Case Digests in Tax I

1. Philex Mining Corporation vs. CIR, G.R. No. 125704 August 28, 1998FACTS:The Court of Tax Appeals ordered Philex to pay the amount of P110, 677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid.Philex refused to pay and argued that it had pending claims for VAT input credit/refund for the taxes it paid for the years 1989-1991 in the amount of P119,977,037.02 plus interest and therefore should be applied against the said excise tax liabilities in a manner of a set-off or legal compensation.

ISSUE: WON taxes could be the subject of a set-off or legal compensation?

RULING:No. Taxes could not be the subject of a set-off or legal compensation for the simple reason that the government and the taxpayer are not mutual creditors and debtors of each other. Claims for taxes are neither debts nor contracts. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the lawsuit it filed against the government. In the case at bar, the claims of Philex for VAT refund is still pending litigation. Moreover, taxes are the lifeblood of the government and should be collected without unnecessary hindrance.

CitingFrancia v. Intermediate Appellate Court, the SC 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 tax cannot await the results of a lawsuit against the government.

2. ATLAS CONSOLIDATED AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 159490, February 18, 2008

FACTS:Atlas is a corporation duly organized and existing under Philippine laws engaged in the production of copper concentrates for export. It is registered as a VAT entity and a VAT Registration Certificate No. 32-0-004622 effective August 15, 1990.On September 20, 1993, Atlas applied with the BIR for the issuance of a tax credit certificate or refund under Section 106(b) of the Tax Code. The certificate would represent the VAT it paid for the first quarter of 1993 in the amount of PhP 7,907,662.53, which corresponded to the input taxes not applied against any output VAT.On February 22, 1995, Atlas then filed with the CTA and on October 13, 1997, the CTA rendered a Decision against Atlas. The CTA held that Atlas failed to present sufficient evidence to warrant the grant of tax credit or refund for the alleged input taxes paid by Atlas. It found that the documents submitted by Atlas did not comply with Revenue Regulation No. 3-88. Atlas timely filed its Motion for Reconsideration of the above decision contending that it relied on Sec. 106 of the Tax Code which merely required proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines (CBP). Consequently, Atlas asserted that the documents it presented, coupled with the testimony of its Accounting and Finance Manager, sufficiently proved its case. The Motion for Reconsideration was denied.Atlas appealed and the CA denied and dismissed Atlas petition on the ground of insufficiency of evidence to support Atlas action for tax credit or refund.

ISSUE: Whether Atlas has sufficiently proven entitlement to a tax credit or refund.

RULING: No. The Rules of Court, which is suppletory in quasi-judicial proceedings, particularly Sec. 349 of Rule 132, Revised Rules on Evidence, is clear that no evidence which has not been formally offered shall be considered. Thus, where the pertinent invoices or receipts purportedly evidencing the VAT paid by Atlas were not submitted, the courts a quo evidently could not determine the veracity of the input VAT Atlas has paid. Moreover, when Atlas likewise failed to submit pertinent export documents to prove actual export sales with due certification from accredited banks on the export proceeds in foreign currency with the corresponding conversion rate into Philippine currency, the courts a quo likewise could not determine the veracity of the export sales as indicated in Atlas amended VAT return.

3. MELECIO R. DOMINGO, as Commissioner of Internal Revenue vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, G.R. No. L-18994, June 29, 1963FACTS: In Domingo vs. Moscoso, the Supreme Court declared as final and executory the order of the lower court for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by the estate of the of the late Walter Price. The petitioner for execution filed by the fiscal was denied by the lower court. The court held that the execution is unjustified as the Government is indebted to the estate for Php 262, 200 and ordered the amount of inheritance taxes can be deducted from the Governments indebtedness to the estate.

ISSUE: Whether or not a tax and a debt may be compensated.

RULING:The court having jurisdiction of the Estate had found that the claim of the Estate against the government has been recognized and the amount has already been appropriated by a corresponding law, Rep. Act No. 2700. 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 takes place by operation of law and both debts are extinguished to the concurrent amount. Therefore the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Price.

4. Commissioner vs. Algue, GR L-28890, 17 February 1988

Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Court of Tax Appeals.

Issue: Is the Collector of the Internal Revue correct in disallowing the P75,000 deduction claimed by Algue as a legitimate business expense on account that it was not an ordinary, reasonable and necessary expense?

RULING:No. The Supreme Court ruled in favor of the CTA and Algue. The amount in question is a legitimate business expense. The burden on the part of the tax payer to prove that said expenses were necessary and reasonable were satisfactorily complied with. With this in mind, the court expounded on the purpose and rationale of taxation,Tax collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos.

5. NPC vs. City of Cabanatuan G.R. No. 149110, April 9, 2003

Facts:National Power Corporation, a Government Owned and Controlled Corporation was assessed by the City of Cabanatuan for franchise tax pursuant to sec. 37 of Ordinance No. 165-92. NPC refused to pay the tax assessment on the grounds that the City of Cabanatuan has no authority to impose tax on government entities and also that it is exempted as a non-profit organization. For its part, the City government alleged that NPCs exemption from local taxes has been repealed by sec. 193 of RA 7160.

Issue: Whether or not NPC is liable to pay an annual franchise tax to the City government.

RULING:One of the most significant provisions of the Local Government Code is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities.As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur:(1) That petitioner has a "franchise" in the sense of a secondary or special franchise; and(2) That it is exercising its rights or privileges under this franchise within the territory of the respondent city government.NPC fulfills both requisites. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code.The Supreme COurt also did not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC.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 provisions. In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities."It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.

6. Lorenzo vs. Posadas, 64 Phil 353

Facts: Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that: Any money left be given to nephew Matthew All real estate shall not be sold or disposed of 10 years after his death. It shall be managed by the executors. The proceeds shall be given to nephew Matthew in Ireland to be used only for the education of Hanleys brother's children and their descendants. 10 years after Thomas death, his property be given to Matthew to be disposed of in the way he thinks most advantageous.In 1924, the CFI appointed an administrator, Moore, eventually replaced by Lorenzo (after Moore resigned). CIR assessed the estate inheritance taxes from the time of Thomas death including penalties for deliquency in payment (P2k+). CIR filed a motion before the CFI praying that the Lorenzo be ordered to pay the said amount. The motion was granted. Lorenzo paid under protest and asked for a refund. CIR refused to refund.

Issues:(a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later?

(a)UPON DEATHLorenzo asserts that article 657 of the Civil Code (the rights to the succession of a person are transmitted from the moment of his death) operates only in so far as forced heirs are concerned.HOWEVER, there is no distinction between different classes of heirs. The Administrative Code imposes the tax upon the transmission of property of a decedent, made effective by his death. An excise or privilege tax is imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as of the date. However, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is fixed by the Revised Administrative Code w/c provides that the payment must be made before entrance into possession of the property of the fideicommissary or cestui que trust. Thus, the tax should have been paid before the delivery of the properties to Moore as trustee in 1924. (b) AT THE TIME OF DEATHPlaintiff contends that the estate of Thomas Hanley could not legally pass to Matthew until after the expiration of 10 years from the death of the testator in 1922 and the inheritance tax should be based on the value of the estate in 1932. Upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly. The tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value, or the postponement of the actual possession or enjoyment of the estate by the beneficiary.

(4) Commissioner vs. AlgueAs to purpose or objective of taxation:

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

7. PAL vs. EDU, 164 SCRA 320

FACTS:Philippine Airlines Inc. is engaged in air transportation business under a legislative franchise wherein it is exempt from tax payment. PAL has not been paying motor vehicle registration since 1956. Subsequently, the Land Registration Commissioner required all tax exempt entities including PAL to pay motor vehicle registration fees.

ISSUE: Whether or not registration fees as to motor vehicles are taxes to which PAL is exempted.

RULING:Taxes are for revenue whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under Motor Vehicle Law is not intended for the expenditures of the MV Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges.As fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways but to provide revenue with which the Government is to construct and maintain public highways for everyones use, they are veritable taxes, not merely fees. PAL is thus exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979 where its tax exemption in the franchise was repealed.

8. Tolentino vs. Secretary of Finance, (235 SCRA 630, 249 SCRA 628)August 25, 1994; October 30, 1995

Facts: There are varioussuitschallenging the constitutionality of RA 7716 on various grounds.The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code.Among the Petitioners was the Philippine Press Institute which claim that R.A. 7716 violates their press freedom and religious liberty, having removed them from the exemption to pay Value Added Tax. 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." PPI argued that the VAT is in the nature of a license tax.

Issue: Whether or not the purpose of the VAT is the same as that of a license tax.

Ruling: 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 Jehovahs Witnesses, in connection with the latters 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.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.

9. COCOFED vs. Republic, GR Nos. 177857-58, January 24, 2012

FACTS:In 1971, Republic Act No. 6260 was enacted creating the Coconut Investment Fund (CIF). The source of the CIF was a P0.55 levy on the sale of every 100 kg. of copra. The Philippine Coconut Administration was tasked to collect and administer the Fund. Out of the 0.55 levy, P0.02 was placed at the disposition of the COCOFED, the recognized national association of coconut producers declared by the PCA. Cocofund receipts were ought to be issued to every copra seller.During the Martial Law regime, then President Ferdinand Marcos issued several Presidential Decrees purportedly for the improvement of the coconut industry. The most relevant among these is P.D. No. 755 which permitted the use of the Fund for the acquisition of a commercial bank for the benefit of coconut farmers and the distribution of the shares of the stock of the bank it [PCA] acquired free to the coconut farmers (Sec.2).Thus, the PCA acquired the First United Bank, later renamed the United Coconut Planters Bank (UCPB). The PCA bought the 72.2% of PUBs outstanding capital stock or 137,866 shares at P200 per share (P27, 573,200.00) from Pedro Cojuangco in behalf of the coconut farmers. The rest of the Fund was deposited to the UCPB interest free.Farmers who had paid the CIF and registered their receipts with PCA were given their corresponding UCPB stock certificates. Only 16 million worth of COCOFUND receipts were registered and a large number of the coconut farmers opted to sell all/part of their UCPB shares to private individuals.Simply put, parts of the coconut levy funds went directly or indirectly to various projects and/or was converted into different assets or investments through the years.After the EDSA Revolution, President Corazon Aquino issued Executive Order 1 which created the Presidential Commission on Good Government (PCGG).The PCGG aimed to assist the President in the recovery of ill-gotten wealth accumulated by the Marcoses and their cronies. PCGG was empowered to file cases for sequestration in the Sandiganbayan.Among the sequestered properties were the shares of stock in the UCPB registered in the name of over a million coconut farmers held in trust by the PCA. The Sandiganbayan allowed the sequestration by ruling in a Partial Summary Judgment that the Coconut Levy Funds are prima facie public funds and that Section 1 and 2 of PD No. 755 (and some other PDs) were unconstitutional.The COCOFED representing the over a million coconut farmers via Petition for review under Rule 45 sought the reversal of the ruling contending among others that the sequestration amounted to taking of private property without just compensation and impairment of vested right of ownership.

ISSUE: What is the NATURE of the Coconut Levy Fund?

RULING:The SC ruled in favor of the REPUBLIC.To begin with, the Coconut Levy was imposed in the exercise of the States inherent power of taxation. Indeed, the Coconut Levy Funds partake the nature of TAXES. The Funds were generated by virtue of statutory enactments by the proper legislative authorities and for public purpose.The Funds were collected to advance the government avowed policy of protecting the coconut industry. The SC took judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their byproducts occupy a leading position among the countries export products. Taxation is done not merely to raise revenues to support the government, but also to provide means for therehabilitation and the stabilization of a threatened industry, which is so affected with public interest.

10. John Osmena vs. Oscar Orbos, 220 SCRA 703G.R. No: 99886, March 31, 1993

Facts:Pres. Marcos created Special Account in the General Fund (P.D. 1956), designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil.. Pres. Aquino, amended and promulgated E.O. No. 137, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. The petition claimed that the status of the OPSF as of March 31, 1991 showed a Terminal Balance Deficit of some P12.877 billion and to abate such, the Energy Regulatory Board issued an Order approving the increase in pump prices of petroleum products. The OPSF deficit should have been fully covered in a span of 6 months but Oscar Orbos, in his capacity as Executive Secretary;Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board are poised to accept, process and pay claims not authorized under P.D. 1956.

Issue: What is the purpose of the Oil Price Stabilization Fund?

RULING:The OPSF is a "Trust Account" which was established for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products. It is clear that while the funds collected may be referred to as taxes; they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." The Court cited Valmonte v. ERB and Gaston v. Republic Planters Bank, The tax collected is not in a pure exercise of the taxing power.It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar (petroleum products) industry. The levy is primarily in the exercise of the police power of the State.11. CALTEX PHILIPPINES, INC. vs. THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, G.R. No. 92585, May 8, 1992

FACTS:On February 2, 1989, the Commission on Audit (COA) sent a letter to Caltex requesting the latter to remit its tax contributions amounting to P335,037,649 to Oil Price Stabilization Fund (OPSF) pursuant to Section 8 of P.D. No. 1956. Another letter was sent to the petitioner, stating that the total amount of its unremitted tax was P1,287,668,820.00 from 1986-1988 as verified by the Office of Energy Affairs (OEA).Denying such request, Caltex answered to COAs letters asking OEA for early release of reimbursement certificates from OPSF. COA denied petitioners request but instead asked Caltex to remit its collection. As a reply, Caltex gave a proposal for its payment based on PD 1956, as amended by E.O 137; Department of Finance Circular No.1-87; the New Civil Code as to compensation; and the Revised Administrative Code. COA accepted the proposal except those matters involving offsetting the remittances and reimbursements. Pursuant to such agreement, COA informed OEA as to Caltexs remittances amounting to P1, 505,668,906 to OPSF and allowing OEA to reimburse Caltex the amount of P1, 959,182,612. Caltex, however, disagreed with such arrangement. Caltex thereby insisted that its remittances and reimbursements must be offset. But COA disregarded such contention holding as a basis the case of Francia vs.IAC and Fernandez, arguing that OPSF is not in the form of taxation, therefore not for revenue purposes.

ISSUE: Whether or not OPSF contributions are for non-revenue purposes of the government and it is still in the form of taxation. RULING: YES, OPSF are for non-revenue purposes and is in the nature of taxes.The Supreme Court found no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may properly address.Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No amount of semantical juggleries could dim this fact.

12. ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), vs. THE COMMISSIONER OF INTERNAL REVENUE. G.R. Nos. L-28508-9 July 7, 1989

Facts:The CTA denied ESSOs claims for refund of overpaid income taxes of P102, 246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively.In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the respondent Commissioner of Internal Revenue on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. ESSO then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells and claimed as ordinary and necessary expenses the margin fees paid to the Central Bank on profit remittances to its New York head office.In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960 arising from the disallowance of the margin fees paid by ESSO to the Central Bank on its profit remittances to its New York head office. ESSO settled the same by applying as tax credit its overpayment on its income tax in 1959 and paying under protest the remaining amount.The CIR denied the claims for refund of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.

Issue: WON the margin fees were deductible from gross income as a tax or an ordinary and necessary business expense.

RULING:The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. There are at least two cases where we have held that a margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, the Court stated through Justice Jose P. Bengzon:A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to stabilize the currency. By its nature, the margin levy is part of the rate of exchange as fixed by the government.Moreover, it has been settled that a tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves.The margin fees are not ordinary and necessary business expenses. Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable deduction as a business expense must be determined from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished by the expenditure.The Court held that the CTA was correct in saying that the margin fees are not expenses in connection with the production or earning of petitioner's incomes in the Philippines. Since the margin fees in question were incurred for the remittance of funds to petitioner's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of petitioner's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of petitioner's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively.

(8) Tolentino vs. Secretary of Finance, (235 SCRA 630, 249 SCRA 628)As to Indirect and Direct TaxesThe Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are to be preferred [&] as much as possible, indirect taxes should be minimized." Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited Sales taxes are also regressive.Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions, while granting exemptions to other transactions.

13. Ernesto M. Maceda, vs. Hon. Catalino Macaraig, Jr., G.R. No. 88291 May 31, 1991

Facts:Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. RA 358 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987.Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.

ISSUE:Whether or not NPC is exempted from paying indirect tax.Ruling: The NPC is exempted to pay indirect taxes. The court distinguish direct tax from indirect tax.a. Direct Tax that where the person supposed to pay the tax really pays it.WITHOUTtransferring the burden to someone else.b. Indirect Tax that where the tax is imposed upon goodsBEFOREreaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. The exemption of NPC from payment of taxes under PD 938 was expressed in general term ALL FORMS OF TAXES wherein there is a deletion of the phrases "directly or indirectly" which is stated under Presidential Decree No. 380 that is repealed and amended by PD 938.The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. The rationale for this exemption is that being non-profit public corporation created for the general good and welfarewholly owned by the government of the Republic of the Philippines the NPC "shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion to enable the Corporation to pay the indebtedness and obligations amounting to P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time, as of PD 938. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved.

14. COMMISSIONER OF INTERNAL REVENUE, vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS,G.R. No. L-31092 February 27, 1987

Facts:The World Health Organization is an international organization which enjoys privileges and immunities under the Host Agreement entered into between the Philippines which provides that the Organization, its assets, income and other properties shall be exempt from all direct and indirect taxes.When the WHO decided to construct a building to house its own offices stationed in Manila, it entered into a further agreement with the Government that the Organization may import into the country materials and fixtures required for the construction free from all duties and taxes and agrees not to utilize any portion of the international reserves of the Government.In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes. The construction contract was awarded to respondent John Gotamco & Sons, Inc. for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00.Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that as the 3% contractor's tax is an indirect tax on the assets and income of the Organization and thus, are exempt from tax in accordance with the Host Agreement. Subsequently, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by the Host Agreement.In January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts.Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco. Hence, this appeal.

Issue: Whether or not respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code.

Ruling: Petitioner's position is that the contractor's tax is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it.

15. Silkair (Singapore) Pte, Ltd. vs. Commissioner Of Internal Revenue, G.R. No. 173594, February 06, 2008

Facts:Silkair (Singapore) Pte., Ltd., a Singaporean corporation engaged in international air carriage, filed with the Bureau of Internal Revenue an application for the refund of P4,567,450.79 excise taxes paid for jet fuel from Petron Corporation from January to June 2000. It based its claim from Section 135 of the 1997 NIRC, and Article 4(2) of the Air Transport Agreement between RP and Singapore. BIR has not acted upon said application so Silkair filed a Petition for Review with the Court of Tax Appeals, Second Division. BIR opposed said petition on the ground that the excise tax on petroleum, being a direct liability of the manufacturer or producer, becomes part of the price when added to the cost of said good sold to the buyer. CTA, Second Division, in its decision on 27 May 2005, dismissed said petition on the ground that the latter is not the proper claimant, and likewise denied Silkairs subsequent Motion for Reconsideration therefor. Subsequently, Silkairs Petition for Review before CTA En Banc was dismissed for being filed out of time. Associate Justice Castaeda, Jr. also stated in his Separate Concurring Opinion that Silkair is not the proper party for the claim. Silkair filed another Motion for Reconsideration which CTA En Banc denied. Hence, this Petition for Review.

Issue: Whether or not Silkair is the proper party to claim for the tax credit.

Ruling:No, Silkair is not the proper claimant for the tax credit.A. Petron Corporation is the proper claimant. SC held that the proper party to claim refund of the tax credit is the statutory taxpayer, the person who paid [said tax imposed by law] even if he shifts the burden thereof to another. Section 130 (A) (2) thus provides [u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production. Petron, not Silkair, is thus the one entitled to claim refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. The tax burden passed by Petron to Silkair is no longer a tax but a part of the purchase price. The best that Silkair may do, if allowed, is only to seek reimbursement of the tax burden from Petron.B. Exemption granted by law does not include indirect taxes. An indirect tax, i.e., excise tax on petroleum products, is that in which the incidence of taxation (person statutorily liable to pay) falls on one person, and the impact of taxation (burden of taxation) falls on another. SC ruled that [t]he exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. SC further explained that [s]tatutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.

Silkairs petition is DENIED.

16. Commissioner of Internal Revenue vs. Court Of Appeals, Atlas Consolidated Mining and Development Corporation, and Court of Tax AppealsG.R. No. 104151, March 10, 1995

Facts:Atlas Conslidated Mining and Development Corporation (ACMDC) is a domestic corporation which owns and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980 and September 23, 1980, the Commissioner of Internal Revenue (CIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 and P13,531,466.80 representing deficiency ad valorem percentage and fixed taxes, including increments, with P5,000.00 compromise penalty for the taxable year 1975 and 1976, respectively, against ACMDC.ACMDC protested both assessments but the same were denied hence it filed two separate petitions for review in the Court of Tax Appeals (CTA) which were eventually consolidated.CTA: Sustained the contention of ACMDC that in computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges, from the London Metal Exchange (LME) price of manufactured copper.However, the CTA held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax on Nov Dec 1975 and taxable year 1976, and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax.Both parties elevated their respective contentions to the CA via petitions for review. CIR questioned the judgment deleting the ad valorem tax on copper and silver, while ACMDC assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment.CA: Dismissed the petition of the CIR and affirmed the decision of the CTA in the computation of ad valorem tax. It also reduced the liability of ACMDC by deleting the 25% surcharge on silver, gold, and pyrite extracted during the period November 1, 1974 to December 31, 1975.

Issues:1. Whether or not refining and smelting charges should be deducted in computing the ad valorem tax of ACMDC.2. Whether or not ACMDC is liable for the 25% surcharge for alleged late filing of notice of removal/late payment of the ad valorem tax on silver, gold and pyrite extracted during the taxable year 1976.3. Whether or not ACMDC is liable for manufacturers tax for selling grinding steel balls.4. Whether or not ACMDC is liable for contractors tax for leasing its plane, motor boat, and dump truck.

Ruling:1. Yes, the refining and smelting charges should be deducted in computing the ad valorem tax of ACMDC.Ad valorem tax(definition in Sec 243 of the NIRC) of 2% is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process.It is a tax not on the minerals, but being a severance tax, it is charge upon the privilege of severing or extracting the mineral from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.A review of the records showed that it was the London Metal Exchange price on wire bar (a finish product of copper, that had already undergone processing) that was used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates since there was no available market price quotation in the commodity exchange or markets of the world for copper concentrates nor was there any market quotation locally obtainable. Therefore, the imposable ad valorem tax should be based on the selling price of the quarried raw minerals, which is its actual market value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value of the manufactured or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site.

2. Yes, ACMDC is liable for 25% surcharge for the alleged late filing of notice of removal/late payment of the ad valorem tax on silver, gold and pyrite extracted during the taxable year 1976.Under Sec 245 of the NIRC, the payment of the ad valorem tax shall be made upon removal of the mineral products from the mine site or if payment cannot be made, by filing a bond in the form and amount to be approved by the Commissioner conditioned upon the payment of the said tax.Given the fact that ACMDC has the capability, as testified by its analyst, of determining the estimated silver, gold, and pyrite content of an ore before it is actually processed for separation, belie ACMDCs contention that it should not be required to pay the 25% surcharge because the correct quantity of gold and silver could be determined only after the copper concentrates had gone through the process of smelting and refining in Japan while the amount of pyrite cannot be determined until after the flotation process separating the copper mineral from the waste material was finished.

3. No, ACMDC is not liable for manufacturers tax.Under the tax code (Se 186), the 7% manufacturer's sales tax, which is an excise tax, is imposed on the manufacturer for every original sale, barter, exchange and other similar transaction intended to transfer ownership of articles. A "manufacturer" is defined as including "every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition () to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.It cannot be legally assertedthat ACMDC was engaged in the business of selling grinding steel balls on the basis of the isolated transaction entered into by it in 1975. There is no showing that said transaction was undertaken by ACMDC with a view of gaining profit and with the intent of carrying on a business. On the contrary, what is clear is that the sale was more of an accommodation to the other mining companies, who were experiencing shortage in grinding steel balls, and that ACMDC was subsequently replaced by other suppliers shortly thereafter.Well-settled is the rule that anything done as a mere incident to, or as a necessary consequence of, the principal business is not ordinarily taxed as an independent business in itself.

4. Yes, ACMDC is liable for contractors tax.Contractor's tax, also an excise tax, is provided for under Section 191, paragraph 17 of which declares that lessors of personal property shall be subject to a contractor's tax of 3% of the gross receipts.ACMDC cannot validly claim that the leasing out of its personal properties was merely incidental to its primary line of business and is a mere isolated transaction not intended for profit. Its book of accounts showed series of transactions and that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck amounting to P630,171.56 for tax year 39 and P2,450,218.62 for tax year 1976.ACMDCs claim that it did not gain profit from such lease is negated by the fact that it was not able to show proof of irregularities in the assessment made by the BIR, which are prima facie presumed correct and made in good faith and will not be disturbed.

17. Villanueva vs. City Of Iloilo(26 SCRA 578)

FACTS: Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a municipal license tax on tenement houses in accordance with the schedule of payment provided by therein. Villanueva and the other appellees are apartment owners from whom tshe city collected license taxes by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose apartment taxes; that the same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double taxation but treble taxation; and, that it violates uniformity of taxation.

Issues:1. Does the ordinance impose double taxation?2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?

RULING:While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the national government as well as by the local government. The contention that appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and tenement taxes are not of the same character.RA 2264 confers local governments broad taxing powers. The imposition of the tenement taxes does not fall within the exceptions mentioned by the same law. It is argued however that the said taxes are real estate taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit provided by CA 158, makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not have the attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax which means an imposition or exaction on the right to use or dispose of property, to pursue a business, occupation or calling, or to exercise a privilege. Tenement houses being offered for rent or lease constitute a distinct form of business or calling and as such, the imposition of municipal tax finds support in Section 2 of RA 2264.

18. Allied Banking vs. the Quezon City Government, G. R. NO. 154126, September 15, 2006

FACTS: On July 1, 1998, Allied Banking, as trustee for College Assurance Plan of the Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located along Aurora Boulevard, Quezon City in the amount of P38,000,000.00.Prior to the sale, Natividad et al. had been paying the total amount ofP85,050.00as annual real property tax based on the propertysfair market value ofP4,500,000.00andassessed value ofP1,800,000.00under Tax Declaration No. D-102-03778.After its acquisition of the property, petitioner was, in accordance with Section 3 of the ordinance, required to payP102,600.00 as quarterly real estate tax (orP410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged the market value of the property atP38,000,000.00 the consideration appearing in the Deed of Absolute Sale, and its assessed value atP15,200,000.00. Petitioner paid the quarterly real estate tax for the property from the 1stquarter of 1999 up to the 3rdquarter of 2000 which is paid under protest. Petitioner filed a petition for prohibition and declaratory relief before the RTC of Quezon City assailing the validity of Sec. 3 of the Quezon City Ordinance which states that:

Sec. 3. xxx He shall apply the new assessment level of 15% for residential and 40% for commercial and industrial classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed value of the land. Provided; however, that parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the capital gains tax issued therefor.

Petitioner contends that the proviso is contrary to the Local Government Code and the Local Assessment Regulations No. 1-92. RTC later on dismissed the petition.

ISSUE: Whether or not section 3, Quezon City Ordinance No. 357, Series of 1995, which was abrogated for being unconstitutional, can be the basis of collecting real estate taxes prior to its repeal.

RULING: No. The validity of the proviso fixing the appraised value of property at the stated consideration at which the property was last sold is invalid as it adopts a method of assessment or appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92 issued by the Department of Finance. Under these immediately stated authorities, real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use.Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy, taking into consideration all uses to which the property is adapted and might in reason be applied. The criterion established by the statute contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers.

(8) Tolentino vs. Secretary of Finance (235 SCRA 630, 249 SCRA 628)

As to Proportional or Flat RateFinally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable. the Congress shall evolve a progressive system of taxation."Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon,supra; Sison, Jr. v. Ancheta,supra)

19. Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz,G.R. No. 76778. June 6, 1990

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

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

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

20. TAGANITO MINING CORPORATION vs. COMMISSIONER,CTA Case No. 4702 April 28, 1995

Facts:Taganito Mining Corporation (TMC) is a domestic corporation expressly granted a permit by the government via an operating contract to explore, develop and utilize mineral deposits found in a specified portion of a mineral reservation area located in Surigao del Norte and owned by the government. In exchange, TMC is obliged to pay royalty to the government over and above other taxes. During July to December 1989, TMC removed, shipped and sold substantial quantities of Beneficiated Nickel Silicate ore and Chromite ore and paid excise taxes in the amount of Php6,277,993.65 in compliance with Sec.151(3) of the Tax Code.The 5% excise tax was based on the amount and weight shown in the provisional invoice issued by TMC. The metallic minerals are then shipped abroad to Japanese buyers where the minerals were analyzed allegedly by independent surveyors upon unloading at its port of destination. Analysis abroad would oftentimes reveal a different value for the metallic minerals from that indicated in the temporary/provisional invoice submitted by TMC. Variance is in the market values in the provisional invoice and that indicated in the final calculation sheet presented by the buyers. Variances occur in the weight of the shipment or the price of the metallic minerals per kilogram and sometimes in their metallic content resulting in discrepancies in the total selling price. It is always the price indicated in the final invoice that is determinative of the amount that the buyers will eventually pay TMC. TMC contended that is entitled to a refund because the actual market value that should be made the basis of the taxes is the amount specified in the independent surveyor abroad.

Issues:1. Whether or not TMC is entitled to refund.2. Whether or not the actual market value that should be used should be the market value after the assessment abroad was conducted.

RULING:1. NO. Tax refund partake of the nature of an exemption, and as such, tax exemption cannot be allowed unless granted in the most explicit and categorical language. Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.

2. NO. Use market value right after removal from the bed or mines. Sec. 151(3) of the Tax Code1: on all metallic minerals, a tax of five percent (5%) based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced: or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in case of importation. The law refers to the actual market value of the minerals at the time these minerals were moved away from the position it occupied, i.e. Philippine valuation and analysis because it is in this country where these minerals were extracted, removed and eventually shipped abroad. To reckon the actual market value at the time of removal is also consistent with the essence of an excise tax. It is a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral products from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967).

21. ROXAS vs. CTA, GR L 25043, April 26, 1968

Facts: Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y Compania, inherited from their grandparents several properties which included farmlands with a total area of 19,000 hectares (Nasugbu Farmlands). The tenants therein expressed their desire to purchase from the brothers the parcels which they actually occupied so the government, pursuant to the constitutional mandate to acquire big landed estate and apportion them among landless tenants, persuaded the brothers sell the same. Roxas y Cia. then agreed to sell 13, 500 hectares of the lands but the government, however, did not have enough funds, so the former allowed the farmers to buy the lands for the same price but by installment. Subsequently, the CIR demanded from the brothers the payment of deficiency income taxes resulting from the sale of the farmlands and considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The brothers protested the assessment but the same was denied. On appeal, the Court of Tax Appeals sustained the assessment. Hence, this appeal. Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of the farmlands?

Ruling:No. Although they (farmers/ vendees) paid for their respective holdings in installment for a period of 10 years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. However, the Government could not comply with its duty for lack of funds so Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant toSection 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from thesale thereof is capital gain, taxable only tothe extent of 50%.

22. Tanada vs. Angara, G.R. No. 118295, May 2, 1997

Facts: On April 15, 1994 Rizalino Navarro, the Secretary of Department of Trade and Industry representing the Government of the Republic of the Philippines, signed the Final Act Embodying the results of the Uruguay Round of Multilateral Negotiations. By signing the Final Act he bound the Philippines to submit to its respective competent authorities the WTO (World Trade Organization) Agreements to seek approval. On December 14, 1994, the Phillipine Senate adopted Resolution No. 97 to ratify the WTO agreement.This is a petition seeking to nullify the ratification of the World Trade Organization (WTO) Agreement.The WTO opens access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports, particularly agricultural and industrial products. Thus, provides new opportunities for the service sector cost and uncertainty associated with exporting and more investment in the country. These are the predicted benefits as reflected in the agreement and as viewed by the signatory Senators, a free market espoused by WTO.Petitioners question the concurrence of the respondents acting in their capacities as Senators by signing the said agreement andthe constitutionality of the WTO agreement as it derogates from the power to tax, which is lodged in the Congress and violates Sec 19, Article II, providing for the development of a self reliant and independent national economy, and Sections 10 and 12, Article XII, providing for the Filipino first policy.

Issues: Whether or not the provisions of the WTO agreement and its three annexes contravene sec. 19, article II, and secs. 10 and 12, article XII, of the Philippine Constitution.

Ruling: By its very title, Article II of the Constitution is a declaration of principles and state policies. These principles in Article II are not intended to be self-executing principles ready for enforcement through the courts. They are used by the judiciary as aids or as guides in the exercise of its power of judicial review, and by the legislature in its enactment of laws.As held in the leading case of Kilosbayan, Incorporated vs. Morato,the principles and state policies enumerated in Article II and some sections of Article XII are not self-executing provisions, the disregard of which can give rise to a cause of action in the courts.They do not embody judicially enforceable constitutional rights but guidelines for legislation.

23. LAND TRANSPORTATION OFFICE [LTO], et al. vs. CITY OF BUTUAN, represented in this case by Democrito D. Plaza II, City Mayor.G.R. No. 131512, January 20, 2000

FACTS:Respondent City of Butuan asserts that one of the salient provisions introduced by the Local Government Code is in the area of local taxation which allows LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of tricycles.Sec. 129. Power to Create Sources or Revenue. Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:x x x x x x x x x(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles.The City of Butuan asserts that Sec. 129 and Sec.133 of the LocalGovernment Code is their basis for said ordinance and that, said provisions authorize LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of tricycles.LTO explains that one of the functions of the National Government, that , indeed has been transferred to LGUs is the franchising authority over tricycles-for-hire of the LTFRB but NOTthe authority of the LTO to register all motor vehicles and to issue to qualified persons oflicenses to drive such vehicles. The RTC of Butuan decreed an issuance of a PERMANENT WRIT OF INJUCTION against TO prohibiting and enjoining LTO, as well as its employees and other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses to tricycle drivers. The CA sustained the RTCs decision. The adverse rulings of both Courts prompted the LTO to file an instant petition for review on certiorari to annul and set aside the earlier Court decisions.

ISSUE:WON under the present set up, the power of the Land Registration Office ("LTO") to register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local government units.

RULING:No.The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended.

24. RUFINO R. TAN vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE,G.R. No. 109289, October 3, 1994

FACTS:These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxationn Scheme (SNIT), amending certain provisions of the National Internal Revenue Regulations No. 293, promulgated by public respondents pursuant to said law.Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation shall be uniform and equitable in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

ISSUE:Does Republic Act No. 7496 violate the Constitution for imposing taxes that are not uniform and equitable?

RULING:The Petition is dismissed. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 771).What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate.Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power.

25. CIR vs. Santos, 277 SCRA 617 (1997)

Facts:Guild of Phil. Jewellers questions the constitutionality of certain provisions of the NIRC and Tariff and Customs Code of the Philippines. It is their contention that present Tariff and tax structure increases manufacturing costs and render local jewelry manufacturers uncompetitive against other countries., in support of their position, they submitted what they purported to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied in the country.Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and oppressive and declared them INOPERATIVE and WITHOUR FORCE AND EFFECT insofar as petitioners are concerned.Petitioner CIR assailed decision rendered by respondent judge contending that the latter has no authority to pass judgment upon the taxation policy of the government. Petitioners also impugn the decision by asserting that there was no showing that the tax laws on jewelry are confiscatory.

ISSUE: Whether or not the Regional Trial Court has authority to pass judgment upon taxation policy of the government.

RULING:The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary.This is not to say that RTC has no power whatsoever to declare a law unconstitutional. But this authority does not extend to deciding questions which pertain to legislative policy.RTC have the power to declare the law unconstitutional but this authority does not extend to deciding questions which pertain to legislative policy. RTC can only look into the validity of a provision, that is whether or not it has been passed according to the provisions laid down by law, and thus cannot inquire as to the reasons for its existence.

RULING ON THE EXTENT OF LEGISLATIVE POWER TO TAXSC held that it is within the power f the legislature whether to tax jewelry or not. With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subject) and situs (place) of taxation.

26. Maceda vs. ERB, 192 SCRA 365 and 199 SCRA 454

Facts:On 10 September 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum Corporation, and Petron Corporation proferred separate applications with the Energy Regulatory Board for permission to increase the wholesale posted prices of petroleum products, and meanwhile, for provisional authority to increase temporarily such wholesale posted prices pending further proceedings. On September 21, 1990, the Energy Regulatory Board, in a joint (on three applications) order granted provisional relief and authorizes said applicants a weighted average provisional increase of ONE PESO AND FORTY-TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various petroleum products, refined and/or marketed by them locally. The petitioners, Senator Ernesto Maceda and Atty. Oliver Lozano submits that the same was issued without proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172, and has been issued with grave abuse of discretion, tantamount to lack of jurisdiction, and correctible by certiorari. Hence, this petition praying for injunctive relief, to stop the Energy Regulatory Board from implementing its order, dated September 21, 1990, mandating a provisional increase in the prices of petroleum and petroleum products.

Issue: Whether or not the Order of the Energy Regulatory Board mandating a provisional increase on petroleum products was issued in violation of principle of non-delegation of taxation power.

RULING: The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137, as follows:

SECTION 8.There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products.xxx

Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF as provided by Presidential Decree No. 1956, and hence, there was no available alternative but to hike existing prices.The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding designed to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt that oil firms make money from it. As we held there, however, the OPSF was established precisely to protect the consuming public from the erratic movement of oil prices and to preclude oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market.In all likelihood, therefore, an oil hike would have probably been imminent, with or without trouble in the Gulf, although trouble would have probably aggravated it.: nad

(13) Maceda vs. Macaraig, G.R. No. 88291 May 31, 1991

As to the the principle of non-delegation of taxation power:E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB and as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products used in its operation which was issued pursuant thereto, as it was duly approved by the President as required by said executive order through the respondent Executive Secretary.Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is provided that:All existing laws, decrees, executive orders, proclamation, letters of instructions, and other executive issuances not inconsistent with this constitution shall remain operative until amended, repealed or revoked.

27. Basco vs. PAGCOR, G.R. No. 91649, May 14, 1991

Facts:On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. P.D. 1869 contained a provision (Section 13 par. (2)) which exempts PAGCOR, from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." Basco et al. seeks to annul said law alleging that: It constitutes a waiver of a right prejudicial to a third person with a right recognized by law since it waived the Manila City government's right to impose taxes and license fees, which is recognized by law; and thatthe law has intruded into the local government's right to impose local taxes and license fees which is in contravention of the constitutionally enshrined principle of local autonomy.

ISSUES: Whether or not P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and license fees; Whether or not P.D. 1869 is in contravention with the Constitutions principle of local autonomy.

RULING:P.D. 1869 is constitutional. The contention of the petitioners is without merit for the following reasons: P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896.

28. LOZADA vs. COMMISSIONER, 120 SCRA 337

Facts:Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject matters are of profound and general interest. " The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

Issue: Whether or not petitioners lack standing to file the instant petition for they are not the proper parties to institute the action.

RULING:As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute. As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. In the case before Us, the alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. When the asserted harm is a "generalized grievance" shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. As adverted to earlier, petitioners have not demonstrated any permissible personal stake, for petitioner Lozadas interest as an alleged candidate and as a voter are not sufficient to confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be a candidate but makes indiscriminate demand that special election be called throughout the country.

(13) Maceda vs. Macaraig, G.R. No. 88291 May 31, 1991

As to the issue on the institution of a Taxpayers SuitIn resolving the third issue, in the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public.The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling inLozadawhen it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said law providesSec. 11. Who may appeal; effect of appealAny person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of Customs) or any provincial or City Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision or ruling.From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this category.

29. CHAVEZ vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), G. R. No. 130716, May 19, 1999

Facts: