PHILIPPINE PETROLEUM CORPORATION vs.

MUNICIPALITY OF PILILLA, RIZAL

Facts:

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. Secretary of Finance issued Provincial Circular No. 26-73 dated December 27,1973, 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 Respondent Municipality of Pililla, Rizal,
through Municipal Council Resolution No.25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974
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.

The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial Treasurer of
Rizal (but was not implemented and/or enforced by the Municipality of Pililla because of its having been
suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73.

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.

Enforcing the provisions of the above-mentioned ordinance, the respondent fileda complaint against
PPC for the collection of the business tax from 1979 to 1986the trial court rendered a decision against
the petitioner. PPC moved for reconsideration of the decision, but this was denied by the lowercourt,
hence, the instant petition.

Petitioner PPC contends that: (a) Provincial Circular No. 26-73 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.

Issue: whether or not 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:

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 themandate 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 inpetroleum 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 19and 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 PD 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.

As to the authority of the mayor to waive payment of the mayor's permit andsanitary 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 to1986, and
NOT the tax that had accrued prior to 1976.

PREMISES CONSIDERED, 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.
 CIR vs Fortne Tabacco Corp.

Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under
several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette brands
to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands tax classification rates based
on their net retail price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145 thereof now subjects the
cigarette brands to specific tax and also provides that: (1) the excise tax from any brand of cigarettes
within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which
is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein
shall be increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based
on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in force
until revised by Congress.

The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase.
RR No. 17-99 added the qualification that the new specific tax rate xxx shall not be lower than the excise
tax that is actually being paid prior to January 1, 2000. In effect, it provided that the 12% tax increase
must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net
retail price.

FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month
of January 2000 and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99
in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR
alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower
tax imposable on 1 January 2000 than that imposable during the transition period, which is contrary to
the legislative intent to raise revenue.

Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market
as outlined in Section 145 of the 1997 Tax Code?

Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the
next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall
not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is
conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed
by machine, among others, effective on 1 January 2000. Clearly, Section 145 mandates a new rate of
excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without
regard to whether the revenue collection starting from this period may turn out to be lower than that
collected prior to this date.

The qualification added by RR No. 17-99 imposes a tax which is the higher amount between the ad valorem
tax being paid at the end of the 3-year transition period and the specific tax under Section 145, as
increased by 12%a situation not supported by the plain wording of Section 145 of the 1997 Tax Code.
Administrative issuances must not override, supplant or modify the law, but must remain consistent with
the law they intend to carry out.
Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad
valorem system to the specific tax system in the Code is likewise meant to promote fair competition
among the players in the industries concerned and to ensure an equitable distribution of the tax burden.

American Tobacco v. Camacho (2008)

G.R. No. 163583 August 20, 2008
YNARES-SANTIAGO, J.

Lessons Applicable: Court of Tax Appeals Jurisdiction, Regional Trial Court Jurisdiction, Equal Protection
and Uniformity of Taxation (constitutional issue), BIR Power to Conduct Resurvey and Reclassification
(delegated by express legislation)

Laws Applicable:

FACTS:

June 2001, petitioner British American Tobacco introduced and sold Lucky Strike, Lucky Strike
Lights and Lucky Strike Menthol Lights cigarettes w/ SRP P 9.90/pack - Initial assessed excise tax:
P 8.96/pack (Sec. 145 [c])

February 17, 2003: RR 9-2003: Periodic review every 2 years or earlier of the current net retail
price of new brands and variants thereof for the purpose of the establishing and updating
their tax classification

March 11, 2003: RMO 6-2003: Guidelines and procedures in establishing current net retail prices
of new brands of cigarettes and alcohol products

August 8, 2003: RR 22-2003: Implement the revised tax classification of certain new brands
introduced in the market after January 1, 1997 based on the survey of their current net retail
prices. This increased the excise tax to P13.44 since the average net retail price is above P
10/pack. This cause petitioner to file before the RTC of Makati a petition for injunction with
prayer for issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction
sought to enjoin the implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-2003, 22-2003 and
6-2003 on the ground that they discriminate against new brands of cigarettes in violation of the
equal protection and uniformity provisions of the Constitution

RTC: Dismissed

While petitioner's appeal was pending, RA 9334 amending Sec. 145 of the 1997 NIRC among other
took effect on January 1, 2005 which in effect increased petitioners excise tax to P25/pack.
Petitioner filed a Motion to Admit attached supplement and a supplement to the petition for
review assailing the constitutionality of RA 9334 and praying a downward classification of Lucky
Strike products at the bracket taxable at P 8.96/pack since existing brands are still taxed based on
their price as of October 1996 eventhough they are equal or higher than petitioner's product
price.
 Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corp., Mighty Corp. and
JT International Intervened.

Fortune Tobacco claimed that the CTA should have the exclusive appellate jurisdiction over the
decision of the BIR in tax disputes

ISSUE: W/N the RTC rather than the CTA has jurisdiction.

W/N RA 9334 of the classification freeze provision is unconstitutional for violating the equal
protection and uniformity provisions of the Constitution

W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its amendment by RA 9334 can
authorize the BIR to conduct resurvey and reclassification.

HELD:
1. Yes. The jurisdiction of the CTA id defined in RA 1125 which confers on the CTA jurisdiction to resolve
tax disputes in general. BUT does NOT include cases where the constitutionality of a law or rule is
challenged which is a judicial power belonging to regular courts.

2. No. In Sison Jr. v. Ancheta, the court held that "xxx It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. If the law be looked upon in tems of burden on charges, those that fall within a class should
be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the
rest. xxx" Thus, classification if rational in character is allowable. In Lutz v. Araneta: "it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation" SC previously held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation"

Under the the rational basis test, a legislative classification, to survive an equal protection challenge,
must be shown to rationally further a legitimate state interest. The classifications must be reasonable
and rest upon some ground of difference having a fair and substantial relation to the object of the
legislation
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal
protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal,
to both present and future conditions; and (4) it applies equally to all those belonging to the same class.
Moreover, petitioner failed to clearly demonstrate the exact extent of such impact as the price is not the
only factor that affects competition.
3. NO. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a
prerogative of the legislature which cannot be usurped by the former. These are however modified by
RA 9334.
 Floro Cement Corp. v Gorospe

Bidin, 1991

FACTS: The municipality of Lugait, province of Misamis Oriental, filed a verified complaint for collection
of manufacturers and exporters taxes against Floro Cement Corporation, engaged in the manufacture
and selling, including exporting, of cement. The municipality alleged that the imposition and collection
of these taxes is based on its Municipal Ordinance No. 5 (Municipal Revenue Code of 1974) which was
passed pursuant to PD No.231 and also Municipal Ordinance No. 10 pursuant to PD No. 426, amending
PD No. 231. Floro Cement Corporation set up the defense that it is not liable to pay manufacturer's and
exporter's taxes alleging among others that the municipalitys power to levy and collect taxes, fees,
rentals, royalties or charges of any kind whatsoever has been limited or withdrawn by Section 52 of PD
No. 463.

Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products.

Any law to the contrary notwithstanding, no province, city, municipality, barrio or municipal district shall
levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on mines, mining claims,
mineral products, or on any operation, process or activity connected therewith.

CFI: Ordered Floro Cement Corporation to pay the manufacturers and exporters taxes.

ISSUE & HELD: WON Ordinances Nos. 5 and 10 of Lugait, Misamis Oriental apply to petitioner Floro
Corporation notwithstanding the limitation on the taxing power of local government as provided for in
Sec. 5 of P.D. 231 and Sec. 52 of P.D. 463 (Yes)

RATIO: Cement is not a mineral product but rather a manufactured product.

As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and
any reduction or diminution thereof with respect to its mode or its rate, must be strictly construed, and
the same must be coached in clear and unmistakable terms in order that it may be applied. More
specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer. He who claims an exemption must be able to point out some provision of
law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. It must
be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the
claim. Floro Cement Corporation failed to meet this requirement.

The exemption mentioned in Sec. 52 of P.D. No. 463 refers only to machineries, equipment, tools for
production,etc., as provided in Sec. 53 of the same decree. The manufacture and the export of cement
does not fall under the said provision for it is not a mineral product. It is not cement that is mined only
the mineral products composing the finished product. By the parties own stipulation of facts submitted
before the CFI, it is admitted that Floro Cement Corporation is engaged in the manufacturing and selling,
including exporting of cement. As such, and since the taxes sought to be collected were levied on these
activities pursuant to Sec. 19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were enacted pursuant to
P.D. No. 231 and P.D. No. 426, respectively, properly apply to Floro Cement Corporation.
 Domingo vs. Garlitos
GR L-18993

29 June 1963

FACTS: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the
order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and
penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution
filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified
as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance
taxes be deducted from the Governments indebtedness to the Estate.

ISSUE: Whether a tax and a debt may be compensated.

HELD: It is proper. Compensation/set-off of taxes may happen by operation of law when both debts are
due and demandable.

1. The ordinary procedure to settle claims before an estate is not a petition for execution, but by
presenting a claim before the probate court.a. Aldamiz vs. Judge of CFI Mindoro- Execution may issue
only where the devisees, legatees or heirs have entered into possession of their respective portions in
the estate prior to settlement and payment of the debts and expenses of administration and it is later
ascertained that there are such debts and expenses to be paid, in which case "the court having
jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several
liabilities, and order how much and in what manner each person shall
contribute,and may issue execution if circumstances require" (Rule 89, section 6; seealso Rule 74,
Section 4; Emphasis supplied.)b. Legal basis is the fact that the properties belonging to the state
are under custodia legis, which continues until said properties have been distributed amongt he heirs.

2. Court having jurisdiction also found that the claim of the estate has been recognized by the govt and
has already appropriated the corresponding amount.

3. Claim of the Govt for inheritance taxes against the estate is due and demandable. The claim of the
estate against the Govt is also due, demandable and is fully liquidated.

Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles
1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

The court having jurisdiction of the Estate had found that the claim of the Estate against the Government
has been recognized and an amount of P262,200 has already been appropriated by a corresponding law
(RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim
of the intestate for services rendered have already become overdue and demandable as well as fully
liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and
1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ESSO STANDARD EASTERN, INC. and THE COURT OF TAX APPEALS, respondents.

Ponente: NARVASA

FACTS:

Respondent overpaid its 1959 income tax by P221,033.00. It was granted a tax credit by the Commissioner
accordingly on 1964. However, ESSOs payment of its income tax for 1960 was found to be short by
P367,994.00. The Commissioner (of Internal Revenue) wrote to ESSO demanding payment of the
deficiency tax, together with interest thereon for the period from 1961 to 1964. ESSO paid under protest
the amount alleged to be due, including the interest as reckoned by the Commissioner. It protested the
computation of interest, contending it was more than that properly due. It claimed that it should not have
been required to pay interest on the total amount of the deficiency tax, P367,994.00, but only on the
amount of P146,961.00representing the difference between said deficiency, P367,994.00, and ESSOs
earlier overpayment of P221,033.00 (for which it had been granted a tax credit). ESSO thus asked for a
refund. The Internal Revenue Commissioner denied the claim for refund. ESSO appealed to the Court of
Tax Appeals which ordered payment to ESSO of its refund-claim representing overpaid interest.

The Commissioner argued the tax credit of P221,033.00 was approved only on year 1964, it could not be
availed of in reduction of ESSOs earlier tax deficiency for the year 1960; as of that year, 1960, there was
as yet no tax credit to speak of, which would reduce the deficiency tax liability for 1960. In support of his
position, the Commissioner invokes the provisions of Section 51 of the Tax Code.

ISSUE:

Whether or not the interest on delinquency should be applied on the full tax deficiency of P367,994.00
despite the existence of overpayment in the amount of P221,033.00.

HELD:

NO. Petition was denied. Decision of CTA was affirmed.

RATIO:

The fact is that, as respondent Court of Tax Appeals has stressed, as early as 1960, the Government already
had in its hands the sum of P221,033.00 representing excess payment. Having been paid and received by
mistake, as petitioner Commissioner subsequently acknowledged, that sum unquestionably belonged to
ESSO, and the Government had the obligation to return it to ESSO That acknowledgment of the erroneous
payment came some four (4) years afterwards in nowise negates or detracts from its actuality. The
obligation to return money mistakenly paid arises from the moment that payment is made, and not from
the time that the payee admits the obligation to reimburse. The obligation of the payee to reimburse an
amount paid to him results from the mistake, not from the payees confession of the mistake or
recognition of the obligation to reimburse.

A literal interpretation is to be rejected if it would be unjust or lead to absurd results. Statutes should
receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an
unjust or absurd conclusion.