1.

G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS,
respondents.

Facts:

Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the
alleged overpayment of income tax as computed in its final income tax return for the calendar
year ending December 31, 1985. To interrupt the prescriptive period, Citytrust filed a petition
with the Court of Tax Appeals, claiming the refund of its income tax overpayments for the years
1983, 1984 and 1985. The OSG in their answer contended that the claim of Citytrust from 1983
was not properly documented and that even if they are entitled for such claim the right to claim
the same has prescribed with respect to income tax payments prior to August 28, 1984, pursuant
to Sections 292 and 295 of the National Internal Revenue Code of 1977, as amended, since the
petition was filed only on August 28, 1986. The case was submitted for decision based solely on
the pleadings and evidence submitted by herein private respondent Citytrust because the
petitioner failed to present evidence due to the failure of Tax Credit/Refund Division of the BIR
to transmit the records of the case, as well as the investigation report thereon, to the Solicitor
General. The petitioner filed a motion to suspend the proceedings but the same was denied. The
case was decided and the Tax court ruled in ordering BIR to refund the overpaid tax for the year
1984 and 1985 only. Petitioner filed a motion for reconsideration contending that Citytrust has
an outstanding tax liability amounting to P56M in 1984. Both parties filed a motion for
reconsideration which was denied by the CA and the court affirmed the decision of CTA. Hence
this petition.

Issue: Whether or not the state is bound to the mistakes committed by its agents

Ruling: It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents. In the performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. Although the Government may generally be
estopped through the affirmative acts of public officers acting within their authority, their neglect
or omission of public duties as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are
the lifeblood of the nation through which the government agencies continue to operate and
with which the State effects its functions for the welfare of its constituents. The errors of certain
administrative officers should never be allowed to jeopardize the Government's financial
position, especially in the case at bar where the amount involves millions of pesos the collection
whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Wherefore the
Judgment of CA is hereby set aside and the case is remanded to CTA.

2.
LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, vs. COURT OF APPEALS and
COMMISSIONER OF INTERNAL REVENUE, Respondents. (G.R. No. 125346; November 11,
2014)

FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased by
cigarette manufacturers for use as raw material in the manufacture of their cigarettes. Under
the Tax Code, if it is to be exported or to be used in the manufacture of cigars, cigarettes, or
other tobacco products on which the excise tax will eventually be paid on the finished product.

La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34 million
pesos. La Suerte protested invoking the Tax Code which allows the sale of stemmed leaf tobacco
as raw material by one manufacturer directly to another without payment of the excise tax.
However, the CIR insisted that stemmed leaf tobacco is subject to excise tax "unless there is an
express grant of exemption from [the] payment of tax."

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR) which
limits the exemption from payment of specific tax on stemmed leaf tobacco to sales
transactions between manufacturers classified as L-7 permittees.

ISSUES:
[1] Is stemmed leaf tobacco subject to excise (specific) tax?
[2] Is purchase of stemmed leaf tobacco from manufacturers who are not classified as L-7
permittees subject to tax?
[3] Is the RR valid?
[4] Is the possessor or owner, or importer or exporter, of stemmed leaf tobacco liable for the
payment of specific tax if such tobacco product is removed from the place of production
without payment of said tax?
[5] Does the imposition of excise tax on stemmed leaf tobacco under Section 141 of the 1986
Tax Code constitute double taxation, considering they are paying the specific tax on the raw
material and on the finished product in which the raw material was a part?
HELD:
[1] Yes, excise taxes on domestic products shall be paid by the manufacturer or producer
before[the] removal [of those products] from the place of production." "It does not matter to
what use the article[s] subject to tax is put; the excise taxes are still due, even though the articles
are removed merely for storage in someother place and are not actually sold or consumed.
When tobacco is harvested and processed either by hand or by machine, all itsproducts become
subject to specific tax. Section 141 reveals the legislative policy to tax all forms of manufactured
tobacco — in contrast to raw tobacco leaves — including tobacco refuse or all other tobacco
which has been cut, split, twisted, or pressed and is capable of being smoked without further
industrial processing.

Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially prepared
tobacco. The removal of the stem or midrib from the leaf tobacco makes the resulting stemmed
leaf tobacco a prepared or partially prepared tobacco.

Despite the differing definitions for "stemmed leaf tobacco" under revenue regulations, the onus
of proving that stemmed leaf tobacco is not subject to the specific tax lies with the cigarette
manufacturers. Taxation is the rule, exemption is the exception.

[2] Stemmed leaf tobacco transferred in bulk between cigarette manufacturers are exempt from
excise tax under the Tax Code vis-a-vis RRs.

Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that the
sale or transfer has complied with the conditions prescribed by the Department of Finance.

The conditions under which stemmed leaf tobacco may be transferred from one factory to
another without prepayment of specific tax are as follows: (a) The transfer shall be under an
official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its
removal; (b) Entry shall be made in the L-7 register in the place provided on the page for removals;
and (c) Corresponding debit entry shall bemade in the L-7 register book of the factory receiving
the tobacco under the heading, "Refuse, etc.,received from the other factory," showing the date
of receipt, assessment and invoice numbers, name and address of the consignor, formin which
received, and the weight of the tobacco.

[3] Yes, valid. Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of
Internal Revenue with an L-7 permit refer to "manufacturers of tobacco products." Hence, the
transferor and transferee of the stemmed leaf tobacco must be an L-7 tobacco manufacturer.

The reason behind the tax exemption of stemmed leaf tobacco transferred between two L-7
manufacturers is that the same had already been previously-taxed when acquired by the L-7
manufacturer from dealers of tobacco. There is no new product when stemmed leaf tobacco is
transferred between two L-7 permit holders. Thus, there can be no excise tax that will attach. The
regulation, therefore, is reasonable and does not create a new statutory right.

Moreover, although delegation is not allowed as a rule, the power to fill in the details and manner
as to the enforcement and administration of a law may be delegated to various specialized
administrative agencies.
[4] Importation of stemmed leaf tobacco not included in the exemption. The transaction
contemplated in Section 137 does not include importation of stemmed leaf tobacco for the
reason that the law uses the word "sold" to describe the transaction of transferring the raw
materials from one manufacturer to another.

[5] In this case, there is no double taxation in the prohibited sense because the specific tax is
imposed by explicit provisions of the Tax Code on two different articles or products: (1) on the
stemmed leaf tobacco; and (2) on cigar or cigarette.

3.
China Banking Corporation v. CIR
G.R. No. 172509
February 4, 2015

Facts:

China Banking Corporation (“CBC”) is a universal bank duly organized under the laws of
the Philippines. It is engaged in transactions involving sales of foreign exchange to the Central
Bank of the Philippines, commonly known as SWAP Transactions. CBC did not pay tax on the
SWAP transactions for the years 1982-1986.
On 19 April 1989, CBC was assessed by the BIR for deficiency DST on the sales of foreign
bills of exchange to the Central Bank amounting to P 11,383, 165.50. CBC protested asserting five
defenses: double taxation, absence of liability, due process violation, validity of assessment and
tax exemption.
On 6 December 2001, more than 12 years after the filing of the protest, the Commissioner
of Internal Revenue (CIR) rendered a decision reiterating the deficiency DST assessment and
ordered the payment thereof plus increments within 30 days from receipt of the Decision.
The CIR replied to the CBC’s protest only on 06 December 2001 in which it ordered CBC
to pay its tax deficiency. Thereafter, CBC filed a Petition for Review with the CTA.
The CTA denied CBC’s petition ruling that the SWAP transaction is a telegraphic transfer
subject to DST; thus, CBC is liable to pay the alleged deficiency.
On appeal, CBC raised for the first time the issue of prescription. The BIR did not address
the issue of prescription in its Comment.

Issue: Whether the right of the BIR to collect the assessed DST from CBC is barred by prescription.

Held:

Yes, the BIR’s claim is barred by prescription. Following Sec. 319(c) of the 1977 NIRC (the
Tax Code applicable at the time of assessment), assessed tax must be collected by distraint or
levy and/or court proceeding within three years from the date when the BIR mails/releases/sends
the assessment notice to the taxpayer.
 In this case, the records do not show when the assessment notice was mailed, released
or sent to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed or
sent the assessment notice was on the same date that CBC received it, 19 April 1989. Assuming
therefore that 19 April 1989 is the reckoning date, the BIR had three years to collect the assessed
DST. However, the records of this case show that there was neither a warrant of distraint or levy
served on CBC's properties nor a collection case filed in court by the BIR within the three-year
period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay
the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the 1977
Tax Code, as amended. The demand was made almost thirteen years from the date from which
the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made way
beyond the three-year prescriptive period.
The Court also stated that although CBC raised the issue of prescription for the first time
only during appeal, this does not negate the applicability of prescription. Citing Sec. 1 of Rule 9
of the Rules of Court, the Court ruled that if the pleadings or evidence on record shows that the
claim is barred by prescription; the court is mandated to dismiss the claim even if prescription
was not raised as a defense.
The principle of estoppel likewise applies. As a general rule, the principle of estoppel and
waiver does not prevent the government from collecting taxes as the BIR is not bound by the
mistake or negligence of its agents. Nonetheless, the Supreme Court enunciated that the
principle is not absolute.
Relying on Republic v. Ker & Co. Ltd., the Court ruled that estoppel cannot apply in this
case as the CIR failed to raise the issue of prescription in its Comment. The 12-year delay in
collecting the assessed tax further convinced the Court that estoppel could not apply in this case.

4.
Commissioner of Internal Revenue vs. Cebu Portland Cement Co.
G.R. No. L-29059, 15 December 1987

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company,
respondent, P 359,408.98 representing overpayments of ad valorem taxes on cement sold by it.
Execution of judgement was opposed by the petitioner citing that private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact,
there was still a P4 M plus balance they owed. The Court of Tax Appeals, in holding that the
alleged sales tax liability of the private respondent was still being questioned and therefore could
not be set-off against the refund, granted private respondent's motion. The private respondent
questioned the assessed tax based on Article 186 of the Tax Code, contending that cement was
adjudged a mineral and not a manufactured product; and thusly they were not liable for their
alleged tax deficiency. Thereby, petitioner filed this petition for review.
Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting it.

Held: The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by simply questioning their validity,
the machinery of the state would grind to a halt and all government functions would be
paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code provides that
injunction is not available to restrain collection of tax. Thereby, we hold that the respondent
Court of Tax Appeals erred in its order.

5.
REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied
as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes
in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos
(P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values, which entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach should have been
used in determining the land values instead of the comparable sales approach which the City
Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a spirit of hostility, or
at the very least discrimination that finds no support in reason. 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. Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the
principle of social justice should not now be penalized by the same government by the imposition
of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their
properties.

6.
PHIL.GUARANTYCO.,INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts with foreign insurance companies not doing business in the country,
thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines. The premiums paid by such companies were excluded by the
petitioner from its gross income when it file its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance premiums to which the latter
protested the assessment on the ground that the premiums are not subject to tax for the
premiums did not constitute income from sources within the Philippines because the foreign
reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require
insurance companies to withhold income tax due from foreign companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to
foreign insurance companies, which deprives the government from collecting the tax due from
them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity.
It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants
to serve, public improvement designed for the enjoyment of the citizenry and those which come
within the State's territory, and facilities and protection which a government is supposed to
provide. Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of
maintaining thestate.
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding
of tax due onreinsurance premiums may free the taxpayer from the payment of surcharges or
penalties imposed for failure topay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay suchwithholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.
 7.

Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals

GR No. L-28896 February 17, 1988

Facts:
The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent,
authorizing it to sell its land, factories and oil manufacturing process.As such,the corporation
worked for the formation of the Vegetable Oil Investment Corporation, until they were able to
purchased the PSEDC properties. For this sale, Algue Inc., received as agent a commission of P126,
000.00, and it was from this commission that the P75, 000.00 promotional fees were paid to
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue Inc., it held that the said amount had been legitimately
paid by the private respondent for actual services rendered. The payment was in the form of
promotional fees.

Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction
claimed by private respondent Algue Inc., as legitimate business expenses in its income tax
returns.

Ruling:
No, The Supreme Court agrees with the respondent court that the amount of the promotional
fees was not excessive. The P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties.

The claimed deduction by the private respondent was permitted under the Internal Revenue
Code and should therefore not have been disallowed by the petitioner.

8.
 WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant v. J. ANTONIO ARANETA, as collector of Internal Revenue,
defendant-apppelle

G.R No. L-7856. December 22, 1955

REYES, J.B L., J.:

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of
the deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal
Revenue the total sum of fourteen thousand six hundred sixty six and forty cents (P 14, 666.40)
paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also known as the
Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567
Section 2 provides for an increase of the existing tax on the manufacture of sugar on a graduated
basis, on each picul of sugar manufacturer; while section 3 levies on the owners or persons in
control of the land devoted tot he cultivation of sugarcane and ceded to others for consideration,
on lease or otherwise - "a tax equivalent to the difference between the money value of the rental
or consideration collected and the amount representing 12 per centum of the assessed value of
such land. It was alleged that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for
which a tax may be constitutionally levied. The action was dismissed by the CFI thus the plaintiff
appealed directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of
our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in the fields and factories; that it is a great source of the
state's wealth, is one of the important source of foreign exchange needed by our government
and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the
sugar industry be stabilized in turn; and in the wide field of its police power, the law-making body
could provide that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily a valid exercise
of police power.

9.

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga.
It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the
petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635
otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail being
posted, and no mail
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation
and to grant
exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is
said that in the
field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The
reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and
on administrative
convenience. Tax exemptions have never been thought of as raising revenues under the equal
protection clause.
 10.
Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz,
G.R. No. 76778. June 6, 1990

FACTS:
Section 21 of Presidential Decree No. 464 provides that every five years starting calendar
year 1978, there shall be a provincial or city general revision of real property assessments. The
revised assessment shall be the basis for the computation of real property taxes for the five
succeeding years.
On the strength of the aforementioned law, the general revision of assessments was
completed in 1984. However, Executive Order No. 1019 was issued, which deferred the
collection of real property taxes based on the 1984 values to January 1, 1988 instead of January
1, 1985.
On November 25, 1986, President Corazon Aquino issued Executive order No. 73. It states
that beginning January 1, 1987, the 1984 assessments shall be the basis of the real property
collection. Thus, it effectively repealed Executive Order No. 1019.
Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of
Executive Order No. 73. He alleges that it will bring unreasonable increase in real property taxes.
In fact, according to him, the application of the assailed order will cause an excessive increase in
real property taxes by 100% to 400% on improvements and up to 100% on land.

ISSUE: Whether or not Executive Order no. 73 imposes unreasonable increase in real property
taxes, thus, should be declared unconstitutional.

RULING:
The attack on Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at
all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm.
However, Chavez failed to raise any objection against said decree.
Without Executive Order No. 73, the basis for collection of real property taxes will still
be the 1978 revision of property values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard of the increases in the value of
real properties that have occurred since then, is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenues must be adequate to meet government expenditures and their variations.

11.
ASSOCIATION OF CUSTOMS BROKERS, INC and MANLAPIT v. MUNICIPAL BOARD OF MANILA
Topic: local taxation – fundamental principles

Facts:
- In 1950, the Association of Customs Brokers (composed of all brokers and public service
operators of motor vehicles in Manila) and Manlapit, an operator-member of said
 association filed a petition for declaratory relief challenging the validity of Manila City
Ordinance No. 3379:
o While the ordinance levies a so-called property tax, it is in reality a license tax
beyond the power of the Municipal Board
o The ordinance is offensive against the rule of uniformity of taxation
o The levy constitutes double taxation
- City Fiscal
o Ordinance imposes a property tax within the power of the City of Manila under
its Revised Charter (RA 409, se. 18(p))
 The municipal board has the power “to tax motor and other vehicles
operating within the City of Manila, the provisions of any existing law to
the contrary notwithstanding.”
o No violation of other 2 grounds
- CFI: petition dismissed; ordinance is valid

Issue(s):

w/n Ordinance No. 3379 is valid

SC Ratio:

No, it is invalid for levying an excise tax which is not within the scope of the City’s powers and
for violating the rule on uniformity.

Under section 70(b) of the Motor Vehicles Law (Act No. 3392):

“No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing
in this Act shall be construed to exempt any motor vehicle from the payment of any
lawful and equitable insular, local or municipal property tax imposed thereupon. . .”

This provision should be construed as limiting the broad grant of power conferred upon the City
of Manila by its Charter to impose taxes, such that only property taxes may be imposed on
motor vehicles operating within its territorial jurisdiction.

Sec. 1 of Ordinance No. 3379 denominates the tax imposed as ad valorem (meaning tax
proportional to value of the property) and while as a rule an ad valorem tax is a property tax,
such rule is not absolute. Rather, the character of the tax (property v. excise) must be
determined by its incidents, and from the natural and legal effect of the language employed in
the act or ordinance, and not by the name by which it is described, or by the mode adopted in
fixing its amount. Excise taxes are those imposed upon the performance of an act, enjoyment of
a privilege, or the engaging in an occupation.

The purpose of the ordinance is to raise funds for the repair, maintenance and improvement of
the streets and bridges in said city, something which the Motor Vehicles Law already addresses.
The prohibition under sec. 70(b) is meant to prevent municipal corporations from duplicating
the levy since under sec. 73 of the same act, they already participate in the distribution of the
proceeds collected under the Motor Vehicles Law. “It is for this reason that we believe that the
ordinance in question merely imposes a license fee although under the cloak of an ad
valorem tax to circumvent the prohibition above adverted to.”

Moreover, the ordinance violates the rule of uniformity since “[i]t does not distinguish between
a motor vehicle hire and one which is purely for private use. Neither does it distinguish
between a motor vehicle registered in the City of Manila and one registered in another place
but occasionally comes to Manila and uses its streets and public highways. The distinction is
important if we note that the ordinance intends to burden with the tax only those registered in
the City of Manila as may be inferred from the word "operating" used therein. The word
"operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle
Law no motor vehicle can be operated without previous payment of the registration fees”.

12.
CIR vs ESSO Standard Eastern (G.R. No. L-28502-03. April 18, 1989)
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 P146,961.00—
representing 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 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 payee’s 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.