovernment agency she heads, is to proceed to make the proper determination using thecriterion stipulated by the lawmaking body. In making the proper determination,petitioner gave it a liberal construction consistent with the rule that revenue laws are to

be construed in favor of the Government whose survival depends on the contributionsthat taxpayers give to the public coffers that finance public services and othergovernmental operations.

XXX

Because (1) the questioned circular merely embodied an interpretation or a way ofreading and giving meaning to Section 142 (c) (1) of the National Internal Revenue Code,as amended; (2) petitioner did not fill in any details in the aforecited section but onlyclassified cigarettes on the basis of the World Tobacco Directory in the light of theparamount principle of construing revenue laws in favor of the Government to the endthat Government collects as much tax money as it is entitled to in order to fulfill its publicpurposes for the general good of its citizens; (3) no penal sanction is provided in the

aforecited section that was construed by petitioner in the questioned circular; and (4) asimilar circular declassifying copra from being an agricultural food to non-food product

for purposes of the value added tax laws, resulting in the revocation of an exemptionpreviously enjoyed by copra traders, has been ruled by us to be merely aninterpretative ruling and not a legislative, much less, an adjudicatory, action on thepart of the revenue commissioner, this Court must not be blind to the fact that thequestioned Circular is indeed an interpretative ruling not subject to notice andhearing.

XXX

Private respondent anchors its claim of violation of its equal protection rights uponthe too obvious fact that only its cigarette brands, i.e., "Hope," "More" and "Champion,"are mentioned in the questioned circular. Because only the cigarettes that theymanufacture are enumerated in the questioned circular, private respondentproceeded to attack the same as being discriminatory against it. On the surface,private respondent seems to have a point there. A scrutiny of the questioned Circular,however, will show that it is undisputedly one of general application for all cigarettesthat are similarly situated as private respondent's brands. The new interpretation ofSection 142 (1) (c) has been well illustrated in its application upon privaterespondent's brands, which illustration is properly a subject of the questionedCircular. Significantly, indicated as the subject of the questioned circular is the"reclassification of cigarettes subject to excise taxes." The reclassification resulted inthe foregrounding of private respondent's cigarette brands, which incidentally islargely due to the controversy spawned no less by private respondent's own action ofconveniently changing its brand names to avoid falling under a classification thatwould subject it to higher ad valorem tax rates. This caused then CommissionerBienvenido Tan to depart from his initial determination that private respondent'scigarette brands are foreign brands. The consequent specific mention of such brandsin the questioned Circular, does not change the fact that the questioned Circular hasalways been intended for and did cover, all cigarettes similarly situated as "Hope,""More" and "Champion."

XXX

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court ofTax Appeals and the Court of Appeals, respectively, and to reinstate the decision ofpetitioner Commissioner of Internal Revenue denying private respondent's request

for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93dated July 1, 1993.

-Poy

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. MARCOS

(September 11, 1996)

DOCTRINE: The Local Government Code withdrew the tax exemptions enjoyed bynatural or juridical persons including GOCCs unless otherwise provided in the LGC.Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity

of the LGC, exemptions from real property taxes granted to natural or juridicalpersons, including GOCCs, except as provided in the said section, and the petitioner is,


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undoubtedly, a government-owned corporation, it necessarily follows that its exemptionfrom such tax granted it in Section 14 of its charter, R.A. No. 6958 has been withdrawn.

PONENTE: Davide, Jr., J.

FACTS:

Petitioner was created by virtue of RA6958, mandated to "principally undertake theeconomical, efficient and effective control, management and supervision of the MactanInternational Airport in the Province of Cebu and the Lahug Airport in Cebu City. UnderSection 1: The authority shall be exempt from realty taxes imposed by the NationalGovernment or any of i ts political subdivisions, agencies and instrumentalities. However,the Officer of the Treasurer of Cebu City demanded payment for realty taxes on parcelsof land belonging to petitioner. Petitioner objected invoking its tax exemption. It alsoasserted that it is an instrumentality of the government performing governmentalfunctions, citing section 133 of the LGC which puts limitations on the taxing powers ofLGUs. The city refused insisting that petitioner is a GOCC performing proprietaryfunctions whose tax exemption was withdrawn by Sections 193 and 234 of the LGC.Petitioner filed a declaratory relief before the RTC. The trial court dismissed thepetitioner ruling that the LGC withdrew the tax exemption granted the GOCCs

ISSUE: WON the City of Cebu has the power to tax petitioner?

HELD: Yes.

RATIO/RULING:

As a general rule, the power to tax is an incident of sovereignty and is unlimited in itsrange, acknowledging in its very nature no limits, so that security against its abuse is tobe found only in the responsibility of the legislature which imposes the tax on theconstituency who are to pay it. Since taxes are what we pay for civilized society, or arethe lifeblood of the nation, the law frowns against exemptions from taxation and statutesgranting tax exemptions are thus construed strictissimi juris against the taxpayers andliberally in favor of the taxing authority. A claim of exemption from tax payment must beclearly shown and based on language in the law too plain to be mistaken.

There can be no question that under Section 14 RA 6958 the petitioner is exempt fromthe payment of realty taxes imposed by the National Government or any of its politicalsubdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and

exemption is the exception, the exemption may thus be withdrawn at the pleasure of thetaxing authority.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for theexercise by LGUs of their power to tax, the scope thereof or its limitations, and theexemption from taxation. Section133 of the LGC prescribes the common limitations onthe taxing powers of LGUs: (o) Taxes, fees or charges of any kind on the nationalgovernment, its agencies and instrumentalities and LGUs. Among the "taxes" enumeratedin the LGC is real property tax. Section 234 of LGC provides for the exemptions frompayment of GOCCs, except as provided therein. On the other hand, the LGC authorizesLGUs to grant tax exemption privileges. Reading together Section 133, 232 and 234 of theLGC, we conclude that as a general rule, as laid down in Secs 133 the taxing powers ofLGUs cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of theNational Government, its agencies and instrumentalities, and LGUs"; however, pursuant

to Sec 232, provinces, cities, municipalities in the Metropolitan Manila Area may imposethe real property tax except on, inter alia, "real property owned by the Republic of the

Philippines or any of its political subdivisions except when the beneficial used thereofhas been granted to a taxable person."

As to tax exemptions or incentives granted to or presently enjoyed by natural orjuridical persons, including government-owned and controlled corporations, Section193 of the LGC prescribes the general rule, viz., they are withdrawn upon theeffectivity of the LGC, except those granted to local water districts, cooperatives dulyregistered under R.A. No. 6938, non stock and non-profit hospitals and educationalinstitutions, and unless otherwise provided in the LGC. The latter proviso could referto Section 234, which enumerates the properties exempt from real property tax. But

the last paragraph of Section 234 further qualifies the retention of the exemption in sofar as the real property taxes are concerned by limiting the retention only to thoseenumerated there-in; all others not included in the enumeration lost the privilegeupon the effectivity of the LGC. Moreover, even as the real property is owned by theRepublic of the Philippines, or any of its political subdivisions covered by item (a) ofthe first paragraph of Section 234, the exemption is withdrawn if the beneficial use ofsuch property has been granted to taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivityof the LGC, exemptions from real property taxes granted to natural or juridicalpersons, including GOCCs, except as provided in the said section, and the petitioner is,undoubtedly, a government-owned corporation, it necessarily follows that itsexemption from such tax granted it in Section 14 of its charter, R.A. No. 6958 has been

withdrawn. Any claim to the contrary can only be justified if the petitioner can seekrefuge under any of the exceptions provided in Section 234, but not under Section 133,as it now asserts, since, as shown above, the said section is qualified by Section 232and 234. In short, the petitioner can no longer invoke the general rule in Section 133.

It must show that the parcels of land in question, which are real property, are any oneof those enumerated in Section 234, either by virtue of ownership, character, or use ofthe property. Most likely, it could only be the first, but not under any e xplicit provisionof the said section, for one exists. In light of the petitioner's theory that it is an"instrumentality of the Government", it could only be within be first item of the firstparagraph of the section by expanding the scope of the terms Republic of thePhilippines" to embrace "instrumentalities" and "agencies."

This view does not persuade us. In the first place, the petitioner's claim that it is an

instrumentality of the Government is based on Section 133(o), which expresslymentions the word "instrumentalities"; and in the second place it fails to consider thefact that the legislature used the phrase "National Government, its agencies andinstrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippinesor any of its political subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are notinterchangeable. The former is boarder and synonymous with "Government of theRepublic of the Philippines" which the Administrative Code of the 1987 defines as the"corporate governmental entity though which the functions of the government areexercised through at the Philippines, including, saves as the contrary appears from thecontext, the various arms through which political authority is made effective in thePhilippines, whether pertaining to the autonomous reason, the provincial, city,municipal or barangay subdivision or other forms of local government.". On the other

hand, "National Government" refers "to the entire machinery of the centralgovernment, as distinguished from the different forms of local Governments." The


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National Government then is composed of the three great departments the executive, thelegislative and the judicial. An "agency" of the Government refers to "any of the variousunits of the Government, including a department, bureau, office instrumentality, orgovernment-owned or controlled corporation, or a local government or a distinct unittherein;" while an "instrumentality" refers to "any agency of the National Government,not integrated within the department framework, vested with special functions orjurisdiction by law, endowed with some if not all corporate powers, administeringspecial funds, and enjoying operational autonomy; usually through a charter. This termincludes regulatory agencies, chartered institutions and government-owned and

controlled corporations".If Section 234(a) intended to extend the exception therein to the withdrawal of theexemption from payment of real property taxes under the last sentence of the saidsection to the agencies and instrumentalities of the National Government mentioned inSection 133(o), then it should have restated the wording of the latter. Yet, it did notMoreover, that Congress did not wish to expand the scope of the exemption in Section234(a) to include real property owned by other instrumentalities or agencies of thegovernment including government-owned and controlled corporations is further borneout by the fact that the source of this exemption is Section 40(a) of P.D. No. 646,otherwise known as the Real Property TaxCode.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned orcontrolled corporation so exempt by its charter" was excluded. The justification for this

restricted exemption in Section 234(a) seems obvious: to limit further tax exemptionprivileges, specially in light of the general provision on withdrawal of exemption frompayment of real property taxes in the last paragraph of property taxes in the lastparagraph of Section 234. These policy considerations are consistent with the Statepolicy to ensure autonomy to local governments and the objective of the LGC that theyenjoy genuine and meaningful local autonomy to enable them to attain their fullestdevelopment as self-reliant communities and make them effective partners in theattainment of national goals. The power to tax is the most effective instrument to raiseneeded revenues to finance and support myriad activities of local government units forthe delivery of basic services essential to the promotion of the general welfare and theenhancement of peace, progress, and prosperity of the people. It may also be relevant torecall that the original reasons for the withdrawal of tax exemption privileges granted togovernment-owned and controlled corporations and all other units of government werethat such privilege resulted in serious tax base erosion and distortions in the taxtreatment of similarly situated enterprises, and there was a need for this entities to sharein the requirements of the development, fiscal or otherwise, by paying the taxes andother charges due from them.

The crucial issues then to be addressed are: (a) whether the parcels of land in questionbelong to the Republic of the Philippines whose beneficial use has been granted to thepetitioner, and (b) whether the petitioner is a "taxable person". It may be reasonable toassume that the term "lands" refer to "lands" in Cebu City then administered by theLahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levyon for real property taxes. This section involves a "transfer" of the "lands" among otherthings, to the petitioner and not just the transfer of the beneficial use thereof, with theownership being retained by the Republic of the Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because thepetitioner's authorized capital stock consists of "the value of such real estate owned

and/or administered by the airports." Hence, the petitioner is now the owner of theland in question and the exception in Sec 234(c) of the LGC is inapplicable. Petitionercannot claim that it was never a "taxable person" under its Charter. It was onlyexempted from the payment of real property taxes. The grant of the privilege only inrespect of this tax is conclusive proof of the legislative intent to make it a taxableperson subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of realproperty tax, in light of the forgoing disquisitions, it had already become even if it beconceded to be an "agency" or "instrumentality" of the Government, a taxable person

for such purpose in view of the withdrawal in the last paragraph of Section 234 ofexemptions from the payment of real property taxes, which, as earlier adverted to,applies to the petitioner. Accordingly, the position taken by the petitioner is untenable.Reliance on Basco vs. Pagcoris unavailing since it was decided before the effectivity ofthe LGC. Besides, nothing can prevent Congress from decreeing that eveninstrumentalities or agencies of the government performing governmental functionsmay be subject to tax. Where it is done precisely to fulfill a constitutional mandate andnational policy, no one can doubt its wisdom.

DISPOSITION: Petition is denied.

VOTE: Narvasa, C.J., Melo, Francisco, Panganiban, concur.

-Steph

MIAA v. CA(July 20, 2006)

DOCTRINE: An instrumentality of the national government is exempt from localtaxation. Real properties owned by the Republic of the Philippines are exempt realestate tax.

PONENTE: Carpio,J.

FACTS:

MIAA received Final Notices of Real Estate Tax Delinquency from the City ofParaaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquencywas estimated at P624 million.

The City of Paraaque, through its City Treasurer, issued notices of levy andwarrants of levy on the Airport Lands and Buildings. The Mayor of the City ofParaaque threatened to sell at public auction the Airport Lands and Buildingsshould MIAA fail to pay the real estate tax delinquency.

MIAA filed with the Court of Appeals an original petition for prohibition andinjunction, with prayer for preliminary injunction or temporary restraining order.The petition sought to restrain the City of Paraaque from imposing real estatetax on, levying against, and auctioning for public sale the Airport Lands andBuildings.

Paranaques Contention: Section 193 of the Local Government Code expresslywithdrew the tax exemption privileges of government-owned and-controlled

corporations upon the effectivity of the Local Government Code. Respondentsalso argue that a basic rule of statutory construction is that the express mention


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of one person, thing, or act e xcludes all others. An international airport is not amongthe exceptions mentioned in Section 193 of the Local Government Code. Thus,respondents assert that MIAA cannot claim that the Airport Lands and Buildings areexempt from real estate tax.

MIAAs contention: Airport Lands and Buildings are owned by the Republic. Thegovernment cannot tax itself. The reason for tax exemption of public property is thatits taxation would not inure to any public advantage, since in such a case the taxdebtor is also the tax creditor.

ISSUE/HELD:WON Airport Lands and Buildings of MIAA are exempt from real estate tax underexisting laws? YES. Ergo, the real estate tax assessments issued by the City ofParaaque, and all proceedings taken pursuant to such assessments, are void.

RATIO/RULING:

1. MIAA is Not a Government-Owned or Controlled Corporation

-MIAA is not a government-owned or controlled corporation but an instrumentality ofthe National Government and thus exempt from local taxation.-MIAA is not a stock corporation because it has no capital stock divided into shares.MIAA has no stockholders or voting shares.-MIAA is also not a non-stock corporation because it has no members. A non-stockcorporation must have members.

-MIAA is a government instrumentality vested with corporate powers to performefficiently its governmental functions. MIAA is like any other governmentinstrumentality, the only difference is that MIAA is vested with corporate powers.

-When the law vests in a government instrumentality corporate powers, theinstrumentality does not become a corporation. Unless the government instrumentalityis organized as a stock or non-stock corporation, it remains a governmentinstrumentality exercising not only governmental but also corporate powers. Thus, MIAAexercises the governmental powers of eminent domain, police authority and the levyingof fees and charges. At the same time, MIAA exercises all the powers of a corporationunder the Corporation Law, insofar as these powers are not inconsistent with theprovisions of this Executive Order.

2. Airport Lands and Buildings of MIAA are Owned by the Republica. Airport Lands and Buildings are of Public Dominion

-The Airport Lands and Buildings of MIAA are property of public dominion and thereforeowned by the State or the Republic of the Philippines.-No one can dispute that properties of public dominion mentioned in Article 420 of theCivil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the

State, are owned by the State. The term ports includes seaports and airports. The

MIAA Airport Lands and Buildings constitute a port constructed by the State. UnderArticle 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties ofpublic dominion and thus owned by the State or the Republic of the Philippines.-The Airport Lands and Buildings are devoted to public use because they are used by thepublic for international and domestic travel and transportation. The fact that the MIAAcollects terminal fees and other charges from the public does not remove the character of

the Airport Lands and Buildings as properties for public use.

-The charging of fees to the public does not determine the character of the propertywhether it is of public dominion or not. Article 420 of the Civil Code defines propertyof public dominion as one intended for public use. The terminal fees MIAA charges topassengers, as well as the landing fees MIAA charges to airlines, constitute the bulk ofthe income that maintains the operations of MIAA. The collection of such fees does notchange the character of MIAA as an airport for public use. Such fees are often termedusers tax. This means taxing those among the public who actually use a public facilityinstead of taxing all the public including those who never use the particular publicfacility.

b. Airport Lands and Buildings are Outside the Commerce of Man

-The Court has also ruled that property of public dominion, being outside thecommerce of man, cannot be the subject of an auction sale.-Properties of public dominion, being for public use, are not subject to levy,encumbrance or disposition through public or private sale. Any encumbrance, levy onexecution or auction sale of any property of public dominion is void for being contraryto public policy. Essential public services will stop if properties of public dominion aresubject to encumbrances, foreclosures and auction sale. This will happen if the City ofParaaque can foreclose and compel the auction sale of the 600-hectare runway of theMIAA for non-payment of real estate tax.

c. MIAA is a Mere Trustee of the Republic

-MIAA is merely holding title to the Airport Lands and Buildings in trust for theRepublic. Section 48, Chapter 12, Book I of the Administrative Code allowsinstrumentalities like MIAA to hold title to real properties owned by the Republic. nMIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearerbecause even its executive head cannot sign the deed of conveyance on behalf of theRepublic. Only the President of the Republic can sign such deed of conveyance.

d. Transfer to MIAA was Meant to Implement a Reorganization

-The transfer of the Airport Lands and Buildings from the Bureau of AirTransportation to MIAA was not meant to transfer beneficial ownership of theseassets from the Republic to MIAA. The purpose was merely toreorganize a division inthe Bureau of Air Transportation into a separate and autonomous body. The Republicremains the beneficial owner of the Airport Lands and Buildings. MIAA itself is ownedsolely by the Republic. No party claims any ownership rights over MIAAs assets

adverse to the Republic.

e. Real Property Owned by the Republic is Not Taxable

-Sec 234 of the LGC provides that real property owned by the Republic of thePhilippines or any of its political subdivisions except when the beneficial use thereofhas been granted, for consideration or otherwise, to a taxable person following areexempted from payment of the real property tax.-However, portions of the Airport Lands and Buildings that MIAA leases to privateentities are not exempt from real estate tax. For example, the land area occupied byhangars that MIAA leases to private corporations is subject to real estate tax

DISPOSITION: Petition granted;


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Airport Lands and Buildings of the MIAA are declared EXEMPT from the real estate taximposed by the City of Paraaque;

Declared VOID are all the real estate tax assessments, including the final notices of realestate tax delinquencies, issued by the City of Paraaque on the Airport Lands andBuildings of the MIAA, except for the portions that the MIAA has leased to privateparties;

Also declared VOID is the assailed auction sale, and all its effects, of the Airport Landsand Buildings of the MIAA

VOTE: Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-

Martinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia,

Velasco, Jr., J.J., concur.(EN BANC)

-Nem

Philippine Fisheries Development Authority v CA

(July 31, 2007)

Doctrine: For an entity to be considered as a GOCC, it must either be organized as astock or non-stock corporation. Two requisites must concur before one may be classifiedas a stock corporation, namely: (a)that it has capital stock divided into shares, and (b)

that it is authorized to distribute dividends and allotments of surplus and profits to itsstockholders. As for non-stock corporations, they must have members and must notdistribute any part of their income to said members.

A national government instrumentality is defined as an agency of the nationalgovernment, not integrated within the department framework, vested with specialfunctions or jurisdiction by law, endowed with some if not all corporate powers,administering special funds, and enjoying operational autonomy, usually through acharter.

When the law vests in a government instrumentality corporate powers, theinstrumentality does not become a corporation. Unless the government instrumentalityis organized as a stock or non-stock corporation, it remains a government

instrumentality exercising not only governmental but also corporate powers.

Nature: Petition for review assailing the decision of the CA which held that petitionerPhilippine Fisheries Development Authority (PFDA) is liable to pay real property taxeson the land and buildings of the Iloilo Fishing Port Complex (IFPC) which are owned bythe Republic of the Philippines but operated and governed by the PFDA.

Ponente: Ynares-Santiago

1. In 1976, then President Marcos issued PD 977 creating PFDA and placing itunder the direct control and supervision of the Secretary of Natural Resources.In 1982, EO 772 was issued amending PD 977, attaching said agency to theMinistry of Natural Resources. Upon the effectivity of the Administrative Code,PFDA became an attached agency of the Department of Agriculture.

2. Meanwhile, beginning 1981, the then Ministry of Public Works and Highwaysreclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, IloiloCity, and constructed thereon the IFPC, consisting of breakwater, a landingquay, a refrigeration building, a market hall, a municipal shed, anadministration building, a water and fuel oil supply system and other portrelated facilities and machineries. Upon its completion, IFPC was turned overto PFDA, pursuant to Section 11 of PD 977, which places fishing portcomplexes and related facilities under the governance and operation ofPFDA. Notwithstanding said turn over, title to the land and buildings of the

IFPC remained with the Republic.3. PFDA thereafter leased portions of IFPC to private firms and individualsengaged in fishing related businesses.

4. Sometime in 1988, the City of Iloilo assessed the entire IFPC for real propertytaxes. The assessment remained unpaid until the alleged total taxdelinquency of PFDA for the fiscal years 1988 and 1989 amountedto P5,057,349.67, inclusive of penalties and interests. To satisfy the taxdelinquency, the City of Iloilo scheduled on August 30, 1990, the sale atpublic auction of the IFPC.

5. PFDA filed an injunction case with the RTC. Parties agreed that PFDA shouldfile a claim for tax exemption with the Iloilo City Assessors Office. CityAssessor, however, denied the claim for exemption, hence, PFDA elevated thecase to the Department of Finance (DOF).

6. DOF ruled that PFDA is liable to pay real property taxes to the City of Iloilobecause it enjoys the beneficial use of the IFPC. In satisfying the amount ofthe unpaid real property taxes, the property that is owned by PFDA shall beauctioned, and not the IFPC, which is a property of the Republic.

7. PFDA filed a petition before the Office of the President but it was dismissed. It also denied the MR filed by PFDA

8. On petition with the CA, the latter affirmed the decision of the Office of thePresident. It opined, however, that the IFPC may be sold at public auction tosatisfy the tax delinquency of the Authority. Hence, this petition.

WON PFDA is a government owned or controlled corporation (GOCC) or aninstrumentality of the national government? HELD: Instrumentality

(Is the Authority liable to pay real property tax to the City of Iloilo? (HELD: YES) If the

answer is in the affirmative, may the IFPC be sold at public auction to satisfy the taxdelinquency? (HELD: NO)whether the IFPC is a property of public dominion.)

1. PFDA is not a GOCC but an instrumentality of the national government whichis generally exempt from payment of real property tax. However, saidexemption does not apply to the portions of the IFPC which PFDA leased toprivate entities. With respect to these properties, PFDA is liable to pay realproperty tax.

2. The IFPC, being a property of public dominion cannot be sold at publicauction to satisfy the tax delinquency.

3. In Manila International Airport Authority (MIAA) v. Court of Appeals ,the Courtmade a distinction between a GOCC and an instrumentality.

a. Section 2(13) of the Introductory Provisions of the AdministrativeCode of 1987 defines a government-owned or controlled


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corporation as any agency organized as a stock or non-stockcorporation, vested with functions relating to public needs whethergovernmental or proprietary in nature, and owned by theGovernment directly or through its instrumentalities either wholly, or,where applicable as in the case of stock corporations, to the extent ofat least fifty-one (51) percent of its capital stock

b. A government-owned or controlled corporation must be "organizedas a stock or non-stock corporation."

i. Section 3 of the Corporation Code defines a stockcorporation as one whose "capital stock is divided intoshares and x x x authorized to distribute to the holders ofsuch shares dividends x x x."

ii. Section 87 of the Corporation Code defines a non-stockcorporation as "one where no part of its income isdistributable as dividends to its members, trustees orofficers." A non-stock corporation must have members.

iii. Section 88 of the Corporation Code provides that non-stockcorporations are "organized for charitable, religious,educational, professional, cultural, recreational, fraternal,literary, scientific, social, civil service, or similar purposes,like trade, industry, agriculture and like chambers."

4. Thus, for an entity to be considered as a GOCC, it must either be organized as astock or non-stock corporation.

a. Two requisites must concur before one may be classified as a stockcorporation, namely

i. that it has capital stock divided into shares, andii. that it is authorized to distribute dividends and allotments of

surplus and profits to its stockholders.b. As for non-stock corporations, they must have members and must not

distribute any part of their income to said members.5. On the basis of the parameters set in the MIAA case, PFDA should be

classified as an instrumentality of the national government. As such, it is

generally exempt from payment of real property tax, except those

portions which have been leased to private entities.

6. In the MIAA case, PFDA was cited as among the instrumentalities of the nationalgovernment.

7. PFDA is not a GOCC but an instrumentality of the government. PFDA has acapital stock but it is not divided into shares of stocks. Also, it has no

stockholders or voting shares. Hence, it is not a stock corporation. Neither itis a non-stock corporation because it has no members.

8. PFDA is actually a national government instrumentality which is definedas an agency of the national government, not integrated within the

department framework, vested with special functions or jurisdiction by

law, endowed with some if not all corporate powers, administering

special funds, and enjoying operational autonomy, usually through a

charter.

9. When the law vests in a government instrumentality corporate powers,the instrumentality does not become a corporation. Unless the

government instrumentality is organized as a stock or non-stock

corporation, it remains a government instrumentality exercising not onlygovernmental but also corporate powers.

10. The MIAA case held that unlike GOCCs, instrumentalities of the nationalgovernment, like MIAA, are exempt from local taxes pursuant to Section133(o) of the Local Government Code. This exemption, however, admits ofan exception with respect to real property taxes.

a. Applying Section 234(a) of the LGC, the Court ruled that when aninstrumentality of the national government grants to a taxableperson the beneficial use of a real property owned by the Republic,said instrumentality becomes liable to pay real property tax.

b. Section 193 of the LGC expressly withdrew the tax exemption of alljuridical persons "[u]nless otherwise provided in this Code ."Now, Section 133(o)1 of the Local Government Code expresslyprovides otherwise, specifically prohibiting local governmentsfrom imposing any kind of tax on national governmentinstrumentalities.

c. By express mandate of the Local Government Code, localgovernments cannot impose any kind of tax on nationalgovernment instrumentalities like the MIAA. Local governmentsare devoid of power to tax the national government, its

agencies and instrumentalities. The taxing powers of localgovernments do not extend to the national government, itsagencies and instrumentalities, "[u]nless otherwise provided in thisCode" as stated in the saving clause of Section 133.

d. The saving clause in Section 133 refers to the exception to theexemption in Section 234(a)2 of the Code, which makes thenational government subject to real estate tax when it gives the

beneficial use of its real properties to a taxable entity.11. PFDA should be classified as an instrumentality of the national government

which is liable to pay taxes only with respect to the portions of the property,the beneficial use of which were vested in private entities.

12. When local governments invoke the power to tax on national governmentinstrumentalities, such power is construed strictly against localgovernments. The rule is that a tax is never presumed and there must beclear language in the law imposing the tax. Any doubt whether a person,article or activity is taxable is resolved against taxation. This rule applieswith greater force when local governments seek to tax national governmentinstrumentalities.

13. The real property tax assessments issued by the City of Iloilo should beupheld only with respect to the portions leased to private persons. In casePFDA fails to pay the real property taxes due thereon, said portions cannotbe sold at public auction to satisfy the tax delinquency.

14. In Chavez v. Public Estates Authorityit was held thatreclaimed lands arelands of the public domain and cannot, without Congressional fiat, besubject of a sale, public or private

1 SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise providedherein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall notextend to the levy of the following: (o) Taxes, fees or charges of any kinds on the National Government, itsagencies andinstrumentalities, and local government units.2

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the realproperty tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions exceptwhen the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.


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15. In the same vein, the port built by the State in the Iloilo fishing complex is aproperty of the public dominion3 and cannot therefore be sold at publicauction. Being a property of public dominion the same cannot be subject toexecution or foreclosure sale. In like manner, the reclaimed land on which theIFPC is built cannot be the object of a private or public sale withoutCongressional authorization. Whether there are improvements in the fishingportcomplex that should not be construed to be embraced within the term"port," involves evidentiary matters that cannot be addressed in the presentcase. As for now, considering that the Authority is a national government

instrumentality, any doubt on whether the entire IFPC may be levied upon tosatisfy the tax delinquency should be resolved against the City of Iloilo.

DISPOSITIVE: Petition is GRANTED. CA decision set aside. The real property taxassessments issued by the City Iloilo on the land and buildings of the Iloilo Fishing PortComplex, is declared VOID except those pertaining to the portions leased to privateparties. The City of Iloilo is DIRECTED to refrain from levying on the Iloilo Fishing PortComplex to satisfy the payment of the real property tax delinquency.

-Zoilo

GSIS v. City of Manila

(December 23, 2009)Velasco, J.

GSIS used to own two (2) parcels of land, one located at Katigbak 25th St., BonifacioDrive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., alsoin Manila (Concepcion-Arroceros property).Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the Concepcion-Arroceros property, while the Katigbak property was under lease.

Controversy started when the City Treasurer of Manila addressed a letterto GSISPresident and General Manager Winston F. Garcia informing him of the unpaid realproperty taxes due on the aforementioned properties for years 1992 to 2002, brokendown as follows:

(a) PhP 54,826,599.37 for the Katigbak property; and(b) PhP 48,498,917.01 for the Concepcion-Arroceros property.The letter warned that if the taxes are unpaid they would be auctioned.

GSIS, through its legal counsel, wrote back emphasizing the GSIS exemption from allkinds of taxes, including realty taxes, under Republic Act No. (RA) 8291.

GSIS filed a petition for certiorari and prohibitionwith prayer for a restraining andinjunctive relief before the Manila RTC. GSIS prayed for the nullification of the

3 ARTICLE 420. The following things are property of public dominion:(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges

constructed by the State, banks, shores, roadsteads, and others of similar character;(2) Those which belong to the State , without being for public use, and are intended for somepublic service or for the development of the national wealth.

assessments thus made and that respondents City of Manila officials be permanentlyenjoined from proceedings against GSIS property.

GSIS would later amend its petition to include the fact that:(a) the Katigbak property, covered by TCT Nos. 117685 and 119465 in the name ofGSIS, has, since November 1991, been leased to and occupied by the Manila HotelCorporation (MHC), which has contractually bound itself to pay any realty taxes thatmay be imposed on the subject property; and(b) the Concepcion-Arroceros property is partly occupied by GSIS and partly occupiedby the MeTC of Manila.

RTC dismissed GSIS petition, assessments VALID. MR denied

GSIS goes to SC on pure questions of law

WON GSIS is exempt from real property taxation? YES

By virtue of RA 8291 GSIS enjoys full tax exemption, originally given in PD 1146 (for adetailed history of GSIS, the vesting, withdrawal and re-enactment of exemption seecase)

Sec. 39 of RA 8291 reads:SEC. 39. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the

policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved

and maintained at all times and that contribution rates necessary to sustain the benefits

under this Act shall be kept as low as possible in order not to burden the members of the

GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial

solvency of its funds and increase the contribution rate necessary to sustain the benefits

of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets,

revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes,

assessments, fees, charges or duties of all kinds. These exemptions shall continue unless

expressly and specifically revoked and any assessment against the GSIS as of the

approval of this Act are hereby considered paid. Consequently, all laws, ordinances,

regulations, issuances, opinions or jurisprudence contrary to or in derogation of this

provision are hereby deemed repealed, superseded and rendered ineffective and without

legal force and effect.

Moreover, these exemptions shall not be affected by subsequent laws to thecontrary unless this section is expressly, specifically and categorically revoked or

repealed by law and a provision is enacted to substitute or replace the exemption

referred to herein as an essential factor to maintain or protect the solvency of the

fund, notwithstanding and independently of the guaranty of the national

government to secure such solvency or liability.

The funds and/or the properties referred to herein as well as the benefits, sums or

monies corresponding to the benefits under this Act shall be exempt from attachment,

garnishment, execution, levy or other processes issued by the courts, quasi-judicial

agencies or administrative bodies including Commission on Audit (COA) disallowances

and from all financial obligations of the members, including his pecuniary accountability

arising from or caused or occasioned by his exercise or performance of his official

functions or duties, or incurred relative to or in connection with his position or workexcept when his monetary liability, contractual or otherwise, is in favor of the GSIS.


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The foregoing exempting proviso, couched as it were in an encompassing manner,brooks no other construction but that GSIS is exempt from all forms of taxes.

Given the foregoing perspectives, the following may be assumed:(1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes,among other tax burdens, until January 1, 1992 when the LGC took effect and withdrewexemptions from payment of real estate taxes privileges granted under PD 1146;(2) RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec.39 what was once Sec. 33 of P.D. 1146; and

(3) If any real estate tax is due to the City of Manila, it is, following City of Davao, only forthe interim period, or from 1992 to 1996, to be precise.

Real property taxes assessed and due from GSIS considered paid according to Sec 39 (seepar I ITALICS and BOLD)

GSIS is not exactly a GOCC

First, while created under CA 186 as a non-stock corporation, a status that has remainedunchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in thecontext of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching ofMIAA v.CA, for, like MIAA, GSIS capital is not divided into unit shares. Also, GSIS has no members

to speak of. And by members, the reference is to those who, under Sec. 87 of theCorporation Code, make up the non-stock corporation, and not to the compulsorymembers of the system who are government employees. Its management is entrusted toa Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSISs name are likewise owned by the Republic.

The GSIS is but a mere trustee of the subject properties which have either been ceded toit by the Government or acquired for the enhancement of the system.

Third, GSIS manages the funds for the life insurance, retirement, survivorship, anddisability benefits of all government employees and their beneficiaries. Thisundertaking, to be sure, constitutes an essential and vital function which thegovernment, through one of its agencies or instrumentalities, ought to perform if socialsecurity services to civil service employees are to be delivered with reasonable dispatch.

It is no wonder, therefore, that the Republic guarantees the fulfillment of the obligationsof the GSIS to its members (government employees and their beneficiaries) when and asthey become due.

Sec. 234(a), of the LGC, exempts from real estate taxes real property owned by theRepublic, unless the beneficial use of the property is, for consideration, transferred to ataxable person.

SEC. 234. Exemptions from Real Property Tax. The following are exempted frompayment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its politicalsubdivisions except when the beneficial use thereof has been granted, for consideration

or otherwise, to a taxable person.

This exemption, however, must be read in relation with Sec. 133(o) of the LGC, whichprohibits LGUs from imposing taxes or fees of any kind on the national government, itsagencies, and instrumentalities:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces,cities, municipalities, and barangays shall not extend to the levy of the following:

x x x x

(o) Taxes, fees or charges of any kinds on the National Government, its agenciesand instrumentalities, and local government units. (Emphasis supplied.)

Thus read together, the provisions allow the Republic to grant the beneficial use of itsproperty to an agency or instrumentality of the national government. Such grant doesnot necessarily result in the loss of the tax exemption. The tax exemption the propertyof the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) ofthe LGC of 1991, beneficial use thereof has been granted, for a consideration or

otherwise, to a taxable person. GSIS, as a government instrumentality, is not ataxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sensethat status with respect to the Katigbak property when it contracted its beneficial useto MHC, doubtless a taxable person. Thus, the real estate tax assessment of PhP54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is validinsofar as said tax delinquency is concerned as assessed over said property. HoweverMHC must pay rent

In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover,as an instrumentality of the national government, it is itself not liable to pay realestate taxes assessed by the City of Manila against its Katigbak and Concepcion-Arroceros properties. Following the beneficial use rule, however, accrued realproperty taxes are due from the Katigbak property, leased as it is to a taxable entity.But the corresponding liability for the payment thereof devolves on the taxablebeneficial user. The Katigbak property cannot in any event be subject of a public

auction sale, notwithstanding its realty tax delinquency. This means that the City ofManila has to satisfy its tax claim by serving the accrued realty tax assessment onMHC, as the taxable beneficial user of the Katigbak property and, in case ofnonpayment, through means other than the sale at public auction of the leasedproperty.

RTC decision reversed-Justin

Philippine Fisheries Development Authority v. Central Board of AssessmentAppeals et al. Lucena City -Miggy


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Tanada v. Angara

(May 2, 1997)

Ponente: Panganiban, J.

Nature: Petition for certiorari, prohibition and mandamus under Rule 65 of the Rules ofCourt

Facts:

-Sec. Rizalino Navarro (DTI Secretary) representing the Philippines government,signed the Final Act Embodying the Result of the Uruguay Round of MultilateralNegotiations, which created the World Trade Organization.

- By signing such act, the Philippines agreed to adopt the ministerial declarationsand decisions of the WTO, and to submit the WTO agreement for theconsideration and approval

- President Ramos sent two letters to the Philippine Senate, stating that theUruguay Rounds Final Act is submitted for its concurrence pursuant to sec. 21Article VII of the constitution.

- The Senate adopted resolution no. 97, wherein the Senate concurred in theratification of the President.

- -The petition was filed seeking to nullify the act of the Philippine Senate,arguing inter alia that:

o It contravenes sec. 10 Art. II and sec. 12 Article XII of the Constitutiono The WTO proviso derogates from the power to tax, which is lodged in

the Congress

Issues1. WON the act of the Phil. Senate contravenes the Constitution? NO2. WON it limits, impairs and restricts the exercise of legislative power by

congress (specifically the power to tax)? NO

Held & Ratio1. NO, it does not contravene the constitution- The Petitioners cited the WTO agreement place nationals and products of

member countries on the same footing as Filipinos and local products. Theyargue that this is in contravention with the Filipino First Policy of the

Constitution. See sec. 10 Art. II and sec. 12 Article XII of the Constitution.- First, these provisions are not self-executing. These are merely statements of

principles and policies. A law should be passed by congress to clearly defineand effectuate such principles. The reason for denying this a cause of action aresourced from basic considerations of due process and the lack of judicialauthority to wade into uncharted ocean of social and economic policy makingthe said provisions should be read and understood in relation to the othersection, especially sec 1 and sec 13.

- Hence, the Constitution ordains the ideals of economic nationalism, but it alsotakes into account the realities of the outside world. It did not intend to pursuean isolationist policy. It did not shut out foreign investments, goods andservices in the development of the Phil. Economy. In fact, it allowed theexchange on the basis of equality and reciprocity, frowning only on foreign

competition which is unfair2. NO, it does not limit the power of congress.

- The WTO agreement provides that each member shall ensure the conformityof its laws, regulations and administrative procedure.

- By their nature, treaties really limit or restrict the absoluteness ofsovereignty. But by their voluntary acts, nations may surrender some aspectsof their state power in exchange for greater benefits granted by or derivedfrom a convention or pact.

- Certain restrictions include:o Limitations imposed by the very nature of membership in the

family of nations.o

Limitations imposed by treaty stipulations.- Doctrine of incorporation. The constitution states that it adopts the generally

accepted principles of international law as part of the law of the land andadheres to the policy of peace, equity, justice, freedom, cooperation andamity.

Disposition:Dismissed for lack of merit.Vote: EB, Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Kapunan,Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ., concur.Padilla, and Vitug, JJ., in the result.

-Wiggy

Commissioner of Internal Revenue v. Mitsubishi Corporation-Manila Branch

C.T.A. Sandra

Commissioner of Internal Revenue v. British Overseas Airways

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEASAIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.

(April 30, 1987)

NOTES:

Kind of Tax Involved:Income Tax a direct tax on the income of persons or other entities.- DE LEON: Income Tax is a tax on the net income or the entire income

realized in one taxable year. It is levied upon corporate and individualincomes in excess of specified amounts, less certain deductions and/orspecified exemption in cases permitted by law.

- Where was income tax imposed? On the ticket sales of British Airways madein the Philippines, which was coursed through their local agents and not onthe actual exercise of transportation (which would have been an excise tax).

An issue was raised, however, that the tax assessment was ACTUALLY a commoncarriers excise tax, which is a tax on transporting or removing passengers and

cargo from one place to another. But, the main decision reiterated that the tax inthis case is on the income derived from the ticket sales made in the Philippines.

The distinction is important because, while excise tax may only be collectedwhere the services or activities were performed, income tax is collected onwhatever source derived in the Philippines.


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DOCTRINE:

NATURE: Petitioner Commissioner of Internal Revenue (CIR) seeks a review oncertiorari of the joint Decision of the Court of Tax Appeals (CTA), which set asidepetitioner's assessment ofdeficiency income taxes against respondent British OverseasAirways Corporation

PONENTE: MELENCIO-HERRERA,J.:

FACTS:

1. BOAC is a 100% British Government-owned corporation organized and existingunder the laws of the United Kingdom It is engaged in the international airlinebusiness.

2. During the periods covered by the disputed assessments, it is admitted that BOAChad no landing rights for traffic purposes in the Philippines, and was not granted aCertificate of public convenience and necessity.

3. Consequently, it did not carry passengers and/or cargo to or from the Philippines.4. Although during the period covered by the assessments, it maintained a general

sales agent in the Philippines Wamer Barnes and Company, Ltd., and later QantasAirways which was responsible for selling BOAC tickets covering passengers andcargoes.

5. First CTA Case- Petitioner (CIR, for brevity) assessed BOAC the aggregate amount of

P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963 andsubsequent investigation resulted in the issuance of a new assessment, dated16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79.

- BOAC paid this new assessment under protest. BOAC filed a claim for refund ofthe amount of P858,307.79, which claim was den

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