CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

TAXATION LAW REVIEW (CONCISE VERSION – PART I)

I. GENERAL PRINCIPLES

A. Classification of Taxes

1. Different Classifications

1. As to subject matter:
a. Personal Tax – taxes are of fixed amount upon all persons of a certain class within the
jurisdiction without regard to property, occupation or business in which they may be
engaged.
b. Property Tax – assessed on property of a certain class
c. Excise Tax – imposed on the exercise of a privilege
d. Customs Duties – duties charged upon the commodities on their being imported into
or exported from a country.

2. As to burden:
a. Direct Tax – both the incidence of or liability for the payment of the tax as well as the
impact or burden of the tax falls on the same person.
b. Indirect Tax - The incidence of or liability for the payment of the tax falls on one
person but the burden thereof can be shifted or passed on to another.

3. As to purpose:
a. General Tax – levied for the general or ordinary purposes of the Government
b. Special Tax – levied for special purposes

4. As to manner of computation:
a. Specific Tax – the computation of the tax or the rates of the tax is already provided for
by law.
b. Ad Valorem Tax – tax upon the value of the article or thing subject to taxation; the
intervention of another party is needed for the computation of the tax.

5. As to taxing authority:
a. National Tax – levied by the National Government
b. Local Tax – levied by the local government

6. As to rate:
a. Progressive Tax – rate or amount of tax increases as the amount of the income or
earning to be taxed increases.
b. Regressive Tax – tax rate decreases as the amount of income to be taxed increases.
c. Proportionate Tax – based on a fixed proportion of the value of the property assessed.

a. Separate Opinion of Justice Bersamin in CIR vs. Pilipinas Shell,

GR No. 188497 dated February 19, 2014

• I write this separate opinion only to explain that I hold a different view on the proper
interpretation of the excise tax exemption under Section 135(a) of the NIRC. I hold that
the excise tax exemption under Section 135(a) of the NIRC is conferred on the petroleum
products on which the excise tax is levied in the first place in view of its nature as a tax on
property, the liability for the payment of which is statutorily imposed on the domestic
petroleum manufacturer.
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

• We thereby agreed with the position of the Solicitor General that Section 135(a) of the
NIRC must be construed only as a prohibition for the manufacturer-seller of the petroleum
products from shifting the tax burden to the international carriers by incorporating the
previously-paid excise tax in the selling price. As a consequence, the manufacturer-seller
could not invoke the exemption from the excise tax granted to international carriers.
• Taxes are classified, according to subject matter or object, into three groups, to wit: (1)
personal, capitation or poll taxes; (2) property taxes; and (3) excise or license taxes.
Personal, capitation or poll taxes are fixed amounts imposed upon residents or persons of a
certain class without regard to their property or business, an example of which is the basic
community tax. Property taxes are assessed on property or things of a certain class,
whether real or personal, in proportion to their value or other reasonable method of
apportionment, such as the real estate tax. Excise or license taxes are imposed upon the
performance of an act, the enjoyment of a privilege, or the engaging in an occupation,
profession or business. Income tax, value-added tax, estate and donor’s tax fall under the
third group.
• The production, manufacture or importation of the goods belonging to any of the
categories enumerated in Title VI of the NIRC (i.e., alcohol products, tobacco products,
petroleum products, automobiles and nonessential goods, mineral products) are not the
sole determinants for the proper levy of the excise tax. It is further required that the goods
be manufactured, produced or imported for domestic sale, consumption or any other
disposition. The accrual of the tax liability is, therefore, contingent on the production,
manufacture or importation of the taxable goods and the intention of the manufacturer,
producer or importer to have the goods locally sold or consumed or disposed in any other
manner. This is the reason why the accrual and liability for the payment of the excise tax
are imposed directly on the manufacturer or producer of the taxable goods, and arise
before the removal of the goods from the place of their production.
• Simply stated, the accrual and payment of the excise tax under Title VI of the NIRC
materially rest on the fact of actual production, manufacture or importation of the taxable
goods in the Philippines and on their presumed or intended domestic sale, consumption or
disposition. Considering that the excise tax attaches to the goods upon the accrual of the
manufacturer’s direct liability for its payment, the subsequent sale, consumption or other
disposition of the goods becomes relevant only to determine whether any exemption or tax
relief may be granted thereafter.
• The accrual and payment of the excise tax on the goods enumerated under Title VI of the
NIRC prior to their removal from the place of production are absolute and admit of no
exception. As earlier mentioned, even locally manufactured goods intended for export
cannot escape the imposition and payment of the excise tax, subject to a future claim for
tax credit or refund once proof of actual exportation has been submitted to the
Commissioner of Internal Revenue (CIR). Verily, it is the actual sale, consumption or
disposition of the taxable goods that confirms the proper tax treatment of goods previously
subjected to the excise tax. If any of the goods enumerated under Title VI of the NIRC are
manufactured or produced in the Philippines and eventually sold, consumed, or disposed of
in any other manner domestically, therefore, there can be no claim for any tax relief
inasmuch as the excise tax was properly levied and collected from the manufacturer-seller.
• The excise taxes are of the nature of indirect taxes, the liability for the payment of which
may fall on a person other than whoever actually bears the burden of the tax. In
Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, 478
SCRA 61 (2005), the Court has discussed the nature of indirect taxes in the following
manner: [I]ndirect taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the burden to
someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the
payment of the tax falls on one person but the burden thereof can be shifted or passed on
to another person, such as when the tax is imposed upon goods before reaching the
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the price
of goods sold or services rendered.
• Accordingly, the option of shifting the burden to pay the excise tax rests on the statutory
taxpayer, which is the manufacturer or producer in the case of the excise taxes imposed on
the petroleum products. Regardless of who shoulders the burden of tax payment, however,
the Court has ruled as early as in the 1960s that the proper party to question or to seek a
refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed
by law and who paid the same, even if he shifts the burden thereof to another.
• The Silkair rulings involving the excise taxes on the petroleum products sold to
international carriers firmly hold that the proper party to claim the refund of excise taxes
paid is the manufacturer-seller.
• The shifting of the tax burden by manufacturers-sellers is a business prerogative resulting
from the collective impact of market forces. Such forces include government impositions
like the excise tax. Hence, the additional amount billed to the purchaser as part of the
price the purchaser pays for the goods acquired cannot be solely attributed to the effect of
the tax liability imposed on the manufacture-seller. It is erroneous to construe Section
135(a) only as a prohibition against the shifting by the manufacturers-sellers of petroleum
products of the tax burden to international carriers, for such construction will deprive the
manufacturers-sellers of their business prerogative to determine the prices at which they
can sell their products.
• Section 135(a) of the NIRC cannot be further construed as granting the excise tax
exemption to the international carrier to whom the petroleum products are sold considering
that the international carrier has not been subjected to excise tax at the outset. To
reiterate, the excise tax is levied on the petroleum products because it is a tax on property.
Levy is the act of imposition by the Legislature such as by its enactment of a law. The law
enacted here is the NIRC whereby the excise tax is imposed on the petroleum products,
the liability for the payment of which is further statutorily imposed on the domestic
petroleum manufacturer. Accordingly, the exemption must be allowed to the petroleum
products because it is on them that the tax is imposed. The tax status of an international
carrier to whom the petroleum products are sold is not based on exemption; rather, it is
based on the absence of a law imposing the excise tax on it. This further supports the
position that the burden passed on by the domestic petroleum manufacturer is not
anymore in the nature of a tax — although resulting from the previously-paid excise tax —
but as an additional cost component in the selling price. Consequently, the purchaser of the
petroleum products to whom the burden of the excise tax has been shifted, not being the
statutory taxpayer, cannot claim a refund of the excise tax paid by the manufacturer or
producer.

B. Fees vs. Charges vs. Taxes

1. Angeles University Foundation vs. City of Angeles

GR No. 18999 dated June 27, 2012

• R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties,
assessments, and other charges imposed by the Government on all income derived from or
property, real or personal, used exclusively for the educational activities of the Foundation.
• On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the
National Building Code of the Philippines. The said Code requires every person, firm or
corporation, including any agency or instrumentality of the government to obtain a building
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

permit for any construction, alteration or repair of any building or structure. Building
permit refers to “a document issued by the Building Official x x x to an owner/applicant to
proceed with the construction, installation, addition, alteration, renovation, conversion,
repair, moving, demolition or other work activity of a specific project/building/structure or
portions thereof after the accompanying principal plans, specifications and other pertinent
documents with the duly notarized application are found satisfactory and substantially
conforming with the National Building Code of the Philippines x x x and its Implementing
Rules and Regulations (IRR).” Building permit fees refers to the basic permit fee and other
charges imposed under the National Building Code.
• Exempted from the payment of building permit fees are:
• (1) public buildings and
• (2) traditional indigenous family dwellings.
• Not being expressly included in the enumeration of structures to which the building permit
fees do not apply, petitioner’s claim for exemption rests solely on its interpretation of the
term “other charges imposed by the National Government” in the tax exemption clause of
R.A. No. 6055.
• That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that the
applicant satisfies and conforms with approved standard requirements on zoning and land
use, lines and grades, structural design, sanitary and sewerage, environmental health,
electrical and mechanical safety as well as with other rules and regulations implementing
the National Building Code. Thus, ancillary permits such as electrical permit, sanitary
permit and zoning clearance must also be secured and the corresponding fees paid before
a building permit may be issued. And as can be gleaned from the implementing rules and
regulations of the National Building Code, clearances from various government authorities
exercising and enforcing regulatory functions affecting buildings/structures, like local
government units, may be further required before a building permit may be issued.
• A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power. In this case,
the Secretary of Public Works and Highways who is mandated to prescribe and fix the
amount of fees and other charges that the Building Official shall collect in connection with
the performance of regulatory functions, has promulgated and issued the Implementing
Rules and Regulations which provide for the bases of assessment of such fees, as follows:
1. Character of occupancy or use of building 2. Cost of construction “ 10,000/sq.m
(A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J) 3. Floor area 4. Height
• In Lung Center of the Philippines v. Quezon City, 433 SCRA 119 (2004), this Court held
that only portions of the hospital actually, directly and exclusively used for charitable
purposes are exempt from real property taxes, while those portions leased to private
entities and individuals are not exempt from such taxes. We explained the condition for the
tax exemption privilege of charitable and educational institutions, as follows: Under the
1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it
is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes. “Exclusive” is defined as possessed and
enjoyed to the exclusion of others; debarred from participation or enjoyment; and
“exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If
real property is used for one or more commercial purposes, it is not exclusively used for
the exempted purposes but is subject to taxation. The words “dominant use” or “principal
use” cannot be substituted for the words “used exclusively” without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively. What is meant by actual,
direct and exclusive use of the property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

determinative of whether the property is used for tax-exempt purposes.

C. Are taxes subject to set-off?

1. Francia vs. IAC,

GR No. 67649 dated June 28, 1988

• Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his
land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by
operation of law as of October 15, 1977. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the
case do not satisfy the requirements provided by Article 1279, to wit: “(1) that each one of
the obligors be bound principally and that he be at the same time a principal creditor of the
other; xxx xxx xxx “(3) that the two debts be due. xxx xxx xxx.
• This principal contention of the petitioner has no merit. We have consistently ruled that
there can be no off-setting of taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the government. In the case of Republic v.
Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not
be the subject of set-off or compensation. We stated that: “A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-
off, which are construed uniformly, in the light of public policy, to exclude the remedy in an
action or any indebtedness of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment since they do not
arise out of the contract or transaction sued on. x x x (80 C.J.S., 73-74). ‘The general rule
based on grounds of public policy is well-settled that no set-off is admissible against
demands for taxes levied for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of contracts between the party
and party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayer is not required.
x x x’ ”
• We agree with the petitioner’s claim that Ho Fernandez, the purchaser at the auction sale,
has the burden of proof to show that there was compliance with all the prescribed
requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that: xxx xxx xxx “x x x [D]ue process of law to be followed in tax proceedings
must be established by proof and the general rule is that the purchaser of a tax title is
bound to take upon himself the burden of showing the regularity of all proceedings leading
up to the sale.” (Italics supplied). There is no presumption of the regularity of any
administrative action which results in depriving a taxpayer of his property through a tax
sale. (Camo v. Riosa Boyco, 29 Phil. 437; Denoga v. Insular Government, 19 Phil. 261).
This is actually an exception to the rule that administrative proceedings are presumed to
be regular. But even if the burden of proof lies with the purchaser to show that all legal
prerequisites have been complied with, the petitioner can not, however, deny that he did
receive the notice for the auction sale. The records sustain the lower court’s finding that:
“[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly
notified of the auction sale. Surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit “I”) as shown by his signature
(Exhibit “I-A”) thereof. He claimed further that he was not present on December 5, 1977
the date of the auction sale because he went to Iligan City. As long as there was
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substantial compliance with the requirements of the notice, the validity of the auction sale
can not be assailed. x x x.”
• Petitioner’s third assignment of grave error likewise lacks merit. As a general rule, gross
inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v.
Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held
that “alleged gross inadequacy of price is not material when the law gives the owner the
right to redeem as when a sale is made at public auction, upon the theory that the lesser
the price, the easier it is for the owner to effect redemption.” In Velasquez v. Coronel, (5
SCRA 985), this Court held: “x x x [R]espondent treasurer now claims that the prices for
which the lands were sold are unconscionable considering the wide divergence between
their assessed values and the amounts for which they had been actually sold. However,
while in ordinary sales for reasons of equity a transaction may be invalidated on the ground
of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the
courts to interfere, such does not follow when the law gives to the owner the right to
redeem, as when a sale is made at public auction, upon the theory that the lesser the price
the easier it is for the owner to effect the redemption. And so it was aptly said: ‘When
there is the right to redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to redeem and thus
recover the loss he claims to have suffered by reason of the price obtained at the auction
sale.”

2. Philex Mining vs. CIR,

GR No. 125704 dated August 28, 1988

• In several instances prior to the instant case, we have already made the pronouncement
that taxes cannot be subject to compensation for the simple reason that the government
and the taxpayer are not creditors and debtors of each other. There is a material distinction
between a tax and debt. Debts are due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign capacity. We find no cogent reason to
deviate from the aforementioned distinction. Prescinding from this premise, in Francia v.
Intermediate Appellate Court, we categorically held that taxes cannot be subject to set-off
or compensation, thus: “We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal
to or greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.”
• Further, Philex’s reliance on our holding in Commissioner of Internal Revenue v.
ItogonSuyoc Mines, Inc., wherein we ruled that a pending refund may be set off against an
existing tax liability even though the refund has not yet been approved by the
Commissioner, is no longer without any support in statutory law. It is important to note
that the premise of our ruling in the aforementioned case was anchored on Section 51(d)
of the National Revenue Code of 1939. However, when the National Internal Revenue Code
of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement
was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be
invoked by Philex.
• Despite the foregoing rulings clearly adverse to Philex’s position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the
excise tax liabilities within the prescribed period since, after all, it still has pending claims
for VAT input credit/refund with BIR. We fail to see the logic of Philex’s claim for this is an
outright disregard of the basic principle in tax law that taxes are the lifeblood of the
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government and so should be collected without unnecessary hindrance. Evidently, to

countenance Philex’s whimsical reason would render ineffective our tax collection system.
Too simplistic, it finds no support in law or in jurisprudence.
• To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground
that it has a pending tax claim for refund or credit against the government which has not
yet been granted. It must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. Hence, a tax does not depend upon the
consent of the taxpayer. If any taxpayer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due
simply because he has a claim against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the government. Moreover, Philex’s
theory that would automatically apply its VAT input credit/refund against its tax liabilities
can easily give rise to confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities.
• Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the
government is immaterial for the imposition of charges and penalties prescribed under
Sections 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory
and the BIR is not vested with any authority to waive the collection thereof. The same
cannot be condoned for flimsy reasons, similar to the one advanced by Philex in justifying
its non-payment of its tax liabilities.
• Philex asserts that the BIR violated Section 106(e) of the National Internal Revenue Code
of 1977, which requires the refund of input taxes within 60 days, when it took five years
for the latter to grant its tax claim for VAT input credit/refund. In this regard, we agree
with Philex. While there is no dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund, however, once the claimant has
submitted all the required documents, it is the function of the BIR to assess these
documents with purposeful dispatch. After all, since taxpayers owe honesty to government
it is but just that government render fair service to the taxpayers. In the instant case, the
VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid
taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious
with their duty, it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. Fair dealing and nothing
less, is expected by the taxpayer from the BIR in the latter’s discharge of its function.
• Despite our concern with the lethargic manner by which the BIR handled Philex’s tax claim,
it is a settled rule that in the performance of governmental function, the State is not bound
by the neglect of its agents and officers. Nowhere is this more true than in the field of
taxation. Again, while we understand Philex’s predicament, it must be stressed that the
same is not a valid reason for the non-payment of its tax liabilities.
• To be sure, this is not to state that the taxpayer is devoid of remedy against public
servants or employees, especially BIR examiners who, in investigating tax claims are seen
to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer’s claim
for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the
manner prescribed by law. Second, if the inaction can be characterized as willful neglect of
duty, then recourse under the Civil Code and the Tax Code can also be availed of.
• Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in
the performance of official duties. In no uncertain terms must we stress that every public
employee or servant must strive to render service to the people with utmost diligence and
efficiency. Insolence and delay have no place in government service. The BIR, being the
government collecting arm, must and should do no less. It simply cannot be apathetic and
laggard in rendering service to the taxpayer if it wishes to remain true to its mission of
hastening the country’s development. We take judicial notice of the taxpayer’s generally
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negative perception towards the BIR; hence, it is up to the latter to prove its detractors
wrong.

3. Domingo vs. Garlitos,

GR No. L-18994 dated June 29, 1963

• The ordinary procedure by which to settle claims or indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to present a claim before the
probate court sa that said court may order the administrator to pay the amount hereof
(Aldamiz vs. Judge of the Court of First Instance of Mindoro, L-2360, Dec. 29, 1949).
• The legal basis for such a procedure is the fact that in the testate or intestate proceedings
to settle the estate of a deceased person, the properties belonging to the estate are under
the jurisdiction of the court and such jurisdiction continues until said properties havebeen
distributed among the heirs entitled thereto. During the pendency of the proceedings all
the estate is in custodia Iegis and the proper procedure is not to allow the sheriff. in case
of a court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.
• The fact that the court having jurisdiction of the estate had found that the claim of the
estate against the Government has been appropriated for the purpose by a corresponding
law (Rep. Act No. 2700) shows that both the claim of the Government for inheritance taxes
and the claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation, therefore, takes place by operation
of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and
both debts are extinguished to the concurrent amount.

4. Air Canada vs. CIR,

GR No. 169507 dated January 11, 2016 (set-off issue only)

• In sum, the rulings in those cases were to the effect that the taxpayer cannot simply
refuse to pay tax on the ground that the tax liabilities were offset against any alleged claim
the taxpayer may have against the government. Such would merely be in keeping with the
basic policy on prompt collection of taxes as the lifeblood of the government. Here, what is
involved is a denial of a taxpayer’s refund claim on account of the Court of Tax Appeals’
finding of its liability for another tax in lieu of the Gross Philippine Billings tax that was
allegedly erroneously paid.

D. Double Taxation

1. Kinds

a. Direct Duplicate Taxation/ Obnoxious (Strict Sense)

– the objectionable kind kind or double taxation in its prohibited sense, since it violates
the equal protection clause of the Constitution. The elements are the following:
a.1 The same property or subject matter is taxed twice when it should be taxed
only once;
a.2. Both taxes are levied for the same purpose; and
a.3. Imposed by the same taxing authority
a.3.1. Within the same jurisdiction;
a.3.2. During the same taxing period; and
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

a.3.3. Covering the same kind or character of tax.

(Villanueva vs City of Iloilo, GR No. L-26521, 1968)

b. Indirect Duplicate Taxation (Broad Sense)

– the permissible kind of double taxation. This arises in the absence of one or more of the
above-mentioned elements of direct double taxation.

NOTE: There is NO double taxation if the tax is levied by the LGU and another by the National
Government. The 2 are different taxing authorities. (Pepsi-Cola Bottling Co. vs Municipality of
Tanauan, GR No. L-31156, 1976)

2. Modes of eliminating double taxation

• The measures that are normally adopted by sovereign taxing authorities in order to avoid
the resulting inequalities of double taxation include:

1. TAX CREDITS
- an amount subtracted from an individual's or entity's tax liability to arrive at the total tax
liability;
- A tax credit reduces the tax due,including whenever applicable, the income tax that is
determined after applying the corresponding tax rates to taxable income;
2. Reduction of the Philippine income tax rate by a non-resident foreign corporation
(NRFC) within the Philippines is reduced by imposing a lower rate of 15% (in lieu of
30%), on the condition that the country to which the NRFC is domiciled shall allow a credit
against the tax due from the NRFC, which taxes are deemed to have been paid in the
Philippines;
3. TAX EXEMPTIONS
- a grant of immunity to particular persons or corporations from the obligation to pay
taxes;
4. TAX DEDUCTIONS
- the amount of tax is written off or treated as deduction from an individual's or entity's
gross income on which resulting amount the tax liability is calculated; and
5. TAX TREATIES
- agreement between 2 countries specifying what items of income will be taxed by the
authorities of the country where the income will be taxed by the authorities of the country
where the income is earned.

3. CIR vs. Solidbank,

GR No. 148191 dated November 25, 2003

• Double taxation means taxing the same property twice when it should be taxed only once;
that is, “x x x taxing the same person twice by the same jurisdiction for the same thing.” It
is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise
described as “direct duplicate taxation,” the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same kind or
character.
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

4. Nursery Care Corporation vs. Acevedo,

GR No. 180651 dated July 30, 2014

• On the basis of the rulings in City of Manila v. Coca-Cola Bottlers Philippines, Inc., 595
SCRA 299 (2009) and Swedish Match Philippines, Inc. v. The Treasurer of the City of
Manila, 700 SCRA 428 (2013), the Court now holds that all the elements of double taxation
concurred upon the City of Manila’s assessment on and collection from the petitioners of
taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person
who sold goods and services in the course of trade or business based on a certain
percentage of his gross sales or receipts in the preceding calendar year, while Section 15
and Section 17 likewise imposed the tax on a person who sold goods and services in the
course of trade or business but only identified such person with particularity, namely, the
wholesaler, distributor or dealer (Section 15), and the retailer (Section 17), all the taxes —
being imposed on the privilege of doing business in the City of Manila in order to make the
taxpayers contribute to the city’s revenues — were imposed on the same subject matter
and for the same purpose. Secondly, the taxes were imposed by the same taxing authority
(the City of Manila) and within the same jurisdiction in the same taxing period (i.e., per
calendar year). Thirdly, the taxes were all in the nature of local business taxes.

5. CIR vs. S.C. Johnson and Sons, Inc.,

GR No. 127105 dated June 25, 1999

• The above construction is based principally on syntax or sentence structure but fails to
take into account the purpose animating the treaty provisions in point. To begin with, we
are not aware of any law or rule pertinent to the payment of royalties, and none has been
brought to our attention, which provides for the payment of royalties under dissimilar
circumstances. The tax rates on royalties and the circumstances of payment thereof are
the same for all the recipients of such royalties and there is no disparity based on
nationality in the circumstances of such payment. On the other hand, a cursory reading of
the various tax treaties will show that there is no similarity in the provisions on relief from
or avoidance of double taxation as this is a matter of negotiation between the contracting
parties. As will be shown later, this dissimilarity is true particularly in the treaties between
the Philippines and the United States and between the Philippines and West Germany.
• The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has
entered into for the avoidance of double taxation. The purpose of these international
agreements is to reconcile the national fiscal legislations of the contracting parties in order
to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More
precisely, the tax conventions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as the imposition of comparable
taxes in two or more states on the same taxpayer in respect of the same subject matter
and for identical periods. The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust and dynamic
economies. Foreign investments will only thrive in a fairly predictable and reasonable
international investment climate and the protection against double taxation is crucial in
creating such a climate.
• Double taxation usually takes place when a person is resident of a contracting state and
derives income from, or owns capital in, the other contracting state and both states impose
tax on that income or capital. In order to eliminate double taxation, a tax treaty resorts to
several methods. First, it sets out the respective rights to tax of the state of source or
situs and of the state of residence with regard to certain classes of income or capital. In
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

some cases, an exclusive right to tax is conferred on one of the contracting states;
however, for other items of income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of source is limited. The
second method for the elimination of double taxation applies whenever the state of source
is given a full or limited right to tax together with the state of residence. In this case, the
treaties make it incumbent upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief—the exemption method and the credit
method. In the exemption method, the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some instances it may be
taken into account in determining the rate of tax applicable to the taxpayer’s remaining
income or capital. On the other hand, in the credit method, although the income or capital
which is taxed in the state of source is still taxable in the state of residence, the tax paid in
the former is credited against the tax levied in the latter. The basic difference between the
two methods is that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax.
• In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for this
particular investment is not taxed by the other country. Thus the petitioner correctly
opined that the phrase “royalties paid under similar circumstances” in the most favored
nation clause of the US-RP Tax Treaty necessarily contemplated “circumstances that are
tax related.”
• Given the purpose underlying tax treaties and the rationale for the most favored nation
clause, the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty
should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the
RP-Germany Tax Treaty are paid under similar circumstances. This would mean that private
respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of
the United States in respect of the taxes imposable upon royalties earned from sources
within the Philippines as those allowed to their German counterparts under the RP-
Germany Tax Treaty. The RP-US and the RP-West Germany Tax Treaties do not contain
similar provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty, supra,
expressly allows crediting against German income and corporation tax of 20% of the gross
amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of
the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double
taxation, does not provide for similar crediting of 20% of the gross amount of royalties
paid.

6. Deutsche Bank AG Manila Branch vs. CIR

GR No. 188660 dated August 19, 2013

• Our Constitution provides for adherence to the general principles of international law as
part of the law of the land. The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the
states that enter into the agreement. Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them in good faith. More importantly,
treaties have the force and effect of law in this jurisdiction.
• Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting
parties and, in turn, help the taxpayer avoid simultaneous taxations in two different
jurisdictions.” CIR v. S.C. Johnson and Son, Inc., 309 SCRA 37 (1999), further clarifies that
“tax conventions are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and for identical
periods. The apparent rationale for doing away with double taxation is to encourage the
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

free flow of goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic economies.
Foreign investments will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial in creating such a
climate.” Simply put, tax treaties are entered into to minimize, if not eliminate the
harshness of international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements.
• “A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of the
obligations undertaken.” Thus, laws and issuances must ensure that the reliefs granted
under tax treaties are accorded to the parties entitled thereto. The BIR must not impose
additional requirements that would negate the availment of the reliefs provided for under
international agreements. More so, when the RP-Germany Tax Treaty does not provide for
any pre-requisite for the availment of the benefits under said agreement.
• Bearing in mind the rationale of tax treaties, the period of application for the availment of
tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to
the relief as it would constitute a violation of the duty required by good faith in complying
with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to
apply within the prescribed period under the administrative issuance would impair the
value of the tax treaty. At most, the application for a tax treaty relief from the BIR should
merely operate to confirm the entitlement of the taxpayer to the relief.
• Section 229 of the NIRC provides the taxpayer a remedy for tax recovery when there has
been an erroneous payment of tax. The outright denial of petitioner’s claim for a refund, on
the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT,
would defeat the purpose of Section 229.

7. CBK Power Company Limited vs. CIR,

GR No. 193383-84 dated January 14, 2015 (Perlas-Bernabe)

• The Philippine Constitution provides for adherence to the general principles of international
law as part of the law of the land. The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the
states that enter into the agreement. In this jurisdiction, treaties have the force and effect
of law.
• It bears reiterating that the application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief. Since CBK Power had
requested for confirmation from the ITAD on June 8, 2001 and October 28, 2002 before it
filed on April 14, 2003 its administrative claim for refund of its excess final withholding
taxes, the same should be deemed substantial compliance with RMO No. 1-2000, as in
Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, 704 SCRA 216
(2013). To rule otherwise would defeat the purpose of Section 229 of the NIRC in providing
the taxpayer a remedy for erroneously paid tax solely on the ground of failure to make
prior application for tax treaty relief. As the Court exhorted in Republic v. GST Philippines,
Inc., 707 SCRA 695 (2013), while the taxpayer has an obligation to honestly pay the right
taxes, the government has a corollary duty to implement tax laws in good faith; to
discharge its duty to collect what is due to it; and to justly return what has been
erroneously and excessively given to it.
• Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer’s claim must be filed within two (2) years
from the date of payment of the tax or penalty. However, Section 229 of the NIRC further
states the condition that a judicial claim for refund may not be maintained until a claim for
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

refund or credit has been duly filed with the Commissioner.

E. Taxpayer’s suit

1. Mamba vs. Lara,

GR No. 165109 dated December 14, 2009

• A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed,
or that the public money is being deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of an invalid or unconstitutional law. A
person suing as a taxpayer, however, must show that the act complained of directly
involves the illegal disbursement of public funds derived from taxation. He must also prove
that he has sufficient interest in preventing the illegal expenditure of money raised by
taxation and that he will sustain a direct injury because of the enforcement of the
questioned statute or contract. In other words, for a taxpayer’s suit to prosper, two
requisites must be met:
• (1) public funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is committed and
• (2) the petitioner is directly affected by the alleged act.
• In light of the foregoing, it is apparent that contrary to the view of the RTC, a taxpayer
need not be a party to the contract to challenge its validity. As long as taxes are involved,
people have a right to question contracts entered into by the government.
• As to the second requisite, the court, in recent cases, has relaxed the stringent “direct
injury test” bearing in mind that locus standi is a procedural technicality. By invoking
“transcendental importance,” “paramount public interest,” or “far-reaching implications,”
ordinary citizens and taxpayers were allowed to sue even if they failed to show direct
injury. In cases where serious legal issues were raised or where public expenditures of
millions of pesos were involved, the court did not hesitate to give standing to taxpayers.
• Another point to consider is that local government units now possess more powers,
authority and resources at their disposal, which in the hands of unscrupulous officials may
be abused and misused to the detriment of the public. To protect the interest of the people
and to prevent taxes from being squandered or wasted under the guise of government
projects, a liberal approach must therefore be adopted in determining locus standi in public
suits.

2. Land Bank of the Philippines vs. Cacayuran,

GR No. 191667 dated April 17, 2013 (Perlas-Bernabe)

• It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any improper
purpose, or that there is wastage of public funds through the enforcement of an invalid or
unconstitutional law. A person suing as a taxpayer, however, must show that the act
complained of directly involves the illegal disbursement of public funds derived from
taxation. In other words, for a taxpayer’s suit to prosper, two requisites must be met
namely, (1) public funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is committed; and (2)
the petitioner is directly affected by the alleged act.
• As a resident-taxpayer of the Municipality, Cacayuran is directly affected by the conversion
of the Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well-settled
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

that public plazas are properties for public use and therefore, belongs to the public
dominion. As such, it can be used by anybody and no one can exercise over it the rights of
a private owner. In this light, Cacayuran had a direct interest in ensuring that the Agoo
Plaza would not be exploited for commercial purposes through the APC’s construction.
Moreover, Cacayuran need not be privy to the Subject Loans in order to proffer his
objections thereto. In Mamba v. Lara, 608 SCRA 149 (2009), it has been held that a
taxpayer need not be a party to the contract to challenge its validity; as long as taxes are
involved, people have a right to question contracts entered into by the government.

F. Law vs. Regulation

1. Secretary of Finance vs. Philippine Tobacco Institute, Inc.,

GR No. 210251 dated April 17, 2017

• Section 145(C) of the NIRC is clear that the excise tax on cigarettes packed by machine is
imposed per pack. “Per pack” was not given a clear definition by the NIRC. However, a
“pack” would normally refer to a number of individual components packaged as a unit.
Under the same provision, cigarette manufacturers are permitted to bundle cigarettes
packed by machine in the maximum number of 20 sticks and aside from 20’s, the law also
allows packaging combinations of not more than 20’s — it can be 4 pouches of 5 cigarette
sticks in a pack (4 x 5’s), 2 pouches of 10 cigarette sticks in a pack (2 x 10’s), etc.
• The confusion set in when RA 10351 amended the NIRC once again in 2012 and introduced
packaging combinations to cigarettes packed by machine, providing that “duly registered
cigarettes packed by machine shall only be packed in twenties and other packaging
combinations of not more than twenty.” Thereafter, RR 17-2012 followed, where the BIR, in
Section 11, reiterated the provision in the NIRC that cigarettes shall only be packed in 20’s
and in other packaging combinations which shall not exceed 20 sticks. However, the BIR
added “x x x That, in case of cigarettes packed in not more than twenty sticks, whether in
5 sticks, 10 sticks and other packaging combinations below 20 sticks, the net retail price of
each individual package of 5s, 10s, etc. shall be the basis of imposing the tax rate x x x.”
• The lawmakers intended to impose the excise tax on every pack of cigarettes that come in
20 sticks. Individual pouches or packaging combinations of 5’s and 10’s for retail purposes
are allowed and will be subjected to the same excise tax rate as long as they are bundled
together by not more than 20 sticks. Thus, by issuing Section 11 of RR 17-2012 and Annex
“D-1” on Cigarettes Packed by Machine of RMC 90-2012, the BIR went beyond the express
provisions of RA 10351.
• It is an elementary rule in administrative law that administrative rules and regulations
enacted by administrative bodies to implement the law which they are entrusted to enforce
have the force of law and are entitled to great weight and respect. However, these
implementations of the law must not override, supplant, or modify the law but must
remain consistent with the law they intend to implement. It is only Congress which has the
power to repeal or amend the law.
• In this case, Section 11 of RR 17-2012 and Annex “D-1” on Cigarettes Packed by Machine
of RMC 90-2012 clearly contravened the provisions of RA 10351. It is a well-settled
principle that a revenue regulation cannot amend the law it seeks to implement. In
Commissioner of Internal Revenue v. Seagate Technology (Philippines), 451 SCRA 132
(2005), we held that a mere administrative issuance, like a BIR regulation, cannot amend
the law; the former cannot purport to do any more than implement the latter. The courts
will not countenance an administrative regulation that overrides the statute it seeks to
implement.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

KINDS OF LIMITATIONS:

1. CONSTITUTIIONAL
2. INHERENT

G. Inherent Limitations

1. Enumeration

INHERENT

a. requirement that levy must be for a public purpose (also implied from the
Constitution);
b. non-delegation of the legislative power tax (also implied in the Constitution);
c. exemption from taxation of government entities;
d. international comity; and
e. territorial jurisdiction.

2. Delegation to Local Government Units

a. Pepsi Cola Bottling Co. of the Phils. vs. Municipality of Tanauan,

GR No. L-31156 dated February 27, 1976

• The power of taxation x x x may be delegated to local governments in respect of matters

of local concern. This is sanctioned by immoral practice. By necessary implication, the
legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to tax. x
x x The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant’s
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited to the exact meassure of that which is
exercised by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant taxes there may be delegated such measure of
power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes.
• This is not to say though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing power, except
when the taking of the property is in the lawful exercise of the taxing power, as when (1)
the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either
the person or property taxed is within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds of taxes notice and opportunity
for hearing are provided.
• There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. x x x Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some states of the Union.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity or by the same jurisdiction for the same purpose, but not
in a case where one tax is imposed by the State and the other by the city of municipality.

3. Delegation to the President

a. Sec. 28(2) Article VI of the Constitution

2. The Congress may, by law, authorize the President to fix within specified limits, and subject
to such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.

b. Flexible Tariff Clause – Sec. 1608 of the Customs Modernization and Tariff
Act

Q: What is the flexible tariff clause?

A: It refers to the authority or power given to the President to adjust tariff rates under Section
1608 of the CMTA.

Q: When may the power under the flexible tariff clause be exercised by the President?
A: Upon recommendation of the National Economic and Development Authority and in the interest
of the general welfare and national security.

The President shall exercise the said power only when Congress is not in session. Moreover, the
power delegated to the President may be withdrawn or terminated by Congress through a joint
resolution. (Sec. 1608 of the CMTA)

Q: What may the President do in the exercise of his power under the flexible tariff
clause?
A:
a) Increase, reduce or remove existing rates of import duty including any necessary
change in classification. Limitation: rate of increase shall not be higher than a maximum of
100% ad valorem;
b) Establish import quotas or ban imports of any commodity;
c) Impose an additional duty on all imports not exceeding 10% ad valorem; and,
d) Modify the form of duty.

Before any recommendation is submitted to the President, conduct of investigation, public

hearings, hearing of views and recommendations of government offices by the Tariff Commission
is necessary except under letter “c)”. (Sec. 1608 of the CMTA)

Q: When shall the Order issued by the President pursuant to the exercise of his powers
under the flexible tariff clause take effect?
A: Any Order issued by the President pursuant to the provisions of Sec. 1608 of the CMTA shall
take effect thirty (30) days after promulgation, except in the imposition of additional duty not
exceeding 10% ad valorem which shall take effect at the discretion of the President. (Sec. 1608 of
the CMTA)
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

c. Abakada Guro Party List vs. Executive Secretary, GR No. 168056 dated
September 1, 2005

• The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the doctrine of separation of powers
is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas
delegata non delegari potest which means “what has been delegated, cannot be
delegated.” This doctrine is based on the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.
• With respect to the Legislature, Section 1 of Article VI of the Constitution provides that
“the Legislative power shall be vested in the Congress of the Philippines which shall consist
of a Senate and a House of Representatives.” The powers which Congress is prohibited
from delegating are those which are strictly, or inherently and exclusively, legislative.
Purely legislative power, which can never be delegated, has been described as the
authority to make a complete law—complete as to the time when it shall take effect and as
to whom it shall be applicable—and to determine the expediency of its enactment. Thus,
the rule is that in order that a court may be justified in holding a statute unconstitutional
as a delegation of legislative power, it must appear that the power involved is purely
legislative in nature—that is, one appertaining exclusively to the legislative department. It
is the nature of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation. Nonetheless, the general rule barring
delegation of legislative powers is subject to the following recognized limitations or
exceptions: (1) Delegation of tariff powers to the President under Section 28 (2) of Article
VI of the Constitution; (2) Delegation of emergency powers to the President under Section
23 (2) of Article VI of the Constitution; (3) Delegation to the people at large; (4)
Delegation to local governments; and (5) Delegation to administrative bodies.
• In every case of permissible delegation, there must be a showing that the delegation itself
is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to
be executed, carried out, or implemented by the delegate; and (b) fixes a standard—the
limits of which are sufficiently determinate and determinable—to which the delegate must
conform in the performance of his functions. A sufficient standard is one which defines
legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the legislative command is to be
effected. Both tests are intended to prevent a total transference of legislative authority to
the delegate, who is not allowed to step into the shoes of the legislature and exercise a
power essentially legislative.
• While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its operation depends, the
rationale being that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function but is simply ancillary to legislation; The
Constitution as a continuously operative charter of government does not require that
Congress find for itself every fact upon which it desires to base legislative action or that it
make for itself detailed determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and circumstances impossible for
Congress itself properly to investigate.—The legislature may delegate to execu-tive officers
or bodies the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to depend, but
the legislature must prescribe sufficient standards, policies or limitations on their authority.
While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them,
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

including the power to determine the existence of facts on which its operation depends.
The rationale for this is that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and making recommendations is the
kind of subsidiary activity which the legislature may perform through its members, or
which it may delegate to others to perform. Intelligent legislation on the complicated
problems of modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such information is proper.
The Constitution as a continuously operative charter of government does not require that
Congress find for itself every fact upon which it desires to base legislative action or that it
make for itself detailed determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and circumstances impossible for
Congress itself properly to investigate.
• When one speaks of the Secretary of Finance as the alter ego of the President, it simply
means that as head of the Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions of the Chief Executive
are performed by and through the executive departments, and the acts of the secretaries
of such departments, such as the Department of Finance, performed and promulgated in
the regular course of business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. The Secretary of Finance, as
such, occupies a political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, “should be of the President’s bosom confidence” and, in the
language of Attorney-General Cushing, is “subject to the direction of the President.”
• In the present case, in making his recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not subject to the power of
control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take
effect. The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather data
and information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and verify
if any of the two conditions laid out by Congress is present. His personality in such instance
is in reality but a projection of that of Congress. Thus, being the agent of Congress and not
of the President, the President cannot alter or modify or nullify, or set aside the findings of
the Secretary of Finance and to substitute the judgment of the former for that of the latter.
• Congress simply granted the Secretary of Finance the authority to ascertain the existence
of a fact, namely, whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-
fifth percent (2 4/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). If either of these two instances
has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President
effective January 1, 2006. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible. Congress does
not abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex economy that
is frequently the only way in which the legislative process can go forward.
• Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a return to the 10% rate nor
does it empower the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 2 4/5 of the GDP of the previous year or that the national
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

government deficit as a percentage of GDP of the previous year does not exceed 1 1/2%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or
limitations be introduced where none is provided for. Rewriting the law is a forbidden
ground that only Congress may tread upon.

H. Constitutional Limitations

1. Enumeration

CONSTITUTIIONAL:

a. Due process of law;

b. equal protection of laws;
c. rrule of uniformity and equity in taxation;
d. no imprisonment for non-payment of poll tax;
e. non-impairment of the obligation of contracts;
f. non-infringement of religious freedom;
g. no appropriation for religious purposes;
h. exemption of religious, charitable, and educational entities, non-profit
cemeteries, and churches from property taxation;
I. exemption of non-stock, non-profit educational institutions from taxation;
j. concurrence by majority of all the members of Congress for the passage of a
law granting tax exemption;
k. power of the President to veto any particular item or items in a revenue or
tariff bill; and
l. non-impairment of the jurisdiction of the Supreme Court in tax cases.

2. Due Process and Equal Protection

a. PAGCOR vs. The BIR,

GR No. 172087 dated March 15, 2011

• Taxation is the rule and exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provision. In this
case, PAGCOR failed to prove that it is still exempt from the payment of corporate income
tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National
Internal Revenue Code of 1997 by omitting PAGCOR from the exemption. The legislative
intent, as shown by the discussions in the Bicameral Conference Meeting, is to require
PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from
exemption from the payment of corporate income tax.
• Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No.
9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as
to the removal of petitioner’s exemption from the payment of corporate income tax, which
was already addressed above by this Court.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

3. Non-impairment of obligation of contracts / Grant of Franchise

a. Sec. 10 Art. III of the Constitution

Section 10. No law impairing the obligation of contracts shall be passed.

b. Sec. 11 Art. XII of the Constitution

Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for
a longer period than fifty years. Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or repeal by the Congress when
the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines.

c. Meralco vs. Province of Laguna,

GR No. 131359 dated May 5, 1999

• While the Court has not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless, are far from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity. Truly,
tax exemptions of this kind may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so requires.

d. Smart Communications, Inc. vs. City of Davao,

GR No. 155491 dated September 16, 2008

• Smart gives another perspective of the “in lieu of all taxes” clause in Section 9 of R.A. No.
7294 in order to avoid the payment of local franchise tax. It says that, viewed from
another angle, the “in lieu of all taxes” clause partakes of the nature of a tax exclusion and
not a tax exemption. A tax exemption means that the taxpayer does not pay any tax at all.
Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more accurately
a tax exclusion. However, as previously held by the Court, both in their nature and effect,
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

there is no essential difference between a tax exemption and a tax exclusion. An

exemption is an immunity or a privilege; it is the freedom from a charge or burden to
which others are subjected. An exclusion, on the other hand, is the removal of otherwise
taxable items from the reach of taxation, e.g., exclusions from gross income and allowable
deductions. An exclusion is, thus, also an immunity or privilege which frees a taxpayer
from a charge to which others are subjected. Consequently, the rule that a tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions.
• We find no reason to disturb the previous pronouncements of this Court regarding the
interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of
this Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao, 363 SCRA
522 (2001), and recently in Digital Telecommunications Philippines, Inc. (Digitel) v.
Province of Pangasinan, 516 SCRA 541 (2007), Congress, in approving Section 23 of R.A.
No. 7925, did not intend it to operate as a blanket tax exemption to all telecommunications
entities. The language of Section 23 of R.A. No. 7925 and the proceedings of both Houses
of Congress are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by
R.A. No. 7160. The term “exemption” in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations and requirements
imposed by the National Telecommunications Commission.
• Smart’s franchise was granted with the express condition that it is subject to amendment,
alteration, or repeal. As held in Tolentino v. Secretary of Finance, 235 SCRA 630 (1994): It
is enough to say that the parties to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the State. For not only are existing
laws read into contracts in order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into contracts as a basic postulate of
the legal order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the peace and
good order of society. In truth, the Contract Clause has never been thought as a limitation
on the exercise of the State’s power of taxation save only where a tax exemption has been
granted for a valid consideration. X x x.

4. Infringement of Religious Freedom

a. Sec. 5 Art. III of the Constitution

Section 5. No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religious test shall be required for the
exercise of civil or political rights.

b. American Bible Society vs. City of Manila,

GR No. L-9637 dated April 30, 1957

• Where the old statute is repealed in its entirety and by the same enactment re-enacts all
or certain portions of the pre-existing law, the majority view holds that the rights and
liabilities which. have accrued under the original statute are preserved and may be
enforced, since the re-enactment neutralizes the repeal, therefore continuing the law in
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

force without interruption. (Crawford, Statutory Construction, Sec. 322). In the case at bar,
Ordinances Nos. 2529 and 3000 of the City of Manila were enacted by the Municipal Board
of the City of Manila by virtue of the power granted to it by section 2444, Subsection (m-2)
of the Revised Administrative Code, superseded on June 18, 1949, by section 18,
Subsection (o) of Republic Act No. 409, known as the Revised Charter of the City of Manila.
The only essential difference between these two provisions is that while Subsection (m-2)
prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated
under Subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned
therein, shall not be in excess of P500 per annum, the corresponding Section 18,
subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of
tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance
with the weight of authorities aforementioned, City ordinances Nos. 2529 and 3000 are still
in force and effect.
• The business of "retail dealers in general merchandise" is expressly enumerated in
subsection (o), section 18 of Republic Act No. 409: hence. an ordinance prescribing a
municipal tax on said business does not have to be approved by the President to be
effective, as it is not among those businesses referred to in subsection (ii) Section 18 of
the same Act subject to the approval of the President.
• The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of such
right can only be justified like other restraints of freedom of expression on the grounds
that there is a clear and present danger of any substantive evil which the State has the
right to prevent." (Tañada and Fernando on the Constitution of the Philippines, Vol. I, 4th
ed., p. 297). In the case at bar, plaintiff is engaged in the distribution and sales of bibles
and religious articles. The City Treasurer of Manila informed the plaintiff that it was
conducting the business of general merchandise without providing itself with the necessary
Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and
Ordinance No. 2529, as amended, and required plaintiff to secure the corresponding permit
and license. Plaintiff protested against this requirement and claimed that it never made any
profit from the sale of its bibles. Held: It is true the price asked for the religious articles
was in some instances a little bit higher than the actual cost of the same, but this cannot
mean that plaintiff was engaged in the business or occupation of selling said "merchandise"
for profit. For this reasons, the provisions of City Ordinance No. 2529, as amended, which
requires the payment of license fee for conducting the business of general merchandise,
cannot be applied to plaintiff society, for in doing so, it would impair its free exercise and
enjoyment of its religious profession and worship, as well as its rights of dissemination of
religious beliefs. Upon the other hand, City Ordinance No. 3000, as amended, which
requires the obtention of the Mayor's permit before any person can engage in any of the
businesses, trades or occupations enumerated therein, does not impose any charge upon
the enjoyment of a right granted by the Constitution, nor tax the exercise of religious
practices. Hence, it cannot be considered unconstitutional, even if applied to plaintiff
Society. But as Ordinance No. 2529 is not applicable to plaintiff and the City of Manila is
powerless to license or tax the business of plaintiff society involved herein, for the reasons
above stated, Ordinance No. 3000 is also inapplicable to said business, trade or occupation
of the plaintiff.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

c. Tolentino vs. Secretary of Finance,

GR No. 115455 dated August 25, 1994 and October 30, 1995
(motion for reconsideration)

• A similar ruling was made by this Court in American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on
those engaged in the sale of general merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible Society without restraining the free
exercise of its right to propagate.
• The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press pay income tax or subject
it to general regulation is not to violate its freedom under the Constitution.
• Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing copies which are
given free to those who cannot afford to pay so that to tax the sales would be to increase
the price, while reducing the volume of sale. Granting that to be the case, the resulting
burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to
disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
• On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as
amended by §7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to accounting
in §108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay
the VAT does not excuse it from the payment of this fee because it also sells some copies.
At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the
event it is assessed this tax by the Commissioner of Internal Revenue.

5. Infringement of Press Freedom

a. Sec. 4 Art. III of the Constitution

Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for redress of
grievances.

d. Tolentino vs. Secretary of Finance,

GR No. 115455 dated August 25, 1994 and October 30, 1995
(motion for reconsideration)

• We have held that, as a general proposition, the press is not exempt from the taxing power
of the State and that what the constitutional guarantee of free press prohibits are laws
which single out the press or target a group belonging to the press for special treatment or
which in any way discriminate against the press on the basis of the content of the
publication, and R.A. No. 7716 is none of these.
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

• Now it is contended by the PPI that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. At any
rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom
is unconstitutional."
• With respect to the first contention, it would suffice to say that since the law granted the
press a privilege, the law could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the State does not forever
waive the exercise of its sovereign prerogative.
• Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax
burden to which other businesses have long ago been subject. It is thus different from the
tax involved in the cases invoked by the PPI.
• The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was
found to be discriminatory because it was laid on the gross advertising receipts only of
newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator
Huey Long who controlled the state legislature which enacted the license tax. The censorial
motivation for the law was thus evident.
• On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2D 295 (1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or, in lieu thereof, for the use tax
on the privilege of using, storing or consuming tangible goods, the press was not. Instead,
the press was exempted from both taxes. It was, however, later made to pay a special use
tax on the cost of paper and ink which made these items "the only items subject to the use
tax that were component of goods to be sold at retail." The U.S. Supreme Court held that
the differential treatment of the press "suggests that the goal of regulation is not related to
suppression of expression, and such goal is presumptively unconstitutional." It would
therefore appear that even a law that favors the press is constitutionally suspect. (See the
dissent of Rehnquist, J. in that case)
• Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as
those previously granted to PAL, petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an effort to broaden the base of
the tax.
• The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716.
An enumeration of some of these transactions will suffice to show that by and large this is
not so and that the exemptions are granted for a purpose. As the Solicitor General says,
such exemptions are granted, in some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user rather than for profit. The exempt
transactions are:
• (a) Goods for consumption or use which are in their original state (agricultural, marine and
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture
(milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds)
• (b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) or for professional use, like professional instruments and
implements, by persons coming to the Philippines to settle here.
• (c) Goods subject to excise tax such as petroleum products or to be used for manufacture
of petroleum products subject to excise tax and services subject to percentage tax.
• (d) Educational services, medical, dental, hospital and veterinary services, and services
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

rendered under employer-employee relationship.

• (e) Works of art and similar creations sold by the artist himself.
• (f) Transactions exempted under special laws, or international agreements.
• (g) Export-sales by persons not VAT-registered.
• (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
• (Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)\\
• The PPI asserts that it does not really matter that the law does not discriminate against the
press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of thi assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
• The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by
the First Amendment is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges protected by the First Amendment
along with the wares and merchandise of hucksters and peddlers and treats them all alike.
Such equality in treatment does not save the ordinance. Freedom of press, freedom of
speech, freedom of religion are in preferred position.
• The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior
restraint on the exercise of its right. Hence, although its application to others, such those
selling goods, is valid, its application to the press or to religious groups, such as the
Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite another thing to exact a tax on him for
delivering a sermon."

I. Tax Rulings

1. Definition

2. Revenue Regulations (“RR”) No. 5-2012 dated April 2, 2012

Subject : Binding effect of rulings issued prior to Tax Reform Act of 1997

Section 2. Coverage. – All rulings issued prior to January 1, 1998 will no longer have
any binding effect. Consequently, these rulings cannot be invoked as basis for any current
business transaction/s. Neither can these rulings be used as basis for securing legal tax
opinions/rulings.

3. Commissioner’s Ruling (Sec. 7(B) of the NIRC)

SEC. 7.Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the
powers vested in him under the pertinent provisions of this Code to any or such subordinate
officials with the rank equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner: Provided, however, That the following
powers of the Commissioner shall not be delegated:

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

ruling of the Bureau;

4. Power of the CIR to Interpret /Review/Appeal to Sec. of Finance (Sec. 4 of the NIRC)

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

a. Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist Supervisors Union,
GR No. 204142 dated November 19, 2014

• The Voluntary Arbitrator has no competence to rule on the taxability of the gas allowance
and on the propriety of the withholding of tax. These issues are clearly tax matters, and do
not involve labor disputes. To be exact, they involve tax issues within a labor relations
setting as they pertain to questions of law on the application of Section 33(A) of the NIRC.
They do not require the application of the Labor Code or the interpretation of the MOA
and/or company personnel policies. Furthermore, the company and the union cannot agree
or compromise on the taxability of the gas allowance. Taxation is the State’s inherent
power; its imposition cannot be subject to the will of the parties.
• Under paragraph 1, Section 4 of the NIRC, the CIR shall have the exclusive and original
jurisdiction to interpret the provisions of the NIRC and other tax laws, subject to review by
the Secretary of Finance. Consequently, if the company and/or the union desire/s to seek
clarification of these issues, it/they should have requested for a tax ruling from the Bureau
of Internal Revenue (BIR). Any revocation, modification or reversal of the CIR’s ruling shall
not be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer
deliberately misstates or omits material facts from his return or any document required of
him by the BIR; (b) Where the facts subsequently gathered by the BIR are materially
different from the facts on which the ruling is based; or (c) Where the taxpayer acted in
bad faith. On the other hand, if the union disputes the withholding of tax and desires a
refund of the withheld tax, it should have filed an administrative claim for refund with the
CIR. Paragraph 2, Section 4 of the NIRC expressly vests the CIR original jurisdiction over
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other tax matters.

b. Banco De Oro vs. Republic,

GR No. 198756 dated January 13, 2015

• We agree with respondents that the jurisdiction to review the rulings of the Commissioner
of Internal Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos.
370-2011 and DA 378-2011 were issued in connection with the implementation of the
1997 National Internal Revenue Code on the taxability of the interest income from zero-
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

coupon bonds issued by the government. Under Republic Act No. 1125 (An Act Creating
the Court of Tax Appeals), as amended by Republic Act No. 9282, such rulings of the
Commissioner of Internal Revenue are appealable to that court.
• In exceptional cases, however, this court entertained direct recourse to it when “dictated
by public welfare and the advancement of public policy, or demanded by the broader
interest of justice, or the orders complained of were found to be patent nullities, or the
appeal was considered as clearly an inappropriate remedy.” In Philippine Rural Electric
Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and
Local Government, 403 SCRA 558 (2003), this court noted that the petition for prohibition
was filed directly before it “in disregard of the rule on hierarchy of courts. However, [this
court] opt[ed] to take primary jurisdiction over the . . . petition and decide the same on its
merits in view of the significant constitutional issues raised by the parties dealing with the
tax treatment of cooperatives under existing laws and in the interest of speedy justice and
prompt disposition of the matter.”

c. Confederation for Unity, Recognition and Advancement of Government Employees

vs. Commissioner - BIR,
GR No. 213446 dated July 3, 2018

• The CIR's exercise of its power to interpret tax laws comes in the form of revenue
issuances, which include RMOs that provide "directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods and
procedures necessary in the implementation of stated policies, goals, objectives, plans and
programs of the Bureau in all areas of operations, except auditing."
• These revenue issuances are subject to the review of the Secretary of Finance. In relation
thereto, Department of Finance Department Order No. 007-0244 issued by the Secretary
of Finance laid down the procedure and requirements for filing an appeal from the adverse
ruling of the CIR to the said office. A taxpayer is granted a period of thirty (30) days from
receipt of the adverse ruling of the CIR to file with the Office of the Secretary of Finance a
request for review in writing and under oath.
• In Asia International Auctioneers, Inc. v. Parayno, Jr., the Court dismissed the petition
seeking the nullification of RMC No. 31-2003 for failing to exhaust administrative remedies.
The Court held:
• x x x It is settled that the premature invocation of the court's intervention is fatal to one's
cause of action. If a remedy within the administrative machinery can still be resorted to by
giving the administrative officer every opportunity to decide on a matter that comes within
his jurisdiction, then such remedy must first be exhausted before the court's power of
judicial review can be sought. The party with an administrative remedy must not only
initiate the prescribed administrative procedure to obtain relief but also pursue it to its
appropriate conclusion before seeking judicial intervention in order to give the
administrative agency an opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to the court
• The doctrine of exhaustion of administrative remedies is not without practical and
legal reasons. For one thing, availment of administrative remedy entails lesser expenses
and provides for a speedier disposition of controversies. It is no less true to state that
courts of justice for reasons of comity and convenience will shy away from a dispute until
the system of administrative redress has been completed and complied with so as to give
the administrative agency concerned every opportunity to correct its error and to dispose
of the case.
• While there are recognized exceptions to this salutary rule, petitioners have failed to prove
the presence of any of those in the instant case.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

• Violation of the rule on hierarchy of courts. Moreover, petitioners violated the rule on
hierarchy of courts as the petitions should have been initially filed with the CTA, having the
exclusive appellate jurisdiction to determine the constitutionality or validity of revenue
issuances.
• In The Philippine American Life and General Insurance Co. v. Secretary of Finance, the
Court held that rulings of the Secretary of Finance in its exercise of its power of review
under Section 4 of the NIRC of 1997, as amended, are appealable to the CT A. 50 The
Court explained that while there is no law which explicitly provides where rulings of the
Secretary of Finance under the adverted to NIRC provision are appealable, Section 7(a)51
of RA No. 1125, the law creating the CTA, is nonetheless sufficient, albeit impliedly, to
include appeals from the Secretary's review under Section 4 of the NIRC of 1997, as
amended.
• Moreover, echoing its pronouncements in City of Manila v. GreciaCuerdo, that the CT A has
the power of certiorari within its appellate jurisdiction, the Court declared that "it is now
within the power of the CTA, through its power of certiorari, to rule on the validity of a
particular administrative rule or regulation so long as it is within its appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based. "
• Subsequently, in Banco de Oro v. Republic, the Court, sitting En Banc, further held that
the CTA has exclusive appellate jurisdiction to review, on certiorari, the constitutionality or
validity of revenue issuances, even without a prior issuance of an assessment. The Court
En Banc reasoned:
• We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc.
The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or
validity of tax laws, rules and regulations, and other administrative issuances of the
Commissioner of Internal Revenue.

5. Non-Retroactivity of Rulings (Sec. 246 of the NIRC)

SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification or reversal of any of
the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following
cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or
any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

a. CIR vs. Phil. Healthcare Providers,

GR No. 168129 dated April 24, 2007

• Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that
rulings, circulars, rules and regulations promulgated by the Commissioner of Internal
Revenue have no retroactive application if to apply them would prejudice the taxpayer. The
exceptions to this rule are: (1) where the taxpayer deliberately misstates or omits material
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

facts from his return or in any document required of him by the Bureau of Internal
Revenue; (2) where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based, or (3) where the
taxpayer acted in bad faith.
• We agree with both the Tax Court and the Court of Appeals that respondent acted in good
faith. In Civil Service Commission v. Maala, 467 SCRA 390 (2005), we described good faith
as “that state of mind denoting honesty of intention and freedom from knowledge of
circumstances which ought to put the holder upon inquiry; an honest intention to abstain
from taking any unconscientious advantage of another, even through technicalities of law,
together with absence of all information, notice, or benefit or belief of facts which render
transaction unconscientious.” According to the Court of Appeals, respondent’s failure to
describe itself as a “health maintenance organization,” which is subject to VAT, is not
tantamount to bad faith. We note that the term “health maintenance organization” was
first recorded in the Philippine statute books only upon the passage of “The National Health
Insurance Act of 1995” (Republic Act No. 7875). Section 4 (o) (3) thereof defines a health
maintenance organization as “an entity that provides, offers, or arranges for coverage of
designated health services needed by plan members for a fixed prepaid premium.” Under
this law, a health maintenance organization is one of the classes of a “health care
provider.” It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent’s
favor, the term “health maintenance organization” was yet unknown or had no significance
for taxation purposes. Respondent, therefore, believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88.
• In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, 108 SCRA 142 (1981), this Court
held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue
is precluded from adopting a position contrary to one previously taken where injustice
would result to the taxpayer. Hence, where an assessment for deficiency withholding
income taxes was made, three years after a new BIR Circular reversed a previous one
upon which the taxpayer had relied upon, such an assessment was prejudicial to the
taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good
faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp. in the later cases of Commissioner of Internal Revenue v. Borroughs,
Ltd., 142 SCRA 324 (1986), Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp.,
166 SCRA 166 (1988), Commissioner of Internal Revenue v. Telefunken Semiconductor
(Phils.), Inc., 249 SCRA 401 (1995), and Commissioner of Internal Revenue v. Court of
Appeals, 267 SCRA 557 (1997). The rule is that the BIR rulings have no retroactive effect
where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case.

b. CIR vs. Burmeister and Wain,

GR No. 153205 dated Jaunary22, 2007

• In seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99,
which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being
rendered by BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on
these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the CTA
challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling
No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given
retroactive effect since it will prejudice respondent. Changing respondent’s status will
deprive respondent of a refund of a substantial amount representing excess output tax.
Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner
of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer. Further, there is no showing of the existence of any of the
exceptions enumerated in Section 246 of the Tax Code for the retroactive application of
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

such revocation.

c. CIR vs. CA,

GR No. 117982 dated February 6, 1997
[read also concurring opinion of Justice Vitug]

• However, well-entrenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive
application if to so apply them would be prejudicial to the taxpayers.
• Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of
wrong. lt partakes of the nature of fraud; a breach of a known duty through some motive
of interest or ill will. We find no convincing evidence that private respondent’s
implementation of the computation mandated by BIR Ruling 473–88 was ill-motivated or
attended with a dishonest purpose. To the contrary, as a sign of good faith, private
respondent immediately reverted to the computation mandated by BIR Ruling 017–91
upon knowledge of its issuance on 11 February 1991.
• As regards petitioner’s argument that private respondent should have made consultations
with it before private respondent used the computation mandated by BIR Ruling 473–88,
suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no
room for interpretation. The failure of private respondent to consult petitioner does not
imply bad faith on the part of the former.
• As regards petitioner’s argument that private respondent should have made consultations
with it before private respondent used the computation mandated by BIR Ruling 473–88,
suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no
room for interpretation. The failure of private respondent to consult petitioner does not
imply bad faith on the part of the former.

• CONCURRING OPINION
VITUG, J.:

I concur in the ponencia written by my esteemed colleague, Mr. Justice Josue N. Bellosillo.
I only would like to stress that the 1988 opinion of the Commissioner of Internal Revenue
cannot be considered void, considering that it evinces what the former Commissioner must
have felt to be a real inconsistency between Section 127 and Section 142 of the Tax Code.
The non-retroactivity proscription under Section 246 of the Tax Code can thus aptly apply. I
reserve my vote, however, in a situation where, as the Solicitor General so points out, the
revoked ruling is patently null and void in which case it could possibly be disregarded as
being inexistent from the very beginning.

d. CIR vs. Filinvest Development Corporation,

GR Nos. 163653 and 167689 dated July 19, 2011

• Even if we were, therefore, to accord precipitate credulity to the CIR’s bare assertion that
FDC had deducted substantial interest expense from its gross income, there would still be
no factual basis for the imputation of theoretical interests on the subject advances and
assess deficiency income taxes thereon. More so, when it is borne in mind that, pursuant
to Article 1956 of the Civil Code of the Philippines, no interest shall be due unless it has
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

been expressly stipulated in writing. Considering that taxes, being burdens, are not to be
presumed beyond what the applicable statute expressly and clearly declares, the rule is
likewise settled that tax statutes must be construed strictly against the government and
liberally in favor of the taxpayer. Accordingly, the general rule of requiring adherence to the
letter in construing statutes applies with peculiar strictness to tax laws and the provisions
of a taxing act are not to be extended by implication. While it is true that taxes are the
lifeblood of the government, it has been held that their assessment and collection should
be in accordance with law as any arbitrariness will negate the very reason for government
itself.
• As even admitted in the 14 February 2001 Stipulation of Facts submitted by the parties,
the requisites for the non-recognition of gain or loss under the foregoing provision are as
follows: (a) the transferee is a corporation; (b) the transferee exchanges its shares of
stock for property/ies of the transferor; © the transfer is made by a person, acting alone
or together with others, not exceeding four persons; and, (d) as a result of the exchange
the transferor, alone or together with others, not exceeding four, gains control of the
transferee.
• In its appeal before the CA, the CIR argued that the foregoing ruling was later modified in
BIR Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos
evidencing lendings or borrowings extended by a corporation to its affiliates are akin to
promissory notes, hence, subject to documentary stamp taxes. In brushing aside the
foregoing argument, however, the CA applied Section 246 of the 1993 NIRC from which
proceeds the settled principle that rulings, circulars, rules and regulations promulgated by
the BIR have no retroactive application if to so apply them would be prejudicial to the
taxpayers. Admittedly, this rule does not apply: (a) where the taxpayer deliberately
misstates or omits material facts from his return or in any document required of him by the
Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is based; or (c)
where the taxpayer acted in bad faith. Not being the taxpayer who, in the first instance,
sought a ruling from the CIR, however, FDC cannot invoke the foregoing principle on non-
retroactivity of BIR rulings.
• Alongside the principle that tax revenues are not intended to be liberally construed, the
rule is settled that the findings and conclusions of the CTA are accorded great respect and
are generally upheld by this Court, unless there is a clear showing of a reversible error or
an improvident exercise of authority. Absent showing of such error here, we find no strong
and cogent reasons to depart from said rule with respect to the CTA’s finding that no
deficiency income tax can be assessed on the gain on the supposed dilution and/or
increase in the value of FDC’s shareholdings in FAC which the CIR, at any rate, failed to
establish. Bearing in mind the meaning of “gross income” as above discussed, it cannot be
gainsaid, even then, that a mere increase or appreciation in the value of said shares
cannot be considered income for taxation purposes. Since “a mere advance in the value of
the property of a person or corporation in no sense constitute the ‘income’ specified in the
revenue law,” it has been held in the early case of Fisher vs. Trinidad, that it “constitutes
and can be treated merely as an increase of capital.” Hence, the CIR has no factual and
legal basis in assessing income tax on the increase in the value of FDC’s shareholdings in
FAC until the same is actually sold at a profit.
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

e. CIR vs. San Roque Power,

GR No. 187485 dated February 12, 2013 and other cases

Authority of the Commissioner to Delegate Power

• In asking this Court to disallow Taganito’s claim for tax refund or credit, the CIR repudiates
the validity of the issuance of its own BIR Ruling No. DA-489-03. "Taganito cannot rely on
the pronouncements in BIR Ruling No. DA- 489-03, being a mere issuance of a Deputy
Commissioner."
• Although Section 4 of the 1997 Tax Code provides that the "power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance," Section 7
of the same Code does not prohibit the delegation of such power. Thus, "the Commissioner
may delegate the powers vested in him under the pertinent provisions of this Code to any
or suc subordinate officials with the rank equivalent to a division chief or higher, subject to
such limitations and restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner."

f. CIR vs. San Roque Power,

GR No. 187485 dated October8, 2013

g. Banco De Oro vs. Republic,

GR No. 198756 dated August 16, 2016 –
resolution on the Motion for Reconsideration

• The previous interpretations given to an ambiguous law by the Commissioner of Internal

Revenue, who is charged to carry out its provisions, are entitled to great weight, and
taxpayers who relied on the same should not be prejudiced in their rights. Hence, this
Court’s construction should be prospective; otherwise, there will be a violation of due
process for failure to accord persons, especially the parties affected by it, fair notice of the
special burdens imposed on them.
• This Court has previously granted interest in cases where patent arbitrariness on the part
of the revenue authorities has been shown, or where the collection of tax was illegal.

6. Appeal of Rulings – RTC or CTA?

a. Banco De Oro vs. Republic, GR No. 198756, January 13, 2015 and resolution on the
Motion for reconsideration, GR No. 198756 dated August 16, 2016

• The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only in the lawful exercise of its power
to pass upon all matters brought before it, as sanctioned by Section 7 of Republic Act No.
1125, as amended.
• Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129 provides an
exception to the original jurisdiction of the Regional Trial Courts over actions questioning
the constitutionality or validity of tax laws or regulations. Except for local tax cases, actions
directly challenging the constitutionality or validity of a tax law or regulation or
 CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

administrative issuance may be filed directly before the Court of Tax Appeals.

b. Confederation for Unity, Recognition and Advancement of Government Employees vs.

Commissioner – BIR,
GR No. 213446 dated July 3, 2018

• In The Philippine American Life and General Insurance Co. v. Secretary of Finance,49 the
Court held that rulings of the Secretary of Finance in its exercise of its power of review
under Section 4 of the NIRC of 1997, as amended, are appealable to the CT A. The Court
explained that while there is no law which explicitly provides where rulings of the Secretary
of Finance under the adverted to NIRC provision are appealable, Section 7(a)51 of RA No.
1125, the law creating the CTA, is nonetheless sufficient, albeit impliedly, to include
appeals from the Secretary's review under Section 4 of the NIRC of 1997, as amended.
• Moreover, echoing its pronouncements in City of Manila v. GreciaCuerdo, that the CT A has
the power of certiorari within its appellate jurisdiction, the Court declared that "it is now
within the power of the CTA, through its power of certiorari, to rule on the validity of a
particular administrative rule or regulation so long as it is within its appellate jurisdiction.
• Hence, it can now rule not only on the propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based. "
• Subsequently, in Banco de Oro v. Republic, the Court, sitting En Banc, further held that the
CTA has exclusive appellate jurisdiction to review, on certiorari, the constitutionality or
validity of revenue issuances, even without a prior issuance of an assessment. The Court
En Banc reasoned:
• We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc.
The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or
validity of tax laws, rules and regulations, and other administrative issuances of the
Commissioner of Internal Revenue.

c. Compare with CIR vs. CTA and Petron, GR No. 207843 dated July 15, 2015 (Perlas-
Bernabe)

• In this case, there was even no tax assessment to speak of. While customs collector
Federico Bulanhagui himself admitted during the CTA's November 8, 2012 hearing that the
computation he had written at the back page of the IEIRD served as the final assessment
imposing excise tax on Petron's importation of alkylate, the Court concurs with the CIR's
stance that the subject IEIRD was not yet the customs collector's final assessment that
could be the proper subject of review. And even if it were, the same should have been
brought first for review before the COC and not directly to the CTA. It should be stressed
that the CTA has no jurisdiction to review by appeal, decisions of the customs collector. The
TCC prescribes that a party adversely affected by a ruling or decision of the customs
collector may protest such ruling or decision upon payment of the amount due and, if
aggrieved by the action of the customs collector on the matter under protest, may have
the same reviewed by the COC. It is only after the COC shall have made an adverse ruling
on the matter may the aggrieved party file an appeal to the CTA.
• Notably, Petron admitted to not having filed a protest of the assessment before the
customs collector and elevating a possible adverse ruling therein to the COC, reasoning
that such a procedure would be costly and impractical, and would unjustly delay the
resolution of the issues which, being purely legal in nature anyway, were also beyond the
authority of the customs collector to resolve with finality. This admission is at once decisive
CHRISTINE MARISSE TATOY ARELLANO UNIVERSITY SCHOOL OF LAW

of the issue of the CTA's jurisdiction over the petition. There being no protest ruling by the
customs collector that was appealed to the COC, the filing of the petition before the CTA
was premature as there was nothing yet to review.
• Verily, the fact that there is no decision by the COC to appeal from highlights Petron's
failure to exhaust administrative remedies prescribed by law. Before a party is allowed to
seek the intervention of the courts, it is a precondition that he avail of all administrative
processes afforded him, such that if a remedy within the administrative machinery can be
resorted to by giving the administrative officer every opportunity to decide on a matter
that comes within his jurisdiction, then such remedy must be exhausted first before the
court's power of judicial review can be sought, otherwise, the premature resort to the court
is fatal to one's cause of action. While there are exceptions to the principle of exhaustion of
administrative remedies, it has not been sufficiently shown that the present case falls
under any of the exceptions.