1. CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21, 2008] 2. Commissioner of Internal Revenue vs.
ner of Internal Revenue vs. Central Luzon Drug Corporation
Post under case digests, Taxation at Tuesday, February 21, 2012 Posted by Schizophrenic Mind
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.
G.R. No. 159647 April 15, 2005
Facts:
Respondents operated six drugstores under the business name Mercury Drug. From January to
December 1996 respondent granted 20% sales discount to qualified senior citizens on their
purchases of medicines pursuant to RA 7432 for a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996
declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax
refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales discount. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals.
The court dismissed the same but upon reconsideration, the latter reversed its earlier ruling and
ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No.
60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals
exclusively with illegally collected or erroneously paid taxes but that there are other situations
which may warrant a tax credit/refund.
CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a tax credit.
Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a just
compensation for the taking of private property for public use.
Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as
a tax credit.
Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20%
discount on their purchase of medicine from any private establishment in the country. The latter
may then claim the cost of the discount as a tax credit. Such credit can be claimed even if the
establishment operates at a loss.
A tax credit generally refers to an amount that is “subtracted directly from one’s total tax
liability.” It is an “allowance against the tax itself” or “a deduction from what is owed” by a
taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction
– which is subtraction “from income for tax purposes,” or an amount that is “allowed by law to
reduce income prior to the application of the tax rate to compute the amount of tax which is
due.” In other words, whereas a tax credit reduces the tax due, tax deduction reduces the income
subject to tax in order to arrive at the taxable income.
A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before
the tax credit can be applied. Without that liability, any tax credit application will be
useless. There will be no reason for deducting the latter when there is, to begin with, no existing
obligation to the government. However, as will be presented shortly, the existence of a tax credit
or its grant by law is not the same as the availment or use of such credit. While the grant is
mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are
currently due from, a business establishment, there will obviously be no tax liability against
which any tax credit can be applied. For the establishment to choose the immediate availment of
a tax credit will be premature and impracticable.
3. SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF TRADE AND
INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE
BUREAU OF CUSTOMS, respondents.
Facts:
Republic Act No. 8800, the Safeguard Measures Act (SMA), which was one of the laws enacted
by Congress soon after the Philippines ratified the General Agreement on Tariff and Trade
(GATT) and the World Trade Organization (WTO) Agreement.[3] The SMA provides the
structure and mechanics for the imposition of emergency measures, including tariffs, to protect
domestic industries and producers from increased imports which inflict or could inflict serious
injury on them.
Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic corporation
engaged in the business of cement manufacturing, production, importation and exportation. Its
principal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation,
purportedly the largest cement manufacturers in Japan.[5]
Private respondent Philippine Cement Manufacturers Corporation[6] (Philcemcor) is an
association of domestic cement manufacturers. It has eighteen (18) members,[7] per Record.
While Philcemcor heralds itself to be an association of domestic cement manufacturers, it
appears that considerable equity holdings, if not controlling interests in at least twelve (12) of
its member-corporations, were acquired by the three largest cement manufacturers in the
world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd.
of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).
the DTIs disagreement with the conclusions of the Tariff Commission, but at the same time,
ultimately denying Philcemcors application for safeguard measures on the ground that the he
was bound to do so in light of the Tariff Commissions negative findings.
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a
Petition for Certiorari, Prohibition and Mandamus[11] seeking to set aside the DTI Decision, as
well as the Tariff Commissions Report. The Court of Appeals Twelfth Division, in a Decision[13]
penned by Court of Appeals Associate Justice Elvi John Asuncion,[14] partially granted
Philcemcors petition.
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals
has no jurisdiction over Philcemcors petition, as the proper remedy is a petition for review with
the CTA conformably with the SMA, and; that the factual findings of the Tariff Commission on
the existence or non-existence of conditions warranting the imposition of general safeguard
measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its binding force
was cited by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein he
ruled that that in light of the appellate courts Decision, there was no longer any legal
impediment to his deciding Philcemcors application for definitive safeguard measures.
The Court of Appeals had held that based on the foregoing premises, petitioner’s prayer to set
aside the findings of the Tariff Commission in its assailed Report dated March 13, 2002 is
DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the
Department of Trade and Industry is hereby SET ASIDE. Consequently, the case is REMANDED
to the public respondent Secretary of Department of Trade and Industry for a final decision in
accordance with RA 8800 and its Implementing Rules and Regulations. Hence, the appeal.
Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that in light
of the appellate courts Decision there was no longer any legal impediment to his deciding
Philcemcors application for definitive safeguard measures.[41] He made a determination that,
contrary to the findings of the Tariff Commission, the local cement industry had suffered
serious injury as a result of the import surges.[42] Accordingly, he imposed a definitive
safeguard measure on the importation of gray Portland cement, in the form of a definitive
safeguard duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland
Cement. Hence, the appeal.
Issue:
Whether or not the decision of DTI Secretary, to impose safeguard measures is valid.
Held:
NO, due to the nature of this case, the Court found that the DTI should follow the regulations
prescribed by SMA. The Court held that he assailed Decision of the Court of Appeals is
DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June
2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs.
Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that in light
of the appellate courts Decision there was no longer any legal impediment to his deciding
Philcemcors application for definitive safeguard measures.[41] He made a determination that,
contrary to the findings of the Tariff Commission, the local cement industry had suffered
serious injury as a result of the import surges.[42] Accordingly, he imposed a definitive safeguard
measure on the importation of gray Portland cement, in the form of a definitive safeguard duty
in the amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.
4. CIR v. SM PRIME HOLDINGS, GR No. 183505, 2010-02-26
Facts:
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the laws of
the Republic of the Philippines. Both are engaged in the business of operating cinema houses,
among... others.
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary
Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in the
amount of P119,276,047.40 for taxable year 2000.[8] In response, SM Prime... filed a letter-
protest dated December 15, 2003.
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the
VAT deficiency for taxable year 2000 in the amount of P124,035,874.12.
On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on... cinema ticket sales for
taxable year 1999 in the total amount of P35,823,680.93.[13] First Asia protested the PAN in a
letter dated July 9, 2002.
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia
to pay the amount of P35,823,680.93 for VAT deficiency for taxable year 1999.
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of
P32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a protest-
letter dated November 11, 2004. The BIR then sent a Formal Letter of Demand, which... was
protested by First Asia on December 14, 2004.[
A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for the
taxable year 2003 was issued by the BIR against First Asia. In a letter dated September 23, 2004,
First Asia protested the PAN. A Formal Letter of Demand was thereafter issued by the
BIR to First Asia, which the latter protested through a letter dated November 11, 2004. [24]
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272
with CTA Case No. 7079 on the grounds that the issues raised therein are identical and that SM
Prime is a majority shareholder of First Asia. The motion was granted.
Upon submission of the parties' respective memoranda, the consolidated cases were submitted
for decision on the sole issue of whether gross receipts derived from admission tickets by
cinema/theater operators or proprietors are subject to VAT.
On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition
for Review.
Issues:
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema
houses from admission tickets [are] subject to the 10% VAT because:
(a)
THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A
SALE OF SERVICE;
Ruling:
The petition is bereft of merit.
The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,... commercial, customs
and immigration brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators... or keepers of hotels,
motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on their... transport of goods or
cargoes, including persons who transport goods or cargoes for hire and other domestic
common carriers by land, air and water relative to their transport of goods or cargoes; services
of franchise grantees of telephone and telegraph, radio and television... broadcasting and all
other franchise grantees except those under Section 119 of this Code; services of banks, non-
bank financial intermediaries and finance companies; and non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and... bonding companies; and
similar services regardless of whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties.
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or
exchange of services" subject to VAT is not exhaustive. The words, "including," "similar
services," and "shall likewise include," indicate that the enumeration is by way of example...
only
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
reclassified 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. ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner of BIR, et al.
G.R. No. L-59431 July 25, 1984
FACTS:
The challenged posed in this suit for declaratory relief or prohibition proceeding on the validity of
Section 1 of Batas Pambansa Blg. 135 which further amends Section 21 of the National Internal
Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest
from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust
fund and similar arrangements, (e) dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleges that by virtue thereof,
"he would be unduly discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed
income or salaried individual taxpayers. He characterizes the above section as arbitrary amounting
to class legislation, oppressive and capricious in character. For the petitioner there is transgression
of both the equal protection and due process clause as well as the rule requiring uniformity in
taxation.
ISSUE: Is Section 1 of BP 135 is violative of due process and equal protection clause?
RULING:
No. The power to tax, an inherent prerogative, has to be availed of to assure the performance of
vital state functions. It is a source of bulk of public funds. To paraphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability are of the essence. The
power to tax is an attribute of sovereignty. The Constitution as the fundamental law overrides any
legislative or executive act that runs counter to it. The injury is centered on the question whether
the imposition of a higher tax rate on taxable net income derived from business or profession than
on compensation is constitutionally infirm. The difficulty confronting petitioner is thus apparent.
He alleges arbitrariness. A mere allegation does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such a provision as
void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine
that were the due process and equal protection clauses are invoked, considering that the arc not
fixed rules but rather broad standards, there is a need for of such persuasive character as would
lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. Due process and equal
protection was not violated. Petition is dismissed.
4. 7. CIR –v– Algue, Inc., & CTA G.R. No. L-28896 February 17, 1988
FACTS: Algue, Inc., a domestic corporation engaged in engineering, construction and other allied
activities. Philippine Sugar Estate Development Company had earlier appointed Algue as its
agent, authorizing it to sell its land, factories and oil manufacturing process. [There was a sale for
which] Algue 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 the aforenamed individuals. The payees duly
reported their respective shares of the fees in their income tax returns and paid the corresponding
taxes thereon, and there was no distribution of dividends was involved.
[Algue claimed the 75,000 to be deductible from their tax, to which the CIR disallowed.]
ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns.
HELD: NO – CIR is not correct. The burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.
8. Phil. Bank of Communications vs. CIR
PHIL. BANK OF COMMUNICATIONS v. CIR
GR No. 112024, January 28, 1999
302 SCRA 250
FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits,
and paid income
taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that
when it filed
its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise
reported a net
loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from
CIR for a tax
credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent
CIR,
petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its
petition for tax
credit and refund for failing to file within the prescriptive period to which the petitioner belies
arguing the
Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are
not covered by the two-year prescriptive period mandated under the Tax Code.
ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the
NIRC?
HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to
generate funds for
the State to finance the needs of the citizenry and to advance the common weal. Due process of
law under the
Constitution does not require judicial proceedings in tax cases. This must necessarily be so
because it is upon
taxation that the government chiefly relies to obtain the means to carry on its operations and it is
of utmost
importance that the modes adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible.
From the same perspective, claims for refund or tax credit should be exercised within the time
fixed by law
because the BIR being an administrative body enforced to collect taxes, its functions should not
be unduly delayed or hampered by incidental matters.
9. NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN
GR. No. 149110, April 9, 2003
Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under
Commonwealth Act 120. It is tasked to undertake the “development of hydroelectric generations
of power and the production of electricity from nuclear, geothermal, and other sources, as well as,
the transmission of electric power on a nationwide basis.”
For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the former’s gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government,
refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on
government entities. Petitioner also contend that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395,
as amended.
The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner
pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly
interest. Respondent alleged that petitioner’s exemption from local taxes has been repealed by
Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the
case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner
to pay the city government the tax assessment.
Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government and its charter characterized is as a
‘nonprofit organization’?
(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the Local
Government Code (LGC)?
Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise
by the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was
created as a separate and distinct entity from the National Government. It can sue and be sued
under its own name, and can exercise all the powers of a corporation under the Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is no engage din business.
(2) YES. One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the National Government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind
on the National Government, its agencies and instrumentalities, this rule now admits an exception,
i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on
the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under
existing laws or charter is clearly manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it
would be tedious and impractical to attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal
of such exemptions or privileges. No more unequivocal language could have been used.
10. Planters Products Inc vs Fertiphil Corp G.R. No. 166006 March 14, 2008
FACTS: Petitioner PPI and respondent Fertiphil are private corporations incorporated under
Philippine laws, both engaged in the importation and distribution of fertilizers, pesticides and
agricultural chemicals.
Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery component of
Php10.00 per bag of fertilizer. The levy was to continue until adequate capital was raised to make
PPI financially viable. Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA), which
was then remitted the depository bank of PPI. Fertiphil paid P6,689,144 to FPA from 1985 to
1986.
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Fertiphil
demanded from PPI a refund of the amount it remitted, however PPI refused. Fertiphil filed a
complaint for collection and damages, questioning the constitutionality of LOI 1465, claiming
that it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to
a denial of due process. PPI argues that Fertiphil has no locus standi to question the
constitutionality of LOI No. 1465 because it does not have a "personal and substantial interest in
the case or will sustain direct injury as a result of its enforcement." It asserts that Fertiphil did not
suffer any damage from the imposition because "incidence of the levy fell on the ultimate
consumer or the farmers themselves, not on the seller fertilizer company.
ISSUE: Whether or not Fertiphil has locus standi to question the constitutionality of LOI No.
1465.
What is the power of taxation?
RULING: Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a
mere procedural technicality which may be waived.
The imposition of the levy was an exercise of the taxation power of the state. While it is true that
the power to tax can be used as an implement of police power, the primary purpose of the levy
was revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the
real and substantial purposes, then the exaction is properly called a tax.
Police power and the power of taxation are inherent powers of the State. These powers are distinct
and have different tests for validity. Police power is the power of the State to enact legislation that
may interfere with personal liberty or property in order to promote the general welfare, while the
power of taxation is the power to levy taxes to be used for public purpose. The main purpose of
police power is the regulation of a behavior or conduct, while taxation is revenue generation. The
"lawful subjects" and "lawful means" tests are used to determine the validity of a law enacted
under the police power. The power of taxation, on the other hand, is circumscribed by inherent
and constitutional limitations.
11. BAGATSING vs. RAMIREZ
74 SCRA 306
GR No. L-41631, December 17, 1976
"The entrusting of the tax collection to private entities does not destroy the public purpose of a tax
ordinance."
FACTS: Aside from the issue on publication, private respondent bewails that the market stall fees
imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes
fees for rentals of stalls, are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said
corporation in a "Management and Operating Contract."
ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance
and defeats its public purpose?
HELD: No. The assumption is of course saddled on erroneous premise. The fees collected do not
go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So
long as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object
for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for a
public purpose, although it be under the direction of an individual or private corporation.
12. Chamber of Real Estate and Builders’ Associations, Inc., v. The Hon. Executive Secretary
Alberto Romulo, et al
G.R. No. 160756. March 9, 2010
Facts: Petitioner Chamber of Real Estate and Builders’ Associations, Inc. (CREBA), an
association of real estate developers and builders in the Philippines, questioned the validity of
Section 27(E) of the Tax Code which imposes the minimum corporate income tax (MCIT) on
corporations.
Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of gross
income, beginning on the 4th taxable year immediately following the year in which it commenced
its business operations, when such MCIT is greater than the normal corporate income tax. If the
regular income tax is higher than the MCIT, the corporation does not pay the MCIT.
CREBA argued, among others, that the use of gross income as MCIT base amounts to a
confiscation of capital because gross income, unlike net income, is not realized gain.
CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as
the Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for the
collection of CWT on sales of real properties classified as ordinary assets, on the grounds that
these regulations:
Ø Use gross selling price (GSP) or fair market value (FMV) as basis for determining
the income tax on the sale of real estate classified as ordinary assets, instead of the entity’s net
taxable income as provided for under the Tax Code;
Ø Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code
provision which imposes income tax on net income at the end of the taxable period;
Ø Go against the due process clause because the government collects income tax even when the
net income has not yet been determined; gain is never assured by mere receipt of the selling price;
and
Ø Contravene the equal protection clause because the CWT is being charged upon real estate
enterprises, but not on other business enterprises, more particularly, those in the manufacturing
sector, which do business similar to that of a real estate enterprise.
Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of CWT on income
from sales of real properties classified as ordinary assets constitutional?
Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary and
confiscatory if it taxes capital, because it is income, and not capital, which is subject to income
tax. However, MCIT is imposed on gross income which is computed by deducting from gross
sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is not being taxed.
tax due is greater than the tax withheld, then the taxpayer shall pay the difference. If, on the other
hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a refund or tax
credit.
The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality and
convenience. The knowledge of the withholding agent-buyer is limited to the particular
transaction in which he is a party. Hence, his basis can only be the GSP or FMV which figures are
reasonably known to him.
Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon
consummation of the sale, is not contrary to the Tax Code which calls for the payment of the net
income at the end of the taxable period. The taxes withheld are in the nature of advance tax
payments by a taxpayer in order to cancel its possible future tax obligation. They are installments
on the annual tax which may be due at the end of the taxable year. The withholding agent-buyer’s
act of collecting the tax at the time of the transaction, by withholding the tax due from the income
payable, is the very essence of the withholding tax method of tax collection.
On the alleged violation of the equal protection clause, the taxing power has the authority to make
reasonable classifications for purposes of taxation. Inequalities which result from singling out a
particular class for taxation, or exemption, infringe no constitutional limitation. The real estate
industry is, by itself, a class and can be validly treated differently from other business enterprises.
What distinguishes the real estate business from other manufacturing enterprises, for purposes of
the imposition of the CWT, is not their production processes but the prices of their goods sold and
the number of transactions involved. The income from the sale of a real property is bigger and its
frequency of transaction limited, making it less cumbersome for the parties to comply with the
withholding tax scheme. On the other hand, each manufacturing enterprise may have tens of
thousands of transactions with several thousand customers every month involving both minimal
and substantial amounts.

Various safeguards were incorporated into the law imposing MCIT.

Firstly, recognizing the birth pangs of businesses and the reality of the need to recoup initial major
capital expenditures, the MCIT is imposed only on the 4th taxable year immediately following the
year in which the corporation commenced its operations.

Secondly, the law allows the carry-forward of any excess of the MCIT paid over the normal
income tax which shall be credited against the normal income tax for the three immediately
succeeding years.

Thirdly, since certain businesses may be incurring genuine repeated losses, the law authorizes the
Secretary of Finance to suspend the imposition of MCIT if a corporation suffers losses due to
prolonged labor dispute, force majeure and legitimate business reverses.

(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of real
property classified as ordinary assets remains as the entity’s net taxable income as provided in the
Tax Code, i.e., gross income less allowable costs and deductions. The seller shall file its income
tax return and credit the taxes withheld by the withholding agent-buyer against its tax due. If the
13.
14. Villanueva vs. City of Iloilo [December 28, 1968, L-26521]
Post under case digests, Taxation at Friday, February 24, 2012 Posted by Schizophrenic Mind
Facts: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86. The
Supreme Court, however, declared the ordinance ultra vires. On January 15, 1960 the municipal
board of Iloilo City, believing that with the passage of Republic Act 2264, otherwise known as
the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to
that previously declared by the Supreme Court as ultra vires, enacted Ordinance 11 (eleven),
series of 1960, imposing municipal license tax on persons engaged in the business of operating
tenement houses.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. By virtue of the ordinance in question, the
appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the
years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S.
Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed acomplaint, and an amended
complaint, respectively, against the City of Iloilo, praying that Ordinance 11, series of 1960, be
declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to
enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be
ordered to refund the amounts collected from them under the said ordinance. The lower court
rendered judgment declaring the ordinance illegal.
Issues:
(1) Whether or not the City of Iloilo is empowered by the Local Autonomy Act to impose
tenement taxes.
(2) Whether or not Ordinance 11, series of 1960, does violate the rule of uniformity of taxation.
Held:
(1) Yes. The lower court has interchangeably denominated the tax in question as a tenement
tax or an apartment tax. Called by either name, it is not among the exceptions listed in Section 2
of the Local Autonomy Act. The imposition by the ordinance of a license tax on persons engaged
in the business of operating tenement houses finds authority in Section 2 of the Local Autonomy
Act which provides that chartered cities have the authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses,
or fees."
(2) No. The ordinance is not violative of the rule of uniformity in taxation. The Supreme
Court has already ruled that tenement houses constitute a distinct class of property. It has likewise
ruled that "taxes are uniform and equal when imposed upon all property of the same class or
character within the taxing authority." The fact, therefore, that the owners of other classes of
buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no
argument at all against uniformity and equality of the tax imposition. Neither is the rule of
equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for
the same rule does not require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time. So long as the burden of the tax falls equally and
impartially on all owners or operators of tenement houses similarly classified or situated, equality
and uniformity of taxation is accomplished.
Hence, the judgment of the lower court is reversed. The ordinance in question is valid.
15. CIR V SC JOHNSON INC. June 25, 1999
Monday, January 26, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Taxation
Facts: Respondent is a domestic corporation organized and operating under the Philippine Laws,
entered into a licensedagreement with the SC Johnson and Son, USA, a non-resident foreign
corporation based in the USA pursuant to which the respondent was granted the right to use the
trademark, patents and technology owned by the later including the right to manufacture,
package and distribute the products covered by the Agreement and secure assistance in
management, marketing and production from SC Johnson and Son USA.
For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA
royalties based on a percentage of net sales and subjected the same to 25% withholding tax on
royalty paymentswhich respondent paid for the period covering July 1992 to May 1993 in the total
amount of P1,603,443.00.
On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the
BIR a claim for refund of overpaidwithholding tax on royalties arguing that, the antecedent facts
attending respondents case fall squarely within the same circumstances under which said
MacGeorge and Gillette rulings were issued. Since the agreement was approved by the
Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent. So,
royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10%
withholding tax.
The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son,
Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid
withholding tax on royalty payments from July 1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to
issue a tax credit certificate in the amount of P163,266.00 representing overpaid withholding tax
on royaltypayments beginning July 1992 to May 1993.
The CIR thus filed a petition for review with the CA which rendered the decision subject of this
appeal on November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.
Issue: Whether or not tax refunds are considered as tax exemptions.
Held: It bears stress that tax refunds are in the nature of tax exemptions. As such they are
registered as in derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. The burden of proof is upon him who claims the
exemption in his favor and he must be able to justify his claim by the clearest grant of organic or
statute law. Private respondent is claiming for a refund of the alleged overpayment of tax on
royalties; however there is nothing on record to support a claim that the tax on royalties under the
RP-US Treaty is paid under similar circumstances as the tax on royalties under the RPWest
Germany Tax Treaty.
16. TALENTO VS. ESCALADA
EMERLINDA S. TALENTO, in her capacity as the Provincial Treasurer of the Province of Bataan,
vs. HON. REMIGIO M.
ESCALADA, JR., Presiding Judge of the Regional Trial Court of Bataan, Branch 3, and PETRON
CORPORATION [G.R. No.
180884. June 27, 2008.]
Facts: Petron received from the Provincial Assessor's Office of Bataan a notice of revised
assessment over its machineries and pieces of equipment in Lamao, Limay, Bataan. Petron filed
a petition with the LBAA. Petron received from petitioner a final notice of delinquent real
property tax with a warning that the subject properties would be levied and auctioned should
Petron fail to settle the revised assessment due.
Consequently, Petron sent a letter to petitioner stating that in view of the pendency of its
appeal with the LBAA, any action by the Treasurer's Office on the subject properties would be
premature. However, petitioner replied that only Petron's payment under protest shall bar the
collection of the realty taxes due, pursuant to Sections 231 and 252 of the LGC. On even date,
Petron filed with the Regional Trial Court of Bataan the instant case (docketed as Civil Case No.
8801) for prohibition with prayer for the issuance of a temporary restraining order (TRO) and
preliminary injunction. The trial court issued the assailed Order granting Petron's petition for
issuance of writ of preliminary injunction, subject to Petron's posting of a P444,967,503.52
bond in addition to its previously posted surety bond of P1,286,057,899.54, to complete the
total amount equivalent to the revised assessment of P1,731,025,403.06. The trial court held
that in scheduling the sale of the properties despite the pendency of Petron's appeal and
posting of the surety bond with the LBAA, petitioner deprived Petron of the right to appeal.
Issue/Held: W/N the trial court properly issued the injunction order- YES
Ratio: We are not unaware of the doctrine that taxes are the lifeblood of the government,
without which it cannot properly perform its functions; and that appeal shall not suspend the
collection of realty taxes. However, there is an exception to the foregoing rule, i.e., where the
taxpayer has shown a clear and unmistakable right to refuse or to hold in abeyance the
payment of taxes. In the instant case, we note that respondent contested the revised
assessment on the following grounds: that the subject assessment pertained to properties that
have been previously declared; that the assessment covered periods of more than 10 years
which is not allowed under the LGC; that the fair market value or replacement cost used by
petitioner included items which should be properly excluded; that prompt payment of
discounts were not considered in determining the fair market value; and that the subject
assessment should take effect a year after or on January 1, 2008. To our mind, the resolution of
these issues would have a direct bearing on the assessment made by petitioner. Hence, it is
necessary that the issues must first be passed upon before the properties of respondent are
sold in public auction.
17. CIR v. RAUL M. GONZALEZ, GR No. 177279, 2010-10-13
Facts:
conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax
liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the... taxable years
1997, 1998 and 1999.
a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on
January 19, 2001
Based on data obtained from an "informer" and various clients of LMCEC... it was discovered
that LMCEC filed fraudulent tax returns with substantial underdeclarations of taxable income
for the years 1997, 1998 and 1999.
Petitioner thus assessed the... company of total deficiency taxes
The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001.
In view of the above findings, assessment notices together with a formal letter of demand dated
August 7, 2002 were sent to LMCEC through personal service on October 1, 2002
On May 21, 2003, petitioner,... referred to the Secretary of Justice for preliminary investigation
its complaint against LMCEC... it was alleged that despite the receipt of the final assessment
notice and formal demand letter on
October 1, 2002, LMCEC failed and refused to pay the deficiency tax assessment... which had
become final and executory as a result of the said taxpayer's failure to file a protest thereon
within the thirty (30)-day... reglementary period... contending that LMCEC cannot be held liable
whatsoever for the alleged tax deficiency which had become due and demandable
They also assail as invalid the assessment notices which bear no serial numbers... petitioner
disagreed with the contention of LMCEC that the complaint filed is not criminal in nature,
pointing out that LMCEC and its officers Camus and Mendoza were being charged for the
criminal offenses... defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax)
and 255 (Willful Failure to Pay Tax) of the NIRC.
On the lack of control number in the assessment notice, petitioner explained that such is a mere
office requirement in the Assessment Service for the purpose of internal control and
monitoring; hence, the unnumbered assessment notices should not be interpreted as irregular
or... anomalous
On September 22, 2003, the Chief State Prosecutor issued a Resolution[27] finding no sufficient
evidence to establish probable cause against respondents LMCEC, Camus and Mendoza.
On... the required prior determination of fraud... ruled that (1) there was no prior
determination of fraud
Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for
review
On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the
existence of the following circumstances indicating fraud in the settlement of LMCEC's tax
liabilities: (1) there must be intentional and substantial understatement of tax liability by... the
taxpayer; (2) there must be intentional and substantial overstatement of deductions or
exemptions; and (3) recurrence of the foregoing circumstances.
second, the claim... that the tax fraud investigation was precipitated by an alleged "informant"
has not been corroborated nor was it clearly established, hence there is no other conclusion but
that the Bureau engaged in a "fishing expedition"
Petitioner filed the criminal complaint against the private respondents for violation of the
following provisions of the NIRC,... Respondent Secretary concurred with the Chief State
Prosecutor's conclusion that there is insufficient evidence to establish probable cause to charge
private respondents... the assessment notices... are unnumbered, hence irregular and suspect
Issues:
whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254
(Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate
Information and Pay Tax).
Ruling:
a preliminary investigation should first be conducted to determine if a... prima facie case for tax
fraud exists
[t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent
[return] with intent to evade and defeat x x x the tax." Thus, respondent
Secretary erred in holding that petitioner committed forum shopping when it filed the... present
criminal complaint during the pendency of its appeal from the City Prosecutor's dismissal of I.S.
No. 00-956 involving the act of disobedience to the summons in the course of the... preliminary
investigation on LMCEC's correct tax liabilities for taxable years 1997, 1998 and 1999.
Respondent Secretary, however, fully concurred with private respondents' contention that the
assessment notices were invalid for being unnumbered and the tax liabilities therein stated
have already been settled and/or terminated.
As it is, the formality of a control number in the assessment notice is not a requirement for its
validity but rather the contents thereof which should inform the taxpayer of the declaration of
deficiency tax against said taxpayer. Both the formal letter of demand and the notice... of
assessment shall be void if the former failed to state the fact, the law, rules and regulations or
jurisprudence on which the assessment is based, which is a mandatory requirement under
Section 228 of the NIRC.
Principles:
The rationale for dismissing the complaint on the ground of lack of control number in the
assessment... notice likewise betrays a lack of awareness of tax laws and jurisprudence, such
circumstance not being an element of the offense.
18. PEOPLE OF THE PHILIPPINES, PETITIONER, VS. THE HONORABLE SANDIGANBAYAN (FIFTH
DIVISION) AND EFREN L. ALAS, RESPONDENTS. D E C I S I O N
CORONA, J.:
Does the Sandiganbayan have jurisdiction over presidents, directors or trustees, or managers of
government-owned or controlled corporations organized and incorporated under the
Corporation Code for purposes of the provisions of RA 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act? The petitioner, represented by the Office of the Special Prosecutor
(OSP), takes the affirmative position in this petition for certiorari under Rule 65 of the Rules of
Court. Respondent Efren L. Alas contends otherwise, together with the respondent court.
Pursuant to a resolution dated September 30, 1999 of the Office of the Ombudsman, two
separate informations[1] for violation of Section 3(e) of RA 3019, otherwise known as the Anti-
Graft and Corrupt Practices Act, were filed with the Sandiganbayan on November 17, 1999
against Efren L. Alas. The charges emanated from the alleged anomalous advertising contracts
entered into by Alas, in his capacity as President and Chief Operating Officer of the Philippine
Postal Savings Bank (PPSB), with Bagong Buhay Publishing Company which purportedly caused
damage and prejudice to the government. On October 30, 2002, Alas filed a motion to quash
the informations for lack of jurisdiction, which motion was vehemently opposed by the
prosecution. After considering the arguments of both parties, the respondent court ruled that
PPSB was a private corporation and that its officers, particularly herein respondent Alas, did not
fall under Sandiganbayan jurisdiction. According to the Sandiganbayan:
After a careful consideration of the arguments of the accused-movant as well as of that of the
prosecution, we are of the considered opinion that the instant motion of the accused is well
taken. Indeed, it is the basic thrust of Republic Act as well as (sic) Presidential Decree No. 1606
as amended by President Decree No. 1486 and Republic Act No. 7975 and Republic Act No.
8249 that the Sandiganbayan has jurisdiction only over public officers unless private persons are
charged with them in the commission of the offenses. The records disclosed that while
Philippine Postal Savings Bank is a subsidiary of the Philippine Postal Corporation which is a
government owned corporation, the same is not created by a special law. It was organized and
incorporated under the
Corporation Code which is Batas Pambansa Blg. 68. It was registered with the Securities and
Exchange Commission under SEC No. AS094-005593 on June 22, 1994 with a lifetime of fifty
(50) years. Under its Articles of Incorporation the purpose for which said entity is formed was
primarily for business, xxx Likewise, a scrutiny of the seven (7) secondary purposes of the
corporation points to the conclusion that it exists for business. Obviously, it is not involved in
the performance of a particular function in the exercise of government power. Thus, its officers
and employees are not covered by the GSIS and are under the SSS law, and actions for
reinstatement and backwages are not within the jurisdiction of the Civil Service Commission but
by the National Labor Relations Commission (NLRC). The Supreme Court, in the case of Trade
Unions of the Philippines and Allied Services vs. National Housing Corp., 173 SCRA 33, held that
the Civil Service now covers only government owned or controlled corporations with original or
legislative charters, those created by an act of Congress or by special law, and not those
incorporated under and pursuant to a general legislation. The Highest Court categorically ruled
that the Civil Service does not include government-owned or controlled corporation which are
organized as subsidiaries of government-owned or controlled corporation under the general
corporation law. In Philippine National Oil Company – Energy Development Corporation vs.
Leogardo, 175 SCRA 26, the Supreme Court emphasized that:
The test in determining whether a government-owned or controlled corporation is subject to
the Civil Service Law is the manner of its creation such that government corporation created by
special charter are subject to its provision while those incorporated under the general
corporation law are not within its coverage.
Likewise in Davao City Water District vs. Civil Service Commission, 201 SCRA 601 it was held that
“by government-owned or controlled corporation with original charter we mean government-
owned or controlled corporation created by a special law and not under the Corporation Code
of the Philippines” while in Llenes vs. Dicdican, et al., 260 SCRA 207, a public officer has been
ruled, as a person whose duties involve the exercise of discretion in the performance of the
function of government. Clearly, on the basis of the foregoing pronouncements of the Supreme
Court, the accused herein cannot be considered a public officer. Thus, this Court may not
exercise jurisdiction over his act.[2]
Dissatisfied, the People, through the Office of the Special Prosecutor (OSP), filed this petition[3]
arguing, in essence, that the PPSB was a government-owned or controlled corporation as the
term was defined under Section 2(13) of the Administrative Code of 1987. [4] Likewise, in
further defining the jurisdiction of the Sandiganbayan, RA 8249 did not make a distinction as to
the manner of creation of the government-owned or controlled corporations for their officers
to fall under its jurisdiction. Hence, being President and Chief
Operating Officer of the PPSB at the time of commission of the crimes charged, respondent Alas
came under the jurisdiction of the Sandiganbayan. Quoting at length from the assailed
resolution dated February 15, 2001, respondent Alas, on the other hand, practically reiterated
the pronouncements made by the respondent court in support of his conclusion that the PPSB
was not created by special law, hence, its officers did not fall within the jurisdiction of the
Sandiganbayan.[5] We find merit in the petition. Section 2(13) of EO 292[6] defines
government-owned or controlled corporations as follows:
Sec. 2. General Terms Defined – Unless the specific words of the text or the context as a whole
or a particular statute, shall require a different meaning: xxx xxx xxx (13)
government owned or controlled corporations refer to any agency organized as a stock or non-
stock corporation vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the government directly or indirectly or through its
instrumentalities either wholly, or where applicable as in the case of stock corporations to the
extent of at least 51% of its capital stock: provided, that government owned or controlled
corporations maybe further categorized by the department of the budget, the civil service
commission and the commission on audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations.
From the foregoing, PPSB fits the bill as a government-owned or controlled corporation, and
organized and incorporated under the Corporation Code as a subsidiary of the Philippine Postal
Corporation (PHILPOST). More than 99% of the authorized capital stock of PPSB belongs to the
government while the rest is nominally held by its incorporators who are/were themselves
officers of PHILPOST. The creation of PPSB was expressly sanctioned by Section 32 of RA 7354,
otherwise known as the Postal Service Act of 1992, for purposes of, among others, “to
encourage and promote the virtue of thrift and the habit of savings among the general public,
especially the youth and the marginalized sector in the countryside xxx” and to facilitate postal
service by “receiving collections and making payments, including postal money orders.”[7] It is
not disputed that the Sandiganbayan has jurisdiction over presidents, directors or trustees, or
managers of government-owned or controlled corporations with original charters whenever
charges of graft and corruption are involved. However, a question arises whether the
Sandiganbayan has jurisdiction over the same officers in government-owned or controlled
corporations organized and incorporated under the Corporation Code in view of the
delimitation provided for in Article IX-B Section 2(1) of the 1987 Constitution which states that:
SEC. 2. (1) The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies
of the government, including government-owned or controlled corporations with original
charters.
It should be pointed out however, that the jurisdiction of the Sandiganbayan is separate and
distinct from the Civil Service Commission. The same is governed by Article XI, Section 4 of the
1987 Constitution which provides that “the present anti-graft court known as the
Sandiganbayan shall continue to function and exercise its jurisdiction as now or hereafter may
be provided by law.” This provision, in effect, retained the jurisdiction of the anti-graft court as
defined under Article XIII, Section 5 of the 1973 Constitution which mandated its creation, thus:
Sec. 5. The Batasang Pambansa shall create a special court, to be known as Sandiganbayan,
which shall have jurisdiction over criminal and civil cases involving graft and corrupt practices
and such other offense committed by public officers and employees, including those in
government-owned or controlled corporations, in relation to their office as may be determined
by law. (Italics ours)
On March 30, 1995, Congress, pursuant to its authority vested under the 1987 Constitution,
enacted RA 7975[8] maintaining the jurisdiction of the Sandiganbayan over presidents, directors
or trustees, or managers of government-owned or controlled corporations without any
distinction whatsoever. Thereafter, on February 5, 1997, Congress enacted RA 8249[9] which
preserved the subject provision:
Section 4, Jurisdiction. The Sandiganbayan shall exercise exclusive original jurisdiction in all
cases involving:
a. Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and
Corrupt Practices Act, Republic Act No. 1379, and Chapter II, Section, Title VII, Book II of the
Revised Penal Code, where one or more of the accused are officials occupying the following
positions in the government, whether in a permanent, acting or interim capacity, at the time of
the commission of the offense,
Corrupt Practices Act. Otherwise, as we emphasized therein, a major policy of Government,
which is to eradicate, or at the very least minimize, the graft and corruption that has permeated
the fabric of the public service like a malignant social cancer, would be seriously undermined. In
fact, Section 1 of the Anti-Graft and Corrupt Practices Act embodies this policy of the
government, that is, to repress certain acts not only of public officers but also of private persons
constituting graft or corrupt practices or which may lead thereto. The foregoing
pronouncement has not outlived its usefulness. On the contrary, it has become even more
relevant today due to the rampant cases of graft and corruption that erode the people’s faith in
government. For indeed, a government-owned or controlled corporation can conceivably create
as many subsidiary corporations under the Corporation Code as it might wish, use public funds,
disclaim public accountability and escape the liabilities and responsibilities provided by law. By
including the concerned officers of government-owned or controlled corporations organized
and incorporated under the Corporation Code within the jurisdiction of the Sandiganbayan, the
legislature evidently seeks to avoid just that. WHEREFORE, in view of the foregoing, the petition
is hereby GRANTED and the assailed resolution dated February 15, 2001 of the respondent
court is hereby REVERSED and SET ASIDE. SO ORDERED.

(1) Officials of the executive branch occupying the positions of regional director, and higher,
otherwise classified as grade “27” and higher, of the Compensation and Position Classification
Act of 1989 (Republic Act No. 6758) specifically including: xxx xxx xxx (g)
Presidents, directors or trustees, or managers of governmentowned or controlled corporations,
state universities or educational institutions or foundations. (Italics ours)

The legislature, in mandating the inclusion of “presidents, directors or trustees, or managers of

government-owned or controlled corporations” within the jurisdiction of the Sandiganbayan,
has consistently refrained from making any distinction with respect to the manner of their
creation.

The deliberate omission, in our view, clearly reveals the intention of the legislature to include
the presidents, directors or trustees, or managers of both types of corporations within the
jurisdiction of the Sandiganbayan whenever they are involved in graft and corruption. Had it
been otherwise, it could have simply made the necessary distinction. But it did not. It is a basic
principle of statutory construction that when the law does not distinguish, we should not
distinguish. Ubi lex non distinguit nec nos distinguere debemos. Corollarily, Article XI Section 12
of the 1987 Constitution, on the jurisdiction of the Ombudsman (the government’s prosecutory
arm against persons charged with graft and corruption), includes officers and employees of
government-owned or controlled corporations, likewise without any distinction. In Quimpo v.
Tanodbayan,[10] this Court, already mindful of the pertinent provisions of the 1987
Constitution, ruled that the concerned officers of government-owned or controlled
corporations, whether created by special law or formed under the Corporation Code, come
under the jurisdiction of the Sandiganbayan for purposes of the provisions of the Anti-Graft and