REPUBLIC OF THE PHILIPPINES, plaintiffappellee,

vs.
MAMBULAO LUMBER COMPANY, ET
AL., defendants-appellants.

be collected, in addition to the regular

forest charges provided under Section
264 of Commonwealth Act 466 known
as the National Internal Revenue Code,
the amount of P0.50 on each cubic
meter of timber... cut out and removed
from any public forest for commercial
purposes. The amount collected shall
be expended by the director of
forestry, with the approval of the
secretary of agriculture and
commerce, for reforestation and
afforestation of watersheds, denuded
areas ... and other public forest lands,
which upon investigation, are found
needing reforestation or
afforestation .... The total amount of
the reforestation charges paid by
Mambulao Lumber Company is
P9,127.50, and it is the contention of
the defendant Mambulao Lumber
Company that since the Republic of
the Philippines has not made use of
those reforestation charges collected
from it for reforesting the denuded
area of the land covered by its license,
the Republic of the Philippines should
refund said amount, or, if it cannot be
refunded, at least it should be
compensated with what Mambulao
Lumber Company owed the Republic of
the Philippines for reforestation
charges. In line with this thought,
defendant Mambulao Lumber
Company wrote the director of
forestry, on February 21, 1957 letter
Exh. 1, in paragraph 4 of which said
defendant requested "that our account
with your bureau be credited with all
the reforestation charges that you
have imposed on us from July 1, 1947
to June 14, 1956, amounting to around
P2,988.62 ...". This letter of defendant
Mambulao Lumber Company was
answered by the director of forestry on
March 12, 1957, marked Exh. 2, in
which the director of forestry quoted
an opinion of the secretary of justice,
to the effect that he has no discretion
to extend the time for paying the
reforestation charges and also
explained why not all denuded areas
are being reforested.

BARRERA, J.:
From the decision of the Court of First
Instance of Manila (in Civil Case No. 34100)
ordering it to pay to plaintiff Republic of the
Philippines the sum of P4,802.37 with 6%
interest thereon from the date of the filing of
the complaint until fully paid, plus costs,
defendant Mambulao Lumber Company
interposed the present appeal.1
The facts of the case are briefly stated in the
decision of the trial court, to wit: .
The facts of this case are not
contested and may be briefly
summarized as follows: (a) under the
first cause of action, for forest charges
covering the period from September
10, 1952 to May 24, 1953, defendants
admitted that they have a liability of
P587.37, which liability is covered by a
bond executed by defendant General
Insurance & Surety Corporation for
Mambulao Lumber Company, jointly
and severally in character, on July 29,
1953, in favor of herein plaintiff; (b)
under the second cause of action, both
defendants admitted a joint and
several liability in favor of plaintiff in
the sum of P296.70, also covered by a
bond dated November 27, 1953; and
(c) under the third cause of action,
both defendants admitted a joint and
several liability in favor of plaintiff for
P3,928.30, also covered by a bond
dated July 20, 1954. These three
liabilities aggregate to P4,802.37. If
the liability of defendants in favor of
plaintiff in the amount already
mentioned is admitted, then what is
the defense interposed by the
defendants? The defense presented by
the defendants is quite unusual in
more ways than one. It appears from
Exh. 3 that from July 31, 1948 to
December 29, 1956, defendant
Mambulao Lumber Company paid to
the Republic of the Philippines
P8,200.52 for 'reforestation charges'
and for the period commencing from
April 30, 1947 to June 24, 1948, said
defendant paid P927.08 to the
Republic of the Philippines for
'reforestation charges'. These
reforestation were paid to the plaintiff
in pursuance of Section 1 of Republic
Act 115 which provides that there shall

The only issue to be resolved in this appeal is

whether the sum of P9,127.50 paid by
defendant-appellant company to plaintiffappellee as reforestation charges from 1947
to 1956 may be set off or applied to the
payment of the sum of P4,802.37 as forest
charges due and owing from appellant to
appellee. It is appellant's contention that said
sum of P9,127.50, not having been used in
the reforestation of the area covered by its

license, the same is refundable to it or may be

applied in compensation of said sum of
P4,802.37 due from it as forest
charges.1wph1.t

Under this provision, it seems quite clear that

the amount collected as reforestation charges
from a timber licenses or concessionaire shall
constitute a fund to be known as the
Reforestation Fund, and that the same shall
be expended by the Director of Forestry, with
the approval of the Secretary of Agriculture
and Natural Resources for the reforestation or
afforestation, among others, of denuded areas
which, upon investigation, are found to be
needing reforestation or afforestation. Note
that there is nothing in the law which requires
that the amount collected as reforestation
charges should be used exclusively for the
reforestation of the area covered by the
license of a licensee or concessionaire, and
that if not so used, the same should be
refunded to him. Observe too, that the
licensee's area may or may not be reforested
at all, depending on whether the investigation
thereof by the Director of Forestry shows that
said area needs reforestation. The conclusion
seems to be that the amount paid by a
licensee as reforestation charges is in the
nature of a tax which forms a part of the
Reforestation Fund, payable by him
irrespective of whether the area covered by
his license is reforested or not. Said fund, as
the law expressly provides, shall be expended
in carrying out the purposes provided for
thereunder, namely, the reforestation or
afforestation, among others, of denuded areas
needing reforestation or afforestation.

We find appellant's claim devoid of any merit.

Section 1 of Republic Act No. 115, provides:
SECTION 1. There shall be collected, in
addition to the regular forest charges
provided for under Section two
hundred and sixty-four of
Commonwealth Act Numbered Four
Hundred Sixty-six, known as the
National Internal Revenue Code, the
amount of fifty centavos on each cubic
meter of timber for the first and
second groups and forty centavos for
the third and fourth groups cut out and
removed from any public forest for
commercial purposes. The amount
collected shall be expended by the
Director of Forestry, with the approval
of the Secretary of Agriculture and
Natural Resources (commerce), for
reforestation and afforestation of
watersheds, denuded areas and cogon
and open lands within forest reserves,
communal forest, national parks,
timber lands, sand dunes, and other
public forest lands, which upon
investigation, are found needing
reforestation or afforestation, or
needing to be under forest cover for
the growing of economic trees for
timber, tanning, oils, gums, and other
minor forest products or medicinal
plants, or for watersheds protection, or
for prevention of erosion and floods
and preparation of necessary plans
and estimate of costs and for
reconnaisance survey of public forest
lands and for such other expenses as
may be deemed necessary for the
proper carrying out of the purposes of
this Act.

Appellant maintains that the principle of a

compensation in Article 1278 of the new Civil
Code2 is applicable, such that the sum of
P9,127.50 paid by it as reforestation charges
may compensate its indebtedness to appellee
in the sum of P4,802.37 as forest charges. But
in the view we take of this case, appellant and
appellee are not mutually creditors and
debtors of each other. Consequently, the law
on compensation is inapplicable. On this
point, the trial court correctly observed: .
Under Article 1278, NCC,
compensation should take place when
two persons in their own right are
creditors and debtors of each other.
With respect to the forest charges
which the defendant Mambulao
Lumber Company has paid to the
government, they are in the coffers of
the government as taxes collected,
and the government does not owe
anything, crystal clear that the
Republic of the Philippines and the
Mambulao Lumber Company are not
creditors and debtors of each other,
because compensation refers to
mutual debts. ..

All revenues collected by virtue of, and

pursuant to, the provisions of the
preceding paragraph and from the sale
of barks, medical plants and other
products derived from plantations as
herein provided shall constitute a fund
to be known as Reforestation Fund, to
be expended exclusively in carrying
out the purposes provided for under
this Act. All provincial or city treasurers
and their deputies shall act as agents
of the Director of Forestry for the
collection of the revenues or incomes
derived from the provisions of this Act.
(Emphasis supplied.)

And the weight of authority is to the effect

that internal revenue taxes, such as the forest
charges in question, can be the subject of setoff or compensation.

CARPIO, J.:
The Case
This is a petition for review1 to set aside the
Decision2 dated 29 March 2000 of the Court of
Appeals ("appellate court") in CA-G.R. SP No.
47446. The appellate court modified the
ruling of the Central Board of Assessment
Appeals ("CBAA") and exempted petitioner
Radio Communications of the Philippines, Inc.
("RCPI") from paying real property tax
assessed on its machinery and radio
equipment mounted on its relay station tower
as accessories. However, the appellate court
held RCPI liable for real property tax on its
radio station building, machinery shed, and
relay station tower.

A claim for taxes is not such a debt,

demand, contract or judgment as is
allowed to be set-off under the
statutes of set-off, which are construed
uniformly, in the light of public policy,
to exclude the remedy in an action or
any indebtedness of the state or
municipality to one who is liable to the
state or municipality for taxes. Neither
are they a proper subject of
recoupment since they do not arise out
of the contract or transaction sued
on. ... (80 C.J.S. 73-74. ) .
The general rule, based on grounds of
public policy is well-settled that no setoff is admissible against demands for
taxes levied for general or local
governmental purposes. The reason on
which the general rule is based, is that
taxes are not in the nature of contracts
between the party and party but grow
out of a duty to, and are the positive
acts of the government, to the making
and enforcing of which, the personal
consent of individual taxpayers is not
required. ... If the taxpayer can
properly refuse to pay his tax when
called upon by the Collector, because
he has a claim against the
governmental body which is not
included in the tax levy, it is plain that
some legitimate and necessary
expenditure must be curtailed. If the
taxpayer's claim is disputed, the
collection of the tax must await and
abide the result of a lawsuit, and
meanwhile the financial affairs of the
government will be thrown into great
confusion. (47 Am. Jur. 766-767.)

The Facts
In 1957, Republic Act No. 2036 ("RA
2036")3 granted RCPI a fifty-year franchise.
Section 14 of RA 2036, as amended by
Republic Act No. 4054 ("RA 4054") in 1964,
reads:
Sec. 14. In consideration of the franchise and
rights hereby granted and any provision of
law to the contrary notwithstanding, the
grantee shall pay the same taxes as are
now or may hereafter be required by
lawfrom other individuals, copartnerships,
private, public or quasi-public associations,
corporations or joint stock companies, on
real estate, buildings and other personal
property except radio equipment, machinery
and spare parts needed in connection with the
business of the grantee, which shall be
exempt from customs duties, tariffs and other
taxes, as well as those properties declared
exempt in this section. In consideration of the
franchise, a tax equal to one and one-half per
centum of all gross receipts from the business
transacted under this franchise by the
grantee shall be paid to the Treasurer of the
Philippines each year, within ten days after
the audit and approval of the accounts as
prescribed in this Act. Said tax shall be in
lieu of any and all taxes of any kind,
nature or description levied, established
or collected by any authority
whatsoever, municipal, provincial or
national, from which taxes the grantee is
hereby expressly exempted. (Emphasis
supplied)

WHEREFORE, the judgment of the trial court

appealed from is hereby affirmed in all
respects, with costs against the defendantappellant. So ordered.
G.R. No. 144486. April 13, 2005
RADIO COMMUNICATIONS OF THE
PHILIPPINES, INC. (RCPI), Petitioners,
vs.
PROVINCIAL ASSESOR OF SOUTH
COTABATO, PROVINCIAL TREASURER OF
SOUTH COTABATO, MUNICIPAL ASSESSOR
OF TUPI, SOUTH COTABATO, and
MUNICIPAL TREASURER OF TUPI, SOUTH
COTABATO, Respondents.
1. Tax Declaration No. 7639
2. Tax Declaration No. 7640
3. Tax Declaration No. 7641
7642

4. Tax Declaration No.

On 10 June 1985, the municipal treasurer of

Tupi, South Cotabato assessed RCPI real
property taxes from 1981 to 1985.4 The
municipal treasurer demanded that RCPI

Radio station building

Machinery shed
Radio relay station tower and accessories
(100 feet high)
Two (2) units machinery [lister generating set]

pay P166,810 as real property tax on its radio

station building in Barangay Kablon, as well as
on its machinery shed, radio relay station
tower and its accessories, and generating
sets, based on the following tax declarations: 5

acquisition, acquisition cost, and condition of

the assessed properties to support its claim of
depreciation. The LBAA, in the absence of
contrary evidence, relied on the validity of the
Notice of Assessment and on the presumption
that official duty has been regularly
performed. The dispositive portion of the
LBAAs decision reads:
WHEREFORE, the appellant is hereby ordered
to pay the real property taxes, inclusive of all
penalties, surcharges and interest accruing as
of the date of actual payment, on the
properties covered by Tax Declaration Nos.
7639, 7640, 7641, and 7642, as computed.

RCPI protested the assessment before the

Local Board of Assessment Appeals
("LBAA").6 RCPI claimed that all its assessed
properties are personal properties and thus
exempt from the real property tax. Assuming
that the assessed properties are real property,
they are still exempt from real property taxes.
Section 3 of Presidential Decree No. 464 ("PD
464") states that to be taxable, the machinery
should be attached to the real estate and
essential for manufacturing, commercial,
mining, industrial, or agricultural purposes.
RCPI claimed that the assessed properties are
not used for manufacturing, commercial,
mining, industrial, or agricultural purposes.
Besides, the assessed properties are attached
to a building on a lot not owned by RCPI.

SO ORDERED.8
RCPI appealed to the CBAA. 9 RCPI maintained
that the "in lieu of all taxes" clause in its
franchise forecloses the imposition of taxes
other than the franchise tax. RCPI also
reiterated its arguments before the LBAA.
Respondent assessors repeated their
opposition to RCPIs appeal.
The Ruling of the Central Board of Assessment
Appeals
In its Decision10 dated 7 November 1996, the
CBAA dismissed RCPIs appeal. The CBAA held
that RCPIs liability for the franchise tax does
not exempt RCPI from the real property tax.
Under RCPIs franchise, only personal
properties such as radio equipment,
machinery and spare parts are exempt from
customs duties, tariffs and other taxes. The
CBAA ruled that RCPI was liable for the real
property tax on the assessed properties. RCPI
could also not invoke the non-impairment of
contract clause since no legal right of RCPI
was violated. The dispositive portion of the
CBAAs decision reads:

RCPI also pointed out that its franchise

exempts RCPI from "paying any and all taxes
of any kind, nature or description in exchange
for its payment of tax equal to one and onehalf per cent on all gross receipts from the
business conducted under its franchise." RCPI
further claimed that any deviation from its
franchise would violate the non-impairment of
contract clause of the Constitution. Finally,
RCPI stated that the value of the properties
assessed has depreciated since their
acquisition in the 1960s.
The Provincial Assessor of South Cotabato
("provincial assessor") opposed RCPIs claims
on all points. The provincial assessor insisted
that the assessed properties are subject to
the real property tax.

WHEREFORE, the Decision rendered by the

Local Board of Assessment Appeals of the
Province of South Cotabato, dated 19 May
1995, is hereby AFFIRMED and the instant
appeal is hereby DISMISSED.

The Ruling of the Local Board of Assessment

Appeals

SO ORDERED.11

In its Decision7 dated 19 May 1995, the LBAA

of Koronadal, South Cotabato affirmed the
notices of assessment as valid and consistent
with the law. The properties covered by Tax
Declaration Nos. 7639, 7640, 7641 and 7642
are real properties for purposes of real
property taxation under PD 464. The "in lieu
of all taxes" clause in RCPIs franchise does
not exempt its properties from the real
property tax. Finally, despite its protests, RCPI
did not submit evidence as to the date of

The Ruling of the Court of Appeals

RCPI filed its petition for review of the CBAA
ruling before the appellate court. In its
Decision12 dated 29 March 2000, the appellate
court modified the CBAA ruling. The appellate
court ruled that Section 14 of RA 2036, as
amended by RA 4054, clearly exempts RCPI
from tax on "radio equipment, machinery, and
spare parts needed in connection with its
business." Therefore, RCPI is not liable for real

property tax on the generating sets, and on

its radio relay station tower and its
accessories consisting of two units of UHF
communication equipment, power distribution
unit boar, and battery charger, which are
actually varying types of radio equipment.
The appellate court explained thus:

RCPI filed its petition for review before this

Court. RCPI presented the following issues for
resolution:

The tower upon which these different types of

radio equipment are mounted or attached is,
however, subject to real property tax since a
tower is not strictly a radio equipment as it
only serves as a support for antennas or other
communication equipment mounted thereon
for the transmission and reception of radio
signals (Colliers Encyclopedia, Vol. 22, p.
127). Nor could it be classified as machinery,
which is a combination of mechanical devices
(26 Words and Phrases, p. 7), for without
attachments to it, a tower is merely a
structure designed primarily with a view to
elevation (Websters New International
Dictionary of the English Language, 2nd Ed.,
Unabridged).

2. The appellate court erred when it did not

resolve the issue of nullity of the tax
declarations and assessments due to noninclusion of depreciation allowance.17

1. The appellate court erred when it excluded

RCPIs tower, relay station building and
machinery shed from tax exemption; and

The Ruling of the Court

Exemption from Real Property Tax
Respondents assert that RCPI not only
changed its arguments, RCPI also made
incorrect arguments. RCPI earlier maintained
that its radio relay station tower, radio station
building, and machinery shed are personal
properties and are thus not subject to the real
property tax. RCPI now argues that its radio
relay station tower, radio station building, and
machinery shed are tax-exempt because of
the "in lieu of all taxes" clause in its franchise,
which exempts RCPI from the real estate tax.

As RCPIs tax exemption covers only its radio

equipment, machinery, and spare parts
essential to its business, it is liable for realty
tax on its radio station building. The
machinery shed is likewise taxable as the
same is a kind of real property falling within
the classification of buildings or permanent
structures intended to shelter human beings
or domestic animals, or to receive, retain, or
confine the goods in which a person deals, or
to house the tools or machinery he uses, or
the persons he employs in his business (5
Words and Phrases, p. 877).13

RCPI contends that the "in lieu of all taxes"

clause in its amended franchise exempts it
from paying all taxes other than franchise tax.
It is thus no longer necessary to determine
whether the tower, relay station building, and
machinery shed are radio equipment for
purposes of exemption from the real estate
tax.
RCPI also states that legislative enactments
during the pendency of this petition caused it
to lose and then regain its tax-exempt status.
RCPI enumerated thus:

The dispositive portion of the appellate

courts decision reads:
WHEREFORE, the decision of the Central
Board of Assessment Appeals is hereby
MODIFIED. Petitioner is declared exempt from
paying the real property taxes assessed upon
its machinery and radio equipment mounted
as accessories to its relay tower. The decision
assessing taxes upon petitioners radio station
building, machinery shed, and relay station
tower is, however, AFFIRMED.14

First, Congress passed the Local Government

Code that withdrew all the tax exemptions
existing at the time of its passageincluding
that of RCPIs.
Second, Congress enacted the franchise of
telecommunications companies, such as
Islacom, Bell, Island Country, IslaTel, TeleTech,
Major Telecoms, and Smart, with the "in lieu of
all taxes" proviso.

RCPI filed a partial motion for reconsideration,

claiming that its exemption from real property
tax applies to the radio relay station tower,
the radio station building, and the machinery
shed.15 The appellate court denied the
motion.16

Third, Congress passed RA 7925 entitled "An

Act to Promote and Govern the Development
of Philippine Telecommunications and the
Delivery of Public Telecommunications
Services" which, through Section 23,
mandated the equality of treatment of service
providers in the telecommunications
industry.18

The Issues

We are not persuaded.

2001, all the fourteen telecommunications

franchises approved by Congress uniformly
and expressly state that the franchisee shall
be subject to all taxes under the National
Internal Revenue Code, except the specific
tax. The following is substantially the uniform
tax provision in these fourteen franchises:

As found by the appellate court, RCPIs radio

relay station tower, radio station building, and
machinery shed are real properties and are
thus subject to the real property tax. Section
14 of RA 2036, as amended by RA 4054,
states that "[i]n consideration of the franchise
and rights hereby granted and any provision
of law to the contrary notwithstanding, the
grantee shall pay the same taxes as are
now or may hereafter be required by
lawfrom other individuals, copartnerships,
private, public or quasi-public associations,
corporations or joint stock companies, on
real estate, buildings and other personal
property x x x."19 The clear language of
Section 14 states that RCPI shall pay the
real estate tax.

Tax Provisions. The grantee, its successors

or assigns, shall be subject to the payment of
all taxes, duties, fees, or charges and other
impositions under the National Internal
Revenue Code of 1997, as amended, and
other applicable laws: Provided, That nothing
herein shall be construed as repealing any
specific tax exemptions, incentives or
privileges granted under any relevant law:
Provided, further, That all rights, privileges,
benefits and exemptions accorded to existing
and future telecommunications entities shall
likewise be extended to the grantee.

The "in lieu of all taxes" clause in Section 14

of RA 2036, as amended by RA 4054, cannot
exempt RCPI from the real estate tax
because the same Section 14 expressly
states that RCPI "shall pay the same
taxes x x x onreal estate, buildings x x x."
The "in lieu of all taxes" clause in the third
sentence of Section 14 cannot negate the first
sentence of the same Section 14, which
imposes the real estate tax on RCPI. The Court
must give effect to both provisions of the
same Section 14. This means that the real
estate tax is an exception to the "in lieu of all
taxes" clause.

Thus, after the imposition of the VAT on

telecommunications companies, Congress
refused to grant any tax exemption to
telecommunications companies that sought
new franchises from Congress, except the
exemption from specific tax. More
importantly, the uniform tax provision in these
new franchises expressly states that the
franchisee shall pay not only all taxes, except
specific tax, under the National Internal
Revenue Code, but also all taxes under "other
applicable laws." One of the "other
applicable laws" is the Local Government
Code of 1991, which empowers local
governments to impose a franchise tax on
telecommunications companies. This, to
reiterate, is the existing legislative policy.21

Subsequent legislations have radically

amended the "in lieu of all taxes" clause in
franchises of public utilities. As RCPI correctly
observes, the Local Government Code of
1991 "withdrew all the tax exemptions
existing at the time of its passage
including that of RCPIs" with respect to
local taxes like the real property tax. Also,
Republic Act No. 7716 ("RA 7716") abolished
the franchise tax on telecommunications
companies effective 1 January 1996. To
replace the franchise tax, RA 7716 imposed a
10 percent value-added-tax on
telecommunications companies under Section
10220 of the National Internal Revenue Code.
The present state of the law on the "in lieu of
all taxes" clause in franchises of
telecommunications companies was
summarized as follows:

RCPI cannot also invoke the equality of

treatment clause under Section 23 of Republic
Act No. 7925.22 The franchises of
Smart,23 Islacom,24 TeleTech,25 Bell,26 Major
Telecoms,27 Island Country,28 and IslaTel,29 all
expressly declare that the franchisee
shall pay the real estate tax, using words
similar to Section 14 of RA 2036, as amended.
The provisions of these subsequent
telecommunication franchises imposing the
real estate tax on franchisees
only confirm that RCPI is subject to the real
estate tax. Otherwise, RCPI will stick out like a
sore thumb, being the only
telecommunications company exempt from
the real estate tax, in mockery of the spirit of
equality of treatment that RCPI is invoking,
not to mention the violation of the
constitutional rule on uniformity of taxation.

The existing legislative policy is clearly

against the revival of the "in lieu of all taxes"
clause in franchises of telecommunications
companies. After the VAT on
telecommunications companies took effect on
January 1, 1996, Congress never again
included the "in lieu of all taxes" clause in any
telecommunications franchise it subsequently
approved. Also, from September 2000 to July

It is an elementary rule in taxation that

exemptions are strictly construed against the
taxpayer and liberally in favor of the taxing
authority. It is the taxpayers duty to justify

the exemption by words too plain to be

mistaken and too categorical to be
misinterpreted.30

respondents, The record of this case includes

an affidavit executed on 27 December 1971
by Mr. William Chan, one of the said
informers, describing the details of alleged
violations of the tax code. 1 After conducting
an investigation, the BIR applied for and
obtained search warrants from Executive
Judge Malcolm Sarmiento. Following
investigation and examination by the BIR of
the materials and documents yielded by
service of such search warrants, criminal
informations were filed in court against the
private respondents.

Exclusion of Depreciation Allowance

RCPI contends that the tax declarations and
assessments covering its radio relay station
tower, radio station building, and machinery
shed are void because the assessors did not
consider depreciation allowance in their
assessments.
We have examined the records of this case
and found that RCPI raised before the LBAA
and the CBAA the nullity of the assessments
due to the non-inclusion of depreciation
allowance. Therefore, RCPI did not raise this
issue for the first time. However, even if we
consider this issue, under the Real Property
Tax Code depreciation allowance applies only
to machinery and not to real property.31

In July 1973, State Prosecutor Estanislao L.

Granados Department of Justice, filed with the
Court of First Instance of Pampanga an
information docketed as Criminal Case No.
439 for violation of Sec. 170 (2) of the
National Internal Revenue Code, as amended,
against Francisco Valencia, Apolonio G. Erespe
y Comia and Priscilla Castillo de Cura,
committed as follows:

WHEREFORE, we DENY the petition. We

AFFIRM the Decision of the Court of Appeals in
CA-G.R. SP No. 47446 dated 29 March 2000.

That on or about the 19th day

of January, 1972, in the
premises of Valencia Distillery
located at del Pilar Street, San
Fernando, Pampanga,
Philippines, and within the
jurisdiction of the abovenamed
Court, the accused FRANCISCO
VALENCIA, APOLONIO ERESPE Y
COMIA and PRISCILLA QUIAZON
OR "QUIAPO" alias "MARY JO,"
conspiring and confederating
with one another, did then and
there willfully, unlawfully, and
feloniously have in their
possession, custody and
control, false and counterfeit or
fake internal revenue labels
consisting of five (5) sheets
containing ten (10) labels each
purporting to be regular labels
of the Tanduay Distillery, Inc.
bearing Serial Nos. 2571891 to
2571901 to 2571910, 2571911
to 2571920, 05381 to 05390
and 05391 to 05400.

SO ORDERED.
G.R. No. L-46881 September 15, 1988
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
HON. MARIANO CASTAEDA JR., Judge of
the Court of First Instance of Pampanga,
Branch III, VICENTE LEE TENG, PRISCILLA
CASTILLO VDA. DE CURA and FRANCISCO
VALENCIA, respondents.
FELICIANO, J.:
In this Petition for certiorari and mandamus,
the People seek the annulment of the Orders
of respondent Judge quashing criminal
informations against the accused upon the
grounds that: (a) accused Francisco Valencia
was entitled to tax amnesty under Presidential
Decree No. 370; and (b) that the dismissal of
the criminal cases against accused Valencia
inured to the benefit of his co-accused Vicente
Lee Teng and Priscilla Castillo de Cura, and
denying the People's Motion for
Reconsideration of said Orders.

CONTRARY to the provisions of

Section 170, paragraph 2 of the
National Internal Revenue
Code, as amended. 2

Sometime in 1971, two (2) informants

submitted sworn information under Republic
Act No. 2338 (entitled "An Act to Provide for
Reward to Informers of Violations of the
Internal Revenue and Customs Laws,"
effective June 19, 1959) to the Bureau of
Internal Revenue ("BIR"), concerning alleged
violations of provisions of the Internal
Revenue Code committed by the private

On the same date, another criminal

information docketed as Criminal Case No.
440 was filed by the same State Prosecutor in
the same court for violation of Section 174 (3)
of the National Internal Revenue Code, as
amended against the same persons, charging
them as follows:

That on or about the 19th day

of January 1972 in the premises
of Valencia Distillery located at
del Pilar Street, San Fernando,
Pampanga, Philippines and
within the jurisdiction of this
Honorable Court, the accused
FRANCISCO VALENCIA,
APOLONIO G. ERESPE y COMIA
and PRISCILLA QUIAZON or
QUIANO alias MARY JO,
conspiring and confederating
together, did then and there
wilfully, unlawfully and
feloniously, have in their
possession, custody and
control, locally manufactured
articles subject to specific tax,
the tax on which has not been
paid in accordance with law,
THIRTY THREE (33) boxes of 24
bottles each of alleged Anejo
Rum, 375 cc., NINE (9) BOXES
of alleged Tanduay Rum of
TWELVE (12) BOTTLES each,
750 cc., TWENTY (20) BOXES of
alleged Ginebra San Miguel Gin
of TWENTY FOUR (24) BOTTLES
each, 375 cc., THREE (3) BOXES
OF TWENTY FOUR (24) BOTTLES
each, 375 cc., of Ginebra San
Miguel Gin, ONE (1) GALLON
bottle of wine improver, NINE
lbs. net with actual contents of
1/5 of the bottle, ONE (1)
SMALL BOTTLE, 1 Ib, net, of
Rum Jamaica, half-full, ONE (1)
BOTTLE, 1 Ib. net of the wine
improvers (full), TWELVE (12)
BOTTLES of alleged Tanduay
Rum, 750 cc., pale, FOUR (4)
BOTTLES of Ginebra San Miguel
(alleged) 350 cc. and TWO (2)
BOTTLES of Tanduay Rum, 375
cc. the total specific tax due on
which is P160.01.

taxes for each of the six (6) years from 1966

to 1972. The six (6) informations uniformly
charged the accused as follows:
The undersigned State
Prosecutor accuses VICENTE
LEE TENG alias VICENTE LEE
alias LEE TENG, and FRANCISCO
VALENCIA of the crime of
Violation of Sec. 178 in relation
with Sec. 182 (A) (1) 3c and
Sec. 208 of the National
Internal Revenue Code as
amended, committed as
follows:
That on or about the 19th of
January 1972, [also during the
years 1967, 1968, 1969, 1970
and 1971] in the premises of
Valencia Distillery located at del
Pilar Street, San Fernando,
Pampanga, Philippines and
within the jurisdiction of this
Honorable Court, the abovenamed accused, conspiring and
confederating together and
mutually helping one another,
did then and there willfully,
unlawfully and feloniously
distill, rectify, repair compound
or manufacture alcoholic
products subject to specific tax
without having paid the
privilege tax therefor.
CONTRARY TO LAW. 4
On 22 April 1974, after arraignment, accused
Valencia filed a Motion to Quash Criminal
Cases Nos. 538-543 inclusive, upon the
grounds that the six (6) informations had
been filed without conducting the necessary
preliminary investigation and that he was
entitled to the benefits of the tax amnesty
provided by P.D. No. 370. The State
Prosecutor opposed the Motion to Quash
arguing that the necessary preliminary
investigation in the six (6) criminal cases had
in fact been conducted and that in any case,
failure to hold the preliminary investigation
was not a ground for a motion to quash. The
State Prosecutor further argued that the
accused Valencia was not entitled to avail
himself of the benefits of P.D. No. 370 since
his tax cases were the subject of valid
information submitted under R.A. No. 2338 as
of 31 December 1973.

CONTRARY to Section 174 of

the National Internal Revenue
Code, as amended. 3
As a result of further investigation of the
sworn complaints filed by the informers with
the BIR, on 14 March 1974, six (6) more
criminal informations docketed as Criminal
Cases Nos., 538-543 were filed in the
Pampanga Court of First Instance against
Vicente Lee Teng alias "Vicente Lee," alias
"Lee Teng," and Francisco Valencia. These
informations charged the two (2) with
violations of Section 178, in relation to
Sections 182 (A) (1) (3c) and 208 of the
National Internal Revenue Code, as amended
based on their failure to pay annual privilege

The respondent Judge granted the Motion to

Quash and issued an Order, dated 15 July
1974, dismissing not only Criminal Cases Nos.
538-543 but also Criminal Cases Nos. 439 and
440 insofar as accused Francisco Valencia was
concerned. A Motion for Reconsideration by

the People was similarly denied by respondent

Judge.

perpetuation of the state of facts brought

about by the orders of the respondent Judge,
a state of facts which, as will be seen later, is
marked by a gross disregard of the legal
rights of the People. The Court, in other
words, is compelled to take into account both
the importance of the substantive issues
raised in this case and the nature of the result
brought about by the respondent Judge's
orders. Moreover, on a more practical level,
the dismissal of the cases was resisted
vigorously by the prosecution which filed both
oppositions to the Motion to Dismiss and
Motions for Reconsideration of the Orders
granting the Motions to Quash. The private
respondents, in other words, were under no
illusion as to the position taken and urged by
the People in this Case. We hold that, in the
circumstances of this case, the Petition
for certiorari and mandamus is not barred by
laches.

On 14 December 1975, the remaining

accused Vicente Lee Teng and Priscilla Castillo
de Cura, having been arraigned, filed Motions
to Quash Criminal Cases Nos. 538-543 and
439 and 440, upon the common ground that
the dismissal of said cases insofar as accused
Francisco Valencia was concerned, inured to
their benefit. The People opposed the Motions
to Quash upon the ground that the accused
were not entitled to the benefits of the tax
amnesty under P.D. No. 370 and that,
assuming the dismissal of said criminal cases
was valid insofar as accused Valencia was
concerned, the resulting immunity from
criminal prosecution was personal to accused
Valencia.
The respondent Judge granted the Motions to
Quash by Vicente Lee Teng and Priscilla
Castillo de Cura, and denied the People's
Motion for Reconsideration.

The second preliminary issue was also raised

by private respondents in their Answer, that
is, whether or not the defense of double
jeopardy became available to them with the
dismissal by respondent Judge of the eight (8)
criminal cases. This defense need not detain
us for long for it is clearly premature in the
present certiorari proceeding. In the certiorari
petition at bar, the validity and legal effect of
the orders of dismissal issued by the
respondent Judge of the eight (8) criminal
cases are precisely in issue. Should the Court
uphold these dismissal orders as valid and
effective and should a second prosecution be
brought against the accused respondents,
that second prosecution may be defended
against with the plea of double jeopardy. If,
upon the other hand, the Court finds the
dismissal orders to be invalid and of no legal
effect, the legal consequence would follow
that the first jeopardy commenced by the
eight (8) informations against the accused has
not yet been terminated and accordingly a
plea of second jeopardy must be rejected both
here and in the continuation of the criminal
proceedings against the respondents-accused.

There are two (2) preliminary issues which

need to be addressed before dealing with the
questions of substantive law posed by this
case. The first preliminary issue-whether or
not the People of the Philippines are guilty of
laches-was raised by private respondents in
their Answer. 5 The respondent Judge denied
the People's Motion for Reconsideration of his
Order granting Francisco Valencia's Motion to
Quash the eight (8) criminal cases, on 18
November 1974. Vicente Lee Teng and
Priscilla Castillo de Cura filed their respective
Motions to Quash on 14 December 1975;
respondent Judge granted their Motions to
Quash on 31 March 1976. The People filed a
Motion for Reconsideration which was denied
on 17 February 1977. Approximately seven (7)
months later, on 12 September 1977, the
present Petition
forcertiorari and mandamus was filed by the
People. Initially, the Court resolved to dismiss
this Petition in a Resolution dated 5 July 1978.
The People, however, filed a Motion for
Reconsideration of that Order and the Court,
in its Resolution of 1 October 1979, set aside
its Resolution of dismissal and considered this
case as submitted for decision.

We turn, therefore, to the first substantive

issue that needs to be resolved: whether or
not the accused Valencia, Lee Teng and de
Cura are entitled to the benefits available
under P.D. No. 370.

Ordinarily, perhaps, a Petition for certiorari

brought seven (7) months after rendition of
the last order sought to be set aside might be
regarded as barred by laches. In the case at
bar, however, the Court believes that the
equitable principle of laches should not be
applied to bar this Petition
for certiorari and Mandamus. The effect of
such application would not be the avoidance
of an inequitable situation (the very raison
d'etre of the laches principle), but rather the

The scope of application of the tax amnesty

declared by P.D. No. 370 is marked out in the
following broad terms:
1. A tax amnesty is hereby
granted to any person, natural
or juridical, who for any reason
whatsoever failed to avail of
Presidential Decree No. 23 and

Presidential Decree No. 157; or,

in so availing of the said
Presidential Decrees failed to
include all that were required to
be declared therein if he now
voluntarily discloses under this
decree all his previously
untaxed income and/or wealth
such as earnings, receipts, gifts,
bequests or any other
acquisitions from any source
whatsoever which are or were
previously taxable under the
National Internal Revenue
Code, realized here or abroad
by condoning all internal
revenue taxes including the
increments or penalties on
account of non-payment as well
as all civil, criminal or
administrative liabilities, under
the National Internal Revenue
Code, the Revised Penal Code,
the Anti-Graft and Corrupt
Practices Act, the Revised
Administrative Code, the Civil
Service Laws and Regulations,
laws and regulations on
Immigration and Deportation,
or any other applicable law or
proclamation, as it is hereby
condoned, provided a tax of
fifteen (15%) per centum on
such previously untaxed income
and/or wealth is imposed
subject to the following
conditions:

under Republic Act No. 2338 as

of December 31, 1973; and
f. Property transferred by
reason of death or by donation
during the year 1972.
xxx xxx xxx
The first point that should be made in respect
of P.D. No. 370 is that compliance with all the
requirements of availment of tax amnesty
under P.D. No. 370 would have the effect of
condoning not just income tax liabilities but
also "all internal revenue taxes including the
increments or penalties on account of nonpayment as well as all civil, criminal or
administrative liabilities, under the Internal
Revenue Code, the Revised Penal Code, the
Anti-Graft and Corrupt Practices Act, the
Revised Administrative Code, the Civil Service
Laws and Regulations, laws and regulations
on Immigration and Deportation, or any other
applicable law or proclamation." Thus,
entitlement to benefits of P.D. No. 370 would
have the effect of condoning or extinguishing
the liabilities consequent upon possession of
false and counterfeit internal revenue labels;
the manufacture of alcoholic products subject
to specific tax without having paid the annual
privilege tax therefor, and the possession,
custody and control of locally manufactured
articles subject to specific tax on which the
taxes had not been paid in accordance with
law, in other words, the criminal liabilities
sought to be imposed upon the accused
respondents by the several informations
quoted above.

a. Such previously untaxed

income and/or wealth must
have been earned or realized
prior to 1973, except the
following:

It should be underscored, secondly, that to be

entitled to the extinction of liability provided
by P.D. No. 370, the claimant must
have voluntarily disclosed his previously
untaxed income or wealth and paid the
required fifteen percent (15%) tax on such
previously untaxed income or wealth imposed
by P.D. No.370. 6 Where the disclosure of such
previously untaxed income or wealth was not
voluntary but rather the accompaniment or
result of tax cases or tax assessments already
pending as of 31 December 1973, the
claimant is not entitled to the benefits of P.D.
No. 370. Section 1 (a) (4) of P.D. No. 370,
expressly excluded from the coverage of P.D.
No. 370: "tax cases which are the subject of a
valid information under R.A. No. 2338 as of
December 31, 1973." 7 In the instant case, the
violations of the National Internal Revenue
Code with which the respondent accused were
charged, had already been discovered by the
BIR when P.D. No. 370 took effect on 9 January
1974, by reason of the sworn information or
affidavit-complaints filed by informers with

b. Capital gains transactions

where the taxpayer has availed
of Presidential Decree No. 16,
as amended, but has not
complied with the conditions
thereof;
c. Tax liabilities with or without
assessments, on withholding
tax at source provided under
Sections 53 and 54 of the
National Internal Revenue
Code, as amended;
d. Tax liabilities with
assessment notices issued as of
December 31, 1 973;
e. Tax cases which are the
subject of a valid information

10

the BIR under Republic Act No. 2338 prior to

31 December 1973.

It follows that, even assuming respondent

accused Francisco Valencia was otherwise
entitled to the benefits of P.D. No. 370, none
of the informations filed against him could
have been condoned under the express
provisions of the tax amnesty statute.

It is necessary to note that the "valid

information under Republic Act No. 2338"
referred to in Section 1 (a) (4) of P.D. No. 370,
refers not to a criminal information filed in
court by a fiscal or special prosecutor, but
rather to the sworn information or complaint
filed by an informer with the BIR under R.A.
No. 2338 in the hope of earning an informer's
reward. The sworn information or complaint
filed with the BIR under R.A. No. 2338 may be
considered "valid" where the following
conditions are complied with:

Accused Valencia argued that the People were

estopped from questioning his entitlement to
the benefits of the tax amnesty, considering
that agents of the BIR had already accepted
his application for tax amnesty and his
payment of the required fifteen percent (15%)
special tax.
This contention does not persuade. At the
time he paid the special fifteen percent (15%)
tax under P.D. No. 370, accused Francisco
Valencia had in fact already been subjected
by the BIR to extensive investigation such
that the criminal charges against him could
not be condoned under the provisions of the
amnesty statute. Further, acceptance by the
BIR agents of accused Valencia's application
for tax amnesty and payment of the fifteen
percent (15%) special tax was no more than a
ministerial duty on the part of such agents.
Accused Valencia does not pretend that the
BIR had actually ruled that he was entitled to
the benefits of the tax amnesty statute. In
any case, even assuming, though
only arguendo, that the BIR had so ruled,
there is the long familiar rule that "erroneous
application and enforcement of the law by
public officers do not block, subsequent
correct application of the statute and that the
government is never estopped by mistake or
error on the part of its agent." 9 which finds
application in the case at bar. Still further, a
tax amnesty, much like to a tax exemption, is
never favored nor presumed in law and if
granted by statute, the terms of the amnesty
like that of a tax exemption must be
construed strictly against the taxpayer and
liberally in favor of the taxing
authority. 10 Valencia's payment of the special
fifteen percent (15%) tax must be regarded as
legally ineffective.

(1) that the information was

submitted by a person other
than an internal revenue or
customs official or employee or
other public official, or a
relative of such official or
employee within the sixth
degree of consanguinity;
(2) that the information must
be definite and sworn to and
must state the facts
constituting the grounds for
such information; and
(3) that such information was
not yet in the possession of the
BIR or the Bureau of Customs
and does not refer to "a case
already pending or previously
investigated or examined by
the Commissioner of Internal
Revenue or the Commissioner
of Customs, or any of their
deputies, agents or examiners,
as the case may be, or the
Secretary of Finance or any of
his deputies or agents. 8
In the instant case, not one but two (2)
"informations' or affidavit-complaints
concerning private respondents' operations
said to be in violation of certain provisions of
the National Internal Revenue Code, had been
filed with the BIR as of 31 December 1973. In
fact, those two (2) affidavit-complaints had
matured into two (2) criminal informations in
court -Criminal Cases Nos. 439 and 440
against the respondent accused, by 31
December 1973. The six (6) informations
docketed as Criminal Cases Nos. 538-543,
while filed in court only on 14 March 1974,
had been based upon the sworn information
previously submitted as of 31 December 1973
to the BIR.

We turn to the second substantive issue which

is whether or not the dismissal by the
respondent court of the criminal informations
against accused Valencia, inured to the
benefit of Valencia's co-accused. Because of
the conclusion reached above, that is, that
accused Francisco Valencia was not legally
entitled to the benefits of P.D. No. 370 and
that the dismissal of the criminal information
as against him was serious error on the part
of the respondent Judge, it may not be strictly
necessary to deal with this second issue.
There was in fact nothing that could have
inured to the benefit of Valencia's co-accused.
It seems appropriate to stress, nonetheless,

11

that co-accused and co-respondents Lee Teng

and Priscilla Castillo de Cura, in order to enjoy
the benefits of the tax amnesty statute here
involved, must show that they have
individually complied with and come within
the terms of that statute. 11 The fact that
conspiracy had been alleged in each of the
criminal informations here involved certainly
could not result in an automatic exemption of
Lee Teng and Priscilla Castillo de Cura from
compliance with the requirements of the tax
amnesty statute. In the second place,
assuming, for present purposes only, that
accused Francisco Valencia was (and he was
not) legally entitled to the benefits of P.D. No.
370 the defense of amnesty which
(hypothetically) became available to Valencia
was personal to him. Once more, the
allegation of conspiracy made in the several
criminal informations here involved, did not
have the effect of making a defense available
to one co-conspirator automatically available
to the other co-conspirators. The defense of
the tax amnesty under P.D. No. 370 is, like
insanity, a personal defense; for that defense
relates to the circumstances of a particular
accused and not to the character of the acts
charged in the criminal information. The
statute makes the defense of extinguishment
of liability available only under very specific
circumstances and on the basis of reciprocity,
as it were: the claimant must disclose his
previously untaxed income or wealth (which
then may be effectively subjected to future
taxation) and surrender to the Government
fifteen percent (15%) of such income or
wealth; then, and only then, would the
claimant's liability be extinguished. Lee Teng
and Pricilla Castillo de Cura never pretended
that they had complied with the requirements
of PD No. 370, including that of reciprocity.

due process, will not constitute

a proper basis for the claim of
double jeopardy. 12
WHEREFORE, the Orders of respondent Judge dated 15
July 1974, 18 November 1974, 31 March 1976 and 17
February 1977 are hereby SET ASIDE. Respondent Judge
no longer being with the Judiciary, the branch of the
Regional Trial Court of Pampanga seized of Criminal Cases
Nos. 439 and 440, and 538-543 inclusive, against the
surviving respondent accused, 13 is hereby ORDERED to
proceed with the trial of these criminal cases. Costs
against private respondents.

We conclude that the respondent Judge's error

in respect of the first and second substantive
issues considered above is so gross and
palpable as to amount to arbitrary and
capricious action and to grave abuse of
discretion. Those orders effectively prevented
the People from prosecuting and presenting
evidence against the accused-respondents;
they denied the People its day in court. It is
well-settled that:
[a] purely capricious dismissal
of an information as herein
involved, moreover, deprives
the State of fair opportunity to
prosecute and convict. It denies
the prosecution its day in court.
Accordingly, it is a dismissal
without due process and,
therefore, null and void. A
dismissal invalid for lack of a
fundamental requisite, such as

12