TAX Week 6 Digests

2. Sources of Tax Laws xxx i.
Revenue rules and regulations/Administrative rulings and opinion MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., vs. DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, (November 10, 1994) DOCTRINE: As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws,including rulings on the classification of articles for sales tax and similar purposes." PONENTE: MENDOZA, J. NATURE: Petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization. FACTS: 1. 2. Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Respondents represent departments of the executive branch of government charged with the generation of funds and the assessment, levy and collection of taxes and other imposts. The pertinent provision of the NIRC states: Sec. 103. Exempt Transactions. The following shall be exempt from the value-added tax: ISSUES:
(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary producer or the owner of the land where the same are produced; (b) Sale or importation in their original state of agricultural and marine food products, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption, and breeding stock and genetic material therefor; 5. Under 103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under 103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution regardless of who the seller is. On June 11, 1991, respondent CIR issued the circular in question, classifying copra as an agricultural non-food product and declaring it "exempt from VAT only if the sale is made by the primary producer pursuant to Section 103(a) The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds which are the issues in this case.
6. 7. 8.
W/N: The CIR is competent to classify Copra as an agricultural non food product? Yes W/N: It was denied due process? No. W/N: It is violative of the equal protection clause? No W/N: It is counterproductive because traders and dealers would be forced to buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the government would lose revenues as the 10% tax base is correspondingly diminished.? No. RATIO: 1. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the competent government agency to determine the proper classification of food products. Petitioner cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be considered "food" because it is produced from coconut which is food and 80% of coconut products are edible.
3. 4.
TAXATION 1 LAFORTEZA WEEK 6: d2014
Respondents argue that the opinion of the BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. We agree with respondents. In interpreting 103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of copra as food was based on "the broader definition of food which includes agricultural commodities and other components used in the manufacture/processing of food." Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws,including rulings on the classification of articles for sales tax and similar purposes." 2. Second. Petitioner complains that it was denied due process because it was not heard before the ruling was made. There is a distinction in administrative law between legislative rules and interpretative rules. There would be force in petitioner's argument if the circular in question were in the nature of a legislative rule. But it is not. It is a mere interpretative rule. The reason for this distinction is that 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 1987 provides: Public Participation. If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule. (2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon. (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 are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. 4.
Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has committed those questions to administrative judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule. In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an "agricultural food product" within the meaning of 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food." That previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws. 3. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. 8 It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are subject to 10% VAT on the sale of services. Under 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the producer. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly diminished. This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer or owner of the land from which the same is produced, but in the case of agricultural food products their sale in their original state is exempt at all stages of production or distribution. At any rate, the argument that the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or policy which should be addressed to respondent officials and to Congress. DISPOSITIVE: WHEREFORE, the petition is DISMISSED. SO ORDERED. VOTE: Narvasa, C.J., Regalado and Puno, JJ., concur. -Jamie i. Validity of revenue rules and regulations TAN v. DEL ROSARIO (October 3, 1994) DOCTRINE: The law(and then consequent revenue regulations) is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code NATURE: Two consolidated special civil actions for prohibition PONENTE: Vitug, J. FACTS/HELD (for non-tax issues) G.R. No. 109289 Petitioners, claiming to be taxpayers adversely affected by the continued implementation of the amendatory legislations, seek a declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provision: 1. Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. a. PET: They argue that it is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the SelfEmployed and Professionals Engaged in the Practice of their Profession" The amendatory law should be considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. 3.
b.
SC HELD: The allowance for deductible items may have significantly been reduced by the questioned law in comparison with prior law; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. Various deductions, which are by no means inconsequential, continue to be well provided under the new law. The objectives of the constitution in preventing logrolling and surprises to the legislator have been sufficiently met.
2.
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
b.
What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws a. PET: Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. SC HELD: The discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation lies with the legislation. The courts can only strike it down when it is unconscionable and/or confiscatory. No such transgression is evident to us.
b.
G.R. No. 109446 The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. a. PET: The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships.
a.
Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. SC HELD: Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities .
The questioned regulation reads: Sec. 6. General Professional Partnership The general professional partnership (GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income. b. SC HELD: The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions and partners in general professional partnerships. A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. There is no distinction in income tax liability between a person who practices his profession alone and one who does it through partnership with others in the exercise of a common profession. In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently subject to the payment of income tax. Under the present income tax system, all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules. Although the general professional partnership is exempt from the payment of taxes (but it still has an obligation to file an income tax return mainly for administration and data), the partners themselves are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits. There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules. We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and
precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership. DISPOSITIVE: WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. VOTING: Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ., concur. Padilla and Bidin, JJ., are on leave. -Jenin Commissioner of Internal Revenue v CA & Court of Tax Appeals (Mar 10, 1995 | G.R. No. 104151) DOCTRINE: The Court emphasizes in this case the oft-repeated rule that tax statutes are to receive a reasonable construction with a view to carrying out their purposes and intent. They should not be construed as to permit the taxpayer to easily evade the payment of the tax. In this case: The allowance by the tax court of smelting and refining charges as deductions is not contrary to the particular provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance charges. On the ad valorem: An ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. NATURE: Petition for review on certiorari filed by both parties. PONENTE: Regalado, J. FACTS: Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year 1975 against ACMDC. Also, on the basis. of the BIR examiner's report in another
investigation separately conducted, the Commissioner had another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. ACMDC protested both assessments but the. same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most respects except for the taxable periods and the amounts involved, were eventually consolidated. However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax. As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the portion of the judgment of the tax court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment. CIR: The actual market value of the mineral products should be the gross sales realized from copper concentrates, deducting there from mining, milling, refining, transporting, handling, marketing or any other expenses. ACMDC: The actual market value of the mineral products should be price which the same before or without undergoing a process of manufacture would command in the ordinary course of business. ISSUES/HELD: WON cost of production should be deducted to the manufactured products price in the calculation of ad valorem? Yes WON ACMDC is liable for manufacturers tax? No RATIO/RULING: The relevant provisions of the NIRC are Sec. 243 and 246. Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease. There is hereby imposed on the actual market value of the annual gross output of the minerals mineral products extracted or produced from all mineral lands not covered by lease, an advalorem tax in the amount of two per centum of the value of the output except gold which shall pay one and one-half per centum. Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by Rep. Act No. 6110.) Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." Disposition of royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction
from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned. abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the-mines are situated, and eighty per centum to the National Treasury."
In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral products, but on the price which the same before or without undergoing a process of manufacture would command in the ordinary course of business. The allowance by the tax court of smelting and refining charges as deductions is not contrary to the above-mentioned provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance charges. The charges for smelting and refining were assessed not on the basis of the price of the copper extracted at the mine site which is prohibited by law, but on the basis of the actual market value of the manufactured copper which in this case is the price quoted for copper wire bar by the London Metal Exchange. AD VALOREM TAX The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon extraction of the raw materials or minerals used in the manufacture of said finished products, has been passed upon by us in several cases wherein we held that the ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process, as distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw material into a composite distinct product. An ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual market value, and not on the price of the
To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease. In computing the tax, the term "gross output" shall be the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without any deduction for mining, milling, refining, transporting, handling, marketing or any other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.
manufactured product. If the market value chosen for the reckoning is the value of the manufactured or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site. The Court based their decision on an old CTA case. They go on to stress that as a matter of practice and principle, the Supreme Court will not setaside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part. Manufacturers Tax Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. "To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a single transaction; it involves some continuity of action. A manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on persons engaged in the sale, barter or exchange of merchandise, a person must be occupied or employed in the sale, barter or exchange of personal property. A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he has made one purchase and sale only. In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in the business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption, However, it admits having lent its grinding steel balls to other entities but only in very isolated cases. After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the manufacturer's tax. DISPOSITION: WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975. VOTE: 2nd Division. Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur. CONCURRING/DISSENTING OPINION:None ADDITIONAL NOTES: Already discussed by Miggy during his last recit. Used his digest, modified a little bit. -JP
PPC v. Municipality of Pililla, Rizal Philippine Petroleum Corporation, petitioner, vs. Municipality of Pililla, Rizal, represented by Mayor Nicomedes Patenia, respondents. (June 3, 1991) NOTES: Kind of tax: tax on business; storage fees, mayors permit and sanitary inspection fee. DOCTRINE: Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails.
PONENTE: Paras FACTS: 1. 1. Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the Municipality of Pililla, Rizal. 2. Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels are subject to specific tax. 3. Later, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued by former President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities and barrios of their taxing and other revenue-raising powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality may impose taxes on business, except on those for which fixed taxes are provided on manufacturers, importers or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule listed therein. 4. The Secretary of Finance issued a Circular directed to all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the National Internal Revenue Code. 5. Likewise, another Circular was issued by the Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on the businesses of
NATURE: petition for certiorari seeking to annul and set aside: (a) the March 17, 1989 decision of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T upholding the legality of the taxes, fees and charges being imposed in Pililla under Municipal Tax Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes, fees and charges due the respondent: and (b) the November 2, 1989 resolution of the same court denying petitioner's motion for reconsideration of the said decision.
manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the specific tax under the National Internal Revenue Code. 6. Meanwhile, Respondent Municipality of Pililla enacted Municipal Tax Ordinance No. 1 otherwise known as "The Pililla Tax Code of 1974". Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code. 7. P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and granting provinces, cities and municipalities certain shares in the specific tax on such products in lieu of local taxes imposed on petroleum products. 8. Provincial Circular No. 6-77 was also issued directing all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed under the local tax ordinance of their respective locality, said fee partaking of the nature of a strictly revenue measure or service charge. 9. P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section 153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels. 10. Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have already paid the last-named fees starting 1985 (Rollo, p. 74). 11. The trial court rendered a decision against the petitioner. Hence, the instant petition. Issue: Whether petitioner PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering Provincial Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1. Held/Ruling: Yes to tax on business (except those which have prescribed); No to storage fees and yes to both permit and sanitary inspection fees. Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national economic policy the imposition of local taxes on the manufacture of petroleum products as they are already subject to specific tax under the National Internal Revenue Code; (b) the above declaration covers not only old tax ordinances but new ones, as well as those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked, any effort on the part of the respondent to collect the suspended tax on business from the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products. Court: There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is valid as it conforms with the mandate of law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circulars issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products. Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails. Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436. The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments. Thus: Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy . . . Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of their respective locality frees petitioner PPC from the payment of storage permit fee. The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any service rendered by the municipality as what is envisioned in Section 37 of the same Code. Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee allowed under Section 36 of the amended Code. As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees, the trial court did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax exemptions are looked upon with disfavor. Thus, in the absence of a clear and express exemption from the payment of said fees, the waiver cannot be recognized. As already stated, it is the law-making body, and not an executive like the mayor, who can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required before any individual or juridical entity shall engage in any business or occupation under the provisions of the Code. However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that
an action upon an obligation created by law prescribes within ten (10) years from the time the right of action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior to 1976. DISPOSITION: with the MODIFICATION that business taxes accruing PRIOR to 1976 are not to be paid by PPC (because the same have prescribed) and that storage fees are not also to be paid by PPC (for the storage tanks are owned by PPC and not by the municipality, and therefore cannot be a charge for service by the municipality), the assailed DECISION is hereby AFFIRMED. VOTE: Second Division, Melencio-Herrera, Padilla and Regalado, JJ., concur. - Ann (for Raffy) UMALI vs. ESTANISLAO May 29, 1992 DOCTRINE: (Not stated in the case, but inferred from how the court decided- caveat lector, guys) 1. Revenue rules and regulations cannot contradict or go against the law it seeks to implement. 2. When the law itself is clear with regard to its application, the courts nor administrative agencies should not interpret the law in a manner contrary to what the law provides. NATURE: Consolidated case seeking for the application of RA 7167 regarding income tax exceptions PONENTE: Padilla, J FACTS: Congress enacted RA 7167, AN ACT ADJUSTING THE BASIC PERSONAL AND ADDITIONAL EXEMPTIONS ALLOWABLE TO INDIVIDUALS FOR INCOME TAX PURPOSES TO THE POVERTY THRESHOLD LEVEL o Provided income tax exceptions: for single individual or married individual judicially decreed as legally separated with no qualified dependents: P9,000 For head of a family: P12,000 For married individual: P18,000 Provided, That husband and wife electing to compute their income tax separately shall be entitled to a personal exemption of P9,000 each. A married individual or a head of family shall be allowed an additional exemption of P5,000; o The said Act was signed and approved by the President on 19 December 1991 and published on 14 January 1992 in "Malaya"; a newspaper of general circulation. On 26 December 1991, respondents promulgated Revenue Regulations No. 1-92, which provide that those seeking to obtain exceptions in RA 7167, are allowed to
claim the following amount of exemption with respect to compensation paid on or after January 1, 1992. Petitioners now seek: o to compel the Commissioner of Internal Revenue to implement the mandate of Rep. Act 7167 adjusting the personal and additional exemptions allowable to individuals for income tax purposes in regard to income earned or received in 1991, and o to enjoin the respondents from implementing Revenue Regulations No. 1-92;
2. [RELEVANT] Does the said law covers or applies to compensation income earned or received during calendar year 1991. YES. RATIO: 1. In the case of Tanada vs. Tuvera we construed Article 2 of the Civil Code and laid down the rule: The clause "unless it is otherwise provided" refers to the date of effectivity and not to the requirement of publication itself, which cannot in any event be omitted. This clause does not mean that the legislator may make the law effective immediately upon approval, or on any other date without its previous publication. Publication is indispensable in every case, but the legislature may in its discretion provide that the usual fifteen-day period shall be shortened or extended. 2. A perusal of the sponsorship remarks of Congressman Hernando B. Perez, Chairman of the House Committee on Ways and Means, on House Bill 28970, provides an indication of the intent of Congress in enacting Rep. Act 7167. The Bill provides for increased personal additional exemptions to individuals in view of the higher standard of living. It also limits the amount of income of individuals subject to income tax to enable them to spend for basic necessities and have more disposable income. Inflation has raised the basic necessities and that it had been three years since the last exemption adjustment in 1986. INTENT OF THE LAW The Court can not lose sight of the fact that these personal and additional exemptions are fixed amounts to which an individual taxpayer is entitled, as a means to cushion the devastating effects of high prices and a depreciated purchasing power of the currency. In the end, it is the lower-income and the middle-income groups of taxpayers [not the high-income taxpayers] who stand to benefit most from the increase of personal and additional exemptions provided for by Rep. Act 7167.
ISSUES: 1. When did Rep. Act 7167 take effect; upon its approval by the President on 19 December 1991 or on 30 January 1992, after fifteen [15] days following its publication on 14 January 1992 in the "Malaya" newspaper? After 15 days from publication, January 30, 1992.
To that extent, the Act is a social legislation intended to alleviate in part the present economic plight of the lower income taxpayers. It is intended to remedy the inadequacy of the heretofore existing personal and additional exemptions for individual taxpayers. EFFECTIVITY OF THE LAW Rep. Act 7167 says that the increased personal exemptions that it provides for shall be available thenceforth, that is, after Rep. Act 7167 shall have become effective. o The increased exemptions are thus literally available upon the filing of personal income tax returns which is, under the National Internal Revenue Code, done not later than the 15th day of April. o DOES NOT APPLY TO 1990 TAX: The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available in respect of compensation income received during the 1990 calendar year; the tax due in respect of said income had already accrued. To make Rep. Act 7167 refer back to income received during 1990 would require language explicitly retroactive in purport and effect APPLIES TO TAX 1991 AND ONWARD [RELEVANT] The exceptions do not limit themselves to the years 1992 and onward, but also apply to the taxes imposed in 1991. o The implementing regulations collide frontally with Section 3 of Rep. Act 7167 which states that the statute "shall take effect upon its approval." o To construe otherwise would result in Revenue Regulation No. 1-92 postponing the availability of the increased exemptions to 1 January15 April 1993, and thus, literally defer the effectivity of Rep. Act 7167 to 1 January 1993. The objective of the Secretary of Finance and the Commissioner of Internal Revenue in postponing through Revenue Regulations No. 1-92,the legal effectivity of Rep. Act 7167 is entirely understandable (loss of tax revenue) HOWEVER, the law-making authority has spoken and the Court cannot refuse to apply the lawmaker's words.
LA SUERTE V CTA (Jan 17, 1985) Facts: Commissioner of Internal Revenue issued Memorandum Circular No. 3067 requiring the inspection of: o all locally produced leaf tobacco and partially manufactured tobacco intended for domestic sale, for factory use or for export; o all manufactured products of tobacco contemplated in Sec. 194(m) of the Tax Code intended for domestic sale; and o all imported foreign leaf tobacco and partially manufactured tobacco for domestic sale or factory use, and the collection of the corresponding inspection fees. Petitioners in two separate cases, sought the refund of the aforementioned inspection fees collected from them CTA Case No. 2031 was submitted by petitioners for summary judgment. In a decision dated November 28, 1970, CTA denied the claim for the refund. Petitioners moved for a reconsideration thereby praying that in case of a denial, CTA Case No. 2031 be reopened for the reception of evidence in support of their argument that there was no inspection made by the BIR The CTA granted petitioners' motion to reopen but denied the motion for reconsideration. Said court likewise ordered that CTA Cases Nos. 2048 and 2031 be heard jointly. After hearing, the CTA on December 15, 1972 denied both claims. Issues/ Held: WON the amendatory portions in Sec 6(c), Act 2613, include cigars and cigarettes for domestic sale or consumption. Yes WON RMC 30-67 is a valid regulation issued by the Sec of Finance notwithstanding its non-publication in the Official Gazette. Yes. Section 6(c) of Act 2613 (Tobacco Inspection Law), before its amendment by Republic Act No. 3 1, provides: Sec. 6. The Commissioner of Internal Revenue shall have the power and it shall be his duty: ... xxx xxx xxx (c) To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection labels to tobacco removed from the province before such removal or to tobacco for domestic sale or factory use. As amended, (by RA 31) said Section 6, Republic Act No. 31 (October 1, 1946) now reads: Sec. 6. The Commissioner of Internal Revenue shall have the power and it shall be his duty: xxx xxx xxx (c) To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection labels to tobacco removed from province of its origin to another or other provinces before
Ratio:
DISPOSITIVE: Sections 1, 3 and 5 of Revenue Regulations No. 1-92 which provide that the regulations shall take effect on compensation income earned or received from 1 January 1992 are hereby set aside. They should take effect on compensation income earned or received from 1 January 1991. The individual taxpayers entitled to the increased exemptions on compensation income earned during calendar year 1991 who may have filed their income tax returns on or before 15 April 1992 [later extended to 24 April 1992] without the benefit of such increased exemptions, are entitled to the corresponding tax refunds and/or credits. -Ice
such removal or to tobacco for domestic sale or factory use. (Emphasis supplied) The amendatory bill (House Bill No. 735) which later on became Republic Act No. 31, carried the following explanatory note: Section 1 of the attached bill seeks to extend this regulatory power of the Collector of Internal Revenue to leaf tobacco intended for factory use. Prior to the amendment of said Act, Sec. 6 and 7 thereof, already covered the inspection of leaf tobacco, partially manufactured tobacco or local sale and leaf tobacco and its products for export. If the intention of Congress was to apply the amendment to those items already covered by Act 2613, then the word "leaf" should have been easily included to modify the term "tobacco". The omission of the word "leaf" is a clear indication that Congress intended to include within the purview of the law a new item; namely, manufactured tobacco products for domestic sale and imported tobacco for factory use. when General Circular No. V-27 dated October 29, 1946 was issued by then Collector of Internal Revenue Bibiano L. Meer to implement the provisions of Sections 6, 7 and 14 of Act 2613 (Tobacco Inspection Law), the word "leaf" was erroneously included therein, causing damage to the financial stability of the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported leaf and partially manufactured tobacco for factory use were not collected for more than twenty (20) years. Such error was only discovered when an Assistant Chief of the Tobacco Inspection Service of the BIR appeared in a public hearing of the Joint Legislative-Executive Tax Commission. As a result thereof, the Philippine Tobacco Board, a policy making body of the National Government on Tobacco Authority, adopted Resolution No. 2-67 interpreting the phrase "tobacco for domestic sale" as referring to wholesale disposal of tobacco products by cigar and cigarettes factories to its dealers while the phrase "tobacco for factory use" meant "imported leaf tobacco" intended for use by cigar and cigarette factories in the manufacture of tobacco products. The approval of this Resolution on May 31, 1967 prompted respondent Commissioner to promulgate Memorandum Circular No. 30-67 which was approved by then Secretary of Finance Eduardo Z. Romualdez and the effectivity of which is specifically dated September 1, 1967 and not contingent on its publication in the Official Gazette. Thus, the assailed Revenue Memorandum Circular was issued to rectify the error in General Circular No. V-27 and to interpret the phrase "tobacco for domestic sale or factory use" with the view of arresting huge losses of tobacco inspection fees which were not collected since the said Circular (No. V-27. Furthermore, the questioned Revenue Memorandum Circular was also issued to apprise those concerned of the construction and interpretation which should be accorded to Act No. 2613, as amended, and which respondent is duty bound to enforce. It is an opinion on how the law should be construed and there was no attempt whatsoever to enlarge or restrict the meaning of the law. Since it was further admitted by petitioners that said Memorandum is but a "Memorandum Circular for purposes of the internal administration of the BIR and not a regulation within the contemplation of Sections 4 and 338 of the NIRC
-Ivan Commissioner of Internal Revenue vs Seagate Technology Philippines (11 February 2005) Ponente: Panganiban, J. (THANK ALL THAT IS HOLY AND MIGHTY that this guy is the ponente of the friggin case. Haaaaaay.) Nature: Petition for review on certiorari of a decision of the Court of Appeals DOCTRINE: ON VALIDITY OF REVENUE RULES AND REGULATIONS The contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or administer such laws will have to be adopted. The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of respondents transactions. The scope of such regulations is not within the statutory authority x x x granted by the legislature. 1. A mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any more than interpret the
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and Section 79(b) of the Revised Administrative Code", said circular needs no publication in the Official Gazette When an administrative agency renders an opinion by means of a circular or Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its validity. Construction by an executive branch of government of a particular law although not binding upon courts must be given weight as the construction come from the branch of the government called upon to implement the law. The promulgation of Revenue Memorandum Circular No. 30-67 being in accordance with the Revised Administrative Code, having been issued by the Commissioner of Internal Revenue with the approval of the Secretary (now Minister) of Finance for the implementation of the Tobacco Inspection Law, has therefore the force and effect of law. It is within the power and duty of the Commissioner to collect the same, even without inspection, should tobacco products be removed clandestinely or surreptitiously from the establishment of the wholesaler, manufacturer or redrying plant and from the customs custody in case of imported leaf tobacco From the testimonies of other witnesses for petitioners, it was shown that revenue agents and tobacco inspectors "saw to it that an raw materials for use in the manufacture of the finished products were duly recorded; and in the process of manufacture, all tobacco products found unfit for sales were segregated by the factory employees thru the supervision of the revenue agents." The CTA held that the foregoing belie petitioners' assertions that no actual inspection was conducted to justify the collection of the tobacco inspection fees. The findings of the Tax Court are duly supported by evidence. We find no cogent reason to disturb the same. They are therefore binding on this Court.
latter. The courts will not countenance one that overrides the statute it seeks to apply and implement. Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayers transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because an application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who, without fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or agents. 2. Grantia argumenti that such an application is required by law, there is still the presumption of regularity in the performance of official duty. Respondents registration carries with it the presumption that, in the absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed by both the administrative officials and the applicant. Even though such an application was not made, all the special laws we have tackled exempt respondent not only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and attain global competitiveness as envisioned in those laws.
3.
ISSUE/S: (As submitted by the petitioner) WoN Seagate is entitled to the refund or issuance of Tax Credit Certificate for the alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999. HELD: YES, SEAGATE is entitled to the refund/issuance of Tax Credit Certificate. As a PEZA-registered enterprise within a special economic zone (aka ECOZONE, a selected area with highly-developed or which has the potential to be developed into, agro-industrial, industrial, tourist-recreational, commercial, banking, investment and financial centers. RA 7916, The Special Economic Zone Act of 1995.), respondent is entitled to the fiscal incentives and benefits provided for by EITHER PD 66 (law creating the Export Processing Zone Authority- EPZA) or EO 226 (Omnibus Investments Code). It shall also enjoy all the privileges, benefits, advantages, or exemptions under RA 7227 (Bases Conversion and Development Act of 1992) and RA 7844 (Export Development Act of 1994). RATIO: Preferential Tax Treatment Under Special Laws If Seagate avails itself of: PD 66 Seagate shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries, spare parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly in such activities.
FACTS: Seagate Technology Philippines is a resident foreign corporation duly registered with SEC to do business in the Philippines. Principal office address: Cebu Township One, Special Economic Zone, Brgy Cantao-an, Naga, Cebu. Seagate is registered on 6 June 1997 with the Phil Export Zone Authority (PEZA) to engage in manufacture of recording components used in computers for export Seagate is a VAT-registered entity; it filed its VAT returns for the period of 1 Apr 1998 to 30 June 1999 04 October 1999 Seagate filed an administrative claim for refund of VAT input taxes but it received no final action from the CIR regarding the claim for refund CIRs defences: o Seagates claim is subject to administrative routinary investigation; o Seagate has burden of proof that the taxes sought to be refunded were erroneously/illegally collected; o It is incumbent upon Seagate to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications; o Granting, without admitting, that Seagate is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its
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business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As Seagates business is not subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT taxable business. Seagate is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. o Seagate must also show that they complied with provisions on filing a written claim for refund within two years from the payment of the tax, CA ruled to grant the claim for refund/issuance of tax credit certificate (TCC). Such amount represented the unutilized but substantiated input VAT paid on capital goods purchased for the specified period. -Reasoning of the CA: Seagate availed itself of ONLY the incentives under EO 226, and not of PD 66 and RA 7916. Company is, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT. Seagate also correctly filed its administrative claim for refund/TCC.
It shall enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange and financial assistance; and exemption from export taxes, local taxes, and licenses. EO 226 Seagate shall be exempt from same internal revenue laws and regulations. Under this law, Seagate shall further be entitled to an income tax holiday; additional deduction for labor expense; simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials; and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment and spare parts, export taxes, duties, imposts and fees, local taxes and licenses, and real property taxes. It can be seen from the following laws that Seagate (respondent) enjoys preferential tax treatment. It is not subject to internal revenue laws and regulations, and is even entitled to tax credits. Nature of VAT and the Tax Credit Method VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. It should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived at. Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. If at the end of a taxable quarter the OUTPUT taxes (charged by the seller) are equal to thw INPUT taxes (passed on by suppliers), NO PAYMENT IS REQUIRED. BUT when the OUTPUT taxes EXCEED the INPUT taxes, the excess has to be paid. If the INPUT taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter/s. If the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. Zero-Rated vs Effectively Zero-Rated Transactions Difference between ZERO-RATED TRANSACTIONS and EFFECTIVELY ZERO-RATED TRANSACTIONS: SOURCE.
Zero-rated transactions: refer generally to EXPORT SALE of goods and supply of service. Tax rate is set at zero, which when applied to the tax base, obviously resulting in no tax chargeable against the purchaser. The seller charges NO OUTPUT TAX, but can claim a refund of/a tax credit certificate for the VAT previously charged by suppliers. Effectively zero-rated transactions: sale of goods/supply of services to persons or entities whose exemption under special laws/international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. As applied to a tax base, the rate does not yield any tax chargeable against the purchaser. The seller who charges ZERO OUTPUT TAX on such transactions can also claim a refund of/ a tax credit certificate for the VAT previously charged by suppliers. Zero Rating and Exemption For VAT computation, zero rating and exemption are the same but the EXTENT of RELIEF is not the same. Applying the destination principle (that goods and services are taxed only in the country where these are CONSUMED. Exports are zero-rated but imports are taxed) to the exportation of goods: Automatic zero-rating Effective zero-rating -intended to be enjoyed by the seller -benefits the purchaser who is not who is directly and legally liable for the directly and legally liable for the payment VAT of VAT but will ultimately bear the -makes the seller internationally burden of tax shifted by the suppliers competitive by allowing the refund/credit of input taxes attributable to export sales For both instances of zero-rating: TOTAL RELIEF for the purchaser from the burden of tax. For exemption: PARTIAL RELIEF only, because the purchaser is not allowed any tax refund/credit for input taxes paid. Exempt Transaction vs Exempt Party Object of exemption from VAT: either the TRANSACTION itself or the PARTIES to the transaction Exempt Transaction -involves goods or services which, by their nature, are specifically listed as expressly exempted from VAT in the Tax Code -this is without regard to the tax status of the party to the transaction -transaction is not subject to VAT but the seller is not allowed any tax refund/credit for any input taxes paid Exempt Party/Entity -person/entity granted VAT exemption under the Tax Code, a special law, or international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT. -such party is also not subject to VAT, but may be allowed refund/credit, depending on its registration as a VAT or non-VAT taxpayer
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3. VAT is a tax on consumption. While the LIABILITY is imposed on one person, the BURDEN may be passed on to another. If a special law exempts a party as seller from its direct LIABILITY for VAT but does not relieve the same party as a PURCHASER from its INDIRECT burden of VAT as shifted by its VAT-registered suppliers, the PURCHASE TRANSACTION IS NOT EXEMPT. Applied to this case, the purchase transactions entered into by Seagate are NOT exempt. Special laws may exempt certain transactions from VAT but the Tax Code provides that those under PD 66 are not. Purchase transactions entered into are not VAT-exempt. These are not subject to VAT; Seagate is required to register. Sales transactions: zero-rated/taxed under 10%, depending on application of destination principle. Since purchases of Seagate are not exempt from VAT, rate applied is zero. Its exemption under PD 66 and RA 7916 subjects transactions to zero rate, since the ecozone within which it is registered is managed by PEZA as a SEPARATE CUSTOMS TERRITORY (there is a legal fiction of foreign territory). Under the cross-border principle (which is not clearly defined by any law or administrative issuance SO I REALLY DONT UNDERSTAND WHY THE COURT USED THIS), no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the national territory -- except specifically declared areas -- to an ecozone. Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports to a foreign country. Sales by a PEZA-registered entity to a VAT-registered person in the customs territory are deemed imports from a foreign country. Ecozone is considered foreign soil. If respondent is located in an export processing zone within that ecozone, sales to the export processing zone, even without being actually exported, shall in fact be viewed as constructively exported under EO 226. Considered as export sales, such purchase transactions by respondent would indeed be subject to a zero rate. Tax Exemptions: Broad and Express Applying the special laws mentioned, Seagate is an exempt entity from internal revenue laws and regulations. Such exemption covers BOTH INDIRECT and DIRECT taxes, stemming from the nature of VAT as a tax on consumption, for which liability is imposed on one but the burden is passed on to another. More proof of express exemption of Seagate from taxes: 1. RA 7916 states that no taxes, local and national, shall be imposed on business establishments operating within the ecozone. Law does not exclude VAT from prohibition so it is deemed included. 2. RA 7846 amended RA 7916, same prohibition applied except real property taxes.
4. 5. 6. 7.
PD 66 provides for same prohibition. This exemption puts the govt at an initial disadvantage but the reduced tax collection redounds to the national economy by enticing business investments and creating more job opportunities Rules implementing the PEZA reiterate that merchandise shall not be subject to internal revenue laws and regulations Export processing zone enterprises registered patently enjoy exemption from national internal revenue taxes on imported capital equipment needed RA 7227: exemptions from local and national taxes are ipso facto accorded to ecozones RA 7844; Tax credits granted by this law shall be continuously enjoyed by exporters within the ecozone.
Tax refunds are in the nature of such exemptions. The claimants of such refunds bear the burden of proving the factual basis of their claims. In this case, all the cited legal provisions CLEARLY grant tax exemptions to Seagate. Seagate is an exempt entity, but its transactions are not exempt. The end result, though, is the same: IT IS NOT SUBJECT TO VAT. 1. The contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or administer such laws will have to be adopted. Their prior tax issuances have held inconsistent positions brought about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on consumption and the application of the destination principle. Revenue Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VAT-registered suppliers sale of goods, property or services from the customs territory to any registered enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA registration -- is legally entitled to a zero rate. Policies of the law should prevail. PD 66, RA 7916, RA 8748, EO 226, RA 7227 RA 7844: The State is able to drive home the point that exporting is indeed the key to national survival and the means through which the economic goals of increased employment and enhanced incomes can most expeditiously be achieved. VAT Registration, Not Application, for Effective Zero-rating, Indispensable to VAT Refund (NOTE: LOOK AT THIS PART CLOSELY BECAUSE THIS IS THE PART RELATED TO THE TOPIC ON PUR SYLLABUS. YES, AFTER ALL THE VAT SHIZZZZ, ITO LANG TALAGA.) The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of
2. 3.
13
Tax Refund as Tax Exemption Tax exemptions are construed strictissimi juris against the taxpayer and liberally in favour of the taxing authority.
respondents transactions. The scope of such regulations is not within the statutory authority x x x granted by the legislature. 1. A mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks to apply and implement. Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayers transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because an application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who, without fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or agents. 2. Grantia argumenti that such an application is required by law, there is still the presumption of regularity in the performance of official duty. Respondents registration carries with it the presumption that, in the absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed by both the administrative officials and the applicant. Even though such an application was not made, all the special laws we have tackled exempt respondent not only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and attain global competitiveness as envisioned in those laws.
Seagate complied with all the requisites of claiming a VAT refund/credit. 1. Seagate is a VAT registered entity. 2. Input taxes paid on capital goods of Seagate are duly supported by VAT invoices and have not been offset against any input taxes. 3. There is not question as to either the filing of such claims within the prescriptive period/validity of the VAT returns have been raised. The tax exemption under all special laws mentioned is broad enough to cover even the enforcement of internal revenue laws. There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national and local taxes, but also to grant them tax credits.
Concurring/Dissenting Opinions: None. Vote: Sandoval-Gutierrez, Corona, Carpio-Morales, Garcia, JJ., concur. Additional Notes: Sorry for the length of the digest. Sabi nga ng Aerosmith, I dont wanna miss a thing. (haha that hurt to type, SORRY NAAAA) -Kriszanne 3. Interpretation/Construction of Tax Laws Hilado v. CIR Emilio Hilado, petitioner, vs. Collector of Internal Revenue and the Court of Tax Appeals, respondents. (October 31, 1956) NOTES: Kind of tax: income tax DOCTRINE: It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. NATURE: Appeal from CTA decision disallowing deduction PONENTE: Bautista Angelo FACTS: 1. On March 31, 1952, Petitioner filed his income tax return for 1951 with treasurer of Bacolod City wherein he claimed P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue.
3.
A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature, but by the taxpayers negligence -- a result not at all contemplated. Administrative convenience cannot thwart legislative mandate. Tax Refund or Credit in Order Seagates purchase transactions are subject to a zero VAT rate; tax refund/credit is in order. It opted for the income tax holiday regime instead of the 5% preferential tax regime. The VAT is a tax imposed on consumption, not on business. Although respondent as an entity is exempt, the transactions it enters into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may certainly be refunded or credited. Compliance with all the requisites for VAT Refund or Credit
14
Dispositive: WHEREFORE, the Petition is DENIED and the Decision is AFFIRMED. No pronouncement as to costs.
2.
3.
4. 5.
Petitioners contentions (Note that the numbers in the ruling correspond to Courts answers to Petitioners contentions): 1. He claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a business asset within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. 2. during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. 3. Only courts may pass upon validity of laws so Sec. of Finance had no authority to revoke V-123. 4. Gen. Circular V-139 cannot be given retroactive effect. Issues: WON his claimed deduction was proper? Held: No. This claim is untenable. 1. To begin with, assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to Hilado, the last installment he received from the War Damage Commission (WDC), together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a business asset which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which Hilado could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the WDC merely depended upon its discretion to be exercised
We can hardly argue against this opinion. Since we have already stated that the amount claimed does not represent a business asset that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year. 2. As to Hilados contention that during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the meaning of our internal revenue laws because during that period they were unenforceable, it is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Furthermore, it is a legal maxim, that excepting that of a political nature, Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty. As the same author says, in his Treatise on the Conflict of Laws, There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change. (Co Kim Chan vs. Valdes Tan Keh and Dizon) 3. It cannot be denied that the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the
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This circular was issued pursuant to certain rules laid down by the Secretary of Finance. On the basis of said return, an assessment notice demanding payment of P9,419 was sent to Hilado, who paid the tax in monthly installments, last installment being paid on January 2, 1953. Meanwhile on Aug 2, 1952, Sec of Finance, through Collector of Internal Revenue, issued Gen. Circular No. V-139 which not only revoked and declared void the previous circular but laid down the rule that losses of property which occurred during World War II from fires, storms, shipwreck or other casualty, or from robbery, theft or embezzlement are deductible in the year of actual loss or destruction of property. As a result, amount of P12,837.65 was disallowed as deduction from gross income of Hilado for 1951, and the Collector demanded from him the payment of P3,546 as deficiency income tax for said year. Hilado filed MR which was denied. He file a petition for review with CTA which affirmed the assessment of Collector of Internal Revenue. Hence this appeal.
in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, All findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court. (section 113). Its true Sec. of Finance issued Gen. Circular No. V-123 under which P12.837.65 was allowed to be deducted in the year the last installment was received with notice that no further payment would be made until the US Congress makes further appropriation therefor but it was later found to be wrong so was revoked. Upon advice of Sec. of Justice who opined that while property owners might argue that they have not initially included the losses as deductions in the year they were incurred because there was the Act wherein WDC will compensate their losses, such argument cannot be given weight because the Act was actually passed much later after the war and so the property owners neither expected the compensation nor failed to file their losses as deduction because of this legislation. Because of this, Secretary of Finance issued V139 which not only revoked V-123 but also laid down the rule that losses of property which occurred during World War II from fires, storms, etc. are deductible for income tax purposes in the year of actual loss.
construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. When the Commissioner determined in 1937 that the Petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the Petitioner from tax. 4. With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by Petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration. It seems too clear for serious argument that an administrativ e officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due. Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others. (Article 2254, New Civil Code.) DISPOSITION: Decision of CTA Affirmed. VOTE: En Banc, CJ Paras, Padilla, Montemayor, Labrador, Concepcion, JBL Reyes, Endencia and Felix, JJ., concur. NOTE: Sorry, I overlooked this case when I assigned the digests for page 12. So I just reproduced the previous digest on this case. I think the relevant topic was covered naman. (Leah) -Ann a. Rule when legislative intent is clear Umali v. Estanislao, supra. PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiffappellant, -versusJUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant. (June 18, 1937 | G.R. No. L-43082 | En Banc) DOCTRINE: XXX It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social
life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) XXX TYPE OF TAX INVOLVED: Inheritance Tax and interest thereon NATURE: Motion for Reconsideration PONENTE: Laurel, J. FACTS: On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interest thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court. It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows: 4. I direct that any money left by me be given to my nephew Matthew Hanley. 5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's children and their descendants. 6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous. xxx xxx xxx 8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley.
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The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. ISSUE: (a) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? HELD: (a) It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." But legislative intent that a tax statute should operate retroactively should be perfectly clear. "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can be given the statute by this court. OTHER ISSUES AND HOLDING: a. When does the inheritance tax accrue and when must it be satisfied? (The) tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. b. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (A) transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.
c. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax d. Has there been delinquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenue or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer. REASONING: A. MAIN ISSUE The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can be given the statute by this court. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is
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allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. DISPOSITIVE: The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered. VOTES: Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur. Villa-Real, J., concurs. NO DISSENTING/CONCURRING OPINION. -Poy CIR v. SOLIDBANK (November 25, 2003) DOCTRINE: This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms -construction and interpretation being called for only when such literal application is impossible or inadequate without them NATURE: Petition for review under Rule 45 PONENTE: Panganiban, J. FACTS: For CY 1995, Solidbank filed its quarterly percentage tax return pertaining to 5% Gross Receipts Tax (GRT) in the amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. This includes the passive income already subject to 20% final withholding tax (FWT) The Court of Tax Appeals rendered a decision in the case of Asian Bank Corp. v. CIR which held that the final withholding tax of 20% should not form part of the taxable gross receipts for the purpose of computing the 5% GRT On the basis of this decision, Solidbank applied for a refund or issuance of a tax credit certificate representing its alleged overpayments of GRT for CY 1995 in the amount of some 3.5M Pesos
At the same time, Solidbank filed a petition for review with the CTA to toll the 2 year prescriptive period to judicially claim the refund The CTA ordered the CIR to refund a reduced amount as overpaid GRT based on the ruling in Asian Bank, the 20% withholding tax should not form part of the gross receipts for computing GRT The CIR elevated the case to the CA which held that the 20% FWT on a bank's interest income did not form part of the taxable gross receipts in computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the government Hence this current recourse by the CIR under R45
RATIO/RULING: When the legislature imposes a tax on income (FWT) and another on business (GRT), the imposition must be respected. The Tax Code should not be so construed, if need be, as to avoid empty declarations or possibilities of crafty tax evasion schemes. A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language. Its clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be resolved. No such doubts exist with respect to the Tax Code, because the income and percentage taxes we have cited earlier1 have been imposed in clear and express language for that purpose. This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms -- construction and interpretation being called for only when such literal application is impossible or inadequate without them. In Quijano v. Development Bank of the Philippines, we stressed as follows: No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or contradict the evident meaning of the statute taken as a whole. Unlike the CA, we find that the literal application of the aforesaid sections of the Tax Code and its implementing regulations does not operate unjustly or contradict the evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings that would lead to absurd or unreasonable consequences. Respondent claims that it is entitled to a refund on the basis of excess GRT payments.
Sec 119 of Tax Code: 5% GRT, under Title V Other Percentage Taxes; not subject to withholding Sec 24(e)(1) of Tax Code: 20% FWT, under Title II Tax on Income; withheld at source New Revenue Regulations: GRT imposed on all interest income (superseded old regulation GRT on all interest actually received)
1
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ISSUES/HELD: WON the 20% final withholding tax on a bank's interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax? Yes. Final withholding tax was constructively received by Solidbank and is part of their actual earnings even if paid directly to govt in their behalf.
Tax refunds are in the nature of tax exemptions. Such exemptions are strictly construed against the taxpayer. Hence, those who claim to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must be able to point to some positive provision, not merely a vague implication, of the law creating that right. No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the tax collection effort of the government and to assure its steady source of revenue even during an economic slump. DISPOSITION: Petition GRANTED, assailed orders of the Court of Appeals REVERSED and SET-ASIDE VOTE: Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna, JJ., concur ADDITIONAL NOTES: Facts taken from Raffys digest. -Steph b. Rule when there is doubt
6.
Not satisfied with the said rulings, the La Tondea, Inc. presented an action with the respondent CTA which modified the assailed a. La Tondea ordered to pay CIR the sum of P672.15, by way of specific tax. b. With respect to the balance of the assessment amounting to P153,990.95, which corresponds to the period after Jan. 1, 1951 and up to Feb. 27, 1954, pursuant to RA 592, La Tondea is declared exempt from liability for the specific taxes assessed therefor .
WON the CTA erred in exempting La Tondea from the payment of the specific tax on rectified alcohol lost in process of further rectificiation. HELD: NO 1. Specific taxes in question were assessed by the CIR in accordance with section 133 the Tax Code2 -- tax shall attach to this substance as soon as it is in existence as such. However, on January 1, 1951, RA 592 took effect, amending section 133. The evident intention of the law maker in deleting the all embracing clauses, was to subject to specific tax not all kinds of alcoholic substances, but only distilled spirits as finished products, actually removed from the factory or bonded warehouse. Such amendment was in harmony with section 129, of the same Tax Code3 Tax Code does no prohibit further rectification or distillation and defines in section 194 thereof, a rectifier as a person who rectifies, purifies or refines distilled spirits, the conclusion is logical that when alcohol, even if already distilled (as in the present case) or rectified, is again rectified, purified or
CIR v La Tondea July 31, 1962 Nature: Petition for review Ponente: Paredes 1. 2. La Tondea, Inc. has been engaged in the business of manufacturing wines, and liquors, with a distillery in Manila. La Tondea has been purchasing the alcohol used in the manufacture of its products, principally from Binalbagan Isabela Sugar Central, Negros Occidental and Central Azcarera Don Pedro in Nasugbu, Batangas, and has been removing this alcohol from the centrals to respondent's distillery under joint bonds, without prepayment of specific taxes, with the express permission and approval of the CIR In the manufacture of "Manila Rum", respondent uses as basic materials low test alcohol, purchased in crude form from the suppliers, which it re-rectifies or subjects to further distillation, in order to suit the purpose of respondent in producing only high quality products. In the process of further rectification or distillation, losses thru evaporation had necessarily been incurred, for which the petitioner in the past had given the respondent allowance of not exceeding 7% for said losses. CIR wrote a demand letter to La Tondea for the payment of specific taxes, in the total amount of P154,663.10 on alcohol lost by evaporation, thru rerectification or re-redistillation, covering the period from June 7, 1950 to Feb. 7, 1954. On Sept.1, 1954, La Tondea appealed the decision to the Conference Staff in the same Bureau. Before any hearing could be had in the Conference Staff, on Jan. 8, 1955, La Tondea received a letter from the CIR dated December 22, 1954, requiring it to comply with DOF Order No. 213, to deposit one-half of the amount of assessment in cash and the balance guaranteed by a surety bond. La Tondea requested for reconsideration of this requirement but was denied.
2.
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SEC 133. Specific tax on distilled spirits. On distilled spirits there shall be collected, except as hereinafter provided, specific taxes as follows:
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(a) If produced from sap of the nipa, coconut, casava, camote, or buri palm, or from the juice syrup, or sugar of the cane, per proof liter, forty-five centavo. (b) If produced from any other material, per proof liter, one peso and seventy centavos. This tax shall be proportionately increased for any strength of the spirits taxed over proof spirits. "Distilled spirits", as here used, includes all substances known as ethyl alcohol, dehydrated oxide of ethyl, or spirits of wine, which are commonly produced by the fermentation and subsequent distillation of grain starch, molasses, or sugar, or of some syrup of sap, including all dilutions or mixtures; and the tax shall attach to this substance as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits, or be immediately or at any subsequent time transformed into any other substance either in process of original production or by any subsequent process. SEC 129. Removal of spirits or cigar under bond. Spirits requiring rectification may be removed from the place of their manufacture to some other establishment for the purpose of rectification without the prepayment of the specific tax, provided the distiller removing such spirits and the rectifier receiving them shall file with the Collector of Internal Revenue their joint bond conditioned upon the future payment by the rectifier of the specific tax that may be due on any finished product. . . . .
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ISSUES: 1. WON the CTA erred in exempting La Tondea from the payment of the specific tax on rectified alcohol lost in process of further rectificiation. HELD: NO 2. WON the CTA erred in assuming jurisdiction over the case
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refined, the specific tax should be based on the finished product, and not on the evaporated alcohol. On August 23, 1956, RA 1608 was passed, amending section 133 of the Tax Code, as amended by RA 592, restoring the very same clause which was eliminated. a. The inference is clear that from Jan. 1, 1951, when RA 592, took effect, until Aug. 23, 1956, when RA 1608 became a law, the tax on alcohol did not attach as soon as it was in existence as such, but on the finished product. b. This law certainly should not be given retroactive effect, so as to cover the period in question (January 1, 1951 to February 27, 1954). It is only after August 23, 1956 that the government woke up from its lethargy and hastened to fill the hiatus.
c. Provisions/laws granting tax exemptions i. General rule Commissioner of Internal Revenue v. CA, ibid. Justin Misamis Oriental Asso. v. Department of Finance, ibid. Miggy THE COMMISSIONER OF CUSTOMS v PHILIPPINE ACETYLENE COMPANY, and THE COURT OF TAX APPEALS (May 29, 1971) Type of tax: Special Import Tax Doctrine: Tax exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its purview by clear legislative intent. Nature: Petition for review of the decision of the CTA Ponente: Makalintal, J. Facts: The Philippine Acetylene Company (PAC) is a corporation duly organized and existing under the laws of the Philippines and is engaged in the manufacture of oxygen, acetylene and nitrogen and packaging of liquefied petroleum gas in cylinders and tanks; Sometime in 1957 PAC imported from the United States one custom-built liquefied petroleum gas tank which arrived via the S/S 'PLEASANT VILLE'. The amount of P3,683.00 was assessed thereon as special import tax and which (sic) was paid under protest by the importer-protestant as evidenced by Official Receipt No. 12690 dated February 25, 1958. According to Charles L. Butler, manager of the Philippine Acetylene Co., Inc., the imported custom-built liquefied petroleum gas tank is simply a large cylinder which is used as container for liquefied petroleum gas obtained from the CALTEX Refinery in Bauan, Batangas and transported to the company's plant in Manila. The gas does not undergo any chemical change and is sold to consumers in the same state as when it was acquired from the refinery, except that before it is sold the gas is pumped into smaller cylinders, which are labeled with the company's trademark "Philigas." The pertinent provision to the issue is RA 1394 which states: o Section 6. The tax provided for in section one of this Act shall not be imposed against the importation into the Philippines of machinery and/or raw materials to be used by new and necessary industries as determined in accordance with Republic Act numbered Nine Hundred and One; ...; machinery, equipment, accessories and spare parts, for the use of industries, miners, mining enterprises planters and farmers; ... CTA ruled for PAC and ordered that a refund be given to it. It held that the term industry should be understood in its ordinary and general definition, which is any enterprise employing relatively large amounts of capital and/or labor. It concluded that inasmuch as the Philippine Acetylene Co., Inc. employs considerable labor and capital in packaging liquefied petroleum gas purchased by it and selling the same for profit, it is engaged in industry and
WON the CTA erred in assuming jurisdiction over the case. HELD: NO 1. 2. 3. CIR claims that CTA had no jurisdiction over the case, because the petition for review was not filed within the 30-day period as provided by section 11 of Rep. Act No. 1125.4 Petition for review to the Tax Court was filed within the time. The intra-office arrangement in the BIR allowed a taxpayer to appeal from the ruling of the Collector to a Conference Staff of the same Bureau. The appeal made on September 1, 1954, to the Conference Staff had suspended the period because it was a remedy prescribed by the petitioner himself, made available to the respondent. When the Conference Staff gave due course to the appeal on September 3, 1954, the petitioner gave the impression that his letterassessments of May 8 and August 26, 1954, were still subject to review by his Conference Staff. When the Conference Staff finally refused to reconsider its ruling requiring respondent to deposit of the amount of the tax in cash, and payment of the balance or guaranteed by a surety bond, after the submission of two requests for reconsideration, the second denial having been received by respondent only on March 16, 1955 , said it was then only, that the petitioner may or can be said to have rejected the administrative appeal and gave finality to his letter of August 26, 1954. When La Tondea lodged its petition for review with the Tax Court on March 18, 1955, only three (3) days in all, had elapsed, out of the period. The period within which the review must be sought, should be counted from the denial of the motion for reconsideration because of the principle that all administrative remedies must be exhausted before recourse to the courts can be had against orders or decisions of administrative bodies.
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Dispositive: Decision appealed from is affirmed. - Zoilo -
SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs . . . or any provincial or city Board of Assessment Appeals, may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling . . .
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hence is exempt from the payment of the special import tax in connection with the tank used as container. The Commissioner of Customs appealed.
Issue: Whether or not the Philippine Acetylene Co., Inc., insofar as its packaging operation of liquefied petroleum gas is concerned, may be considered engaged in an industry as contemplated in section 6 of Republic Act No. 1394 and therefore exempt from the payment of the special import tax in respect of the gas tank in question. Held & Ratio: The Collector of Customs argues: ... in the exempting provisions of Republic Act No. 1394, the exempted items are divided into separate and specific enumerations. The term 'industries' is used in two distinct groups. The first group of exempted industries refers exclusively to those falling under the new and necessary industries as defined in Republic Act No. 901. In the second, the term "industries" is classed together with the terms miners, mining enterprises, planters and farmers. ... If Congress really intended to give the term "industries" its ordinary and general meaning and thus grant tax exemption to all ventures and trades falling under the said ordinary and general definition, it should have eliminated the words "new and necessary industries' and 'mining enterprises" since these two ventures are already covered by the term "industries" in its ordinary and general meaning. On the other hand, the fact that the language of the law specifically segregates new and necessary industries under Republic Act No. 901 among those entitled to the tax exemption, in effect, restricts the meaning and scope of the word "industries." The argument appears logical and reasonable. Since the term "industries" as used in the law for the second time is classified together with the terms "miners, mining enterprises, planters and farmers", the obvious legislative intent is to confine the meaning of the term to activities that tend to produce or create or manufacture, such as those of miners, mining enterprises, ]planters and farmers. The Tax Court's interpretation would lead to a Patent inconsistency. In granting the exemption, it would have been illogical for Congress to specify importations needed by new and necessary industries -- as the term is defined by law and in the same breath allow a similar exemption to all other industries in general. Assuming ng the correctness of such interpretation, what should be noted is that it stresses the productive aspect of the enterprise. The operation for which the respondent company employs the gas tank in question does not involve manufacturing or production. It is nothing but packaging. The process is certainly not production in any sense. Tax exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its purview by clear legislative intent. In the present case the construction adhered to by the respondents in reference to the scope of the term "industries" as employed for the second time in Section 6 of Republic Act No. 1394 is contrary to such rule. For if the term were all inclusive, and meant industries in general, that is, those which involve relatively large amounts of capital and/or labor regardless of their productive or non-productive nature, there would be no point in making a separate classification with respect to "new and necessary industries" for purposes of
the tax exemption. We hold, therefore, that to be entitled to exemption under the second classification in the statute the industry concerned, in connection with the activity for which the importation is made, must be engaged in some productive enterprise, not in merely packaging an already finished product to facilitate its transportation. Dispositive: Decision of the CTA is reversed. Costs against PAC. Vote: Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur. Castro and Teehankee, JJ., took no part. -Wiggy MANILA ELECTRIC COMPANY v. VERA Manila Electric Company, petitioner, v. Misael P. Vera, Commissioner of Internal Revenue Doctrine: One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. Date: October 22, 1975 Nature: Petitions for review from the decisions of the Court of Tax Appeals Ponente: Munoz Palma, J. Facts: 1. MERALCO is the holder of a franchise to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs, and in its charter enjoys a tax exemption provision in the following tenor: a. PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators), machinery, and personal property as other persons are or may be hereafter by law to pay. In consideration of Part Two of the franchise herein granted the grantee shall pay to the City of Manila a five per centum of the gross earnings received form its business under this franchise in the City and its suburbs: PROVIDED, That two and one-half per centum of the gross earnings received from the business of the line to Malabon shall be paid to the Province of Rizal. Said percentage shall be due and payable at the times stated in paragraph nineteen of Part One hereof, and after an audit, like that provided in paragraph twenty of Part One hereof, and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon
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Issue: Whether MERALCO is exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in the operation of its business. Held: NO. 1. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken, for the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. 2. The Court does not see in paragraph 9 of petitioner's franchise what may be considered as "plain and unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires,
5.
Disposition: Decision of the CTA affirmed Voting: 5-0 -Sandra BENGUET CORPORATION v. CENTRAL BOARD OF ASSESSMENT APPEALS (July 29, 1992) BENGUET CORPORATION, PETITIONER, VS. CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF BENGUET, AND MUNICIPAL ASSESSOR OF ITOGON, BENGUET, RESPONDENTS.
Sec. 190. Compensating Tax. All persons residing or doing business in the Philippines, who purchase or receive from without the Philippines any commodities, goods, wares, or merchandise, excepting those subject to specific taxes under Title IV of this Code, shall pay on the total value thereof at the time they are received by such persons, including freight, postage, insurance, commission and all similar charges, a compensating tax equivalent to the percentage taxes imposed under this Title on original transactions effected by merchants, importers, or manufacturers, such tax to be paid before the withdrawal or removal of said commodities, goods, wares, or merchandise from the customhouse or the post office: ... Purpose of compensating tax: to place casual importers, who are not merchants, on equal footing with established merchants who pay sales tax on articles imported by them. (kaya sya compensating. Doy)
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the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted. In 1962, MERALCO imported copper wires, transformers, and insulators for use in its business. The Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected on such importations a compensating tax5 amounting to a total of P62,335.00. A claim for refund of said amount was presented by MERALCO and because no action was taken by the Commissioner of Internal Revenue on its claim, it appealed to the Court of Tax Appeals by filing a petition for review on February 25, 1964 (CTA Case No. 1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim, forthwith, the case was elevated to the Court on appeal (L-29987). Again in 1963, MERALCO imported certain quantities of copper wires, transformers and insulators to be used in its business, and again a compensating tax of P6,587.00 was collected. Its claim for refund having been denied by the Commissioner of Internal Revenue, MERALCO riled with the Court of Tax Appeals CTA Case No. 1493, which it again lost. The appealed cases were consolidated in this Decision, on the common issue of whether MERALCO is exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in the operation of its business.
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transformers, and insulators. What MERALCO really wants the Court to do, but which it cannot under the principles enumerated earlier, is to infer and imply that there is such an exemption from the following phrase: "... the grantee shall pay to the City of Manila five per centum of the gross earnings received from its business ... and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted." What the above provision exempts petitioner from, is the payment of property tax on its poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like the one in question which, by mere necessity or consequence alone, fall upon property. The first sentence of paragraph 9 of petitioner's franchise are direct taxes imposed upon the thing or property itself. Thus, while the grantee is to pay tax on its plant, its poles, wires, transformers, and insulators as forming part of the plant or installation are exempt and as such are not to be included in the assessment of the property tax to be paid. But the tax here in question is not a direct tax on property, so as to be contemplated on the exemption, but an excise tax. The ending clause of paragraph 9 providing in effect that the percentage tax imposed upon petitioner shall be in lieu of "all taxes and assessments of what and by whatsoever authority" cannot be said to have granted it exemption from payment of compensating tax. The phrase does not include the compensating tax in question because there is an immediately succeeding phrase, which limits the scope of exemption to taxes "upon the privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." The last clause of paragraph 9 merely reaffirms, with regards to poles, wires, transformers, and insulators, what has been expressed in the first sentence of the same paragraph, namely, exemption of petitioner from payment of property tax. It is a well-settled rule or principle in taxation that a compensating tax is not a property tax but is an excise tax. Generally stated, an excise tax is one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax upon property because of its ownership is a direct tax, whereas one levied upon property because of its use is an excise duty.
DOCTRINE: The principle of statutory construction that tax exemptions are construed strictly against taxpayers, hence, they cannot be created by mere implication but must be clearly provided by law. Non-exemption, in case of doubt, is favored. NATURE: Original Petition for Certiorari PONENTE: BELLOSILLO, J.: FACTS: 1. The Provincial Assessor of Benguet, through the Municipal Assessor of Itogon, assessed real property tax on the bunkhouses of petitioner Benguet Corporation occupied for residential purposes by its rank and file employees 2. According to the Provincial Assessor, the tax exemption of bunkhouses under Sec. 3 (a), P.D. 7456 (Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations and Partnerships), was withdrawn by P.D.19557 (Withdrawing, Subject to Certain Conditions, the Duty and Tax Privileges Granted to Private Business Enterprises and/or Persons Engaged in Any Economic Activity, and Other Purposes). 3. Petitioner appealed the assessment to the Local Board of Assessment Appeals (LBAA) of the Province of Benguet 4. Meanwhile, the parties agreed to suspend hearings in LBAA to await the outcome of another case, LBAA Case No. 41, which involved the same parties and issue until the appeal was decided by the Central Board of Assessment Appeals (CBAA). 5. On July 15, 1986, CBAA handed down its decision in LBAA Case No. 41 holding that the buildings of petitioner used as dwellings by its rank and file employees were exempt from real property tax pursuant to P.D. 745. 6. Thereafter, the proceedings in LBAA Cases Nos. 42 and 43 proceeded after which a decision was rendered affirming the taxability of subject property of petitioner. 7. On appeal, CBAA sustained the decision holding that the realty tax exemption under P.D. 745 was withdrawn by P.D. 1955 and E.O. 93, so that petitioner should have applied for restoration of the exemption with the Fiscal Incentives Review Board (FIRB). The decision of CBAA clarified that Case No. 41 was different because it was effective prior to 1985, hence, was not covered by P.D. 1955 nor by E.O. 93. ISSUES: (1) Whether respondent Assessors may validly assess real property tax on the properties of petitioner considering the proscription in The Local Tax Code (P.D. 231) and the Mineral Resources Development Decree of 1974 (P.D. 463) against imposition of taxes on mines by local governments; and,
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(2) Whether the real tax exemption granted under P.D. 745 (promulgated July 15, 1975) was withdrawn by P.D. 1955 (took effect October 15, 1984) and E.O. 93. HELD/RATIO/RULING: (1) HELD: YES. The provisions of Sec. 52 of the Mineral Resources Development Decree of 1974 (P.D. 463), and Secs. 5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231) cited by petitioner are mere limitations on the taxing power of local government units; they are not pertinent to the issue before Us because the real property tax is a national tax and, therefore, such limitations on the local government units cannot and should not affect the imposition of real property tax by the national government. PETITIONERS CONTENTION 1: Petitioner contends that local government units are without any authority to levy realty taxes on mines pursuant to Sec. 52 of P.D. 463 (see originals for the provision page 583) RESPONDENT: The Solicitor General observes that the petitioner is estopped from raising the question of lack of authority to issue the challenged assessments inasmuch as it was never raised before, hence, not passed upon by, the municipal and provincial assessors, LBAA and CBAA. COURT: Agrees with the Solicitor General The rule that the issue of jurisdiction over subject matter may be raised anytime, even during appeal, has been qualified where its application results in mockery of the tenets of fair play, as in this case when the issue could have been disposed of earlier and more authoritatively by any of the respondents who are supposed to be experts in the field of realty tax assessment. In this case, petitioner may not complain of denial of due process since it had enough opportunity, but opted not, to raise the issue of jurisdiction in any of the administrative bodies to which the case may have been brought. PETITIONERS CONTENTION 2: Petitioner argues that realty taxes are local taxes because they are levied by local government units, citing Sec. 39 of P.D. 464 COURT: While local government units are charged with fixing the rate of real property taxes, it does not necessarily follow from that authority the determination of whether or not to impose the tax. In fact, local governments have no alternative but to collect taxes as mandated in Sec. 38 of the Real Property Tax Code When local governments are required to fix the rates, they are merely constituted as agents of the national government in the enforcement of the Real Property Tax Code. The delegation of taxing power is not even involved here because the national government has already imposed realty tax in Sec. 38, leaving only the enforcement to be done by local governments. Consequently, the provisions of Sec. 52 of the Mineral Resources Development Decree of 1974 (P.D. 463), and Secs. 5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231) cited by petitioner are mere limitations on the taxing power of local government units; they are not pertinent to the issue before Us and, therefore, cannot and should not affect the imposition of real property tax by the national government.
Section 3. Pursuant to the above incentive, such domestic corporations and partnerships shall enjoy tax exemption on: (a) real estate taxes on the improvements which will be used exclusively for housing their employees and workers x x x x 7 Section 1. The provisions of any special or general law to the contrary notwithstanding, all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges heretofore granted to private business enterprises and/or persons engaged in any economic activity are hereby withdrawn, except those enjoyed by the following: x x x x (e) Those that will be approved by the President of the Philippines upon the recommendation of the Minister of Finance,
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(2) HELD: We do not agree. If We are to sanction this interpretation, then necessarily all real properties exempt by any law would be covered, and there would be no need for the legislature to specify Real Property Tax Code, as amended, instead of stating clearly realty tax exemption laws. PETITIONERS CONTENTION: E.O. 93 does not repeal social statutes like P.D. 7458, in the same breath takes refuge in Sec. 1 (e) of the same E.O. 93 in relation to Sec. 40 of the Real Property Tax Code9 and concluding that P.D. 745 is one of the other laws referred to. COURT: We do not agree. If We are to sanction this interpretation, then necessarily all real properties exempt by any law would be covered, and there would be no need for the legislature to specify Real Property Tax Code, as amended, instead of stating clearly realty tax exemption laws. Indubitably, the intention is to limit the application of the exception clause only to those conferred by the Real Property Tax Code. This is not only a logical construction of the provisions but more so in keeping with the principle of statutory construction that tax exemptions are construed strictly against taxpayers, hence, they cannot be created by mere implication but must be clearly provided by law. Non-exemption, in case of doubt, is favored. Quite obviously, the exception in Sec. 1 (e), (iv), of E.O. 93, refers to those conferred under x x x x Real Property Tax Code, as amended, and that the exemption claimed by petitioner is granted not by the Real Property Tax Code but by P.D. 745. When Sec. 40 (g) of the Property Tax Code provides that [T]he exemption shall be as follows: x x x x Real Property exempt under other laws, the Code merely recognizes realty tax exemptions provided by other laws, otherwise, it may unwittingly repeal those other laws. RE: Contention that P.D. 745 is a social statute to give flesh to the Constitutional provisions on housing, hence, not covered by P.D. 1955 - The phrase any special or general law explicitly indicates that P.D. No. 1955 did not distinguish between a social statute and an economic or tax legislation. Hence, where the law does not distinguish, we cannot distinguish. In view thereof, we have no recourse but to apply the express provision of P.D. No. 1955 and rule in favor of the withdrawal of the real property tax exemption provided under P.D. No. 745. DISPOSITION: WHEREFORE, for lack of merit, the instant petition is dismissed, with costs against petitioner. VOTE: First Division; Cruz, (Chairman), Grio-Aquino, and Medialdea, JJ., concur. -David COCONUT OIL REFINERS ASSOCIATION vs HON. RUBEN TORRES, in his capacity as Executive Secretary; BCDA, CDC, SBMA, 88 MART DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS etc. (July 29, 2005)
Section 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: x x x x (e) those conferred under the four basic codes, namely: x x x x (iv) the Real Property Tax Code, as amended x x x x 9 Sec. 40. Exemptions from Real Property Tax. The exemption shall be as follows: x x x x (g) Real property exempt under other laws,
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Doctrine: It is the legislature, unless limited by a provision of a state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. Nature: Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public respondents Ruben Torres in his capacity as Executive Secretary, the Bases Conversion Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the private respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic Zone Ponente: Azcuna, J. Facts: -
Petitioners are suppliers of the local retailers operating outside the special economic zones. March 13, 1992: Congress enacted Republic Act No. 7227, providing for the conversion of the Clark and Subic military reservations to special economic zones. April 3, 1993: President Fidel V. Ramos issued Executive Order No. 80, which declared that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. Pursuant to the Executive Order No. 80, the BCDA passed Board Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. June 10, 1993: President issued Executive Order No. 97, "Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227." Said issuance in part states, thus:
SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws. The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.
June 19, 1993: Executive Order No. 97-A was issued, "Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone." February 23, 1998: petitioners filed the instant petition seeking the declaration of nullity of Executive 97.
Issues: 1. WON petitioner has legal standing, WON there is unreasonable delay in the filing of the petition, WON petition is barred by laches, and WON the remedy of prohibition is proper. PROCEDURAL TECHNICALITIES BRUSHED ASIDE.
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3. 4. 5.
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Held: I. Procedural flaws Assuming that the petitioners do not suffer direct injury in the enforcement of the issuances being assailed herein, this Court has nevertheless held that in cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review. In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the exercise of its discretion, brushes aside these technicalities and takes cognizance of the petition considering the importance to the public of the present case and in keeping with the duty to determine II. Executive legislation A. Extension of tax exemption to consumer goods Petitioner: RA. 7227 clearly limits the grant of tax incentives to the importation of raw materials, capital and equipment only, hence the following issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such as those being sold in the duty-free shops, pursuant to 1. An application oft he legal maxim expressio unius est exclusio alterius 2. Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on Bases Conversion10 Law contravened: Sec. 12 RA 7227:
10
Committee Report No. 1206: the setting up of duty-free stores never figured in the minds of the authors of Republic Act No. 7227 in attracting foreign investors to the former military baselands. SC: 1. Expressio unius est exclusio alterius a. To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the "free flow of goods or capital within, into, and out of the zones" is insured. b. The maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation, does not apply when i. words are mentioned by way of example It is obvious from the wording of Republic Act No. 7227, particularly the use of the phrase "such as," that the enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone. ii. legislative intent which is manifest The records of the Senate containing the discussion of the concept of "special economic zone" in Section 12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws. Committee Report No. 1206 It is well-established that opinions expressed in the debates and proceedings of the Legislature, steps taken in the enactment of a law, or the history of the passage of the law through the Legislature, may be resorted to as aids in the
2. a.
25
WON Section 5 of Executive Order No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute invalid exercise of executive legislation for a. Extending the tax exemption to consumer goods. YES b. Extending the tax exemptions enjoyed by SSEZ (Subic Special Economic Zone) to CSEZ (Clark Special Economic Zone). YES. WON paragraphs 1.2 and 1.3 of Executive Order No. 97-A, are null and void for being contrary to Section 12 of Republic Act No. 7227. YES. WON Executive Order No. 97-A is violative of the right to equal protection of the laws. NO. WON the grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the SSEZ, thereby creating unfair competition in violation of the constitutional prohibition against unfair competition and practices in restraint of trade. NO. WON Executive Order No. 97-A openly violated the State policy of promoting the preferential use of Filipino labor, domestic materials and locally produced goods and adopting measures to help make them competitive. NO.
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment Assailed issuances: 1. EO 97-A: Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free 2. Board Resolution No. 93-05-034: Section 4: The CSEZ-registered enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No. 226 and R.A. No. 7042 which shall include, but not limited to, the following: 4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the CSEZ Main Zone. 5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the Philippine Customs territory but not to exceed US$200.00 per month per CDC-registered person
b.
interpretation of a statute with a doubtful meaning, which is not the case at bar. Petitioners overlooks the fact that the 1995 Committee Report they are referring to came into being well after the enactment of Republic Act No. 7227 in 1993. Hence, as pointed out by respondent Executive Secretary Torres, the aforementioned report cannot be said to form part of Republic Act No. 7227s legislative history. Extension of tax exemption enjoyed by SSEZ (Subic Special Economic Zone) to CSEZ (Clark Special Economic Zone)
the members of Congress." SC sustained the argument and ruled that the incentives under Republic Act No. 7227 are exclusive only to the SSEZ and that the President, therefore, had no authority to extend their application to John Hay.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of a state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon. Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed.
B.
Petitioner: The incentives under Republic Act No. 7227 are exclusive only to the SSEZ. The President, therefore, had no authority to extend their application to CSEZ. Law applicable: SECTION 12. Subic Special Economic Zone. (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Ecoomic Zone shall be remitted to the National Government , Section 15 of the same law did not extend the same privileges to Clark Special Economic Zone and other special economic zones. Assailed issuances: 1. EO No. 80 Sec. 5: Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted. Board Resolution No. 93-05-034, Sec. 4: The CSEZ-registered enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No. 226 and R.A. No. 7042 SC applied the ruling in John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al In that case, the SC Court resolved an issue, concerning the legality of the tax exemption benefits given to the John Hay Economic Zone under Presidential Proclamation No. 420, Series of 1994. In that case, among the arguments raised was that the granting of tax exemptions to John Hay was an invalid and illegal exercise by the President of the powers granted only to the Legislature. Petitioners therein argued that Republic Act No. 7227 expressly granted tax exemption only to Subic and not to the other economic zones yet to be established. Thus, the grant of tax exemption to John Hay by Presidential Proclamation contravenes the constitutional mandate that "[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all
2.
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and dutyfree incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the statute. Consequently, in the absence of any express grant of tax and dutyfree privileges to the CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 9305-034, which both pertain to the CSEZ.
III. Executive Order 97-A Petitioner: Paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Law contravened: Sec. 12 RA 7227: However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.. Assailed issuances: 1. EO 97-A Par. 1.2: Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$100 per
2.
SC: 1.
26
2.
month per person. Only residents age 15 and over are entitled to this privilege. EO 97-A Par. 1.3: Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they can purchase and bring out [of] the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$200 per year per person. Only Filipinos age 15 and over are entitled to this privilege.
1.
IV. Equal Protection Petitioner: EO 97-A is violative of their right to equal protection of the laws. Private respondents operating inside the SSEZ are not different from the retail establishments located outside, the products sold being essentially the same. The only distinction lies in the products variety and source, and the fact that private respondents import their items tax-free, to the prejudice of the retailers and manufacturers located outside the zone. SC: Petitioners contention cannot be sustained. It is an established princ iple of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. 2.
11
that "[a]ll special shopping privileges as granted under Section 3 of Executive Order 444, s. 1997, are hereby deemed terminated. The grant of duty free shopping privileges shall be restricted to qualified individuals as provided by law."
12
3.
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year 1998, in addition to the permanent residents, locators and employees of the fenced-in areas of the Subic Special Economic and Freeport Zone and the Clark Special Economic Zone who are allowed unlimited duty free purchases, provided these are consumed within said fenced-in areas of the Zones, the residents of the municipalities adjacent to Subic and Clark as respectively provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall continue to be allowed One Hundred US Dollars (US$100) monthly shopping privilege until 31 December 1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of US$25 for consumable goods which shall be consumed only in the fenced-in area during their visit therein. Note: EO 444 was promulgated to curtail the duty-free shopping privileges in the SSEZ and the CSEZ and "to prevent abuse of duty-free privilege and to protect local industries from unfair competition
4.
V.
Prohibition against Unfair Competition and Practices in Restraint of Trade
27
Petitioner: The grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the
SC: The second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. However, by virtue of the promulgation of EO 30311 (amending EO 44412), this issue has been rendered moot and academic.
Substantial distinctions lie between the establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of Appeals, petitioners claimed that Executive Order No. 97-A was discriminatory in confining the application of Republic Act No. 7227 within a secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone. This Court therein found substantial differences between the retailers inside and outside the secured area, thereby justifying a valid and reasonable classification: a. there are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called "secured area" and the present business operators outside the area. b. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second, only local. In this case, enterprises outside the zones maintain their businesses within Philippine customs territory, while private respondents and the other duly-registered zone enterprises operate within the so-called "separate customs territory." To grant the same tax incentives given to enterprises within the zones to businesses operating outside the zones, as petitioners insist, would clearly defeat the statutes intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained. The classification is germane to the purpose of Republic Act No. 7227 . As held in Tiu, the real concern of Republic Act No. 7227 is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to the establishments within the zone to attract and encourage foreign and local investors. This is the very rationale behind Republic Act No. 7227 and other similar special economic zone laws which grant a complete package of tax incentives and other benefits. The classification, moreover, is not limited to the existing conditions when the law was promulgated, but to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a self-sustaining investment center. The classification applies equally to all retailers found within the "secured area." As ruled in Tiu, the individuals and businesses within the "secured area," being in like circumstances or contributing directly to the achievement of the end purpose of the law, are not categorized further. They are all similarly treated, both in privileges granted and in obligations required.
SSEZ, thereby creating unfair competition in violation of the constitutional prohibition against unfair competition and practices in restraint of trade. SC: The argument is without merit. 1. Just how the assailed issuance is violative of the prohibition against unfair competition and practices in restraint of trade is not clearly explained in the petition. 2. The mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. Said constitutional prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its policies. 3. Congress had justifiable reasons in granting incentives to the private respondents, in accordance with Republic Act No. 7227s policy of developing the SSEZ into a self-sustaining entity that will generate employment and attract foreign and local investment. VI. Preferential Use of Filipino Labor, Domestic Materials and Locally Produced Goods Petitioner: EO No. 97-A openly violated the State policy of promoting the preferential use of Filipino labor, domestic materials and locally produced goods and adopting measures to help make them competitive. SC: the argument lacks merit. 1. Petitioners failed to substantiate their sweeping conclusion. 2. Manila Prince Hotel v. GSIS cited by petitioner does not apply. That case dealt with the policy enunciated under the second paragraph of Section 10, Article XII of the Constitution, applicable to the grant of rights, privileges, and concessions "covering the national economy and patrimony," which is different from the policy invoked in this petition, specifically that of giving preference to Filipino materials and labor found under Section 12 of the same Article of the Constitution. 3. In Taada v. Angara, this Court elaborated on the meaning of Section 12, Article XII of the Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.
Disposition: WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly declared of no legal force and effect. Respondents are hereby enjoined from implementing the aforesaid void provisions. All portions of Executive Order No. 97-A are valid and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are hereby declared INVALID. Vote: Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, SandovalGutierrez, Austria-Martinez, Carpio-Morales, Callejo, Sr., Tinga, Chico-Nazario, and Garcia, JJ., concur. Carpio, J., no part. Corona, J., on official leave. Concurring/Dissenting Opinion: None. -Dana ii. Exceptions ERNESTO M. MACEDA, petitioner, -versusHON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents. (June 8, 1993 | G.R. No. 88291 | En Banc) Notes: This is the digest made by poy, I just added the doctrine for the topic. DOCTRINE: Normally a tax exemption provisons must be clear and explicit, however in this case, the tax exemption was simply worded asALL FORMS OF taxes....The Supreme Court held that this encompassed all other forms of taxes, duties, and fees. The Supreme Court said that they gave it this interpretation simply because of the wording of the law compared to the wording of the previous laws. The Court said that Marcos lumped togetherall the previous tax exemptions granted by the old laws into the provision All FORMS OF.... In my own opinion, this is not sound and It seems like the Court was just making BS arguments to exempt NPC. XXX The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power. XXX
14
4.
Further, with the subsequent issuance of Executive Order Nos. 44413 and 30314, the Executive Department has provided certain measures to prevent unfair competition
28
13
Executive Order Nos. 444 and 303 have restricted the special shopping privileges to certain individuals.
Executive Order No. 303 has limited the range of items that may be sold in the duty-free outlets, and imposed sanctions to curb abuses of duty-free privileges.
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. TYPE OF TAX INVOLVED: Indirect Tax and Duties NATURE: Motion for Reconsideration PONENTE: Nocon, J. FACTS: A Chronological review of the relevant NPC laws, especially with respect to its tax exemption provisions, at the risk of being repetitious is, therefore, in order. Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy of the country. It was expressly stated that: Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows: To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended. A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt: library (a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and
duties to the Republic of the Philippines, its provinces, cities, and municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities; virtual law library (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. PD 938integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 1085 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987. Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery ISSUE: (a) What kind of tax exemption privileges did NPC have?
HELD: (a) It is a valid tax exemption. It is a continuation of the tax exemption granted by then President Marcos exercising legislative power through the now infamous Amendment No. 6. REASONING: A. MAIN ISSUE (The) Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.
29
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-85 and 1-86 as approved by the Minister of Finance. Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but merely restored it. Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous Amendment No. 6 as there was no showing that President Marcos' encroachment on legislative prerogatives was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required immediate action' to meet the 'exigency'. Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos') judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign debt payments as a result of the economic crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt payments. One of the big borrowers was the NPC which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. From all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power. The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power. P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority. Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted under FIRB Resolution No. 17-87 dated June 24, 1987 which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86). FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. There is no indication, however, from the records of the case whether or not similar approvals were given by then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might have occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal
Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals when the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the Director of Mines, and inAnzaldo vs. Clave where Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as Chairman of the Civil Service Commission. Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed. In the case of the tax exemption restoration of NPC, there is no other comparable entity not even a single public or private corporation whose rights would be violated if NPC's tax exemption privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more MERALCO as a producer of electricity which could have objected to the restoration of NPC's tax exemption privileges. It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate procedural due process. While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her thereunder. A misconception must be cleared up. When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power. And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be carried out and it fixed the standard to which the delegate had to conform in the performance of his functions, both qualities having been enunciated by this Court in Pelaez vs. Auditor General.
30
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984 up to the present. DISPOSITIVE: WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED. VOTES: Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo, JJ., concur. Padilla and Quiason, JJ. took no part. NO DISSENTING/CONCURRING OPINION. -Kester/Poy 4. Application of Tax Laws/Revenue Regulations and Rulings a. General
2. HELD 1.
WON the law covers or applies to compensation income earned or received during calendar year 1991? RA 7167 TOOK EFFECT ON JANUARY 30, 1992 which is after 15 days following the publication in Malaya. Court referred to the Article 2 of the Civil code, the case Caltex v. CIR and (of course) Taada v. Tuvera. RA 7167 SHOULD COVER OR EXTEND TO COMPENSATION INCOME EARNED OR RECEIVED DURING CALENDAR YEAR 1991 [On the application of Tax Laws] Rep. Act 7167 says that the increased personal exemptions that it provides for shall be available thenceforth, that is, after Rep. Act 7167 shall have become effective. In other words, these exemptions are available upon the filing of personal income tax returns which is, under the National Internal Revenue Code, done not later than the 15th day of April after the end of a calendar year. Thus, under Rep. Act 7167, which became effective, as aforestated, on 30 January 1992, the increased exemptions are literally available on or before 15 April 1992 (though not before 30 January 1992). But these increased exemptions can be available on 15 April 1992 only in respect of compensation income earned or received during the calendar year 1991. Personal exemptions in RA 7167 cannot be regarded as available during the the 1990 calendar year BECAUSE such income had already accrued AND been presumably paid by 15 April 1991, at the time RA 7167 had not been enacted The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available only in respect of compensation income received during 1992, as the implementing Revenue Regulations No. 1-92 purport to provide. Revenue Regulations No. 1-92 would in effect postpone the availability of the increased exemptions to 1 January-15 April 1993, and thus literally defer the effectivity of Rep. Act 7167 to 1 January 1993. Thus, the implementing regulations collide frontally with Section 3 of Rep. Act 7167 which states that the statute "shall take effect upon its approval."
2.
Umali v. Estanislao 29 May 1992 | Padilla, J. FACTS Congress enacted RA 7167 (a law adjusting the basic personal and additional exemptions allowable for income tax purposes) Act was signed and approved by the President on 19 December 1991 and published on Malaya on 14 January 1992 Revenue Regulations No. 1-92 was promulgated by respondents (CIR) Regulations prescribed the collection at source of income tax on compensation income paid ON or AFTER January 1, 1992 under the Revised Withholding Tax Tables which take into account the increase of personal and additional exemptions
In GR 104037 Petitioner is a taxpayer, resident of Oriental Mindoro Petition for Mandamus for himself and in behalf of all individual Filipino taxypayers Sought to compel respondents to implement RA 7167 with respect to the taxable income of individual taxpayers earned or receive ON or AFTER January 1, 1991 or as of taxable year ending December 31, 1991
DISPOSITIVE 1. 2. Sec 1,3, and 5 of Revenue Regulations No. 1-92 providing that the regulations shall take effect on compensation income earned or received from Jan 1, 1992 are set aside Since decision was promulgated after 15 April 1992, Taxpayers who filed their income tax returns on or before April 15, 1992 (extended to April 24) are entitled to corresponding tax refunds or credits. -Mae
In GR 104069 another Petition for Mandamus sought to compel CIR to implement RA 7167 in regard to income earned or received in 1991 and to enjoin the implementation of Revenue Regulations 1-92
ISSUES 1. When did RA 7167 take effect? On the date of approval by the President or after 15 days following its publication (30 January 1992)?
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Lorenzo v Posadas (June 18, 1937) Doctrine: The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. xxx Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. Nature: Appeal from the decision of CFI dismissing plaintiffs complaint and defendants counterclaim Ponente: Laurel; en banc 1. 2. In 1922, Thomas Hanley died in Zamboanga, Zamboanga, leaving a will and considerable amount of real and personal properties. Probate proceedings ensued. Among other things, Hanleys will stated the following: a. That any money left by him be given to his nephew Matthew Hanley. b. That all real estate owned by him at the time of his death be not sold/disposed of for a period of 10 years after his death, and that the same be handled and managed by the executors, and proceeds thereof to be given to his nephew, Matthew Hanley, and that he be directed that the same be used only for the education of his brother's children and their descendants. c. That his property be given to Matthew Hanley 10 years after his death to be disposed of in the way he thinks most advantageous. The original trustee, Moore, was replaced by herein petitioner Lorenzo. Subsequently, the defendant CIR assessed against the estate of Hanley an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. CIR filed a motion in the testamentary proceedings pending before the CFI of Zamboanga praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. Plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated.
7.
Plaintiff brought an action in the CFIof Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased plus interest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. CFI dismissed both the plaintiff's complaint and the defendant's counterclaim. Both parties appealed.
Issues/ Held/Ratio: WON the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases? Held: YES
2.
3. 4.
15
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum. A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance.
5. 6.
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16
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title.
1.
When does the inheritance tax accrue? a. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." b. Plaintiff asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. i. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. c. The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. d. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. When must it be satisfied? a. The time for the payment on inheritance tax is clearly fixed by section 154415 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 154316 of the same Code.
2.
3.
4.
i. The instant case falls under subsection (b) as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? a. Plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's death. b. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. c. We hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? a. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the inheritance tax. What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? a. The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. b. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. c. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer
5.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference.
than those of Act No. 3031, that said provisions are penal17 in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. d. Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. Has there been deliquency in the payment of the inheritance tax? a. Defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. b. P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. c. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui que trust. When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust. He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required and, his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary. d. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. The collection of the tax would then be left to the will of a private individual. The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state. For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. e. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to
A statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission.
17
33
f.
g.
Issues/Held: WON the Monetary Board acted beyond its authority in promulgating Board Resolution No. 1995 (to carry into effect the provisions of RA 6125) YES Ratio: There is here no dispute that the banana industry is liable to pay the stabilization tax prescribed under RA. 6125 (last paragraph of Sec.1). Pet: respondent gave retroactive effect to the law (RA 6125) by ruling in Monetary Board Resolution No. 1995, that the export stabilization tax on banana industry would start to accrue on January 1, 1972 at the rate of 6% of the F.O.B. peso proceeds of export shipped from July 1, 1971 to June 30, 1972 Resp: RA 6125 merely prescribes the rates that may be imposed but does not provide when the tax shall be collected and makes no reference to any definite fixed period when the tax shall begin to be collected
b.) In the case of molasses, coconut oil, dessicated coconut, iron ore and concentrates, chromite ore and concentrates, copra meal or cake, unmanufactured abaca, unmanufactured tobacco, veneer core and sheets, plywood (including plywood panels faced with plastics), lumber, canned pineapples, and bunker fuel oil;
18
DISPOSITIVE: The judgment of the lower court affirmed with modification. -Ann (just modified Zoilos) HIJO PLANTATION INC., DAVAO FRUITS CORPORATION, TWIN RIVERS PLANTATION, INC. and MARSMAN & CO., INC., for themselves and in behalf of other persons and entities similarly situated vs. CENTRAL BANK OF THE PHILIPPINES 09 August 1988 Petition for Certiorari and Prohibition Paras, J. Doctrine: in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law Facts: Petitioners are domestic corporations engaged in the production and exportation of bananas in and from Mindanao. Owing to the difficulty of determining the exchange rate of the peso to the dollar because of the floating rate and the promulgation of CB Circular No. 289 which imposes an 80% retention scheme on all dollar earners, Congress passed RA 6125 (an act imposing STABILIZATION TAX ON CONSIGNMENTS ABROAD TO ACCELERATE THE ECONOMIC DEVELOPMENT OF THE PHILIPPINES AND FOR OTHER PURPOSES) approved and made effective on May 1, 1970, to eliminate the necessity for said circular and to stabilize the peso. The last paragraph of Sec. 1 thereof provides, Any export product the aggregate annual F.O.B. value of which shall exceed five million United States dollars in any one calendar year during the effectivity of this Act shall likewise be subject to the rates of tax in force during the fiscal years following its reaching the said aggregate value.
Eight per centum of the F.O.B. peso proceeds of exports shipped on or after the date of effectivity of this Act to June thirty, nineteen hundred seventy-one; Six per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy one to June thirty nineteen hundred seventy- two; Four per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy-two to June thirty nineteen hundred seventy-three; and Two per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy three to June thirty nineteen hundred seventy-four Monetary Board Resolution No. 1995 provides for the ff rates: 1) For exports of bananas shipped during the period from January 1, 1972 to June 30, 1972; the stabilization tax shall be at the rate of 6%; 2) For exports of bananas shipped during the period from July 1, 1972 to June 30, 1973, the stabilization tax shall be at the rate of 4%; and 3) For exports of bananas shipped during the period from July 1, 1973, to June 30, 1974, the stabilization tax shall be at the rate of 2%.
19
34
restrain the collection of any internal revenue. In the case of Lim Co Chui vs. Posadas, this court held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent." ". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public." It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.
During the first 9 months of calendar year 1971, the total banana export amounted to an annual aggregate F.O.B. value of P8,949,000.00, thus exceeding the aggregate F.O.B. value of five million United States Dollar, bringing it within the ambit of RA 6125. Petitioners sought the authoritative pronouncement of the CB regarding when the stabilization tax was to become due and collectible from it and under what schedule of Section 1 (b)18 of RA 6125 should said tax be collected. Pet: the stabilization tax does not become due and collectible from the petitioners until July 1, 1972 at the rate of 4% of the F.O.B. peso proceeds of the exports shipped from July 1, 1972 to June 30,1973. Resp: Monetary Board Resolution No. 199519 (dated December 3, 1971) applies.
In the very nature of things, in many cases it becomes impracticable for the legislature to provide general regulations for the various and varying details for the management of a particular department of the Government. It therefore becomes convenient for the legislative department of the government, by law, in a most general way, to provide for the conduct, control, and management of the work of the particular department of the government; to authorize certain persons, in charge of the management and control of such department. Such is the case in RA 6125, which provided in its Section 6, as follows: All rules and regulations for the purpose of carrying out the provisions of the act shall be promulgated by the Central Bank of the Philippines and shall take effect fifteen days after publication in three newspapers of general circulation throughout the Philippines, one of which shall be in the national language. Such regulations have uniformly been held to have the force of law, whenever they are found to be in consonance and in harmony with the general purposes and objects of the law. Such regulations once established and found to be in conformity with the general purposes of the law, are just as binding upon all the parties, as if the regulation had been written in the original law itself. Upon the other hand, should the regulation conflict with the law, the validity of the regulation cannot be sustained. Pursuant to the aforecited provision, the Monetary Board issued Resolution No. 1179 which contained the rules and regulations for the implementation of said provision which Board resolution was subsequently embodied in Central Bank Circular No. 309, dated August 10, 1970, Section 3 of which, "provides that the stabilization tax shall begin to apply on January first following the calendar year during which such export products shall have reached the aggregate annual F.O.B. value of more than $5 million and the applicable tax rates shall be the rates prescribed in schedule (b) of Section 1 of RA No. 6125 for the fiscal year following the reaching of the said aggregate value." Central Bank Circular No. 309 was subsequently reaffirmed in Monetary Board Resolution No. 1995 herein assailed by petitioners for being null and void. Since the Banana Exports reached the aggregate annual F.O.B. value of US $5 million in August 1971, the stabilization tax on banana should be imposed only on July 1, 1972, the fiscal year following the calendar year during which the industry attained the $5 million mark. This conclusion finds support in the very language of the law and upon congressional record where a clarification on the applicability of the law was categorically made by the then Senator Aytona who stated that the tax shall be applicable only after the $5 million aggregate value is reached, making such tax prospective in application and for a period of one year- referring to the fiscal year. Respondent bank through the Monetary Board clearly overstepped RA 6125 which empowered it to promulgate rules and regulations for the purpose of carrying out the provisions of said act, because while Section 1 of the law authorizes it to levy a stabilization tax on petitioners only in the fiscal year following their reaching the aggregate annual F.O.B. value of US $5 million, that is, the fiscal year July 1, 1972 to June 30, 1973, at a tax rate of 4% of the F.O.B. peso proceeds, respondent in gross violation of
the law, instead issued Resolution No. 1995 which impose a 6% stabilization tax for the calendar year January 1, 1972 to June 30, 1972, which obviously is in excess of its jurisdiction. While Monetary Board Resolution No. 1995 cannot be said to be the product of grave abuse of discretion but rather the result of respondent's overzealous desire to carry into effect the provisions of RA 6125, it is evident that the Board acted beyond its authority under the law and the Constitution. Hence, the petition for certiorari and prohibition in the case at bar, is proper. Moreover, there is no dispute that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law. Rules that subvert the statute cannot be sanctioned. Department zeal may not be permitted to outrun the authority conferred by statute. Disposition: petition GRANTED. Votes: Melencio-Herrera (Chairperson), Padilla and Sarmiento JJ., concur -Barbie COMMISSIONER OF INTERNAL REVENUE vs.FILIPINAS COMPAIA DE SEGUROS (April 29, 1960) DOCTRINE: As a rule, laws have no retroactive effect, unless the contrary is provided. (Art. 4, Civil Code of the Philippines; Manila Trading and Supply Co. vs. Santos, et al., 66 Phil., 237; La Provisora Filipina vs. Ledda, 66 Ph 573.) Otherwise stated, a state shou!d be consider as prospective in its operation whether it enacts, amen or repeals a tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect (61 C. J. 1602, cited in Loremo vs. Posadas, 64 Phi 353.) The rule applies with greater force to the case bar, considering that Republic Act No. 1612, which imposes the new and higher rates of real estate dealer's annual fixed tax, expressly provides in Section 21 thereof the said Act "shall take effect upon its approval" on August 24, 1956. PONENTE: BARRERA, J. FACTS: 1. 2. Respondent Filipinas Compaia de Seguros, an insurance company, is also engaged in business as a real estate dealer. January 4, 1956- respondent in accordance with the single rate then prescribed under Section 182 of the National Internal Revenue Code. paid the amount of P150.00 as real estate dealer's fixed annual tax for the year 1956. Subsequently said Section 182 of the Code was amended by Republic Act No. 1612, which took effect on August 24, 1956, by providing a small of
35
3.
4. 5.
6.
7.
Sustained the decision of the CIR, FCS should pay increased fees. FCS appealed W/N: RA 1612 had retroactive effect? HELD: No RATIO: As a rule, laws have no retroactive effect, unless the contrary is provided. (Art. 4, Civil Code of the Philippines; Manila Trading and Supply Co. vs. Santos, et al., 66 Phil., 237; La Provisora Filipina vs. Ledda, 66 Ph 573.) Otherwise stated, a state shou!d be consider as prospective in its operation whether it enacts, amen or repeals a tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect (61 C. J. 1602, cited in Loremo vs. Posadas, 64 Phi 353.) The rule applies with greater force to the case bar, considering that Republic Act No. 1612, which imposes the new and higher rates of real estate dealer's annual fixed tax, expressly provides in Section 21 thereof the said Act "shall take effect upon its approval" on August 24, 1956. To allow petitioner to pay the increased rate which it had already paid in full in January of that year (as required by the statute) would result in the imposition upon respondent of a tax burden to which it was not liable before the enactment of said amendatory act, thus rendering its operation retroactive rather than prospective, which cannot be done, as it would contravene the aforecited Section 21 of Republic Act No. 1612 as well as the established rule regarding prospectivity of operation of statutes. The view that Congress did intend to impose said increased rates of real estate dealer's annual tax prospectively and not retroactively, finds some affirmation in Republic Act No. 1856, approved on June 22, 1957, which fixed the effective date of said new rates
It is also to be observed that said House Bill No. 5819 as originally presented, was expressly intended to amend certain provisions of the NIRC dealing on fixed taxes on business. The provisions in respect of fixed tax on occupation were merely subsequently added. This would seem to indicate that the proviso in question was intended to cover not only fixed taxes on occupation, but also fixed taxes on business. The fact that said proviso was placed only at the end of paragraph "(B) On occupation" is not, therefore, view of the circumstances, decisive and unmistakable indication that Congress limited the proviso to occupation taxes. Even though the primary purpose of the proviso is to limit restrain the general language of a statute, the legislature, unfotunately, does not always use it with technical correctness; consequently, where its use creates an ambiguity, it is the duty of the court to ascertain the legislative intention, through resort to usual rules of construction applicable to statutes, generally an give it effect even though the statute is thereby enlarged, or the proviso made to assume the force of an independent enactment and although a proviso as such has no existence apart from provision which it is designed to limit or to qualify. (Statutory Construction by E. T. Crawford, pp. 604-605.) . . . When construing a statute, the reason for its enactment should be kept in mind, and the statute should be construe with reference to its intended scope and purpose. (Id. at p. 249.) On the general principle of prospectivity of statute on the language of Republic Act 1612 itself, especially Section 21 thereof, and on the basis of its intended scope and
36
graduated rates: P150 if the annual income of the real estate dealer from his business as such is P4,000, but does not exceed P10,000; P300, if such annual income exceeds P10,000 but does not exceed P30,000; and P500 if such annual income exceeds P30,000. On June 17, 1957, petitioner CIR assessed and demanded from respondent (whose annual income exceeded P30,000.00) the amount of P350.00 as additional real estate dealer's fixed annual tax for the year 1956. On July 16, 1957, respondent wrote a letter to petitioner stating that the "records will show that the real estate dealer's fixed tax for 1956 of this Company was fully paid by us prior to the effectivity of Republic Act No. 1612 which amended, among other things, Sections 178 and 192 of the National Internal Revenue Code." And, as to the retroactive effect of said Republic Act No. 1612, among other things, amended Section 182 of the National Internal Revenue Code, Congress has clearly shown its intention when it provided that the increase in rates of taxes envisioned by Republic Act No. 1612 is to be made effective as of 1 January 1957" CIR claims that the said amendment applies only to fixed taxes on occupation and not to fixed taxes on business.
under Republic Act No. 1612 by inserting the following proviso in Section 182 of the National Internal Revenue Code: Provided, further, That any amount collected in excess of the rates in effect prior to January one, nineteen hundred and fifty-seven, shall be refunded or credited to the taxpayer concerned subject to the provisions of section three hundred and nine of this Code. (Sec. 182 (b) (2) (1).) Petitioner: above-quoted provision refers only to fixed taxes on occupation and does not cover fixed taxes on business, such as the real estate dealer's fixed tax herein involved. SC:This is technically correct, but we note from the deliberations in the Senate, where the proviso in question was introduced as an amendment, that said House Bill No. 5919 which became Republic Act No. 1856 was considered, amended, and enacted into law, in order precisely that the "iniquitous effects" which were then being felt by taxpayers. in general, on account of the approval of Republic Act No. 1612, Which was being given retroactive effect by the Bureau of Internal Revenue by collecting these taxes retroactively from January 1, 1956, be eliminated and complaints against such action be finally settled.
purpose as disclosed in the Congressional Record we find ourselves in agreement with the Court of Tax Appeals. DISPOSITIVE: Wherefore, the decision appealed from is hereby affirmed without costs. So ordered. VOTE: Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Gutierrez David, JJ.concur. -Jamie CEBU PORTLAND CEMENT v. CIR (October 29, 1968) DOCTRINE: Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used. NATURE: Petition for Review PONENTE: Angeles, J. FACTS: 1. Prior to the effectivity of Republic Act No. 1299 on June 16, 1955, the petitioner, Cebu Portland Cement (CPC for brevity), had been paying the sales tax (known also as percentage tax) of APO Portland cement produced by it, computed at 7% of the gross selling price inclusive of the cost of the bag containers of cement and the gypsum used in the manufacture of said product. 2. After the approval of the amendment of the law petitioner stopped paying sales tax on its gross sales and instead paid the ad valorem tax on the selling price of the product after deducting therefrom the corresponding cost of the containers thereof. 3. However, since 1952, petitioner had been protesting the imposition of the sales tax on its APO portland cement. 4. On January 16, 1953, it also protested the payment of ad valorem taxes. 5. On September 1955, petitioner filed a claim for refund of P458,241.45 sales tax paid from November 1, 1954 to March, 1955, and P427,552.95 ad valorem tax paid from April, 1955 to September 30, 1956 from the sale of APO portland cement produced by the petitioner. This was reiterated on July 26, 1956. 6. January 24, 1957Without awaiting respondent's ruling on said claims, petitioner filed with the CTA a petition for review of the action of the Collector of Internal Revenue in refusing to entertain petitioner's claim for refund of the percentage tax on sales of its APO cement.
a) It was alleged in the petition that the percentage taxes collected by respondent are refundable since under Republic Act 1299, producers of cement are exempt from the payment of said tax. b) The petition was amended on October 24, 1959, and again amended on June 23, 1961, to include a claim for refund of ad valorem taxes alleged to have been overpaid through double payments. 7. Court of Tax Appeals dismissed the petition for review. Petitioner elevated the case to the Supreme Court ISSUES: 1. WON petitioner was exempt from payment of the sales taxes on its APO portland cement prior to the effectivity of Republic Act No. 1299, it being then considered a manufactured product; NO 2. WON petitioner is entitled to deduction from the gross selling price of the cost of raw materials, the value of the bag containers and gypsum in the absence of evidence that they had been previously subjected to the 7% tax imposed by sections 186 and 190 of the Tax Code; YES 3. WON petitioner is the proper party to claim for refund; YES 4. WON the right to claim for refund of taxes alleged to have been erroneously paid thru wrong computation, double payment, or otherwise, is already barred by prescription. YES and NO RATIO: I. Prospective Application of Tax Exemption. The first issue calls for a ruling on prospective or retrospective application of Republic Act No. 1299 (effective on June 16, 1955, amending section 246 of the NIRC). The only change brought about by said amendment is the incorporation of the definition of the word "minerals" and the term "mineral products." PET: Retrospective Application Since the purpose of the amendment was merely to clarify the meaning of said terms, the section should be construed as if it had been originally passed in its amended form, so that cement should be considered as "mineral product" even before the enactment of Republic Act 1299. Therefore it is exempt from the sales or percentage tax. SC: Not Exempt. A statute operates prospectively only and never retroactively, unless the legislative intent to the contrary is made manifest either by the express terms of the statute or by necessary implication. In case of doubt, the doubt must be resolved against the retrospective effect. Nothing in the context of the provision manifests the Legislature's intention to have the provision apply to taxes due in the past. On the other hand, the use of the word, "shall" gives the unmistakable impression that the lawmakers intended this enactment to be effective only in futuro. Careful perusal of the explanatory note to House Bill No. 3251 and the legislative records reveal nothing that would suggest that the amendment was enacted to operate retrospectively.
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While the purpose of the amendment, was not only to "accelerate the collection of mining royalties and ad valorem taxes but also clarify the doubt of the tax-paying public on the interpretative scope of the two terms," it, certainly, could not have been the intention of the lawmakers to unsettle previously consumated transactions between the taxpayer and the Government, no matter in what manner the meaning of the terms were construed in the past. No mention was made, in the deliberations, about the taxes previously collected or on the sales of cement, although Congress must have been aware of these assessments due to an admitted confusion as to the meaning of the terms defined in the amendment. Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used. It thus results that before the enactment of the amendment to section 246 of the Tax Code, when cement was not yet placed under the category of either "minerals" or "mineral products" it was not exempt from the percentage tax imposed by section 186 of said Code, and was, therefore, taxable as a manufactured product. II. Gross selling price of cement as basis for 7% percentage tax We agree with petitioner that the gypsum and bag containers used in the production and sale of cement are deductible from the gross selling price in computing the 7% compensating tax levied on the sale of cement before Republic Act 1299. In the absence of any showing that the petitioner itself manufactured the bag containers, the inference is that these bags were bought from others from whom taxes had been levied for the original sale thereof. The same holds true with the gypsum used in the process of the manufacture of cement, considering that said component is imported, and subject to compensating tax. III. Petitioner proper party to question We agree with the petitioner in assigning as error of the respondent Court its conclusion that for so much of the sales taxes that were billed, charged, and paid for by the petitioner's customers, the petitioner is not the proper party to claim refund. The tax provided under Section 186 of the Code is imposed upon the manufacturer or producer and not on the purchaser. It follows that it is petitioner, and not its customers, that may ask for a refund of whatever amounts it is entitled for the percentage or sales taxes it paid before the amendment of section 246 of the Tax Code. IV. Action for refund has not prescribed (very long ratio. Please see case to clarify) This Court has ruled that the two requirements for recovery of tax refund (1) filing of a written claim for refund with the Commissioner of Internal Revenue; and (2) institution of a suit or proceeding in court within two years from the date of payment are mandatory and noncompliance therewith is fatal. For the refund of the 7% sales or percentage taxes covering the period from November 1, 1954, to March, 1955, amounting to P446,898.63, as shown in Annex A of the Amended Petition, the suit is deemed to have been instituted on January 24, 1957, when the original petition was filed. Counting two years back, that is to January 25, 1955, all taxes paid after this date may still be properly refunded, speaking from the prescription angle. As to the allegedly overpaid ad valorem taxes of 1-1/2% for the period from April, 1955
to September, 1956 amounting to P400,499.99, the suit should be deemed to have been instituted only with the filing of the amended petition on October 24, 1959, which added as a new cause of action the recovery of said overpaid ad valorem taxes. Again, counting two years back from October 24, 1959, when the amended complaint was filed, to October 25, 1957 all taxes paid thereafter may still be recovered. The action for refund has not prescribed in so far as concerns the sales or percentage taxes paid after January 25, 1953; That action for refund has prescribed for sales or percentage taxes paid before January 25, 1955, and for all ad valorem taxes alleged in the amended petition, which were paid more than two years back from October 24, 1959, when said taxes were sought to be refunded for the first time. DISPOSITIVE: PREMISES CONSIDERED, the decision appealed from is modified as hereby above-stated, and as thus modified, the decision is affirmed. VOTING: En Banc, 8 concur. 1 on leave -Jenin CIR v RIO TUBA NICKEL MINING March 25, 1992 Doctrine: In this case, a subsequent law was passed thought to have impliedly repealed a previous one that granted refund privileges. However, the (previous) Highway Special Fund was retained after the enactment of the later law. Court said that the non-refund of the specific taxes paid up to 1985 which actually accrued to the Highway Special Fund would be highly inequitable for the private respondent, since it still did not directly benefit from the projects supported by the Highway Special Fund. Nature: Rio Tuba Nickel Mining Corporation sought reconsideration of the Court's decision in a previous case denying its claim for refund of specific taxes paid on manufactured oils and diesel fuel oil. Ponente: GUTIERREZ, JR., J. Facts: The Court ruled previously in a case that Section 5 of RA No. 1435, which granted to lumber and mining companies the privilege of refund of twenty five (25%) percent of specific taxes paid by them when such oils are used in their operations, was impliedly repealed by PD No. 711 which abolished all special and fiduciary funds. The Court assumed the Highway Special Fund was abolished and transferred to the General Fund by PD 711. Previously, under R.A. No. 1435, the specific taxes on manufactured oils and diesel fuel oil accrued to the Highway Special Fund. Basis of refund privilege was because lumbermen and miners seldom use the national highways since they have their own roads and it was unfair to subject them to the increased tax rates and in effect make them subsidize the construction of highways from which they did not directly benefit. The Court said that since by virtue of P.D. No. 711, all funds that have accrued from the various special funds are channeled to the so-called General Fund, there is, therefore, no need for justification for the continued special treatment of these miners and loggers. Thus, reasoned the Court, since under P.D. No. 711 any government project can be the beneficiary of
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such funds as long as it is for the general welfare of the masses and it is inevitable that sooner or later the miners and loggers will stand to benefit from these government benefits, then the refund privilege in R.A. No. 1435 has become an anachronism. The Court ruled that the refund privilege granted to miners and loggers under R.A. 1435 was impliedly repealed by P.D. No. 711. Issue: Did PD 711 impliedly repeal RA 1435? Thus transforming the nature of the tax collected/fund and barring the company from seeking a refund it previously enjoyed? NO. (More of NOT EXACTLY.) The Court said it cannot state with definiteness that it was P.D. No. 711 which impliedly repealed Section 5 of R.A. No. 1435. But they clarify that it can be safely concluded that the Section is now an anachronism because the Highway Special Fund, after 1985, no longer exists. Mining and logging companies are entitled to the refund privilege granted by R.A. No. 1435 on specific taxes paid up but only up to 1985 on manufactured and diesel fuel oils. In short, yes, Section 5 of RA 1435 is repealed, but not exactly by PD 711 because the previous collection/fund somehow continued until 1985, notwithstanding the issuance of PD 711. Thus, the companies can still ask for a refund but only up to 1985. Given the fact that the Highway Special Fund which was financed by these specific taxes still continued up to 1985, it will be highly inequitable for the private respondent if we were to rule that no refund of specific taxes paid up to 1985 which actually accrued to the Highway Special Fund (not the General Fund) may be given. The private respondent still did not directly benefit from the projects supported by the Highway Special Fund. The Court noted that several special funds were still retained and the Highway Special Funds was one of them even after PD 711.The proof that some of these special and fiduciary funds were retained may be extracted from the provisions of P.D. No. 1741 dated October 31, 1980 which governs the computation of national internal revenue allotments to local government units. Section 2 of said decree provides: Sec. 2. Magnitude of Assistance. A maximum of twenty per cent (20%) of national internal revenue taxes shall be available for national assistance to local government units. Provided, That the national revenue used as basis in computation shall exclude receipts accruing to Special or Fiduciary Funds and to Special Accounts in the General Fund, amounts authorized by law to be used by the collecting agency, and amounts recorded as income of the General Fund but which are charged to appropriations in the Central or other Appropriations Laws. (Emphasis Supplied) The Internal Revenue Allotments annually prepared by the Bureau of Internal Revenue in accordance with the foregoing decree showed that the Highway
Ratio: -
Disposition: 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. SO ORDERED. Vote: Bidin, Davide, Jr. and Romero, JJ., concur. Feliciano, J., is on leave. Concurring/Dissenting Opinion: None -JP b. Application of revenue rules and regulations/rulings TUZON V. CA G.R. No. 90107 21 August 1992 Domingo A. Tuzon and Lope C. Mapagu, petitioners v. Honorable Court of Appeals and Saturnino T. Jurado, respondents. Vitug, J. DOCTRINE: In the absence of a judicial decision declaring the illegality of a tax or revenue measure, the legality of the same is presumed. Further, it must be held to be in force and enforceable by the proper authorities. NATURE: Petition for Review under R45 FACTS: Sometime in 1977, the Sangguniang Bayan of Camalaniugan, Cagayan adopted resolution No. 9 for the purpose of funding the construction of the towns Sports and Nutrition Center
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Held: -
Special Fund continued its existence up to 1985 and was channeled to the General Fund only in 1986. It is not clear why the Highway Special Fund was maintained for 10 years after the effectivity P.D. No. 711 or why it was abolished in 1986. The stark fact remains that it retained its status as a special fund up to 1985. However, rates will be computed differently. Rio Tuba paid higher rates based on Sections 153 and 156 of the National Internal Revenue Code of 1977. Since they paid higher, they claim a higher refund than that set by RA 1435 (which prescribed lower rates.) However, that the NIRC of 1977 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. (In effect they get a lower refund.)
On the other hand, if it is to be sustained as a tax measure, it must be shown that it was enacted pursuant to an authority and in compliance with the requirements of the Local Tax Code. These requirements include public hearings, approval of the Secretary of Finance, as well as publication At any rate, the only issue is the liability of the officers for the denial of the Mayors permit and license Jurado bases his claim on Art. 27 of the Civil Code which provides for damages suffered on account of public officers neglecting their official duty It is said that the purpose of this article is to eliminate possible recourse to bribery as well as official indifference to the responsibilities of public service However in this case, it has not even been alleged that the Mayor denied the permit to compel Jurado to resort to bribery to obtain approval. Nor can it be said that they were motivated by personal spite It was not shown that Jurado was singled out for such treatment or that the petitioners stood to gain personally from the denial of a permit The Court held that the petitioners rightly acted within the scope of their authority. In the absence of a decision declaring the illegality of a measure, the legality of the same is presumed. As corollary, it is the petitioners duty as local executives to see that such measures are implemented Jurado bemoans the loss of substantial profits from the denial of the permit. However the Court stated that his recourse would have been to comply with the Resolution and signed the agreement. He could have then filed suit to question the validity of the measure. Pendente lite he could have operated his threshing business thereby avoiding the lucro cessante that he claims in this case. The Court called this the less
ISSUE: 1. W/N the appellate court correctly awarded damages to Jurado? HELD/RATIO 1. NO Jurado contends that the Resolution is invalid as it is outside of the powers of the LGU under the Local Tax Code He further claims that the requirements of the Resolution are not sine qua non requirements for the issuance of a permit. Thus the Mayors unwarranted refusal constitutes bad faith The Court held that the issue of validity has not been squarely raised in the petition. Even Jurados claim of invalidity are merely supportive of his claim for damages and not the main thrust of his Comment. Parenthetically, the Court noted however, as a matter of observation that the trial court upheld the Resolution based on Section 29 of the Local Tax Code which provides:
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The resolution intends to solicit a donation of 1% of all the palay threshed from thresher operators who will apply for a permit to operate in the municipality The resolution further provides authority to the municipal treasurer to enter into an agreement with any and all thresher operators seeking a permit to operate To implement this Resolution, the municipal treasurer Mapagu prepared an agreement document. The agreement provides that the prospetive thresher operator agrees to donate 1% of his palay output to the municipality and to report the weekly output of his operations to the Municipal Treasurer Soon after this, respondent Jurado paid the P285 license fee to operate a thresher. However the municipal treasurer required him to first obtain a mayors permit The Mayor, Tuzon, refused to issue a permit since Jurado has not yet signed the Agreement. Jurado ignored this requirement and posted a money order for the license fee only. This was again rejected by the Treasurer for the same reason as before Jurado filed a case for mandamus with damages to compel the Mayor and the Municipal Treasurer to act on his application. He also filed a suit for declaratory relief claiming the illegality of the Resolution The trial court upheld the Resolution and dismissed the claim for damages On appeal to the CA, the appellate court affirmed the validity of the resolution but nevertheless awarded Jurado damages. The court found that the mayor and the treasurer acted in bad faith when they denied Jurados application The Mayor and the Treasurer now appeal the judgement of the CA contending that they were acting in their official capacity in implementing the Resolution. Hence they cannot be held liable for damages because they did not act with malice or bad faith
Section 29. Contributions.- In addition to the above specified taxing and other evenue-raising powers, the barrio council may solicit monies, materials, and other contributions from the following sources: xxx (c) Monies from private agencies and individuals The Court declared that this is an oversimplification. While it would appear that the Resolution merely solicits, the implementing agreement makes it seem obligatory, contrary to the nature of a donation
obstinate but still dissentient action, without loss of face or principle, or profit. DISPOSITION: Decision of the Court of Appeals REVERSED Votes: Grio-Aquino and Bellosillo, JJ., concur, Medialdea, J., no part -Raffy CIR vs. MEGA GENERAL MERCHANDISING CORPORATION (September 30, 1988) DOCTRINE: (My own take, not expressly stated in the case) Revenue regulations and rulings have no retroactive effect and apply only for the periods during which it is valid. Subsequent rulings which contradict or revoke previous rulings take effect only after it is promulgated. NATURE: petition for review for CTA decision holding that respondent corporation is not liable for specific tax PONENTE: Paras FACTS: (Note the dates, theyre vital to the disposition of the case) Prior to the promulgation of P.D. No. 392, all importations of paraffin wax were subject to 7% advance sales tax; o With the promulgation of P.D. No. 392, a new provision for the imposition of specific tax:: Section 142(i). Specific tax on manufactured oils and other fuels Greases, waxes and petroleum, per kilogram ,thirty-five centavos; o Beginning February 18,1974, the date of effectivity of P.D. No. 392, all importations of paraffin wax were now subject to the specific tax imposed under Section 142(i) of the Tax Code, instead of the former 7% sales tax; The respondent corporation wrote the Commissioner of Internal Revenue for clarification as to whether imported crude paraffin wax is subject to specific tax under Section 142 (i) of the Tax Code, as amended by P.D. No. 392, or to the 7% advance sales tax. o (VERA INTERPRETATION) On May 14, 1975, Former Commissioner Misael P. Vera in his reply, ruled that: only wax used as high pressure lubricant and micro crystallin is subject to specific tax; paraffin which was used as raw material in the manufacture of candles, wax paper, matches, crayons, drugs, appointments etc., is subject to the 7% advance sales tax, the tax to be based on the landed cost thereof, plus 25% mark-up. o Due to Commissioner Vera's ruling, several importers including respondent corporation filed several claims for tax refund or tax credit of specific tax paid by them on importation of crude paraffin wax on June 21 and August 17, 1977 (PLANA INTERPRETATION) Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392) does not make any distinction as to the kind of wax subject to specific tax, then Acting Commissioner of Internal Revenue [Efren Plana] denied
respondent Corporation's claim for refund or tax credit on January 28, 1977. On appeal, the CTA rendered its decision stating that etitioner is not liable for specific tax on its importation of crude paraffin wax imposed against petitioner, but only subject to the 7% advance sales tax which petitioner had already paid.
DATES: February 18,1974 Effectivity of PD 392 April 18,1975 Respondents previous importation of paraffin wax; paid both taxes; May 14, 1975 Vera Ruling that only wax as high pressure lubricant is subject to specific tax; January 28, 1977 Plana Ruling that there is no distinction in the law; January 11, 1978 Plana granted respondent corporation's request for refund of the amount of P321,436.79 (for importation on April 18, 1975) June 21 and August 17, 1977 Respondent imported paraffin wax; paid both taxes, tax under question in the case; ISSUE: Whether or not respondent corporation's importation of crude paraffin wax are subject to specific tax under Section 142(i) of the Tax Code, as amended by P.D. No. 392? YES. RATIO: The letter of Commissioner Plana dated January 11, 1978 did not in any way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). CTA stated that rulings or circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, cannot have any retroactive application, where to do so, as it did in the case at bar, would prejudice the taxpayer. o While correct that such circulars do not have retroactive effect, the reason for removal of respondents tax liability was not because of the revocation of Plana of the January 28, 1977 ruling. The reason he removed in 1978 private respondent's liability for the specific tax was NOT (as erroneously pointed out by the Court of Tax Appeals) because he wanted to revoke, expressly or implicitly, his ruling of January 28, 1977; but because the tax referred to importation BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, and not by the January 28,1977 ruling of Commissioner Plana.
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PETITIONER: Petitioner contends that the controlling interpretation is that given by Commissioner Plana and not that of Commissioner Vera. Petitioner further argues that respondent corporation's request for refund was granted in the letter of petitioner dated January 11, 1978 because the importation of private respondent was made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of January 28, 1977, is subject to specific tax prescribed in Section 142(i) of the Tax Code as amended by P.D. No. 392.
DISPOSITIVE: the decision of the Court of Tax Appeals is hereby REVERSED and SET ASIDE, private respondent is ordered to pay the tax as assessed by the Commissioner of Internal Revenue; -Ice ABS-CBN V CTA (Oct 21, 1981)
Facts:
Petitioner is engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in business in the PH. For these transactions petitioners paid rentals after withholding income tax of 30% of of the film rentals. On June 1959, RA 2343 amended Sec 24(b), NIRC, pertinent provision as follows: o (b) Tax on foreign corporations.(1) Non-resident corporations. There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from an sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax equal to thirty per centum of such amount. On April 1961, the CIR issued an IRR for RA 2343, General Circular V-334, pertinent provision as follows: o Since according to the findings of the Special Team who inquired into business of the non-resident foreign film distributors, the distribution or exhibition right on a film is invariably acquired for a consideration, either for a lump sum or a percentage of the film rentals, whether from a parent company or an independent outside producer, a part of the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment. Thus, petitioner dutifully withheld and turned over to the BIR 30% of of the film rentals it paid to the foreign corporations. The last year that petitioner withheld taxes pursuant to GC V-334 was in 1968. On June 1968, RA 5431 amended Sec 24(b), NIRC, pertinent provision as follows:
Issues/ Held: WON the CIR can apply RMC 4-71 retroactively and issue a deficiency assessment against petitioner as well as deficiency withholding income tax? No Ratio: Sec 338-A, NIRC as inserted by RA 6110 on August 1969 provides the ff: o GR: Any revocation, modification etc of the rules and regulations promulgated by the CIR shall not be given retroactive application if the revocation, modification will be prejudicial to the taxpayer. o Exceptions to Rule: a) If the taxpayer deliberately misstates or omits material facts from any document required of him by the BIR b) If the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based c) If the taxpayer acted in bad faith It is thus clear that the rules and regulations promulgated by the CIR have no retroactive application if there application would be prejudicial to taxpayers.
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Doctrine: GR: Any revocation, modification etc of the rules and regulations promulgated by the CIR shall not be given retroactive application if the revocation, modification will be prejudicial to the taxpayer. Exceptions to Rule: a) If the taxpayer deliberately misstates or omits material facts from any document required of him by the BIR b) If the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based c) If the taxpayer acted in bad faith
(b) Tax on foreign corporations.(1) Non-resident corporations. A foreign corporation not engaged in trade or business in the Philippines including a foreign life insurance company not engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains, Provided however, That premiums shah not include reinsurance premiums. On Feb 1971, the CIR issued an IRR for RA 5431, Revenue Memo Circular 471, pertinent provision as follows: o In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked and henceforth, local films distributors and exhibitors shall deduct and withhold 35% of the entire amount payable by them to non-resident foreign corporations, as film rental or royalty, or whatever such payment may be denominated, without any deduction whatever, pursuant to Section 24 (b), and pay the withheld taxes in accordance with Section 54 of the Tax Code, as amended. On April 1971, on the basis of this circular, CIR issued a letter of assessment requiring petitioner to pay deficiency withholding income tax on remitted film rental from 1965-1968, and film royalty as of the end of 1968 in the total amount of P525, 897.06 On April 1976, without acting on petitioners request for reconsideration, CIR issued a warrant of distraint and levy over petitioners personal as well as real properties. CTA ruled in favor of CIR. o
Applying RMC 4-71 retroactively would be prejudicial to petitioner since it was no longer in a position to withhold taxes from foreign corporations as it had already remitted the same amount to the foreign corporations when the new circular was issued. Respondent claims that the retroactivity provision does not apply since GC V334 is a nullity, because in effect, it changed the law on the matter. CTA affirmed this stand and concluded that petitioner could not acquire any vested right since GC V-334 was a nullity. The rationale behind GC V-334 was clearly stated. The Circular fixed the return of capital at 30% to simplify the administrative chore of determining the portion of the rentals covering the return of capital. Were the "gross income" base was clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court could be upheld. It should be noted, however, that said Section was not too plain and simple to understand. The issuance of the Circular was proof that it was not easy to comprehend and could be subjected to different interpretations. In fact, RA 2343 (1959) was followed by RA 3825 (1963) and RA 3841 (1963), all of which formed the series of enactments regarding Sec 24 (b), NIRC. The re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction, a legislative approval of administrative interpretation. It was on June 1968 under RA 5431, which became the basis of RMC 4-71, that Sec. 24 (b) was amended to refer specifically to 35% of the "gross income." This Court is not unaware of the well-entrenched principle that the Government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. This Court held in Tuason v Lingad that Sec 338-A, NIRC is indicative of legislative intent to support the principle of good faith. In the US, where Sec 24 (b) was patterned, it has been held that the CIR is not permitted to adopt a position inconsistent with one previously taken where injustice would result therefrom, or where there has been a misrepresentation to the taxpayer. The CTA ruling is hereby reversed and the questioned assessment is set aside. -Ivan
(Under) Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the taxpayer. 3 XXX DOCTRINE CITATION: 3 Sec. 246. Non-retroactivity of rulings. Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. XXX TYPE OF TAX INVOLVED: Contractors Tax NATURE: This is a petition for review on certiorari of the decision of the Court of Appeals affirming the decision of the Court of Tax Appeals PONENTE: Romero, J. FACTS: Private respondent Telefunken is a domestic corporation registered with the Board of Investments (BOI) as an export producer on a preferred pioneer status under Republic Act No. 6135. From October 1979 to September 1981, Telefunken produced semi-conductor devices amounting to P92,843,774.00 which were entirely sold to foreign markets. It filed percentage tax returns on the said exportation declaring a total of P2,482,042.35 as contractor's tax, which was paid and verified to have been received by the government. Telefunken wrote a letter to the Appellate Division of the Bureau of Internal Revenue (BIR) dated January 19, 1982 stating that the payment of contractor's tax of P2,482,042.35 was erroneous and requested its refund or tax credit thereof. Telefunken contended that under the provisions of Section 7 of Republic Act No. 6135 in relation to Section 8 (a) of Republic Act No. 5186 (The Investment Act), it was exempted from the payment of all national internal revenue taxes for the period in question, except for income tax.
Commissioner of Internal Revenue v. Court of Appeals (and Fortune Tobacco), ibid- Kriszanne COMMISSIONER OF INTERNAL REVENUE, petitioner, -versusTELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC., COURT OF TAX APPEALS, AND THE COURT OF APPEALS, respondents. (October 23, 1995| G.R. No. 103915 | Third Division) DOCTRINE: XXX
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ISSUE: (a) Is Telefunken, a corporation registered under Republic Act No. 6135 as a pioneer export producer, exempted from payment of the 3% contractor's tax from October 1979 to September 1981? HELD: (a) YES. When construed together, Sec7 RA 6135, Section 205 (16) of the 1977 National Internal Revenue Code (NLRC), and RA 5186 yield no other conclusion but that gross receipts of a pioneer enterprise registered with the Board of Investments, such as Telefunken, are exempt from the contractor's tax. This is in accordance with the policy of the government, as declared in Section 2 of Republic Act No. 6135 REASONING: A. MAIN ISSUE XXX There is no difference between the gross receipts of pioneer enterprises registered with the Board of Investments under Republic Act No. 6135 and the gross receipts of registered pioneer enterprises under Republic Act No. 5186. In fact, petitioner himself had ruled in this vein on February 4, 1974 in the case of Asian Transmission Corporation. Petitioner, in that case, said: This refers to your letters dated November 29 and December 19, 1973 requesting a ruling as to whether your contractors namely, C.E. Construction Corporation and Marsteel Corporation are exempt from the payment of the 3% contractor's tax prescribed under Section 191(16) of the Tax Code. It appears that your application for registration as export producer under Republic Act No. 6135 has been approved by the Board of Investments on January 8, 1974 on a pioneer status. In reply, I have the honor to inform you that under the last paragraph of Section 191(16) of the Tax Code, gross receipts . . . from a pioneer industry registered with the Board of Investments under the provisions of Republic Act Numbered Five Thousand One Hundred and eighty-six', are exempt from the contractor's tax. It is clear that the intention of the law is to relieve the pioneer industry from ultimately shouldering the contractor's tax which could be passed on to it legally by its contractor. Pursuant to Section 7 of Republic Act No. 6135, that corporation as a registered export producer on a pioneer status is entitled to the same tax incentives granted to a pioneer industry set forth in section 8(a) of republic Act No. 5186. Under this latter provision, a pioneer industry is exempt from all taxes under the National Internal Revenue Code, except income tax. In other words, both a registered export producer on a pioneer status under Republic Act No. 6135 and a pioneer industry under Republic Act No. 5186 are entitled to the same tax exemption benefits under the Tax Code . Such being the case, like the latter, the former should not also shoulder the contractor's tax which could be passed on it legally by its contractor. In view thereof, the gross receipts derived by C.E. Construction Corporation and Marsteel Corporation from the construction of your transmission plant in Canlubang, Laguna, are exempt from the 3% contractor's tax. (Emphasis supplied)
Petitioner now maintains that this 1974 ruling has been abrogated with the passage of the 1977 Tax Code, Section 205(16) which expressly mentions only pioneer enterprises registered with the Board of Investments under Republic Act No. 5186 as exempt from the contractor's tax, with no reference being made regarding pioneer enterprises registered under Republic Act No. 6135. When petitioner made his 1974 ruling, he based the same on Section 191(16) of the Tax Code which states: Sec. 191. Contractors, proprietors or operators of dockyards, and others . A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: xxx xxx xxx
A comparison of the above with the previously quoted Section 205(16) of the 1977 Tax Code reveals that both provisions specifically mention pioneer industries registered with the Board of Investments under Republic Act No. 5186 as exempt from payment of the contractor's tax. In fact, the wording of the relevant part at both provisions are the same. Clearly, Telefunken falls under the category of "pioneer industries" contemplated under Section 205(16) and should be entitled to the exemption provided for. Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the taxpayer. DISPOSITIVE: WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. No costs. VOTES: Melo and Panganiban JJ., concur. Vitug, J. concurs in the result Feliciano, J. took no part. NO DISSENTING/CONCURRING OPINION. -Poy CIR v. BENGUET CORPORATION (July 8, 2005) DOCTRINE: The rulings, circular, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. TERMS:20
Under Sec. 99 of NIRC as amended by EO. 273 s. 1987, then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person
20
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(16) Business agents and other independent contractors except persons, associations and corporations under contract for embroidery and apparel for export, as well as their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act Numbered Five Thousand one hundred and eighty-six. (Emphasis supplied)
Input Tax When a VAT-registered company buys goods or services from another supplier, VAT is charged to the company as part of the purchase cost.
Output Tax The amount of VAT a company adds to the price of its product or service.
ISSUE: WON respondent would suffer prejudice from the retroactive application of VAT Ruling No. 008-92? (Validity of the VAT Ruling was not ruled upon because its not the lis mota of the case) HELD: Yes, it suffered prejudice RATIO/ RULING:
NATURE: Petition for review on certiorari Rule 45 PONENTE: Tinga, J. FACTS: On January 1988, respondent, a VAT-registered company applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. o Commissioner also issued VAT Ruling 3788-89: sale of gold to Central Bank is considered export sale subject to zero-rate. BIR also issued 6 other issuances reiterating this. Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank from August 1, 1989-July 31, 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of goods. Respondent filed applications for tax refund/credits corresponding to the input VAT. These were either unacted upon or expressly disallowed. Petitioner also issued a deficiency assessment against respondent when, after applying respondents creditable input VAT costs against the retroactive 10% VAT levy, there resulted a balance of excess output VAT. o The disallowances and deficiency assessment were based on BIR VAT Ruling No. 008-92 of January 23, 1992 which provides that sales of gold to the Central Bank shall not be considered export sales, and thus subject to 10% VAT. It withdrew all inconsistent BIR issuances. [TAKE NOTE: this was issued after respondents sale of gold to CB] o BIR also issued VAT Ruling No. 059-92 (Apr 1992) and Revenue Memo No 22-92 which decreed that revocation by VAT 008-92 would not unduly prejudice mining companies and can be applied retroactively. Respondent filed three separate petitions for review with CTA arguing that retroactive application of BIR VAT 008-92 would violate Sec 246 of NIRC (nonretroactivity of rulings/circulars which would prejudice taxpayer). CTA in 3 separate decisions: dismissed no prejudice CA consolidated cases: reversed; respondent suffered prejudice- had they known that transaction is subject to 10% VAT, they would have passed on the cost of input taxes to CB; remedies suggested by CTA would not eliminate prejudice to respondent since the monetary values in the remedies dont approximate the value of tax credits it lost
21
At the end of the year Output VAT > Input VAT: excess paid to the government Input VAT > Output VAT: excess carried over to VAT liabilities for succeeding quarter/s Ex: Taxpayer can recover both input VAT of P7.30 which he paid to his supplier and output VAT of P2.70 by passing both costs to the buyer. Thus, the buyer pays total 10% VAT cost, in this case P10 on the product.
Do not result in any output tax Input VAT attributed to zero-rated sales could be refunded or credited against other internal revenue taxes at option of taxpayer Ex: When a taxpayer purchases materials from his supplier at P80, P7.30 was passed on to him as the suppliers 10% output VAT; taxpayer can recover from BIR P7.30 and other input VAT it incurred in relation to the zerorated transaction When taxpayer sells finished product for P110, he is not required to pay output tax
In both situations, the taxpayer has the option not to carry any VAT cost. (In the 0% transaction, the taxpayer can recover input tax from BIR without paying the output tax, in 10% VAT, the taxpayer can pass on input and output VAT to buyer)
who imports goods is liable for output VAT at rates of either 10% or 0% ("zero-rated") depending on the classification of the transaction under Sec. 100 of the NIRC. Persons registered under the VAT system are allowed to recognize input VAT, or the VAT due from or paid by it in the course of its trade or business on importation of goods or local purchases of goods or service, including lease or use of properties, from a VAT-registered person.
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return on any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different form the facts on which the ruling is based; or (c) where the taxpayer acted in bad fait
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The rulings, circular, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Both parties agree that retroactive application of VAT Ruling is only valid if it would not prejudice respondent per Sec 246 of the NIRC.21 VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange or lease of goods or properties and rendition of services in the course of trade or business or importation of goods. It is an indirect tax which may be shifted to the buyer but the party directly liable to pay is the seller. 10% VAT Rate Transactions Zero-rate Transactions
First suggestion: o As respondent states, its other sales subject to 10% VAT are so minimal that his mode is of little value. Also, after the Ruling, its input VAT credits were not enough to offset the retroactive 10% output tax. The prejudice experienced by respondent lies in the fact that the tax refunds/credits that it expected to receive had effectively disappeared because of its newfound output VAT liability. This prejudice doesnt disappear when a liability (which wasnt there to begin with) is imposed concurrently with an opportunity to reduce (not eradicate) this new liability. Respondents net income still decreased corresponding to the amount it expected as refunds/credits. Respondent claims further prejudice because in computing its income tax for the relevant years, the input VAT cost it paid to suppliers, were not treated as part of cost of goods sold (making it deductible from taxable income) but as an asset (which could be refunded or applied as payment for other taxes). In fact, Revenue Regulation No 5-87 requires input VAT to be recorded not as part of cost of matls but as separate entry called input taxes which may be applied against output VAT, other internal revenue taxes or refunded. In being denied opportunity to deduct input VAT from gross income, respondents net income was overstated by the amount of its input VAT. This overstatement was assessed the 32% corporate income tax rate, thus leading to respondents overpayment of income taxes.
DISPOSITION: Petition is denied. Decision of CA is affirmed. VOTE: Puno, Austria-Martinez, Callejo, Sr., Chico-Nazario, concur. -Steph
CIR v MICHEL J. LHUILLIER PAWNSHOP, INC July 15, 2003 Nature: Petition for review on certiorari to set aside the decision of the CA affirming the decision of the CTA which cancelled the assessment issued against Lhuillier for deficiency percentage tax Ponente: Davide, Jr.
Second suggestion: o Petitioner submits that granting that respondent has no other sale subject to 10% VAT, then respondent is the final entity against which
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There appears to be no upfront economic difference in changing the sale of gold to the Central Bank from a 0% to 10% VAT rate provided that the respondent would be allowed the choice to pass on its VAT costs to the CB. In this case, the retroactive application of the VAT Ruling unilaterally forfeited or withdrew this option of respondent. Respondent became the unexpected and unwilling debtor to the BIR for the total VAT cost of its product, a liability it could have passed on to the consumer if it knew of the 10% rate. Petitioner makes its position untenable by arguing that the deficiency 10% assessable will only be 1/11th of the amount billed to the CB rather than 10% thereof. In short, respondent can only be charged based on the amount actually passed on to the CB. This is a clear recognition that respondent would suffer prejudice. It matters little how the amount charged against respondent is computed, the point is that the amount was charged against respondents. Petitioner posits that the retroactive ruling of the VAT Ruling does not have prejudicial effect since respondents have several options to recoup liabilities it may have incurred, i.e., respondents input VAT may still be u sed (1) to offset its output VAT on the sales of gold to CB or on its output VAT on other sales subject to 10% VAT and (2) as deductions on income tax per Sec. 29 of the Tax Code.
the tax passed-on stops. Input taxes may be converted as costs available as deduction for income tax purposes. o Assuming that the right to recover respondents excess payment of income tax has not yet prescribed, this relief would only address respondents overpayment of income tax but not the other burdens discussed above. o This remedy is not feasible because the very reason why it was issued a deficiency tax assessment is that its input VAT was not enough to offset its retroactive output VAT. The burden of having to go through an unnecessary and cumbersome refund process is prejudice enough. Moreover, there is in fact nothing left to claim as a deduction from income taxes. At the time when the subject sales were consummated, the prevailing BIR regulations relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the Central Bank shall be considered export subject to the export and premium duties. BIR also considered Sec. 169 of CB Circular No. 960 which states that all sales of gold to the Central Bank are considered constructive exports. Respondent should not be faulted for relying on the BIRs interpretation of the said laws and regulations. While it is true, as petitioner alleges, that government is not estopped from collecting taxes unpaid because of the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of justice and fairplay. Respondent has been put on the receiving end of a grossly unfair deal. Before respondent was entitled to tax refunds or credits based on petitioners own issuances. Then suddenly, it found itself instead being made to pay deficiency taxes with petitioners retroactive change in the VAT categorization of respondents transactions with the Central Bank. This is the sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors and forbids.
1. 2. 3. 4. 5.
6. 7.
8.
CIR issued Revenue Memorandum Order (RMO) No. 15-9122 imposing a 5% lending investors tax on pawnshops RMO 15-91 was clarified by Revenue Memorandum Circular (RMC) No. 43-9123 Since pawnshops are considered as lending investors effective Jan. 1, 1991, they also become subject to documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No. 325-88 dated July 13, 1988 is hereby revoked. Pursuant to these issuances, the BIR issued an assessment notice against Lhuillier demanding payment of deficiency percentage tax in the sum of P3,360,335.11 for 1994 inclusive of interest and surcharges. Lhuillier filed an administrative protest contending that a. neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross income of pawnshops; b. pawnshops are different from lending investors, which are subject to the 5% percentage tax under the specific provision of the Tax Code; c. RMO No. 15-91 i. is not implementing any provision of the Internal Revenue laws but is a new and additional tax measure on pawnshops, which only Congress could enact; ii. impliedly amends the Tax Code and is therefore taxation by implication, which is proscribed by law; and iii. is a "class legislation" because it singles out pawnshops among other lending and financial operations. Deputy BIR Commissioner issued a warrant of distraint and/or levy against Lhuilliers property for the enforcement and payment of the assessed percentage tax. Its protest having been unacted upon, Lhuillier, in a letter, elevated the matter to the CIR. Still, the protest was not acted upon by the CIR. Thus, Lhuillier filed a "Notice and Memorandum on Appeal" with the CTA invoking Sec. 228 of RA 842424 (Tax Reform Act of 1997). CIR filed a MTD on the ground that it did not state a cause of action. CTA denied the CIRs motion to dismiss and granted Lhuilliers motion for the issuance of a writ of preliminary injunction. CTA rendered a decision declaring
9. ISSUES 1. 2.
RMO No. 15-91 and RMC No. 43-91 null and void insofar as they classify pawnshops as lending investors subject to 5% percentage tax; and b. Assessment notice as cancelled, withdrawn, and with no force and effect. CIR filed a petition for review with the CA. CA affirmed the CTA decision.
a.
WON pawnshops are subject to the 5% lending investors tax. HELD: NO WON publication necessary for the validity of RMO 15-91 and RMC 43-91. HELD: YES
WON pawnshops are subject to the 5% lending investors tax. HELD: NO 1. The CIR argues that both issuances are mere rules and regulations implementing then Section 11625 of the NIRC, as amended. It is clear from the provision that pawnshops are not specifically included. Thus, the question is whether pawnshops are considered lending investors for the purpose of imposing percentage tax. Under Sec. 157(u) of the NIRC of 1986, as amended, the term lending investor includes "all persons who make a practice of lending money for themselves or others at interest." A pawnshop, on the other hand, is defined under Section 3 of PD 114 as "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage." While it is true that pawnshops are engaged in the business of lending money, they are not considered "lending investors" for the purpose of imposing the 5% percentage taxes for the following reasons: a. Under Sec. 192, par.3, sub-par. (dd) and (ff), of the NIRC of 1977, prior to its amendment by EO 273, as well as Sec. 161, par. 2, subpar. (dd) and (ff) 26, of the NIRC of 1986, pawnshops and lending investors were subjected to different tax treatments b. Congress never intended pawnshops to be treated in the same way as lending investors. Sec. 116 of the NIRC of 1977, as renumbered
2.
3.
A restudy of PD 114 shows that the principal activity of pawnshops is lending money at interest and incidentally accepting a "pawn" of personal property delivered by the pawner to the pawnee as security for the loan. Clearly, this makes pawnshop business akin to lending investors business activity which is broad enough to encompass the business of lending money at interest by any person whether natural or juridical. Such being the case, pawnshops shall be subject to the 5% lending investors tax based on their gross income pursuant to Sec. 116 of the Tax Code, as amended.
22 25
This Circular subjects to the 5% lending investors tax the gross income of pawnshops pursuant to Sec. 116 of the Tax Code, and it thus revokes BIR Ruling No. 6-90, and VAT Ruling Nos. 22-90 and 67-90. In order to have a uniform cut-off date, avoid unfairness on the part of taxpayers if they are required to pay the tax on past transactions, and so as to give meaning to the express provisions of Sec. 246 of the Tax Code, pawnshop owners or operators shall become liable to the lending investors tax on their gross income beginning Jan. 1, 1991. Since the deadline for the filing of percentage tax return and the payment of the tax on lending investors covering the first calendar quarter of 1991 has already lapsed, taxpayers are given up to June 30, 1991 within which to pay the said tax without penalty. If the tax is paid after June 30, 1991, the corresponding penalties shall be assessed and computed from April 21, 1991.
23
SEC. 116. Percentage tax on dealers in securities; lending investors. - Dealers in securities and lending investors shall pay a tax equivalent to six (6) per centum of their gross income. Lending investors shall pay a tax equivalent to five (5%) percent of their gross income. (3) Other Fixed Taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified: . (dd) Lending investors 1. In chartered cities and first class municipalities, one thousand pesos; 2. In second and third class municipalities, five hundred pesos; 3. In fourth and fifth class municipalities and municipal districts, two hundred fifty pesos: Provided, That lending investors who do business as such in more than one province shall pay a tax of one thousand pesos. . (ff) Pawnshops, one thousand pesos (underscoring ours)
26
Section 228. Protesting of Assessment. - If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.
24
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4.
and rearranged by EO 273, was basically lifted from Sec. 175 of the NIRC of 1986, which treated both tax subjects differently.27 i. Definition of lending investors found in Sec. 157(u) of the NIRC of 1986 is not found in the NIRC of 1977, as amended by EO 273, where Sec. 116 invoked by the CIR is found. ii. However, both the NIRC of 1986 and the NIRC of 1977 dealt with pawnshops and lending investors differently. iii. Verily then, it was the intent of Congress to deal with both subjects differently. c. Sec. 116 of the NIRC of 1977, as amended by EO 273, subjects to percentage tax dealers in securities and lending investors only. i. There is no mention of pawnshops. Under the maxim expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. d. The BIR had ruled several times prior to the issuance of RMO 15-91 and RMC 43-91 that pawnshops were not subject to the 5% percentage tax imposed by Sec. 116 of the NIRC of 1977, as amended by EO 273. This was even admitted by the CIR in RMO 15-91 itself. Considering that Sec. 116 of the NIRC of 1977, as amended, was practically lifted from Sec. 175 of the NIRC of 1986, as amended, and there being no change in the law, the interpretation thereof should not have been altered. As pointed out by the respondent, pawnshops was sought to be included as among those subject to 5% percentage tax by HB 1119728 in 1994. a. If pawnshops were covered within the term lending investor, there would have been no need to introduce such amendment to include owners of pawnshops. At any rate, such proposed amendment was not adopted. Instead, the approved bill which became R.A. No. 7716 repealed Section 116 of NIRC of 1977, as amended, which was the basis of RMO No. 15-91 and RMC No. 43-91 b. Since Section 116 of the NIRC of 1977, which breathed life on the questioned administrative issuances, had already been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are deemed automatically repealed. Hence, even granting that pawnshops are included within the term lending investors, the assessment from 27 May 1994 onward would have no leg to stand on.
1.
2.
3.
Dispositive: Petition dismissed. -Zoilo c. Effectivity and validity of tax ordinances HAGONOY MARKET VENDOR ASSOCIATION, vs. MUNICIPALITY OF HAGONOY, BULACAN, PUNO, J.: Laws are of two (2) kinds: substantive and procedural. Substantive laws, insofar as their provisions are unambiguous, are rigorously applied to resolve legal issues on the merits. In contrast, courts generally frown upon an uncompromising application of procedural laws so as not to subvert substantial justice. Nonetheless, it is not totally uncommon for courts to decide cases based on a rigid application of the so-called technical rules of procedure as these rules exist for the orderly administration of justice. Interestingly, the case at bar singularly illustrates both instances, i.e., when procedural rules are unbendingly applied and when their rigid application may be relaxed. Facts On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted an ordinancewhich increased the stall rentals of the market vendors in Hagonoy. Article 3 provided that it shall take effect upon approval. Ordinance was posted and in the last week of November, 1997, members of the Hagonoy Market Vendor Association were personally given copies of the approved Ordinance and were informed that it shall be enforced in January, 1998. Hagonoy
WON publication necessary for the validity of RMO 15-91 and RMC 43-91. HELD: YES
Sec. 175. Percentage tax on dealers in securities, lending investors. -- Dealers in securities shall pay a tax equivalent to six (6%) percent of their gross income. Lending investors shall pay a tax equivalent to five (5%) percent of their gross income. (As amended by P.D. No. 1739, P.D. No. 1959 and P.D. No. 1994).
27
Section 13. Section 116 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. 116. Percentage tax on dealers in securities; lending investors; OWNERS OF PAWNSHOPS; FOREIGN CURRENCY DEALERS AND/OR MONEY CHANGERS. Dealers in securities shall pay a tax equivalent to Six (6%) per centum of their gross income. Lending investors, OWNERS OF PAWNSHOPS AND FOREIGN CURRENCY DEALERS AND/OR MONEY CHANGERS shall pay a tax equivalent to Five (5%) percent of their gross income."
28
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A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. When, on the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective measures revoking in the process the previous rulings of past Commissioners. a. They would have been amendatory provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops would not be liable to pay the 5% percentage tax, considering that they were not specifically included in Section 116 of the NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice, hearing, and publication should not have been ignored.
Market Vendor Association filed an appeal with the Secretary of Justice assailing the constitutionality of the tax ordinance. Petitioner claimed it was unaware of the posting of the ordinance. Respondent opposed the appeal. It contended that the ordinance took effect on October 6, 1996 and that the ordinance, as approved, was posted as required by law. Hence petitioners appeal, made over a year later, was already time -barred. The Secretary of Justice dismissed the appeal on the ground that it was filed out of time, beyond 30 days from the effectivity of the Ordinance on October 1, 1996. Secretary of Justice held that the date of effectivity of the subject ordinance retroacted to the date of its approval in October 1996, after the required publication or posting has been complied with, pursuant to Section 3 of said ordinance. MR denied On appeal to CA. Pet. did not assail the finding of the Secretary of Justice that their appeal was filed beyond the reglementary period. Instead, it urged that the Secretary of Justice should have overlooked this mere technicality and ruled on its petition on the merits. CA dismissed for being formally deficient as it was not accompanied by certified true copies of the assailed Resolutions of the Secretary of Justice. MR denied. ISSUES WON the Municipal Ordinace was invalid and unconstitutional. ( from what I read the SC did not tackle the constitutional issue of the case, kasi hindi naman sya lis mot athe SC was able to make a ruling re: the time barring of the complaint) WON the CA was correct in dismissing the case for the petitioners failure to accompany the petition with the certified true copies of the resolutions of the Sec. of Justice. NO Held The petitioner insists that it had good reasons for its failure to comply with the rule and the Court of Appeals erred in refusing to accept its explanation. In its Motion for Reconsideration before the Court of Appeals, the petitioner satisfactorily explained the circumstances relative to its failure to attach to its appeal certified true copies of the assailed Resolutions of the Secretary of Justice (Typhoon Loleng prevented them from complying with the requirements) It is clear from the records that the petitioner exerted due diligence to get the copies of its appealed Resolutions certified by the Department of Justice, but failed to do so on account of typhoon Loleng. Under the circumstances, respondent appellate court should have tempered its strict application of procedural rules in view of the fortuitous event considering that litigation is not a game of technicalities. BUT SC says: petition should be dismissed as the appeal of the petitioner with the Secretary of Justice is already time-barred. The applicable law is Section 187 of the 1991 Local Government Code which provides: SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. - The procedure for the approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the receipt of the appeal: Provided, however, That
such appeal shall not have the effect of suspending the effectivity of the ordinance and accrual and payment of the tax, fee or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings. The law requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency, the effectivity of the assailed ordinance shall not be suspended. In the case at bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its appeal only in December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the Secretary of Justice correctly dismissed it for being time-barred. The timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a mere technicality that can be easily brushed aside. The periods stated in Section 187 of the Local Government Code are mandatory. Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals. Being its lifeblood, collection of revenues by the government is of paramount importance. The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. In a last ditch effort to justify its failure to file a timely appeal with the Secretary of Justice, the petitioner contends that its period to appeal should be counted not from the time the ordinance took effect in 1996 but from the time its members were personally given copies of the approved ordinance in November 1997. It insists that it was unaware of the approval and effectivity of the subject ordinance in 1996 on two (2) grounds: first, no public hearing was conducted prior to the passage of the ordinance and, second, the approved ordinance was not posted. SC disagrees Petitioners assertion that there was no public hearing conducted prior to the passage of Kautusan Blg. 28 is belied by its own evidence. In petitioners 2 communications with the Secretary of Justice, it enumerated the various objections raised by its members before the passage of the ordinance in several meetings called by the Sanggunian for the purpose. These show beyond doubt that petitioner was aware of the proposed increase and in fact participated in the public hearings therefor. The respondent municipality likewise submitted the Minutes and Report of tHAhe public hearings conducted by the Sangguniang Bayans Committee on Appropriations and Market. Petitioner cannot gripe that there was practically no public hearing conducted as its objections to the proposed measure were not considered by the Sangguniang Bayan. To be sure, public hearings are conducted by legislative bodies to allow interested parties to ventilate their views on a proposed law or ordinance. These views, however, are not binding on the legislative body and it is not compelled by law to adopt the same. Sanggunian members are elected by the people to make laws that will promote the general interest of their constituents. They are mandated to use their discretion and best judgment in serving the people. Parties who participate in public
49
hearings to give their opinions on a proposed ordinance should not expect that their views would be patronized by their lawmakers. On the issue of publication or posting, Section 188 of the Local Government Code provides: Section 188. Publication of Tax Ordinance and Revenue Measures. Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation; Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. (emphasis supplied) The records is bereft of any evidence to prove petitioners negative allegation that the subject ordinance was not posted as required by law. In contrast, the respondent Sangguniang Bayan of the Municipality of Hagonoy, Bulacan, presented evidence which clearly shows that the procedure for the enactment of the assailed ordinance was complied with. On the Substantive pts. petition must fail. Section 6c.04 of the 1993 Municipal Revenue Code and Section 191 of the Local Government Code limiting the percentage of increase that can be imposed apply to tax rates, not rentals. Neither can it be said that the rates were not uniformly imposed or that the public markets included in the Ordinance were unreasonably determined or classified. To be sure, the Ordinance covered the three (3) concrete public markets: the two-storey Bagong Palengke, the burnt but reconstructed Lumang Palengke and the more recent Lumang Palengke with wet market. However, the Palengkeng Bagong Munisipyo or Gabaldon was excluded from the increase in rentals as it is only a makeshift, dilapidated place, with no doors or protection for security, intended for transient peddlers who used to sell their goods along the sidewalk. Petition DISMISSED Davide, Jr., C.J. (Chairman), Kapunan, Pardo, and Ynares-Santiago, JJ., concur. -Justin Jardine Davies Insurance Brokers v Aliposa G.R. No. 118900 | February 27 2003 Callejo Sr. J. Doctrine: Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. Facts: Pursuant Local Government Code, the Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072, otherwise known as the Makati Revenue Code, which
provides, inter alia, for the schedule of real estate, business and franchise taxes in the Municipality of Makati at rates higher than those in the Metro Manila Revenue Code. On May 10, 1993, the Philippine Racing Club, Inc., appealed to the DOJ for the nullification of said ordinance, alleging that it was approved without previous public hearings, and that some of the ordinances provisions were unconstitutional: (cancellation of tax exemptions. Imposition of franchise tax) Although required by the DOJ to comment on the appeal, respondent Makati failed to do so. DOJ came out with a resolution declaring "null and void and without legal effect" the said ordinance for having been enacted in contravention of Section 187 of the Local Government Code of 1991 and its implementing rules and regulations. ( Makati filed MR of DOJ ruling. Pending resolution of its motion, said respondent filed a petition ad cautelam with the Regional Trial Court (RTC) of Makati, Binay and Makati v. Drilon and DOJ, and PRC docketed as Case No. 93-2844. The case was raffled to Branch 148 of the Makati RTC. Makati alleged, inter alia, that public hearings were conducted before the approval of the ordinance and hence the ordinance was valid.In the meantime, Makati continued to implement the ordinance. Jardine Davies Insurance Brokers, Inc., a duly-organized corporation with principal place of business at Makati was assessed and billed by Makati the amount of P63,822.47 for taxes, fees and charges under the ordinance for the second quarter, third and fourth quarter of 1993. Jardine did not protest the assessment, and paid the said amounts, without any protest. Jardine wrote the municipal treasurer of Makati requesting that respondent Makati compute its business tax liabilities in accordance with the Metro Manila Revenue Code and not under the ordinance considering that said ordinance was already declared by the DOJ null and void. Petitioner likewise requested that respondent Makati credit the overpayment or in the alternative to refund the said amount. Makati, denied the request of petitioner for tax credit/refund. Respondent Makati insisted that the questioned ordinance code was valid and enforceable pending the final outcome of its petition ad cautelam with the Regional Trial Court of Makati. RTC rendered judgment in Case No. 93-2844 granting the petition of Makati and declaring the ordinance valid. DOJ issued a memorandum to the Chief State Counsel directing the latter to refrain from accepting any appeal or to act on pending appeals on the validity/constitutionality of the ordinance until the same shall have been finally resolved by courts of competent jurisdiction. When informed of the denial by Makati of its letter-request, Jardine filed a complaint on March 7, 1994 against Makati. Alleging that in view of the DOJ resolution the
50
Ordinance was void and MMRC was in effect,but Makati continued to implement the same. Makati filed a motion to dismiss the complaint on the ground of prematurity. They argued that petitioners cause of action was predicated on the appealed resolution of the DOJ, and unless and until nullified by final judgment of a competent court, the ordinance remained in full force and effect. Jardine opposed the motion to dismiss of respondents, contending that its complaint was not predicated solely on the invalidity and unconstitutionality of the ordinance but also on its claim that the ordinance took effect only in July 1, 1993 but Makati applied the ordinance effective April 1, 1993. Also, under Sec.166 of the LGC, new taxes, fees or charges or charges provided for in the ordinance shall accrue on the first day of the quarter following the effectivity of the new ordinance. Hence, assuming that the tax ordinance was valid, the same should have been enforced only from the "first (1st) day of the quarter following next the effectivity of the ordinance imposing such new levies or rates" as provided for in Section 166 of the Local Government Code. RTC issued an order granting the motion to dismiss. The trial court ruled that plaintiffs cause of action, if any, had prescribed. Citing Sec. 187 and 195 of the LGC, the trial court ratiocinated that petitioner failed to file an opposition or protest to the written notice of assessment of Makati for taxes, fees and charges at rates provided for in the ordinance within 60 days from the notice of said assessment as required by Section 195. Hence, petitioner was barred from demanding a refund of its payment or that it be credited for said amounts. Jardine filed with the trial court a MR arguing that Sec 195 of the LGC did not apply as its complaint did not involve an assessment for deficiency taxes but one for refund/tax credit. Petitioner further claimed that it was never served with any notice of assessment from respondents and hence there was no need for petitioner to protest. Jardin instead seeks to apply Sec 196 of the LGC in conjunction with Article 286 of its IRR, both of which simply require the filing of a written claim for refund or tax credit within two years from the date of payment. TC denied MR, declaring that Sec 195 of the LGC covers all kinds of assessments and not merely deficiency assessments for taxes, fees or charges. The trial court further ruled that the issue of the validity and constitutionality of the ordinance was still pending resolution in another RTC and until declared null and void, otherwise by final judgment, the ordinance remained valid. Issue/Held: WON it is a claim for Refund or a deficiency assessment which has to be protested? Held: Ratio: The Court agrees with petitioner that as a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and praying for a refund of its perceived overpayments without first filing a protest to the payment of taxes due under the ordinance. This was our ruling in Ty v. Judge Trampe
-Miggy 4. Mandatory and directory provisions of tax laws VIUDA E HIJOS DE PEDRO P. ROXAS vs. JAMES J. RAFFERTY, Collector of Internal Revenue, ex officio city assessor and collector of Manila (March 27, 1918) Doctrine: It is a general rule that those provisions of a statute relating to the assessment of taxes, which are intended for the security of the citizen, or to insure the equality of taxation, or certainty as to the nature and amount of each persons tax, are mandatory; but those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings are merely directory. Nature: Appeal from a judgment of the CFI of Manila. Ponente: Malcolm, J. Facts: Plaintiffs own a parcel of land located on the Escolta in the city of Manila. In the latter part of 1913, the improvements of this land were demolished, and the construction of a reinforced concrete building was begun. No taxes on the improvements were levied or paid for the year 1914. The Roxas building in December, 1914, when the city assessor and collector attempted to assess it for taxation, still lacked the pavement of the entrances, the floors of some of
51
However, the Court agrees with Makati that Jardine was proscribed from filing its complaint for failing to appeal to the Secretary of Justice within 30 days from the effectivity date of the ordinance as mandated by Sec. 187 of the LGC. In Reyes v. Court of Appeals, we ruled that failure of a taxpayer to interpose the requisite appeal to the Secretary of Justice is fatal to its complaint for a refund: Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory. Disposition: IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the Regional Trial Court dismissing the complaint of petitioner is AFFIRMED. Vote: Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.
Issue: Main: Whether or not taxes can be collected on the Roxas Building in the city of Manila for the year 1915. Sub: 1. WON the lower court had jurisdiction over the issue presented. 2. WON the assessment made was legal. 3. WON the collection of interest was valid. Held & Ratio: 1. CFI had jurisdiction over this suit and the SC now possesses similar appellate jurisdiction. This question appellee emphasizes, is argued for the first time on appeal. In the trial court, defendant appeared, demurred, and answered without assailing jurisdiction. However, as jurisdiction is the power of a court to act at all, we should even now resolve the question. Objection for want of jurisdiction may be raised for the first time on appeal. General Rule: Administrative remedies must be exhausted before resort can be had to the courts. This case falls under exception. The contention is that the assessor has attempted to levy a tax upon property, which is by law exempt, and that in this attempt the assessor has violated the provisions of law which exist for the protection of the taxpayer. Not the correctness of the assessment, but the legality of the assessment is involved. The rule of taxation is that where there tax is illegal, the taxpayer may bring an action directly in the courts to recover back the tax. The distinction is between a void and an erroneous tax. This is a case of a void tax and gives jurisdiction to the courts. The situation in its simplest terms may be described as follows: The citizen is forced to pay the alleged tax. He had no appropriate opportunity to present his
The Charter continues: The city assessor and collector shall, during the first fifteen days of December of each year, add to his list of taxable real estate in the city the value of the improvements placed upon such property during the preceding year, and any property which is taxable and which has therefore escaped taxation. . . . (Sec. 2487, Administrative Code of 1917.) Between December 1 and December 15, 1914, the city assessor and collector could not prematurely and by anticipation perform this duty on improvements not yet completed. The common sense construction would be that the phrase during the preceding year includes December of the previous year and the current year to December. The city assessor and collector perforce could not in 1914 levy a tax on incomplete improvements made during the current year, when the statute only authorized him to make such levy upon completed improvements made during the year. The Charter continues: x x x and he shall further notify in writing each person x x x by delivering or mailing such notification to such person or his authorized agent at the last known address of such owner or agent in the Philippine Islands some time in the month of November. (Sec. 2487, Administrative Code of 1917.) It is a general rule that those provisions of a statute relating to the assessment of taxes, which are intended for the security of the citizen, or to insure the equality of taxation, or certainty as to the nature and amount of each persons tax, are mandatory; but those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings are merely directory. In the language of the United States Supreme Court, When the
52
the stores the dividing partitions between the stores, the dividing partitions between the greater part of the rooms in the upper stories, sanitary installation, the elevators, electrical installation, the roof of the building, the concrete covering and towers of the elevator shaft, and the doors and windows of many rooms. It was finished in all respects on February 15, 1915. The city assessor and collector of Manila, under the date of December 1, 1914, sent plaintiffs notice, received by them on December 25, 1914, requiring them to declare the new improvements for assessments for the year 1915. Prior to this, in November, the city assessor and collector had the building inspected and had assessed the new improvements for taxation for 1915 at P300,000. On January 15, 1915, plaintiffs were notified of this assessment. Plaintiffs paid the amount of the taxes, which amounted to P3,000, under protest on June 30, 1915. (note that they were assessed in 1914 for improvements completed only in 1915. Eto lang yung importante sa facts.) Suit was begun in the Court of First Instance of Manila to recover this sum with interest at the legal rate from the date of payment. CFI found for plaintiffs. Defendant appealed.
grievance to the board of tax appeals. He did all that was required by protesting at the time of paying the tax. The citizen can therefore in turn be permitted to bring suit to recover the amount which he claims was unlawfully collected. Appeal to the board of tax appeals is not a necessary prequisite. Nor is the decision of the assessor as to the right to tax property of such a judicial or discretionary character as to be free from collateral attack. When the state (here the city of Manila) makes the assessment, and when the citizen stand on reasonably equal terms. The power of the state and the remedy of the citizen are and should be reciprocal. It is for the courts to arbitrate the controversy between the state and the citizen. 2. No. There was no legal assessment of the Roxas Building for the year 1915. The Manila Charter provides: It shall be the duty of each person who at any time acquires real estate in the city,, and of any person who constructs or adds to any improvement on real estate owned by him within the city, to prepare and present to the city assessor and collector , within a period of sixty days next succeeding the completion of such acquisition, construction or addition, a sworn declaration setting forth the value of the real estate acquired or the improvement constructed or addition made by him x x x Plaintiffs were under obligation too present a declaration of their improvements within sixty days succeeding completion, i. e. on or before April 15, 1915. Under an attempted assessment in November and December, 1914, the plaintiffs had and could have had no opportunity to comply with the law.
3.
The United States of America, a State of the Islands cannot be sued without their consent. The city of Manila is not sovereign but is a public corporation with certain delegated powers, including that of suing and being sued. The United States Supreme Court, through the Chief Justice, said that Where an illegal tax has been collected, the citizen who has paid it, and has been obliged to bring suit against the collector, is, we think, entitled to interest in the event of recovery, from time of the illegal exaction. The court said that the exemption in favor of the United States has never as yet been applied to subordinate governmental agencies. Some States hold that a municipal corporation is not liable for interest unless so required by special contract or by statute. In other States, however, it is held that notwithstanding a municipal corporation has delegated to it certain powers of government, it is to be regarded as a private person with respect to its contracts, which are to be considered in the manner and with a like effect as those of natural persons. (See 15 R. C. L., 18.) Even where the stricter rule is observed, as Illinois, it is nevertheless settled that a municipal corporation which wrongfully exacts money and holds the same without just claim or right is liable for the interest thereon. Dispositive: Judgment is affirmed. Vote: Arellano, C.J., Torres, Carson, Araullo, Street and Avancea, JJ., concur. -Wiggy ARAGON v. JORGE Antonio Aragon, petitioner and appellant, v. Marcos Jorge, Provincial Treasurer of Zambales, respondent and appellee
2.
3.
4.
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regulations prescribed are intended for the protection of the citizen and to prevent a sacrifice of his property, and by a disregard of which his right might be, and generally would be, injuriously affected, they are not directory but mandatory. (French vs. Edwards [1871], 13 Wall., 506.) Sometimes statutes requiring the assessor to notify the taxpayer have been held merely directory. But in the majority of jurisdictions this requirement is held to be mandatory, so that the assessor cannot make a valid assessment unless he has given proper notice. (37 Cyc., pp. 988, 991, citing cases.) Applied to our facts, the assessor should have notified the plaintiffs during November, 1915 . His attempted notification on December 25, 1914, was not given during the time fixed by statute and was no more than a reminder to plaintiffs to present a sworn declaration of the value of the new improvements on their property. In this instance there was no such substantial compliance with the law as amounts to due process of law. YES. The city of Manila, a public corporation, even in the absence of statute, is liable to pay interest at the legal rate, from the date of exaction, in the amount of taxes illegally collected.
Doctrine: Notice of auction sale to the delinquent taxpayer and landowner in particular and to the public in general is an essential and indispensable requirement of the law, the nonfulfillment of which vitiates and nullifies the sale. Date: December 29, 1949 Nature: Petition for mandamus Ponente: Ozaeta, J. Facts: 1. Petition for mandamus to compel respondent Provincial Treasurer to issue final bills of sale covering numerous parcels of land in the municipalities of Sta. Cruz and Candelaria, Zambales. Petitioner allegedly purchased the land at auction sales made by the respective municipal treasurers of said municipalities for tax delinquencies and which had not been redeemed by the owners within one year. The real properties located in the municipality of Santa Cruz were advertised for sale at public auction to be held at the main entrance of the municipal building of said municipality from March 24, 1947, at 10 a.m. until all sold, to satisfy all taxes and penalties due thereon and the cost of the sale, pursuant to the provisions of section 35 of Commonwealth Act No. 470, subject to the conditions provided in section 36 of said Act. The sale did not take place on the date above fixed but on May 12, 13, 14, and 15, 1947, without a new advertisement and without a new notice to the owners concerned. On the dates last mentioned 253 parcels with an aggregate assessed value of P67, 150 were sold for only P1,471. The real properties located in the municipality of Candelaria were originally advertised for sale at public auction to be held at the main entrance of the municipal building of said municipality from May 5, 1947, at 10 A. M. until sold, to satisfy all taxes and penalties due thereonsubject to the conditions provided in section 36 of said Act. Likewise the sale did not take place on the date above fixed but on June 12, 1947, without a new advertisement and without a new notice to the owners concerned. On said date 71 lots with an aggregate assessed value of P32,250 were sold for only P820.19. It was not the petitioner who bid at both auction sales but one Pedro Porras; and it was not the latter who paid the purchase price but Public Defender Moises Ma. Buhain, who caused the official receipts to be issued in the name of the herein petitioner Antonio c. Aragon. The latter is a Manila resident who had no house and no interest any kind in Zambales. Public defender Buhain was the one who appeared in the trial court as counsel and attorneyin-fact of the petitioner. The trial court intimated that the petitioner was a dummy of the public defender, who as a public official was prohibited by section 579 of the revised Administrative Code from purchasing, directly or indirectly, from the Government, any property sold by the Government for the nonpayment of any public tax. Any such purchase by a public official or employee shall be void. (But inasmuch as the TC did not make a categorical pronouncement of violation of la on this point, the SC declined to decide on this point) Hence, the sole issue in this appeal WON the sale is valid, and mandamus will lie.
Issues: 1. WON the sale was valid. 2. WON mandamus should be granted. Held: NO on both counts. Because of the absence of a categorical finding by the trial court regarding violation of Sec.579, Revised Administrative Code, the Court decided this case on the alleged nullity of the sale for lack of notice. Notice of such sale to the delinquent taxpayers and landowners in particular and to the public in general is an essential and indispensable requirement of the law, the nonfulfilment of which vitiates and nullifies the sale. (Section 35, Commonwealth Act No. 470, known as the Assessment Law; Cabrera vs. Provincial Treasurer of Tayabas, 42 O. G. 1492.) 1 The sale should have been made on a fixed date as originally advertised, or if that was not practicable and if it was desired to postpone the sale indefinitely to give a chance to the taxpayers to pay their delinquent taxes, as was done in this case, new notices to the taxpayers and to the public should have been made. The sales in question being void for lack of due notice, the respondent provincial treasurer cannot be compelled to issue the final bills of sale demanded by the petitioner. Disposition: Judgement of CFI affirmed. Voting: unanimous -Sandra PECSON VS. COURT OF APPEALS (GR NO. 105360, 25 May 1993) Ponente: Quiason Gist: The payment of real estate tax and sending of notices to delinquent taxpayers are mandatory but as to where notices of real estate tax delinquency should be sent there are two choices, making the choice of where to send it directory (implied in the case as there was no clear discussion of mandatory/directory provisions of tax laws. Its effed up like that.) FACTS: 1. Petitioners property in Quezon City was sold to Nepomuceno at a public auction after he failed to pay real estate tax delinquencies. a. Notices of the sale of the property were sent to petitioner at No. 79 Paquita Street, Sampaloc Manila and were also published in the Times Journal on October 6, 13, and 30. The property was sold to Nepomuceno and since petitioner failed to redeem the property, title was consolidated in Nepomuceno. 3.
a.
Petitioner claimed that the sale was void because no notice of the sale at public auction was sent to him. He also claimed that he was not informed of his right to redeem the property within one year.
Trial court upheld the validity of the public auction, ruling that the notices published on several days in newspapers of general circulation were notices in rem, hence valid. a. The fact that the notices were sent to no. 79 Paquita Street, Sampaloc, Manila instead of No. 1009 Paquita Street, Sampaloc Manila was inconsequential as there was valid notice through the notices published in the newspapers. On appeal, Court of Appeals affirmed in toto the decision of the trial court.
b.
ISSUES: 1. WON the notices were correctly sent to him as required under the Real Property Tax Code 2. WON there was proper posting and announcement of the public auction as required by the Real Property Tax Code
HELD: As to issue no. 1: 1. Petitioner argues that respondent Registrar of Deeds sent the notices to him at "No. 79 Paquita St., Sampaloc, Manila" which was not his address. He claims that his correct Manila address is "No. 1009 Paquita St., Sampaloc" and his correct Quezon City address is "No. 79, Kamias Road, Quezon City." a. He admits that on the dates the notices were mailed, he was no longer residing in Manila but in Quezon City. The notices should have been sent to him at his address at "No. 1009 Paquita St., Sampaloc, Manila" even if he was no longer residing there because letters sent to him at the said address were forwarded to him by the occupants of his former house.
b.
2.
The law governing this case is P.D. 464 or the Real Property Tax Code, section 73 of which provides that: Copy of notices shall forthwith be sent either by registered mail or by messenger, or through the barrio captain, to the delinquent taxpayer, at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located, or at his
b.
2.
Later, petitioner learned of the sale at public auction, so he filed suit against Nepomuceno, along with Tan and Nuguid who bought the same property from Nepomuceno, to have the title to the property annulled.
54
3.
residence, if known to said treasurer or barrio captain. Provided, however, that a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned. [emphasis supplied] From Section 73, it is clear that notices of tax delinquencies or of sale at public auction of forfeited realty can be sent to the delinquent tax payer either at the address in the property tax record cards or at his residence if known to the treasurer or barrio captain. a. [Implication as there was no discussion] The sending of notices to the delinquent taxpayer is mandatory, as this will affect the validity of the public auction, but it becomes directory as to where the notices will be sent. Court of Appeals found that what appeared in the records of the Office of the City Treasurer of Quezon City as the address of petitioner was "1009 Paquita, Manila," and below the number 1009 was the number "79". From this entry, anyone would deduce that the taxpayer had transferred his residence to "No. 79 Paquita, Sampaloc, Manila" from "No. 1009 Paquita, Sampaloc, Manila". In fact, the register for the tax years starting from 1982, the address of petitioner was recorded as "79 Paquita, Mla." The Court of Appeals thus correctly concluded that the employees in charge of sending notices in the Treasurer's Office were not blameworthy in relying on the available tax records. Since notices were, for all intents and purposes, properly sent, the sale of the property was valid. It follows that the current title to the property cannot be annulled and set aside in favor of petitioner.
a.
In all the time before and after the sale, petitioner made no move to settle his tax delinquencies and neither did he try to redeem the property after it was sold to Nepomuceno.
As to issue no. 2: The question on the posting of the notices and the announcement of the sale is a question of fact, which SC will not inquire into and review. Petition denied and decision of Court of Appeals affirmed. -Jan
b.
c.
d.
e.
4.
Petitioner's contention that he would have received the notices had they been sent to "No. 1009 Paquita, Sampaloc, Manila," because the occupants thereof forwarded the letters addressed to him to his Quezon City residence, is untenable. a. It should be noted that when the trial court sent him a notice of the proceedings for the consolidation of title at No. 1009 Paquita Street, Sampaloc, Manila, this notice was marked unclaimed.
5.
Hence, petitioner himself was at fault because as a property owner, he should have known that real properties are taxed and failure to pay real estate tax will result in the forfeiture of the subject property and its sale at public auction.
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2. Sources of Tax Laws xxx i.

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Dispositive: Decision appealed from is affirmed. - Zoilo -

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Prohibition against Unfair Competition and Practices in Restraint of Trade

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TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

TAXATION 1 LAFORTEZA WEEK 6: d2014

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