1. CIR vs. Fortune Tobacco Corporation, [G.R. Nos.

. 167274-75, July 21, cigars and cigarettes packed by machine, among others, effective on 1 January
2008] 2000.
Post under case digests, Taxation at Tuesday, February 21, 2012 Posted by
Schizophrenic Mind Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by
machine due to the 12% increase effective on 1 January 2000 without regard to
Facts: Respondent FTC is a domestic corporation that manufactures cigarettes whether the revenue collection starting from this period may turn out to be
packed by machine under several brands. Prior to January 1, 1997, Section 142 lower than that collected prior to this date.
of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex
D of R.A. No. 4280 prescribed the cigarette brands’ tax classification rates The qualification added by RR No. 17-99 imposes a tax which is the higher
based on their net retail price. On January 1, 1997, R.A. No. 8240 took effect. amount between the ad valorem tax being paid at the end of the 3-year transition
Sec. 145 thereof now subjects the cigarette brands to specific tax and also period and the specific tax under Section 145, as increased by 12%—a situation
provides that: (1) the excise tax from any brand of cigarettes within the next not supported by the plain wording of Section 145 of the 1997 Tax Code.
three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the Administrative issuances must not override, supplant or modify the law, but
tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax must remain consistent with the law they intend to carry out.
on cigarettes enumerated therein shall be increased by 12% on January 1, 2000;
and (3) the classification of each brand of cigarettes based on its average retail Revenue generation is not the sole purpose of the passage of the 1997 Tax
price as of October 1, 1996, as set forth in Annex D shall remain in force until Code. The shift from the ad valorem system to the specific tax system in the
revised by Congress. Code is likewise meant to promote fair competition among the players in the
industries concerned and to ensure an equitable distribution of the tax burden.
The Secretary of Finance issued RR No. 17-99 to implement the provision for
the 12% excise tax increase. RR No. 17-99 added the qualification that “the new 2. Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
specific tax rate xxx shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000.” In effect, it provided that the 12% tax increase
must be based on the excise tax actually being paid prior to January 1, 2000 and G.R. No. 159647 April 15, 2005
not on their actual net retail price.

FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid
excise taxes for the month of January 2000 and for the period January 1- Facts:
December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Respondents operated six drugstores under the business name Mercury Drug.
Section 145 by providing the aforesaid qualification. In this petition, petitioner From January to December 1996 respondent granted 20% sales discount to
CIR alleges that the literal interpretation given by the CTA and the CA of qualified senior citizens on their purchases of medicines pursuant to RA 7432
Section 145 would lead to a lower tax imposable on 1 January 2000 than that for a total of ₱ 904,769.
imposable during the transition period, which is contrary to the legislative intent
to raise revenue. On April 15, 1997, respondent filed its annual Income Tax Return for taxable
year 1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with
Issue: Should the 12% tax increase be based on the net retail price of the petitioner a claim for tax refund/credit of ₱ 904,769.00 allegedly arising from
cigarettes in the market as outlined in Section 145 of the 1997 Tax Code? the 20% sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals. The court dismissed
Held: YES. Section 145 is clear and unequivocal. It states that during the the same but upon reconsideration, the latter reversed its earlier ruling and
transition period, i.e., within the next 3 years from the effectivity of the 1997 ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing
Tax Code, the excise tax from any brand of cigarettes shall not be lower than CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR)
the tax due from each brand on 1 October 1996. This qualification, however, is citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or
conspicuously absent as regards the 12% increase which is to be applied on erroneously paid taxes but that there are other situations which may warrant a
tax credit/refund. 3. SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF THE
CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required DEPARTMENT OF TRADE AND INDUSTRY, THE SECRETARY OF THE
neither a tax liability nor a payment of taxes by private establishments prior to DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE BUREAU OF
the availment of a tax credit. Moreover, such credit is not tantamount to an CUSTOMS, respondents.
unintended benefit from the law, but rather a just compensation for the taking
of private property for public use.
Facts:
Issue:
Whether or not respondent, despite incurring a net loss, may still claim the Republic Act No. 8800, the Safeguard Measures Act (SMA), which was one of
20% sales discount as a tax credit. the laws enacted by Congress soon after the Philippines ratified the General
Agreement on Tariff and Trade (GATT) and the World Trade Organization
Ruling: (WTO) Agreement.[3] The SMA provides the structure and mechanics for the
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of imposition of emergency measures, including tariffs, to protect domestic
obtaining a 20% discount on their purchase of medicine from any private industries and producers from increased imports which inflict or could inflict
establishment in the country. The latter may then claim the cost of the discount
serious injury on them.
as a tax credit. Such credit can be claimed even if the establishment operates at
a loss.
Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic
A tax credit generally refers to an amount that is “subtracted directly from corporation engaged in the business of cement manufacturing, production,
one’s total tax liability.” It is an “allowance against the tax itself” or “a importation and exportation. Its principal stockholders are Taiheiyo Cement
deduction from what is owed” by a taxpayer to the government. Corporation and Tokuyama Corporation, purportedly the largest cement
A tax credit should be understood in relation to other tax concepts. One of manufacturers in Japan.[5]
these is tax deduction – which is subtraction “from income for tax purposes,”
or an amount that is “allowed by law to reduce income prior to the application
of the tax rate to compute the amount of tax which is due.” In other words, Private respondent Philippine Cement Manufacturers Corporation[6]
whereas a tax credit reduces the tax due, tax deduction reduces the income (Philcemcor) is an association of domestic cement manufacturers. It has
subject to tax in order to arrive at the taxable income. eighteen (18) members,[7] per Record. While Philcemcor heralds itself to be
an association of domestic cement manufacturers, it appears that
A tax credit is used to reduce directly the tax that is due, there ought to be a tax considerable equity holdings, if not controlling interests in at least twelve (12)
liability before the tax credit can be applied. Without that liability, any tax of its member-corporations, were acquired by the three largest cement
credit application will be useless. There will be no reason for deducting the manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex
latter when there is, to begin with, no existing obligation to the S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank
government. However, as will be presented shortly, the existence of a tax Financiere Glaris, Ltd., then Holderfin B.V.).
credit or its grant by law is not the same as the availment or use of such
credit. While the grant is mandatory, the availment or use is not. If a net loss is the DTIs disagreement with the conclusions of the Tariff Commission, but at
reported by, and no other taxes are currently due from, a business
the same time, ultimately denying Philcemcors application for safeguard
establishment, there will obviously be no tax liability against which any tax
measures on the ground that the he was bound to do so in light of the Tariff
credit can be applied. For the establishment to choose the immediate availment
Commissions negative findings.
of a tax credit will be premature and impracticable.
Philcemcor challenged this Decision of the DTI Secretary by filing with the Issue:
Court of Appeals a Petition for Certiorari, Prohibition and Mandamus[11]
seeking to set aside the DTI Decision, as well as the Tariff Commissions
Whether or not the decision of DTI Secretary, to impose safeguard measures
Report. The Court of Appeals Twelfth Division, in a Decision[13] penned by
is valid.
Court of Appeals Associate Justice Elvi John Asuncion,[14] partially granted
Philcemcors petition.
Held:
On 23 June 2003, Southern Cross filed the present petition, arguing that the
Court of Appeals has no jurisdiction over Philcemcors petition, as the proper NO, due to the nature of this case, the Court found that the DTI should follow
remedy is a petition for review with the CTA conformably with the SMA, and; the regulations prescribed by SMA. The Court held that he assailed Decision of
that the factual findings of the Tariff Commission on the existence or non- the Court of Appeals is DECLARED NULL AND VOID and SET
existence of conditions warranting the imposition of general safeguard ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED
measures are binding upon the DTI Secretary. NULL AND VOID and SET ASIDE. No Costs.

Despite the fact that the Court of Appeals Decision had not yet become final, Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time
its binding force was cited by the DTI Secretary when he issued a new Decision that that in light of the appellate courts Decision there was no longer any legal
on 25 June 2003, wherein he ruled that that in light of the appellate courts impediment to his deciding Philcemcors application for definitive safeguard
Decision, there was no longer any legal impediment to his deciding measures.[41] He made a determination that, contrary to the findings of the
Philcemcors application for definitive safeguard measures. Tariff Commission, the local cement industry had suffered serious injury as a
result of the import surges.[42] Accordingly, he imposed a definitive safeguard
measure on the importation of gray Portland cement, in the form of a
The Court of Appeals had held that based on the foregoing premises,
definitive safeguard duty in the amount of P20.60/40 kg. bag for three years
petitioner’s prayer to set aside the findings of the Tariff Commission in its
on imported gray Portland Cement.
assailed Report dated March 13, 2002 is DENIED. On the other hand, the
assailed April 5, 2002 Decision of the Secretary of the Department of Trade
and Industry is hereby SET ASIDE. Consequently, the case is REMANDED to the 4. CIR v. SM PRIME HOLDINGS, GR No. 183505, 2010-02-26
public respondent Secretary of Department of Trade and Industry for a final
decision in accordance with RA 8800 and its Implementing Rules and
Facts:
Regulations. Hence, the appeal.

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty
Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time
Development Corporation (First Asia) are domestic corporations duly
that that in light of the appellate courts Decision there was no longer any legal
organized and existing under the laws of the Republic of the Philippines. Both
impediment to his deciding Philcemcors application for definitive safeguard
are engaged in the business of operating cinema houses, among... others.
measures.[41] He made a determination that, contrary to the findings of the
Tariff Commission, the local cement industry had suffered serious injury as a
result of the import surges.[42] Accordingly, he imposed a definitive safeguard On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a
measure on the importation of gray Portland cement, in the form of a Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on
definitive safeguard duty in the amount of P20.60/40 kg. bag for three years cinema ticket sales in the amount of P119,276,047.40 for taxable year
on imported gray Portland Cement. Hence, the appeal.
2000.[8] In response, SM Prime... filed a letter-protest dated December 15, derived from admission tickets by cinema/theater operators or proprietors
2003. are subject to VAT.

On September 6, 2004, the BIR denied the protest filed by SM Prime and On September 22, 2006, the First Division of the CTA rendered a Decision
ordered it to pay the VAT deficiency for taxable year 2000 in the amount of granting the Petition for Review.
P124,035,874.12.
Issues:
On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on... cinema
ticket sales for taxable year 1999 in the total amount of P35,823,680.93.[13]
(1) In not finding/holding that the gross receipts derived by
First Asia protested the PAN in a letter dated July 9, 2002.
operators/proprietors of cinema houses from admission tickets [are] subject
to the 10% VAT because:
On September 6, 2004, the BIR rendered a Decision denying the protest and
ordering First Asia to pay the amount of P35,823,680.93 for VAT deficiency for
(a)
taxable year 1999.

THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in
PAYING PUBLIC IS A SALE OF SERVICE;
the total amount of P32,802,912.21 was issued against First Asia by the BIR. In
response, First Asia filed a protest-letter dated November 11, 2004. The BIR
then sent a Formal Letter of Demand, which... was protested by First Asia on Ruling:
December 14, 2004.[
The petition is bereft of merit.
A PAN for VAT deficiency on cinema ticket sales in the total amount of
P28,196,376.46 for the taxable year 2003 was issued by the BIR against First
The phrase "sale or exchange of services" means the performance of all kinds
Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A
of services in the Philippines for others for a fee, remuneration or
Formal Letter of Demand was thereafter issued by the
consideration, including those performed or rendered by construction and
service contractors; stock, real estate,... commercial, customs and
BIR to First Asia, which the latter protested through a letter dated November immigration brokers; lessors of property, whether personal or real;
11, 2004. [24] warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for
others; proprietors, operators... or keepers of hotels, motels, rest houses,
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085,
pension houses, inns, resorts; proprietors or operators of restaurants,
7111 and 7272 with CTA Case No. 7079 on the grounds that the issues raised
refreshment parlors, cafes and other eating places, including clubs and
therein are identical and that SM Prime is a majority shareholder of First Asia.
caterers; dealers in securities; lending investors; transportation contractors on
The motion was granted.
their... transport of goods or cargoes, including persons who transport goods
or cargoes for hire and other domestic common carriers by land, air and water
Upon submission of the parties' respective memoranda, the consolidated relative to their transport of goods or cargoes; services of franchise grantees
cases were submitted for decision on the sole issue of whether gross receipts of telephone and telegraph, radio and television... broadcasting and all other
franchise grantees except those under Section 119 of this Code; services of ISSUE: Is the approach on tax assessment used by the City Assessor
banks, non-bank financial intermediaries and finance companies; and non-life reasonable?
insurance companies (except their crop insurances), including surety, fidelity,
indemnity and... bonding companies; and similar services regardless of HELD: No. The taxing power has the authority to make a reasonable and natural
whether or not the performance thereof calls for the exercise or use of the classification for purposes of
physical or mental faculties. taxation but the government's act must not be prompted by a spirit of hostility,
or at the very least discrimination
that finds no support in reason. It suffices then that the laws operate equally and
A cursory reading of the foregoing provision clearly shows that the uniformly on all persons under
enumeration of the "sale or exchange of services" subject to VAT is not similar circumstances or that all persons must be treated in the same manner, the
exhaustive. The words, "including," "similar services," and "shall likewise conditions not being different
include," indicate that the enumeration is by way of example... only both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the
government by its
5. REYES v. ALMANZOR
Rental Freezing
GR Nos. L-49839-46, April 26, 1991
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
196 SCRA 322
should not now be penalized by the
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are same government by the imposition of excessive taxes petitioners can ill
leased and occupied as dwelling afford and eventually result in the forfeiture of their properties.
units by tenants who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the
6. ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting
Rental
Commissioner of BIR, et al. G.R. No. L-59431 July 25, 1984
Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling
FACTS:
units where rentals do not exceed three hundred pesos (P300.00), so that the
The challenged posed in this suit for declaratory relief or prohibition proceeding
Reyeses were precluded from
on the validity of Section 1 of Batas Pambansa Blg. 135 which further amends
raising the rents and from ejecting the tenants. In 1973, respondent City
Section 21 of the National Internal Revenue Code of 1977, which provides for
Assessor of Manila reclassified and
rates of tax on citizens or residents on (a) taxable compensation income, (b)
reassessed the value of the subject properties based on the schedule of market
taxable net income, (c) royalties, prizes, and other winnings, (d) interest from
values, which entailed an
bank deposits and yield or any other monetary benefit from deposit substitutes
increase in the corresponding tax rates prompting petitioners to file a
and from trust fund and similar arrangements, (e) dividends and share of
Memorandum of Disagreement averring
individual partner in the net profits of taxable partnership, (f) adjusted gross
that the reassessments made were "excessive, unwarranted, inequitable,
income. Petitioner as taxpayer alleges that by virtue thereof, "he would be
confiscatory and unconstitutional"
unduly discriminated against by the imposition of higher rates of tax upon his
considering that the taxes imposed upon them greatly exceeded the annual
income arising from the exercise of his profession vis-a-vis those which are
income derived from their
imposed upon fixed income or salaried individual taxpayers. He characterizes
properties. They argued that the income approach should have been used in
the above section as arbitrary amounting to class legislation, oppressive and
determining the land values instead of the comparable sales approach which
capricious in character. For the petitioner there is transgression of both the equal
the City Assessor adopted.
protection and due process clause as well as the rule requiring uniformity in
taxation.
ISSUE: Is Section 1 of BP 135 is violative of due process and equal protection HELD: NO – CIR is not correct. The burden is on the taxpayer to prove the
clause? validity of the claimed deduction. In the present case, however, we find that the
onus has been discharged satisfactorily. The private respondent has proved that
RULING: the payment of the fees was necessary and reasonable in the light of the efforts
No. The power to tax, an inherent prerogative, has to be availed of to assure the exerted by the payees in inducing investors and prominent businessmen to
performance of vital state functions. It is a source of bulk of public funds. To venture in an experimental enterprise and involve themselves in a new business
paraphrase a recent decision, taxes being the lifeblood of the government, their requiring millions of pesos. This was no mean feat and should be, as it was,
prompt and certain availability are of the essence. The power to tax is an sufficiently recompensed.
attribute of sovereignty. The Constitution as the fundamental law overrides any
legislative or executive act that runs counter to it. The injury is centered on the
question whether the imposition of a higher tax rate on taxable net income Taxes are the lifeblood of the government and so should be collected without
derived from business or profession than on compensation is constitutionally unnecessary hindrance. On the other hand, such collection should be made in
infirm. The difficulty confronting petitioner is thus apparent. He alleges accordance with law as any arbitrariness will negate the very reason for
arbitrariness. A mere allegation does not suffice. There must be a factual government itself. It is therefore necessary to reconcile the apparently
foundation of such unconstitutional taint. Considering that petitioner here would conflicting interests of the authorities and the taxpayers so that the real purpose
condemn such a provision as void or its face, he has not made out a case. This is of taxation, which is the promotion of the common good, may be achieved.
merely to adhere to the authoritative doctrine that were the due process and
equal protection clauses are invoked, considering that the arc not fixed rules but
rather broad standards, there is a need for of such persuasive character as would It is said that taxes are what we pay for civilization society. Without taxes, the
lead to such a conclusion. government would be paralyzed for lack of the motive power to activate and
Absent such a showing, the presumption of validity must prevail. Due process operate it. Hence, despite the natural reluctance to surrender part of one's hard
and equal protection was not violated. Petition is dismissed. 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
4. 7. CIR –v– Algue, Inc., & CTA G.R. No. L-28896 February 17, 1988 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
FACTS: Algue, Inc., a domestic corporation engaged in engineering, the erroneous notion that it is an arbitrary method of exaction by those in the
construction and other allied activities. Philippine Sugar Estate Development seat of power.
Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. [There was a sale for which] Algue
received as agent a commission of P126,000.00, and it was from this But even as we concede the inevitability and indispensability of taxation, it is a
commission that the P75,000.00 promotional fees were paid to the aforenamed
requirement in all democratic regimes that it be exercised reasonably and in
individuals. The payees duly reported their respective shares of the fees in their accordance with the prescribed procedure. If it is not, then the taxpayer has a
income tax returns and paid the corresponding taxes thereon, and there was no right to complain and the courts will then come to his succor. For all the
distribution of dividends was involved. awesome power of the tax collector, he may still be stopped in his tracks if the
[Algue claimed the 75,000 to be deductible from their tax, to which the CIR taxpayer can demonstrate, as it has here, that the law has not been observed.
disallowed.]
ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed
8. Phil. Bank of Communications vs. CIR
the P75,000.00 deduction claimed by private respondent Algue as legitimate
PHIL. BANK OF COMMUNICATIONS v. CIR
business expenses in its income tax returns.
GR No. 112024, January 28, 1999
302 SCRA 250 Facts: NAPOCOR, the petitioner, is a government-owed and controlled
corporation created under Commonwealth Act 120. It is tasked to undertake the
FACTS: Petitioner PBCom filed its first and second quarter income tax returns, “development of hydroelectric generations of power and the production of
reported profits, and paid income electricity from nuclear, geothermal, and other sources, as well as, the
taxes amounting to P5.2M in 1985. However, at the end of the year PBCom transmission of electric power on a nationwide basis.”
suffered losses so that when it filed For many years now, NAPOCOR sells electric power to the resident
its Annual Income Tax Returns for the year-ended December 31, 1986, the Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. Pursuant
petitioner likewise reported a net to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a
loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank franchise tax amounting to P808,606.41, representing 75% of 1% of the
requested from CIR for a tax former’s gross receipts for the preceding year.
credit and tax refunds representing overpayment of taxes. Pending investigation Petitioner, whose capital stock was subscribed and wholly paid by the
of the respondent CIR, Philippine Government, refused to pay the tax assessment. It argued that the
petitioner instituted a Petition for Review before the Court of Tax Appeals respondent has no authority to impose tax on government entities. Petitioner
(CTA). CTA denied its petition for tax also contend that as a non-profit organization, it is exempted from the payment
credit and refund for failing to file within the prescriptive period to which the of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA
petitioner belies arguing the 6395, as amended.
Revenue Circular No.7-85 issued by the CIR itself states that claim for The respondent filed a collection suit in the RTC of Cabanatuan City,
overpaid taxes are not covered by the two-year prescriptive period demanding that petitioner pay the assessed tax, plus surcharge equivalent to
mandated under the Tax Code. 25% of the amount of tax and 2% monthly interest. Respondent alleged that
petitioner’s exemption from local taxes has been repealed by Sec. 193 of RA
ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid
7160 (Local Government Code). The trial court issued an order dismissing the
exemption to the NIRC? case. On appeal, the Court of Appeals reversed the decision of the RTC and
HELD: No. The relaxation of revenue regulations by RMC 7-85 is not ordered the petitioner to pay the city government the tax assessment.
warranted as it disregards the two-year prescriptive period set by law. Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax
Basic is the principle that "taxes are the lifeblood of the nation." The primary simply because its stocks are wholly owned by the National Government and its
purpose is to generate funds for charter characterized is as a ‘nonprofit organization’?
the State to finance the needs of the citizenry and to advance the common weal. (2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the
Due process of law under the provisions of the Local Government Code (LGC)?
Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership
taxation that the government chiefly relies to obtain the means to carry on its but on the exercise by the corporation of a privilege to do business. The taxable
operations and it is of utmost entity is the corporation which exercises the franchise, and not the individual
importance that the modes adopted to enforce the collection of taxes levied stockholders. By virtue of its charter, petitioner was created as a separate and
should be summary and interfered with as little as possible. distinct entity from the National Government. It can sue and be sued under its
From the same perspective, claims for refund or tax credit should be exercised own name, and can exercise all the powers of a corporation under the
within the time fixed by law Corporation Code. To be sure, the ownership by the National Government of its
because the BIR being an administrative body enforced to collect taxes, its entire capital stock does not necessarily imply that petitioner is no engage din
functions should not be unduly delayed or hampered by incidental matters. business.
(2) YES. One of the most significant provisions of the LGC is the removal of
9. NATIONAL POWER CORPORATION vs. CITY OF the blanket exclusion of instrumentalities and agencies of the National
CABANATUAN GR. No. 149110, April 9, 2003 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 The imposition of the levy was an exercise of the taxation power of the state.
Government, its agencies and instrumentalities, this rule now admits an While it is true that the power to tax can be used as an implement of police
exception, i.e. when specific provisions of the LGC authorize the LGUs to power, the primary purpose of the levy was revenue generation. If the purpose is
impose taxes, fees, or charges on the aforementioned entities. The legislative primarily revenue, or if revenue is, at least, one of the real and substantial
purpose to withdraw tax privileges enjoyed under existing laws or charter is purposes, then the exaction is properly called a tax.
clearly manifested by the language used on Sec. 137 and 193 categorically
Police power and the power of taxation are inherent powers of the State. These
withdrawing such exemption subject only to the exceptions enumerated. Since it
powers are distinct and have different tests for validity. Police power is the
would be tedious and impractical to attempt to enumerate all the existing
power of the State to enact legislation that may interfere with personal liberty or
statutes providing for special tax exemptions or privileges, the LGC provided
property in order to promote the general welfare, while the power of taxation is
for an express, albeit general, withdrawal of such exemptions or privileges. No
the power to levy taxes to be used for public purpose. The main purpose of
more unequivocal language could have been used.
police power is the regulation of a behavior or conduct, while taxation is
10. Planters Products Inc vs Fertiphil Corp G.R. No. 166006 March 14, revenue generation. The "lawful subjects" and "lawful means" tests are used to
2008 determine the validity of a law enacted under the police power. The power of
taxation, on the other hand, is circumscribed by inherent and constitutional
FACTS: Petitioner PPI and respondent Fertiphil are private corporations limitations.
incorporated under Philippine laws, both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals. 11. BAGATSING vs. RAMIREZ
74 SCRA 306
Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery GR No. L-41631, December 17, 1976
component of "The entrusting of the tax collection to private entities does not destroy the
Php10.00 per bag of fertilizer. The levy was to continue until adequate capital public purpose of a tax ordinance."
was raised to make PPI financially viable. Fertiphil remitted to the Fertilizer and
Pesticide Authority (FPA), which was then remitted the depository bank of PPI. FACTS: Aside from the issue on publication, private respondent bewails that the
Fertiphil paid P6,689,144 to FPA from 1985 to 1986. market stall fees imposed in the disputed City Ordinance No. 7522, which
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the regulates public markets and prescribes fees for rentals of stalls, are diverted to
P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted, the exclusive private use of the Asiatic Integrated Corporation since the
however PPI refused. Fertiphil filed a complaint for collection and damages, collection of said fees had been let by the City of Manila to the said corporation
questioning the constitutionality of LOI 1465, claiming that it was unjust, in a "Management and Operating Contract."
unreasonable, oppressive, invalid and an unlawful imposition that amounted to a
denial of due process. PPI argues that Fertiphil has no locus standi to question ISSUE: Does the delegation of the collection of taxes to a private entity
the constitutionality of LOI No. 1465 because it does not have a "personal and invalidates a tax ordinance and defeats its public purpose?
substantial interest in the case or will sustain direct injury as a result of its
enforcement." It asserts that Fertiphil did not suffer any damage from the HELD: No. The assumption is of course saddled on erroneous premise. The fees
imposition because "incidence of the levy fell on the ultimate consumer or the collected do not go direct to the private coffers of the corporation. Ordinance
farmers themselves, not on the seller fertilizer company. No. 7522 was not made for the corporation but for the purpose of raising
revenues for the city. That is the object it serves. The entrusting of the collection
ISSUE: Whether or not Fertiphil has locus standi to question the
of the fees does not destroy the public purpose of the ordinance. So long as the
constitutionality of LOI No. 1465.
purpose is public, it does not matter whether the agency through which the
What is the power of taxation? money is dispensed is public or private. The right to tax depends upon the
RULING: Fertiphil has locus standi because it suffered direct injury; doctrine of ultimate use, purpose and object for which the fund is raised. It is not dependent
standing is a mere procedural technicality which may be waived. on the nature or character of the person or corporation whose intermediate
agency is to be used in applying it. The people may be taxed for a public particularly, those in the manufacturing sector, which do business similar to that
purpose, although it be under the direction of an individual or private of a real estate enterprise.
corporation.
Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of
12. Chamber of Real Estate and Builders’ Associations, Inc., v. The Hon. CWT on income from sales of real properties classified as ordinary assets
Executive Secretary Alberto Romulo, et al constitutional?
G.R. No. 160756. March 9, 2010
Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is
Facts: Petitioner Chamber of Real Estate and Builders’ Associations, Inc. arbitrary and confiscatory if it taxes capital, because it is income, and not
(CREBA), an association of real estate developers and builders in the capital, which is subject to income tax. However, MCIT is imposed on gross
Philippines, questioned the validity of Section 27(E) of the Tax Code which income which is computed by deducting from gross sales the capital spent by a
imposes the minimum corporate income tax (MCIT) on corporations. corporation in the sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being taxed.
Under the Tax Code, a corporation can become subject to the MCIT at the rate
of 2% of gross income, beginning on the 4th taxable year immediately following Various safeguards were incorporated into the law imposing MCIT.
the year in which it commenced its business operations, when such MCIT is
greater than the normal corporate income tax. If the regular income tax is higher Firstly, recognizing the birth pangs of businesses and the reality of the need to
than the MCIT, the corporation does not pay the MCIT. recoup initial major capital expenditures, the MCIT is imposed only on the 4th
taxable year immediately following the year in which the corporation
CREBA argued, among others, that the use of gross income as MCIT base commenced its operations.
amounts to a confiscation of capital because gross income, unlike net income, is
not realized gain. Secondly, the law allows the carry-forward of any excess of the MCIT paid over
the normal income tax which shall be credited against the normal income tax for
CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, the three immediately succeeding years.
otherwise known as the Consolidated Withholding Tax Regulations, which
prescribe the rules and procedures for the collection of CWT on sales of real Thirdly, since certain businesses may be incurring genuine repeated losses, the
properties classified as ordinary assets, on the grounds that these regulations: law authorizes the Secretary of Finance to suspend the imposition of MCIT if a
corporation suffers losses due to prolonged labor dispute, force majeure and
Ø Use gross selling price (GSP) or fair market value (FMV) as basis for legitimate business reverses.
determining
the income tax on the sale of real estate classified as ordinary assets, instead of (2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base
the entity’s net taxable income as provided for under the Tax Code; for sales of real property classified as ordinary assets remains as the entity’s net
Ø Mandate the collection of income tax on a per transaction basis, contrary to taxable income as provided in the Tax Code, i.e., gross income less allowable
the Tax Code provision which imposes income tax on net income at the end of costs and deductions. The seller shall file its income tax return and credit the
the taxable period; taxes withheld by the withholding agent-buyer against its tax due. If the tax due
Ø Go against the due process clause because the government collects income is greater than the tax withheld, then the taxpayer shall pay the difference. If, on
tax even when the net income has not yet been determined; gain is never assured the other hand, the tax due is less than the tax withheld, the taxpayer will be
by mere receipt of the selling price; and entitled to a refund or tax credit.
Ø Contravene the equal protection clause because the CWT is being charged
upon real estate enterprises, but not on other business enterprises, more The use of the GSP or FMV as basis to determine the CWT is for purposes of
practicality and convenience. The knowledge of the withholding agent-buyer is
limited to the particular transaction in which he is a party. Hence, his basis can
only be the GSP or FMV which figures are reasonably known to him.

Also, the collection of income tax via the CWT on a per transaction basis, i.e.,
upon consummation of the sale, is not contrary to the Tax Code which calls for
the payment of the net income at the end of the taxable period. The taxes
withheld are in the nature of advance tax payments by a taxpayer in order to
cancel its possible future tax obligation. They are installments on the annual tax
which may be due at the end of the taxable year. The withholding agent-buyer’s
act of collecting the tax at the time of the transaction, by withholding the tax due 13.
from the income payable, is the very essence of the withholding tax method of
tax collection.

On the alleged violation of the equal protection clause, the taxing power has the
authority to make reasonable classifications for purposes of taxation.
Inequalities which result from singling out a particular class for taxation, or
exemption, infringe no constitutional limitation. The real estate industry is, by
itself, a class and can be validly treated differently from other business
enterprises.

What distinguishes the real estate business from other manufacturing

enterprises, for purposes of the imposition of the CWT, is not their production
processes but the prices of their goods sold and the number of transactions
involved. The income from the sale of a real property is bigger and its frequency
of transaction limited, making it less cumbersome for the parties to comply with
the withholding tax scheme. On the other hand, each manufacturing enterprise
may have tens of thousands of transactions with several thousand customers
every month involving both minimal and substantial amounts.
 Post under case digests, Taxation at Friday, February 24, 2012 Posted by
Schizophrenic Mind
Facts: On September 30, 1946 the municipal board of Iloilo City enacted
Ordinance 86. The Supreme Court, however, declared the ordinance ultra
vires. On January 15, 1960 the municipal board of Iloilo City, believing that
with the passage of Republic Act 2264, otherwise known as the Local
Autonomy Act, it had acquired the authority or power to enact an ordinance
similar to that previously declared by the Supreme Court as ultra vires,
enacted Ordinance 11 (eleven), series of 1960, imposing municipal license tax
on persons engaged in the business of operating tenement houses.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are
owners of five tenement houses, aggregately containing 43 apartments, while
the other appellees and the same Remedios S. Villanueva are owners of ten
apartments. By virtue of the ordinance in question, the appellant City collected
from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years
1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S.
Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of
P1,317.00.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed acomplaint,
and an amended complaint, respectively, against the City of Iloilo, praying that
Ordinance 11, series of 1960, be declared "invalid for being beyond the powers
of the Municipal Council of the City of Iloilo to enact, and unconstitutional for
being violative of the rule as to uniformity of taxation and for depriving said
plaintiffs of the equal protection clause of the Constitution," and that the City be
ordered to refund the amounts collected from them under the said ordinance.
The lower court rendered judgment declaring the ordinance illegal.

Issues:
(1) Whether or not the City of Iloilo is empowered by the Local Autonomy Act
to impose tenement taxes.

(2) Whether or not Ordinance 11, series of 1960, does violate the rule of
uniformity of taxation.

Held:
(1) Yes. The lower court has interchangeably denominated the tax in
question as a tenement tax or an apartment tax. Called by either name, it is not
14. Villanueva vs. City of Iloilo [December 28, 1968, L-26521] among the exceptions listed in Section 2 of the Local Autonomy Act. The
imposition by the ordinance of a license tax on persons engaged in the business
of operating tenement houses finds authority in Section 2 of the Local
Autonomy Act which provides that chartered cities have the authority to impose royalties arguing that, the antecedent facts attending respondents case fall
municipal license taxes or fees upon persons engaged in any occupation or squarely within the same circumstances under which said MacGeorge and
business, or exercising privileges within their respective territories, and Gillette rulings were issued. Since the agreement was approved by the
"otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." Technology Transfer Board, the preferential tax rate of 10% should apply to
the respondent. So, royalties paid by the respondent to SC Johnson and Son,
(2) No. The ordinance is not violative of the rule of uniformity in taxation. USA is only subject to 10% withholding tax.
The Supreme Court has already ruled that tenement houses constitute a distinct
class of property. It has likewise ruled that "taxes are uniform and equal when The Commissioner did not act on said claim for refund. Private respondent
imposed upon all property of the same class or character within the taxing SC Johnson & Son, Inc. then filed a petition for review before the CTA, to
authority." The fact, therefore, that the owners of other classes of buildings in claim a refund of the overpaid withholding tax on royalty payments from July
the City of Iloilo do not pay the taxes imposed by the ordinance in question is 1992 to May 1993.
no argument at all against uniformity and equality of the tax imposition. Neither
is the rule of equality and uniformity violated by the fact that tenement taxes are On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and
not imposed in other cities, for the same rule does not require that taxes for the ordered the CIR to issue a tax credit certificate in the amount of P163,266.00
same purpose should be imposed in different territorial subdivisions at the same representing overpaid withholding tax on royaltypayments beginning July 1992
time. So long as the burden of the tax falls equally and impartially on all owners to May 1993.
or operators of tenement houses similarly classified or situated, equality and
The CIR thus filed a petition for review with the CA which rendered the
uniformity of taxation is accomplished.
decision subject of this appeal on November 7, 1996 finding no merit in the
Hence, the judgment of the lower court is reversed. The ordinance in question is petition and affirming in toto the CTA ruling.
valid.
Issue: Whether or not tax refunds are considered as tax exemptions.

15. CIR V SC JOHNSON INC. June 25, 1999

Monday, January 26, 2009 Posted by Coffeeholic Writes Held: It bears stress that tax refunds are in the nature of tax exemptions. As
Labels: Case Digests, Taxation such they are registered as in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the exemption.
Facts: Respondent is a domestic corporation organized and operating under the The burden of proof is upon him who claims the exemption in his favor and he
Philippine Laws, entered into a licensedagreement with the SC Johnson and must be able to justify his claim by the clearest grant of organic or statute law.
Son, USA, a non-resident foreign corporation based in the USA pursuant to Private respondent is claiming for a refund of the alleged overpayment of tax
which the respondent was granted the right to use the trademark, patents and on royalties; however there is nothing on record to support a claim that the tax
technology owned by the later including the right to manufacture, package and on royalties under the RP-US Treaty is paid under similar circumstances as the
distribute the products covered by the Agreement and secure assistance in tax on royalties under the RPWest Germany Tax Treaty.
management, marketing and production from SC Johnson and Son USA.
16. TALENTO VS. ESCALADA
For the use of trademark or technology, respondent was obliged to pay SC
Johnson and Son, USA royalties based on a percentage of net sales and EMERLINDA S. TALENTO, in her capacity as the Provincial Treasurer of the
subjected the same to 25% withholding tax on royalty paymentswhich Province of Bataan, vs. HON. REMIGIO M.
respondent paid for the period covering July 1992 to May 1993 in the total ESCALADA, JR., Presiding Judge of the Regional Trial Court of Bataan, Branch 3,
amount of P1,603,443.00.
and PETRON CORPORATION [G.R. No.
On October 29, 1993, respondent filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund of overpaidwithholding tax on 180884. June 27, 2008.]
 properly excluded; that prompt payment of discounts were not considered in
determining the fair market value; and that the subject assessment should
Facts: Petron received from the Provincial Assessor's Office of Bataan a notice take effect a year after or on January 1, 2008. To our mind, the resolution of
of revised assessment over its machineries and pieces of equipment in Lamao, these issues would have a direct bearing on the assessment made by
Limay, Bataan. Petron filed a petition with the LBAA. Petron received from petitioner. Hence, it is necessary that the issues must first be passed upon
petitioner a final notice of delinquent real property tax with a warning that before the properties of respondent are sold in public auction.
the subject properties would be levied and auctioned should Petron fail to
settle the revised assessment due. 17. CIR v. RAUL M. GONZALEZ, GR No. 177279, 2010-10-13

Consequently, Petron sent a letter to petitioner stating that in view of the Facts:
pendency of its appeal with the LBAA, any action by the Treasurer's Office on
the subject properties would be premature. However, petitioner replied that conducted a fraud investigation for all internal revenue taxes to
only Petron's payment under protest shall bar the collection of the realty ascertain/determine the tax liabilities of respondent L. M. Camus Engineering
taxes due, pursuant to Sections 231 and 252 of the LGC. On even date, Petron Corporation (LMCEC) for the... taxable years 1997, 1998 and 1999.
filed with the Regional Trial Court of Bataan the instant case (docketed as Civil a criminal complaint was instituted by the Bureau of Internal Revenue (BIR)
Case No. 8801) for prohibition with prayer for the issuance of a temporary against LMCEC on January 19, 2001
restraining order (TRO) and preliminary injunction. The trial court issued the
assailed Order granting Petron's petition for issuance of writ of preliminary Based on data obtained from an "informer" and various clients of LMCEC... it
injunction, subject to Petron's posting of a P444,967,503.52 bond in addition was discovered that LMCEC filed fraudulent tax returns with substantial
to its previously posted surety bond of P1,286,057,899.54, to complete the underdeclarations of taxable income for the years 1997, 1998 and 1999.
total amount equivalent to the revised assessment of P1,731,025,403.06. The
Petitioner thus assessed the... company of total deficiency taxes
trial court held that in scheduling the sale of the properties despite the
pendency of Petron's appeal and posting of the surety bond with the LBAA, The Preliminary Assessment Notice (PAN) was received by LMCEC on February
petitioner deprived Petron of the right to appeal. 22, 2001.

In view of the above findings, assessment notices together with a formal letter
of demand dated August 7, 2002 were sent to LMCEC through personal
Issue/Held: W/N the trial court properly issued the injunction order- YES
service on October 1, 2002

On May 21, 2003, petitioner,... referred to the Secretary of Justice for

Ratio: We are not unaware of the doctrine that taxes are the lifeblood of the preliminary investigation its complaint against LMCEC... it was alleged that
government, without which it cannot properly perform its functions; and that despite the receipt of the final assessment notice and formal demand letter
appeal shall not suspend the collection of realty taxes. However, there is an on
exception to the foregoing rule, i.e., where the taxpayer has shown a clear and
October 1, 2002, LMCEC failed and refused to pay the deficiency tax
unmistakable right to refuse or to hold in abeyance the payment of taxes. In
assessment... which had become final and executory as a result of the said
the instant case, we note that respondent contested the revised assessment
taxpayer's failure to file a protest thereon within the thirty (30)-day...
on the following grounds: that the subject assessment pertained to properties
reglementary period... contending that LMCEC cannot be held liable
that have been previously declared; that the assessment covered periods of
whatsoever for the alleged tax deficiency which had become due and
more than 10 years which is not allowed under the LGC; that the fair market
demandable
value or replacement cost used by petitioner included items which should be
They also assail as invalid the assessment notices which bear no serial whether LMCEC and its corporate officers may be prosecuted for violation of
numbers... petitioner disagreed with the contention of LMCEC that the Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to
complaint filed is not criminal in nature, pointing out that LMCEC and its Supply Correct and Accurate Information and Pay Tax).
officers Camus and Mendoza were being charged for the criminal offenses...
defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax) Ruling:
and 255 (Willful Failure to Pay Tax) of the NIRC. a preliminary investigation should first be conducted to determine if a... prima
On the lack of control number in the assessment notice, petitioner explained facie case for tax fraud exists
that such is a mere office requirement in the Assessment Service for the [t]he crime is complete when the [taxpayer] has x x x knowingly and willfully
purpose of internal control and monitoring; hence, the unnumbered filed [a] fraudulent [return] with intent to evade and defeat x x x the
assessment notices should not be interpreted as irregular or... anomalous tax." Thus, respondent
On September 22, 2003, the Chief State Prosecutor issued a Resolution[27] Secretary erred in holding that petitioner committed forum shopping when it
finding no sufficient evidence to establish probable cause against respondents filed the... present criminal complaint during the pendency of its appeal from
LMCEC, Camus and Mendoza. the City Prosecutor's dismissal of I.S. No. 00-956 involving the act of
On... the required prior determination of fraud... ruled that (1) there was no disobedience to the summons in the course of the... preliminary investigation
prior determination of fraud on LMCEC's correct tax liabilities for taxable years 1997, 1998 and 1999.

Petitioner appealed to respondent Secretary of Justice but the latter denied its Respondent Secretary, however, fully concurred with private respondents'
petition for review contention that the assessment notices were invalid for being unnumbered
and the tax liabilities therein stated have already been settled and/or
On the allegation of fraud, respondent Secretary ruled that petitioner failed to terminated.
establish the existence of the following circumstances indicating fraud in the
settlement of LMCEC's tax liabilities: (1) there must be intentional and As it is, the formality of a control number in the assessment notice is not a
substantial understatement of tax liability by... the taxpayer; (2) there must be requirement for its validity but rather the contents thereof which should
intentional and substantial overstatement of deductions or exemptions; and inform the taxpayer of the declaration of deficiency tax against said taxpayer.
(3) recurrence of the foregoing circumstances. Both the formal letter of demand and the notice... of assessment shall be void
if the former failed to state the fact, the law, rules and regulations or
second, the claim... that the tax fraud investigation was precipitated by an jurisprudence on which the assessment is based, which is a mandatory
alleged "informant" has not been corroborated nor was it clearly established, requirement under Section 228 of the NIRC.
hence there is no other conclusion but that the Bureau engaged in a "fishing
expedition" Principles:

Petitioner filed the criminal complaint against the private respondents for The rationale for dismissing the complaint on the ground of lack of control
violation of the following provisions of the NIRC,... Respondent Secretary number in the assessment... notice likewise betrays a lack of awareness of tax
concurred with the Chief State Prosecutor's conclusion that there is laws and jurisprudence, such circumstance not being an element of the
insufficient evidence to establish probable cause to charge private offense.
respondents... the assessment notices... are unnumbered, hence irregular and 18. PEOPLE OF THE PHILIPPINES, PETITIONER, VS. THE HONORABLE
suspect SANDIGANBAYAN (FIFTH DIVISION) AND EFREN L. ALAS, RESPONDENTS. D E C
Issues: ISION
 Corporation Code which is Batas Pambansa Blg. 68. It was registered with the
Securities and Exchange Commission under SEC No. AS094-005593 on June 22,
CORONA, J.: 1994 with a lifetime of fifty (50) years. Under its Articles of Incorporation the
purpose for which said entity is formed was primarily for business, xxx
Likewise, a scrutiny of the seven (7) secondary purposes of the corporation
Does the Sandiganbayan have jurisdiction over presidents, directors or points to the conclusion that it exists for business. Obviously, it is not
trustees, or managers of government-owned or controlled corporations involved in the performance of a particular function in the exercise of
organized and incorporated under the Corporation Code for purposes of the government power. Thus, its officers and employees are not covered by the
provisions of RA 3019, otherwise known as the Anti-Graft and Corrupt GSIS and are under the SSS law, and actions for reinstatement and backwages
Practices Act? The petitioner, represented by the Office of the Special are not within the jurisdiction of the Civil Service Commission but by the
Prosecutor (OSP), takes the affirmative position in this petition for certiorari National Labor Relations Commission (NLRC). The Supreme Court, in the case
under Rule 65 of the Rules of Court. Respondent Efren L. Alas contends of Trade Unions of the Philippines and Allied Services vs. National Housing
otherwise, together with the respondent court. Pursuant to a resolution Corp., 173 SCRA 33, held that the Civil Service now covers only government
dated September 30, 1999 of the Office of the Ombudsman, two separate owned or controlled corporations with original or legislative charters, those
informations[1] for violation of Section 3(e) of RA 3019, otherwise known as created by an act of Congress or by special law, and not those incorporated
the Anti-Graft and Corrupt Practices Act, were filed with the Sandiganbayan under and pursuant to a general legislation. The Highest Court categorically
on November 17, 1999 against Efren L. Alas. The charges emanated from the ruled that the Civil Service does not include government-owned or controlled
alleged anomalous advertising contracts entered into by Alas, in his capacity corporation which are organized as subsidiaries of government-owned or
as President and Chief Operating Officer of the Philippine Postal Savings Bank controlled corporation under the general corporation law. In Philippine
(PPSB), with Bagong Buhay Publishing Company which purportedly caused National Oil Company – Energy Development Corporation vs. Leogardo, 175
damage and prejudice to the government. On October 30, 2002, Alas filed a SCRA 26, the Supreme Court emphasized that:
motion to quash the informations for lack of jurisdiction, which motion was
vehemently opposed by the prosecution. After considering the arguments of
both parties, the respondent court ruled that PPSB was a private corporation The test in determining whether a government-owned or controlled
and that its officers, particularly herein respondent Alas, did not fall under corporation is subject to the Civil Service Law is the manner of its creation
Sandiganbayan jurisdiction. According to the Sandiganbayan: such that government corporation created by special charter are subject to its
provision while those incorporated under the general corporation law are not
within its coverage.
After a careful consideration of the arguments of the accused-movant as well
as of that of the prosecution, we are of the considered opinion that the
instant motion of the accused is well taken. Indeed, it is the basic thrust of Likewise in Davao City Water District vs. Civil Service Commission, 201 SCRA
Republic Act as well as (sic) Presidential Decree No. 1606 as amended by 601 it was held that “by government-owned or controlled corporation with
President Decree No. 1486 and Republic Act No. 7975 and Republic Act No. original charter we mean government-owned or controlled corporation
8249 that the Sandiganbayan has jurisdiction only over public officers unless created by a special law and not under the Corporation Code of the
private persons are charged with them in the commission of the offenses. The Philippines” while in Llenes vs. Dicdican, et al., 260 SCRA 207, a public officer
records disclosed that while Philippine Postal Savings Bank is a subsidiary of has been ruled, as a person whose duties involve the exercise of discretion in
the Philippine Postal Corporation which is a government owned corporation, the performance of the function of government. Clearly, on the basis of the
the same is not created by a special law. It was organized and incorporated foregoing pronouncements of the Supreme Court, the accused herein cannot
under the
be considered a public officer. Thus, this Court may not exercise jurisdiction From the foregoing, PPSB fits the bill as a government-owned or controlled
over his act.[2] corporation, and organized and incorporated under the Corporation Code as a
subsidiary of the Philippine Postal Corporation (PHILPOST). More than 99% of
the authorized capital stock of PPSB belongs to the government while the rest
Dissatisfied, the People, through the Office of the Special Prosecutor (OSP), is nominally held by its incorporators who are/were themselves officers of
filed this petition[3] arguing, in essence, that the PPSB was a government- PHILPOST. The creation of PPSB was expressly sanctioned by Section 32 of RA
owned or controlled corporation as the term was defined under Section 2(13) 7354, otherwise known as the Postal Service Act of 1992, for purposes of,
of the Administrative Code of 1987. [4] Likewise, in further defining the among others, “to encourage and promote the virtue of thrift and the habit of
jurisdiction of the Sandiganbayan, RA 8249 did not make a distinction as to the savings among the general public, especially the youth and the marginalized
manner of creation of the government-owned or controlled corporations for sector in the countryside xxx” and to facilitate postal service by “receiving
their officers to fall under its jurisdiction. Hence, being President and Chief collections and making payments, including postal money orders.”[7] It is not
disputed that the Sandiganbayan has jurisdiction over presidents, directors or
Operating Officer of the PPSB at the time of commission of the crimes trustees, or managers of government-owned or controlled corporations with
charged, respondent Alas came under the jurisdiction of the Sandiganbayan. original charters whenever charges of graft and corruption are involved.
Quoting at length from the assailed resolution dated February 15, 2001, However, a question arises whether the Sandiganbayan has jurisdiction over
respondent Alas, on the other hand, practically reiterated the the same officers in government-owned or controlled corporations organized
pronouncements made by the respondent court in support of his conclusion and incorporated under the Corporation Code in view of the delimitation
that the PPSB was not created by special law, hence, its officers did not fall provided for in Article IX-B Section 2(1) of the 1987 Constitution which states
within the jurisdiction of the Sandiganbayan.[5] We find merit in the petition. that:
Section 2(13) of EO 292[6] defines government-owned or controlled
corporations as follows:
SEC. 2. (1) The Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the government, including government-
owned or controlled corporations with original charters.
Sec. 2. General Terms Defined – Unless the specific words of the text or the
context as a whole or a particular statute, shall require a different meaning:
xxx xxx xxx (13) government owned or controlled corporations It should be pointed out however, that the jurisdiction of the Sandiganbayan is
refer to any agency organized as a stock or non-stock corporation vested with separate and distinct from the Civil Service Commission. The same is governed
functions relating to public needs whether governmental or proprietary in by Article XI, Section 4 of the 1987 Constitution which provides that “the
nature, and owned by the government directly or indirectly or through its present anti-graft court known as the Sandiganbayan shall continue to
instrumentalities either wholly, or where applicable as in the case of stock function and exercise its jurisdiction as now or hereafter may be provided by
corporations to the extent of at least 51% of its capital stock: provided, that law.” This provision, in effect, retained the jurisdiction of the anti-graft court
government owned or controlled corporations maybe further categorized by as defined under Article XIII, Section 5 of the 1973 Constitution which
the department of the budget, the civil service commission and the mandated its creation, thus:
commission on audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations. Sec. 5. The Batasang Pambansa shall create a special court, to be known as
Sandiganbayan, which shall have jurisdiction over criminal and civil cases
involving graft and corrupt practices and such other offense committed by The deliberate omission, in our view, clearly reveals the intention of the
public officers and employees, including those in government-owned or legislature to include the presidents, directors or trustees, or managers of
controlled corporations, in relation to their office as may be determined by both types of corporations within the jurisdiction of the Sandiganbayan
law. (Italics ours) whenever they are involved in graft and corruption. Had it been otherwise, it
could have simply made the necessary distinction. But it did not. It is a basic
principle of statutory construction that when the law does not distinguish, we
On March 30, 1995, Congress, pursuant to its authority vested under the 1987 should not distinguish. Ubi lex non distinguit nec nos distinguere debemos.
Constitution, enacted RA 7975[8] maintaining the jurisdiction of the Corollarily, Article XI Section 12 of the 1987 Constitution, on the jurisdiction of
Sandiganbayan over presidents, directors or trustees, or managers of the Ombudsman (the government’s prosecutory arm against persons charged
government-owned or controlled corporations without any distinction with graft and corruption), includes officers and employees of government-
whatsoever. Thereafter, on February 5, 1997, Congress enacted RA 8249[9] owned or controlled corporations, likewise without any distinction. In
which preserved the subject provision: Quimpo v. Tanodbayan,[10] this Court, already mindful of the pertinent
provisions of the 1987 Constitution, ruled that the concerned officers of
government-owned or controlled corporations, whether created by special
law or formed under the Corporation Code, come under the jurisdiction of the
Section 4, Jurisdiction. The Sandiganbayan shall exercise exclusive original
Sandiganbayan for purposes of the provisions of the Anti-Graft and Corrupt
jurisdiction in all cases involving:
Practices Act. Otherwise, as we emphasized therein, a major policy of
a. Violations of Republic Act No. 3019, as amended, otherwise known as the Government, which is to eradicate, or at the very least minimize, the graft and
Anti-Graft and Corrupt Practices Act, Republic Act No. 1379, and Chapter II, corruption that has permeated the fabric of the public service like a malignant
Section, Title VII, Book II of the Revised Penal Code, where one or more of the social cancer, would be seriously undermined. In fact, Section 1 of the Anti-
accused are officials occupying the following positions in the government, Graft and Corrupt Practices Act embodies this policy of the government, that
whether in a permanent, acting or interim capacity, at the time of the is, to repress certain acts not only of public officers but also of private persons
commission of the offense, constituting graft or corrupt practices or which may lead thereto. The
foregoing pronouncement has not outlived its usefulness. On the contrary, it
has become even more relevant today due to the rampant cases of graft and
(1) Officials of the executive branch occupying the positions of regional corruption that erode the people’s faith in government. For indeed, a
director, and higher, otherwise classified as grade “27” and higher, of the government-owned or controlled corporation can conceivably create as many
Compensation and Position Classification Act of 1989 (Republic Act No. 6758) subsidiary corporations under the Corporation Code as it might wish, use
specifically including: xxx xxx xxx (g) Presidents, directors or public funds, disclaim public accountability and escape the liabilities and
trustees, or managers of governmentowned or controlled corporations, state responsibilities provided by law. By including the concerned officers of
universities or educational institutions or foundations. (Italics ours) government-owned or controlled corporations organized and incorporated
under the Corporation Code within the jurisdiction of the Sandiganbayan, the
legislature evidently seeks to avoid just that. WHEREFORE, in view of the
foregoing, the petition is hereby GRANTED and the assailed resolution dated
The legislature, in mandating the inclusion of “presidents, directors or
February 15, 2001 of the respondent court is hereby REVERSED and SET ASIDE.
trustees, or managers of government-owned or controlled corporations”
SO ORDERED.
within the jurisdiction of the Sandiganbayan, has consistently refrained from
making any distinction with respect to the manner of their creation.