VILLARICA, MARIA CARINA (8)

The Court of Tax Appeals

16. Commissioner of Customs and Commissioner of Internal Revenue vs.
CTA, G.R. No. 82618, March 16, 1989
17. Southern Cross Cement Corporation vs. Philippine Cement Manufacturers
Corporation et al., G.R. No. 158540, July 08, 2004
18. TFS Inc. vs. CIR, G.R. No. 166829; April 19, 2010
19. Egis Projects S.A. vs. The Secretary of Finance and Commissioner of
Internal Revenue, CTA Case No. 8413, January 29, 2013
20. Delta Air Lines, Inc. vs. Cesar V. Purisima, in his capacity as Department
of Finance Secretary and Kim S. Jacinto-Henares, in her capacity as
Commissioner of Internal Revenue (CTA (En Banc) Case No. 1113
promulgated September 10, 2015)
21. CIR vs. Elric Auxiliary Services Corporation/Sacred Heart Services Gas
Station (CTA (En Banc) Case No. 1174 promulgated March 3, 2016)
22. Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao vs. The Court of
Tax Appeals and the Commissioner of Internal Revenue (G.R. No. 213394
promulgated 06 April 2016)
23. CIR vs. Kepco Ilijan Corporation (G.R. No. 199422 promulgated 21 June
2016)
VILLARICA, MARIA CARINA (8)
The Court of Tax Appeals
16. Commissioner of Customs and Commissioner of Internal Revenue vs.
CTA, G.R. No. 82618, March 16, 1989

FIRST DIVISION
[G.R. No. 82618. March 16, 1989.]
COMMISSIONER OF CUSTOMS and COMMISSIONER OF
INTERNAL REVENUE, petitioners, vs. THE HONORABLE
COURT OF TAX APPEALS and PLANTERS PRODUCTS,
INC., respondents.
DECISION
GRIO-AQUINO, J :
p

Challenged in this petition for review on certiorari is the decision dated February
3, 1988 of the Court of Tax Appeals which ordered the Commissioner of Customs
to refund to Planters Products, Inc., the sum of P285,783 without interest (p.
35, Rollo).
cdtai

Planters Products, Inc. (hereinafter referred to as "Planters" for brevity) is

engaged in the manufacture and sale of fertilizers and agricultural chemicals. In
1979, it imported 162 steel drums of Dursban Xylene mixture and 10 fibre drums
of Plictran 50 W, hereinafter referred to as "imported articles" (p. 17, Rollo). On
April 17, 1979, the Customs Collector for the Port of Manila made a final
assessment of customs duties and advance sales tax amounting to P920,549 on
the said importations pursuant to the classification under Tariff Heading No.
38.11 classifying Durban Xylene Mixture as "miscellaneous chemical products
specifically an insecticidal preparation for sale by retail" with an ad
valorem tax of twenty percent (20%).
On April 23, 1979, Planters paid in full the customs duties and ADVANCE SALES
TAX amounting to P920,549.
However, unknown to the petitioner, five days earlier, or on April 18, 1979, the
Tariff Commission had issued a ruling classifying Dursban Xylene Mixture
Insecticidal Concentrate as organo-inorganic compounds subject to duty of only
10% ad valorem. The Commissioner's ruling provides:
"Subject article (Dursban Xylene Mixture) is classifiable under heading
Nos. 29.31 which provide for organo-sulphur compounds and 29.34
which provides for other organo-inorganic compounds; that goods which
could be included in two or more of the headings of this chapter are to be
classified in the latest of those headings.
"In view of the foregoing, subject article is classified in heading 29.34 of
Presidential Decree No. 1464 otherwise known as the Tariff and
Customs Code of 1978 with a rate of duty of 10% ad valorem." (p.
33, Rollo.)

Upon discovery of the new ruling which would reduce its tax liability for the
importation of Dursban Xylene Mixture to only P634,766, instead of P920,549,
Planters filed a letter-protest on April 30, 1979 addressed to the Collector of
Customs asking for a refund of its excess payment in the sum of P285,783 of

which P254,029 represent excess customs duties and P31,754 the overpayment
of advance sales tax. The Customs Collector did not answer its letter. Planters
reiterated its request for a refund on July 7, 1979. Still, the Collector made no
reply.
aisa dc

On August 12, 1980, Planters filed with the Commissioner of Internal

Revenue a claim for refund of the overpaid advance sales tax on its
importation. Like the Collector of Customs, the Commissioner of Internal
Revenue did not act on the claim.
On April 21, 1981, or exactly two days before the expiration of the 2-year
prescriptive period for filing a suit to recover erroneously collected taxes under
Section 230 of the National Internal Revenue Code, as amended by Executive
Order 273 (formerly Section 292), Planters filed a petition for review in the Court
of Tax Appeals which resolved the issue in its favor. Not unexpectedly, both the
Customs Collector and the Revenue Commissioner elevated the case to this
Court for review.
The crucial issue here is whether or not respondent's importation consisted of
"organic compounds" classified under Section 29.34 of the Tariff and Customs
Code with an ad valorem rate of 10%, or "insecticidal preparations for retail"
under Section No. 38.11 subject to 20% ad valorem tax.
The Court of Tax Appeals held that Dursban Xylene Mixture is an organic
compound classifiable under Tariff Heading No. 29.34. The Court noted that in
August, 1981, Planters' importation of the same commodity was subjected to a
10% rate of duty only, upon a classification made by the Chief of the Customs
Laboratory, that Dursban Xylene Insecticide Mixture is considered to be a
"technical grade," not an insecticide preparation ready for use (Exh. H-1, p. 4,
Planter's Comment, p. 39, Rollo).
The failure of the importer, at the time of classifying the imported commodity, to
cite or invoke another classification, did not preclude a re-classification of the
same if the original classification is found to be erroneous. No one is estopped or
bound by error.
There is no merit in the Commissioner's argument that the Court of Tax Appeals
had no jurisdiction to review the assessment made by the collector of customs

because its jurisdiction in customs cases is limited to a review of decisions of

the commissioner upon appeal by aggrieved parties (Rufino Lopez vs. Collector
of Customs, G.R. No. L-9274, Feb. 1, 1957, 100 Phil. 850).
The fact is that neither the Collector nor Commissioner of Customs had rendered
a decision, order or ruling on Planter's claim which the Court of Tax Appeals may
review. Planter's petition for review was filed under Section 230 of the National
Internal Revenue Code as amended by EO 273, which provides:
"Section 230. Recovery of Tax Erroneously or Illegally Collected. No
suit or proceeding shall be maintained in an any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, . . . until a claim for refund
or credit has been duly filed with the Commissioner . . . .
cd

"In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after
payment . . . ." (Emphasis supplied).

If the taxpayer, Planters, had waited longer for the decision of the Collector or
Commissioner on its claim before filing suit in the Tax Court, its right of action
would have prescribed. It correctly interpreted the tax officials' silence as a denial
of its claim, in accordance with the Tax Court's own ruling in Paracale-Gamaus
vs. Biaquera (CTA Case No. 211, Resolution of August 22, 1956) which is quoted
hereunder:
"The taxpayer having filed his claim and the Collector of Internal
Revenue having had ample time to study it, the claimant may, indeed
should, within the statutory period of two years proceed with his suit
without waiting for the Collector's decision. In other words, in fairness to
the taxpayer so as not to deprive him of his day in court and the prompt
adjudication of his case, he is left by necessity to presume and conclude
before the expiration of the two-year prescriptive period, that his claim for
refund has been denied by the Collector of Internal Revenue if no action
was taken thereon by the latter during the said period. The taxpayer
need not wait indefinitely for a decision or ruling which may or may not
be forthcoming and which he has no legal right to expect.

"It might be argued that without the reply of the Collector of Internal
Revenue denying the taxpayer's claim for refund, there would be actually
no decision, order or ruling that this Court (Court of Tax Appeals) may
pass in review under Sections 7 and 11 of Republic Act 1125. Indeed,
that would be the case if he were to interpret the two last cited provisions
of Republic Act 1125 in their strict literal sense. However, we realize that
by following such an unreasonable interpretation, the taxpayer would be
left at the mercy of the Collector of Internal Revenue, without any
positive and expedient relief from the courts.
"It is disheartening enough to a taxpayer to keep him waiting for an
indefinite period of time for a ruling or decision of the Collector of Internal
Revenue on his claim for refund. It would make matters more
exasperating for the taxpayer if we were to close the doors of the courts
of justice for such a relief until after the Collector of Internal Revenue,
would have, at his personal convenience, given his go signal. In effect,
that could be the ultimate result, if we were to interpret sections 7 and 11
ofRepublic Act 1125 strictly and literally by requiring the taxpayer in all
instances to produce in black and white the ruling, decision or order of
the Collector of Internal Revenue denying his claim for refund before
assuming jurisdiction over his petition for review filed with this Court.

The Tax Court's classification of the private respondent's importation as organoinorganic compounds subject to 10% customs duties and ad valorem sales tax,
may not be disturbed by Us without departing from the oft-pronounced policy and
practice of this Court to respect the conclusions of administrative agencies, such
as the Court of Tax Appeals which, by the nature of its functions, is dedicated
exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there had been an abuse, or
improvident exercise, of its authority (Reyes vs. Commissioner of Internal
Revenue, 24 SCRA 199 [1968]), which We do not find to be present in this case.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed with
modification. The Commissioner of Customs and the Commissioner of Internal
Revenue are ordered, respectively, to refund to the private respondent Planters
Products, Inc. the sum of P254,029 as excess payment of customs duties and
P31,754 as advance sales tax overpaid by the said taxpayer. No costs.
cdt

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

|||

_____________

17. Southern Cross Cement Corporation vs. Philippine Cement Manufacturers

Corporation et al., G.R. No. 158540, July 08, 2004

SECOND DIVISION
[G.R. No. 158540. July 8, 2004.]
SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE
SECRETARY OF THE DEPARTMENT OF TRADE & INDUSTRY,
THE SECRETARY OF THE DEPARTMENT OF FINANCE, and
THE
COMMISSIONER
OF
THE
BUREAU
OF
CUSTOMS, respondents.
DECISION
TINGA, J :
p

"Good fences make good neighbors," so observed Robert Frost, the archetype of
traditional New England detachment. The Frost ethos has been heeded by
nations adjusting to the effects of the liberalized global market. 1 The Philippines,
for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of
countervailing duties),Rep. Act No. 8752 (on the imposition of anti-dumping
duties) and, finally, Rep. Act No. 8800, also known as the Safeguard Measures
Act ("SMA") 2 soon after it joined the General Agreement on Tariff and Trade
(GATT) and the World Trade Organization (WTO) Agreement. 3
The SMA provides the structure and mechanics for the imposition of emergency
measures, including tariffs, to protect domestic industries and producers from
increased imports which inflict or could inflict serious injury on them. 4 The

wisdom of the policies behind the SMA, however, is not put into question by the
petition at bar. The questions submitted to the Court relate to the means and the
procedures ordained in the law to ensure that the determination of the imposition
or non-imposition of a safeguard measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic
corporation engaged in the business of cement manufacturing, production,
importation and exportation. Its principal stockholders are Taiheiyo Cement
Corporation and Tokuyama Corporation, purportedly the largest cement
manufacturers in Japan. 5
Private
respondent
Philippine
Cement
Manufacturers
Corporation 6 ("Philcemcor") is an association of domestic cement manufacturers.
It has eighteen (18) members, 7per Record. While Philcemcor heralds itself to be
an association of domestic cement manufacturers, it appears that considerable
equity holdings, if not controlling interests in at least twelve (12) of its membercorporations, were acquired by the three largest cement manufacturers in the
world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of Mexico,
and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then
Holderfin B.V.). 8
On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted
an application from Philcemcor, alleging that the importation of gray Portland
cement 9in increased quantities has caused declines in domestic production,
capacity utilization, market share, sales and employment; as well as caused
depressed local prices. Accordingly, Philcemcor sought the imposition at first of
provisional, then later, definitive safeguard measures on the import of cement
pursuant to the SMA. Philcemcor filed the application in behalf of twelve (12) of
its member-companies. 10
After preliminary investigation, the Bureau of Import Services of the DTI,
determined that critical circumstances existed justifying the imposition of
provisional measures. 11 On 7 November 2001, the DTI issued an Order,
imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos
(P20.60) per forty (40) kilogram bag on all importations of gray Portland cement
for a period not exceeding two hundred (200) days from the date of issuance by

the Bureau of Customs (BOC) of the implementing Customs Memorandum

Order. 12 The corresponding Customs Memorandum Order was issued on 10
December 2001, to take effect that same day and to remain in force for two
hundred (200) days. 13
In the meantime, the Tariff Commission, on 19 November 2001, received a
request from the DTI for a formal investigation to determine whether or not to
impose a definitive safeguard measure on imports of gray Portland cement,
pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A
notice of commencement of formal investigation was published in the
newspapers on 21 November 2001. Individual notices were likewise sent to
concerned parties, such as Philcemcor, various importers and exporters, the
Embassies of Indonesia, Japan and Taiwan, contractors/builders associations,
industry associations, cement workers' groups, consumer groups, nongovernment organizations and concerned government agencies. 14 A preliminary
conference was held on 27 November 2001, attended by several concerned
parties, including Southern Cross. 15 Subsequently, the Tariff Commission
received several position papers both in support and against Philcemcor's
application. 16 The Tariff Commission also visited the corporate offices and
manufacturing facilities of each of the applicant companies, as well as that of
Southern Cross and two other cement importers. 17
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report
("Report"). Among the factors studied by the Tariff Commission in its Report were
the market share of the domestic industry, 18 production and sales, 19 capacity
utilization, 20 financial performance and profitability, 21 and return on sales. 22 The
Tariff Commission arrived at the following conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need not be
demonstrated since the product under consideration (gray
Portland cement) is not the subject of any Philippine obligation or
tariff concession under the WTO Agreement. Nonetheless, such
inquiry is governed by the national legislation (R.A. 8800) and the
terms and conditions of the Agreement on Safeguards.
2. The collective output of the twelve (12) applicant companies
constitutes a major proportion of the total domestic production of
gray Portland cement and blended Portland cement.

3. Locally produced gray Portland cement and blended Portland cement

(Pozzolan) are "like" to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in
increased quantities, both in absolute terms and relative to
domestic production, starting in 2000. The increase in volume of
imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall
impairment in its condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of
gray Portland cement.
7. Causation has become moot and academic in view of the negative
determination of the elements of serious injury and imminent
threat of serious injury. 23

Accordingly, the Tariff Commission made the following recommendation, to wit:

The elements of serious injury and imminent threat of serious injury not
having been established, it is hereby recommended that no definitive
general safeguard measure be imposed on the importation of gray
Portland cement. 24

The DTI received the Report on 14 March 2002. After reviewing the report, then
DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of
the Tariff Commission that there was no serious injury to the local cement
industry caused by the surge of imports. 25 In view of this disagreement, the DTI
requested an opinion from the Department of Justice ("DOJ") on the DTI
Secretary's scope of options in acting on the Commission's recommendations.
Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating
that Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff
Commission's negative finding, or finding that a definitive safeguard measure
should not be imposed. 26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the
conclusions of the Tariff Commission, the DTI Secretary noted the DTI's
disagreement with the conclusions. However, he also cited the DOJ Opinion
advising the DTI that it was bound by the negative finding of the Tariff
Commission. Thus, he ruled as follows:

The DTI has no alternative but to abide by the [Tariff] Commission's

recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13
of RA 8800 which states:
"In the event of a negative final determination; or if the cash bond
is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of
Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof,
as the case may be, previously collected as provisional general
safeguard measure within ten (10) days from the date a final
decision has been made; Provided, that the government shall not
be liable for any interest on the amount to be returned. The
Secretary shall not accept for consideration another petition from
the same industry, with respect to the same imports of the product
under consideration within one (1) year after the date of rendering
such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of
gray Portland cement filed by PHILCEMCOR (Case No. 02-2001)
is hereby denied. 27 (Emphasis in the original)

Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later,
it filed with the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus 28seeking to set aside the DTI Decision, as well as the Tariff
Commission's Report. Philcemcor likewise applied for a Temporary Restraining
Order/Injunction to enjoin the DTI and the BOC from implementing the
questioned Decision and Report. It prayed that the Court of Appeals direct the
DTI Secretary to disregard the Report and to render judgment independently of
the Report. Philcemcor argued that the DTI Secretary, vested as he is under the
law with the power of review, is not bound to adopt the recommendations of the
Tariff Commission; and, that the Report is void, as it is predicated on a flawed
framework, inconsistent inferences and erroneous methodology. 29

On 10 June 2002, Southern Cross filed its Comment. 30 It argued that the Court
of Appeals had no jurisdiction over Philcemcor's Petition, for it is on the Court of
Tax Appeals ("CTA") that the SMA conferred jurisdiction to review rulings of the
Secretary in connection with the imposition of a safeguard measure. It likewise
argued that Philcemcor's resort to the special civil action of certiorari is improper,
considering that what Philcemcor sought to rectify is an error of judgment and not
an error of jurisdiction or grave abuse of discretion, and that a petition for review
with the CTA was available as a plain, speedy and adequate remedy. Finally,
Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a
review by the DTI Secretary of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for
preliminary injunction, the Court of Appeals' Twelfth Division 31 granted the writ
sought in itsResolution dated 21 June 2002. 32 Seven days later, on 28 June
2002, the two-hundred (200)-day period for the imposition of the provisional
measure expired. Despite the lapse of the period, the BOC continued to impose
the provisional measure on all importations of Portland cement made by
Southern Cross. The uninterrupted assessment of the tariff, according to
Southern Cross, worked to its detriment to the point that the continued imposition
would eventually lead to its closure. 33
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9
September 2002. Alleging that Philcemcor was not entitled to provisional relief,
Southern Cross likewise sought a clarificatory order as to whether the grant of the
writ of preliminary injunction could extend the earlier imposition of the provisional
measure beyond the two hundred (200)-day limit imposed by law. The appeals
court failed to take immediate action on Southern Cross' motion despite the four
(4) motions for early resolution the latter filed between September of 2002 and
February of 2003. After six (6) months, on 19 February 2003, the Court of
Appeals directed Philcemcor to comment on Southern Cross's Motion for
Reconsideration. 34 After Philcemcor filed its Opposition 35 on 13 March 2003,
Southern Cross filed another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly
resolve the Motion for Reconsideration. Instead, on 5 June 2003, it rendered
a Decision, 36granting in part Philcemcor's petition. The appellate court ruled that

it had jurisdiction over the petition for certiorari since it alleged grave abuse of
discretion. It refused to annul the findings of the Tariff Commission, citing the rule
that factual findings of administrative agencies are binding upon the courts and
its corollary, that courts should not interfere in matters addressed to the sound
discretion and coming under the special technical knowledge and training of such
agencies. 37 Nevertheless, it held that the DTI Secretary is not bound by the
factual findings of the Tariff Commission since such findings are merely
recommendatory and they fall within the ambit of the Secretary's discretionary
review. It determined that the legislative intent is to grant the DTI Secretary the
power to make a final decision on the Tariff Commission's
recommendation. 38 The dispositive portion of the Decision reads:
WHEREFORE, based on the foregoing premises, petitioner's prayer to
set aside the findings of the Tariff Commission in its assailed Report
dated March 13, 2002 is DENIED. On the other hand, the assailed April
5, 2002 Decision of the Secretary of the Department of Trade and
Industry is hereby SET ASIDE. Consequently, the case is REMANDED
to the public respondent Secretary of Department of Trade and Industry
for a final decision in accordance with RA 8800 and its Implementing
Rules and Regulations.
SO ORDERED. 39

On 23 June 2003, Southern Cross filed the present petition, assailing the
appellate court's Decision for departing from the accepted and usual course of
judicial proceedings, and not deciding the substantial questions in accordance
with law and jurisprudence. The petition argues in the main that the Court of
Appeals has no jurisdiction over Philcemcor's petition, the proper remedy being a
petition for review with the CTA conformably with the SMA, and; that the factual
findings of the Tariff Commission on the existence or non-existence conditions
warranting the imposition of general safeguard measures are binding upon the
DTI Secretary.
The timely filing of Southern Cross's petition before this Court necessarily
prevented the Court of Appeals Decision from becoming final. 40 Yet on 25 June
2003, the DTI Secretary issued a new Decision, ruling this time that in light of the
appellate court's Decision there was no longer any legal impediment to his
deciding Philcemcor's application for definitive safeguard measures. 41 He made

a determination that, contrary to the findings of the Tariff Commission, the local
cement industry had suffered serious injury as a result of the import
surges. 42 Accordingly, he imposed a definitive safeguard measure on the
importation of gray Portland cement, in the form of a definitive safeguard duty in
the amount of P20.60/40 kg. bag for three years on imported gray Portland
Cement. 43
On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application
for a Temporary Restraining Order and/or A Writ of Preliminary
Injunction" ("TROApplication"), seeking to enjoin the DTI Secretary from
enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this
Court but the CTA that has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review,
assailing the DTI Secretary's 25 June 2003 Decision which imposed the definite
safeguard measure. Prescinding from this action, Philcemcor filed with this Court
a Manifestation and Motion to Dismiss in regard to Southern Cross's petition,
alleging that it deliberately and willfully resorted to forum-shopping. It points out
that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's
second decision, while itsPetition before the CTA prays for the annulment of the
same decision. 44
Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor
also argues that the CTA, being a special court of limited jurisdiction, could only
review the ruling of the DTI Secretary when a safeguard measure is imposed,
and that the factual findings of the Tariff Commission are not binding on the DTI
Secretary. 45
After giving due course to Southern Cross's Petition, the Court called the case for
oral argument on 18 February 2004. 46 At the oral argument, attended by the
counsel for Philcemcor and Southern Cross and the Office of the Solicitor
General, the Court simplified the issues in this wise: (i) whether the Decision of
the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming
that the Court of Appeals has jurisdiction, whether its Decision is in accordance
with law; and, (iii) whether aTemporary Restraining Order is warranted. 47

During the oral arguments, counsel for Southern Cross manifested that due to the
imposition of the general safeguard measures, Southern Cross was forced to
cease operations in the Philippines in November of 2003. 48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's application
for provisional relief. It sought to enjoin the DTI Secretary from enforcing the
definitive safeguard measure he imposed in his 25 June 2003 Decision. The
Court did not grant the provisional relief for it would be tantamount to enjoining
the collection of taxes, a peremptory judicial act which is traditionally frowned
upon, 49 unless there is a clear statutory basis for it. 50 In that regard, Section 218
of the Tax Reform Act of 1997 prohibits any court from granting an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed
by the internal revenue code. 51 A similar philosophy is expressed by Section 29
of the SMA, which states that the filing of a petition for review before the CTA
does not stop, suspend, or otherwise toll the imposition or collection of the
appropriate tariff duties or the adoption of other appropriate safeguard
measures. 52 This evinces a clear legislative intent that the imposition of
safeguard measures, despite the availability of judicial review, should not be
enjoined notwithstanding any timely appeal of the imposition.
cdasia

The Forum-Shopping Issue

In the same breath, we are not convinced that the allegation of forum-shopping
has been duly proven, or that sanction should befall upon Southern Cross and its
counsel. The standard by Section 5, Rule 7 of the 1997 Rules of Civil Procedure
in order that sanction may be had is that "the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping." 53 The standard implies a
malicious intent to subvert procedural rules, and such state of mind is not evident
in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it
had jurisdiction over Philcemcor's Petition, discussed the issue of whether or not
the DTI Secretary is bound to adopt the negative recommendation of the Tariff

Commission on the application for safeguard measure. The Court of Appeals

maintained that it had jurisdiction over the petition, as it alleged grave abuse of
discretion on the part of the DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of
discretion on the part of the DTI Secretary in rendering the assailed April
5, 2002 Decision wherein it was ruled that he had no alternative but to
abide by the findings of the Commission on the matter of safeguard
measures for the local cement industry. Abuse of discretion is admittedly
within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. It is alleged
that, in the assailed Decision, the DTI Secretary gravely abused his
discretion in wantonly evading to discharge his duty to render an
independent determination or decision in imposing a definitive safeguard
measure. 54

We do not doubt that the Court of Appeals' certiorari powers extend to correcting
grave abuse of discretion on the part of an officer exercising judicial or quasijudicial functions. 55 However, the special civil action of certiorari is available only
when there is no plain, speedy and adequate remedy in the ordinary course of
law. 56Southern Cross relies on this limitation, stressing that Section 29 of the
SMA is a plain, speedy and adequate remedy in the ordinary course of law which
Philcemcor did not avail of. The Section reads:
Section 29. Judicial Review. Any interested party who is adversely
affected by the ruling of the Secretary in connection with the imposition
of a safeguard measure may file with the CTA, a petition for review of
such ruling within thirty (30) days from receipt thereof.
Provided, however, that the filing of such petition for review shall not in
any way stop, suspend or otherwise toll the imposition or collection of the
appropriate tariff duties or the adoption of other appropriate safeguard
measures, as the case may be.
The petition for review shall comply with the same requirements and
shall follow the same rules of procedure and shall be subject to the same

disposition as in appeals in connection with adverse rulings on tax

matters to the Court of Appeals. 57 (Emphasis supplied)

It is not difficult to divine why the legislature singled out the CTA as the court with
jurisdiction to review the ruling of the DTI Secretary in connection with the
imposition of a safeguard measure. The Court has long recognized the legislative
determination to vest sole and exclusive jurisdiction on matters involving internal
revenue and customs duties to such a specialized court. 58 By the very nature of
its function, the CTA is dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject. 59
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to
take cognizance of a case should be clearly conferred and should not be deemed
to exist on mere implication. 60 Concededly, Rep. Act No. 1125, the statute
creating the CTA, does not extend to it the power to review decisions of the DTI
Secretary in connection with the imposition of safeguard measures. 61 Of course,
at that time which was before the advent of trade liberalization the notion of
safeguard measures or safety nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including
review of the rulings of the DTI Secretary in connection with the imposition of
safeguard measures. However, Philcemcor and the public respondents agree that
the CTA has appellate jurisdiction over a decision of the DTI Secretary imposing
a safeguard measure, but not when his ruling is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004,
expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of
Trade and Industry, in case of nonagricultural product, commodity or article . . .
involving . . . safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said
duties." 62 Had Rep. Act No. 9282 already been in force at the beginning of the
incidents subject of this case, there would have been no need to make any
deeper inquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No.
9282 cannot be applied retroactively to the present case, the question of whether
such jurisdiction extends to a decision not to impose a safeguard measure will
have to be settled principally on the basis of the SMA.

Under Section 29 of the SMA, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated therein: (i) there
must be a ruling by the DTI Secretary; (ii) the petition must be filed by an
interested party adversely affected by the ruling; and (iii) such ruling must be in
connection with the imposition of a safeguard measure. The first two requisites
are clearly present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case
where the DTI Secretary decides not to impose a safeguard measure, it is the
CTA which has jurisdiction to review his decision. The reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI Secretary's
ruling is exercised by two different courts, depending on whether or not it
imposes a safeguard measure, and in either case the court exercising jurisdiction
does so to the exclusion of the other. Thus, if the DTI decision involves the
imposition of a safeguard measure it is the CTA which has appellate jurisdiction;
otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is
cumbersome and unwise. Essentially, respondents advocate that Section 29 of
the SMA has established split appellate jurisdiction over rulings of the DTI
Secretary on the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused to
sanction split jurisdiction. 63 The power of the DTI Secretary to adopt or withhold a
safeguard measure emanates from the same statutory source, and it boggles the
mind why the appeal modality would be such that one appellate court is qualified
if what is to be reviewed is a positive determination, and it is not if what is
appealed is a negative determination. In deciding whether or not to impose a
safeguard measure, provisional or general, the DTI Secretary would be
evaluating only one body of facts and applying them to one set of laws. The
reviewing tribunal will be called upon to examine the same facts and the same
laws, whether or not the determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the exercise
by two judicial bodies of jurisdiction over basically the same subject matter
precisely the split-jurisdiction situation which is anathema to the orderly
administration of justice. 64 The Court cannot accept that such was the legislative

motive especially considering that the law expressly confers on the CTA, the
tribunal with the specialized competence over tax and tariff matters, the role of
judicial review without mention of any other court that may exercise corollary or
ancillary jurisdiction in relation to the SMA. The provision refers to the Court of
Appeals but only in regard to procedural rules and dispositions of appeals from
the CTA to the Court of Appeals. 65
The principle enunciated in Tejada v. Homestead Property Corporation 66 is
applicable to the case at bar:
The Court agrees with the observation of the [that] when an
administrative agency or body is conferred quasi-judicial functions, all
controversies relating to the subject matter pertaining to its specialization
are deemed to be included within the jurisdiction of said administrative
agency or body. Split jurisdiction is not favored. 67

Second. The interpretation of the provisions of the SMA favors vesting

untrammeled appellate jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly
bar the CTA from reviewing a negative determination by the DTI Secretary nor
conferred on the Court of Appeals such review authority. Respondents note, on
the other hand, that neither did the law expressly grant to the CTA the power to
review a negative determination. However, under the clear text of the law, the
CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in
connection with the imposition of a safeguard measure." Had the law been
couched instead to incorporate the phrase "the ruling imposing a safeguard
measure," then respondent's claim would have indisputable merit. Undoubtedly,
the phrase "in connection with" not only qualifies but clarifies the succeeding
phrase "imposition of a safeguard measure." As expounded later, the phrase also
encompasses the opposite or converse ruling which is the non-imposition of a
safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc., 68 the United States
Supreme Court, in interpreting a key provision of the Employee Retirement
Security Act of 1974, construed the phrase "relates to" in its normal sense which
is the same as "if it has connection with or reference to." 69 There is no serious
dispute that the phrase "in connection with" is synonymous to "relates to" or

"reference to," and that all three phrases are broadly expansive. This is affirmed
not just by jurisprudential fiat, but also the acquired connotative meaning of "in
connection with" in common parlance. Consequently, with the use of the phrase
"in connection with," Section 29 allows the CTA to review not only the ruling
imposing a safeguard measure, but all other rulings related or have reference to
the application for such measure.
Now, let us determine the maximum scope and reach of the phrase "in
connection with" as used in Section 29 of the SMA. A literalist reading or
linguistic survey may not satisfy. Even the US Supreme Court in New York State
Blue Cross Plans v. Travelers Ins. 70 conceded that the phrases "relate to" or "in
connection with" may be extended to the farthest stretch of indeterminacy for,
universally, relations or connections are infinite and stop nowhere. 71 Thus, in the
case the US High Court, examining the same phrase of the same provision of law
involved in Shaw, resorted to looking at the statute and its objectives as the
alternative to an "uncritical literalism." 72 A similar inquiry into the other provisions
of the SMA is in order to determine the scope of review accorded therein to the
CTA. 73
The authority to decide on the safeguard measure is vested in the DTI Secretary
in the case of non-agricultural products, and in the Secretary of the Department
of Agriculture in the case of agricultural products. 74 Section 29 is likewise explicit
that only the rulings of the DTI Secretary or the Agriculture Secretary may be
reviewed by the CTA. 75 Thus, the acts of other bodies that were granted some
powers by the SMA, such as the Tariff Commission, are not subject to direct
review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on
several matters. Within thirty (30) days from receipt of a petition seeking the
imposition of a safeguard measure, or from the date he made motu
proprio initiation, the Secretary shall make a preliminary determination on
whether the increased imports of the product under consideration substantially
cause or threaten to cause serious injury to the domestic industry. 76 Such ruling
is crucial since only upon the Secretary's positive preliminary determination that a
threat to the domestic industry exists shall the matter be referred to the Tariff

Commission for formal investigation, this time, to determine whether the general
safeguard measure should be imposed or not. 77 Pursuant to a positive
preliminary determination, the Secretary may also decide that the imposition of a
provisional safeguard measure would be warranted under Section 8 of the
SMA. 78 The Secretary is also authorized to decide, after receipt of the report of
the Tariff Commission, whether or not to impose the general safeguard measure,
and if in the affirmative, what general safeguard measures should be
applied. 79 Even after the general safeguard measure is imposed, the Secretary is
empowered to extend the safeguard measure, 80 or terminate, reduce or modify
his previous rulings on the general safeguard measure. 81
With the explicit grant of certain powers involving safeguard measures by the
SMA on the DTI Secretary, it follows that he is empowered to rule on several
issues. These are the issues which arise in connection with, or in relation to, the
imposition of a safeguard measure. They may arise at different stages the
preliminary investigation stage, the post-formal investigation stage, or the postsafeguard measure stage yet all these issues do become ripe for resolution
because an initiatory action has been taken seeking the imposition of a
safeguard measure. It is the initiatory action for the imposition of a safeguard
measure that sets the wheels in motion, allowing the Secretary to make
successive rulings, beginning with the preliminary determination.
Clearly, therefore, the scope and reach of the phrase "in connection with," as
intended by Congress, pertain to all rulings of the DTI Secretary or Agriculture
Secretary which arise from the time an application or motu proprio initiation for
the imposition of a safeguard measure is taken. Indeed, the incidents which
require resolution come to the fore only because there is an initial application or
action seeking the imposition of a safeguard measure. From the legislative
standpoint, it was a matter of sense and practicality to lump up the questions
related to the initiatory application or action for safeguard measure and to assign
only one court and; that is the CTA to initially review all the rulings related to such
initiatory application or action. Both directions Congress put in place by
employing the phrase "in connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the CTA
under Section 29, we do not doubt that a negative ruling refusing to impose a

safeguard measure falls within the scope of its jurisdiction. On a literal level, such
negative ruling is "a ruling of the Secretary in connection with the imposition of a
safeguard measure," as it is one of the possible outcomes that may result from
the initial application or action for a safeguard measure. On a more critical level,
the rulings of the DTI Secretary in connection with a safeguard measure, however
diverse the outcome may be, arise from the same grant of jurisdiction on the DTI
Secretary by the SMA.82 The refusal by the DTI Secretary to grant a safeguard
measure involves the same grant of authority, the same statutory prescriptions,
and the same degree of discretion as the imposition by the DTI Secretary of a
safeguard measure.
The position of the respondents is one of "uncritical literalism" 83 incongruent with
the animus of the law. Moreover, a fundamentalist approach to Section 29 is not
warranted, considering the absurdity of the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens
Et Absurdum. 84
Even assuming arguendo that Section 29 has not expressly granted the CTA
jurisdiction to review a negative ruling of the DTI Secretary, the Court is precluded
from favoring an interpretation that would cause inconvenience and
absurdity. 85 Adopting the respondents' position favoring the CTA's minimal
jurisdiction would unnecessarily lead to illogical and onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate
relief to rulings imposing a safeguard measure but not to those declining to
impose the measure. Respondents might argue that the right to relief from a
negative ruling is not lost since the applicant could, as Philcemcor did, question
such ruling through a special civil action for certiorari under Rule 65 of the 1997
Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are
of differing natures and gravamen. While an appeal may be predicated on errors
of fact or errors of law, a special civil action for certiorariis grounded on grave
abuse of discretion or lack of or excess of jurisdiction on the part of the decider.
For a special civil action for certiorari to succeed, it is not enough that the
questioned act of the respondent is wrong. As the Court clarified in Sempio
v. Court of Appeals:

A tribunal, board or officer acts without jurisdiction if it/he does not have
the legal power to determine the case. There is excess of jurisdiction
where, being clothed with the power to determine the case, the tribunal,
board or officer oversteps its/his authority as determined by law. And
there is grave abuse of discretion where the tribunal, board or officer acts
in a capricious, whimsical, arbitrary or despotic manner in the exercise of
his judgment as to be said to be equivalent to lack of
jurisdiction. Certiorari is often resorted to in order to correct errors of
jurisdiction. Where the error is one of law or of fact, which is a mistake of
judgment, appeal is the remedy. 86

It is very conceivable that the DTI Secretary, after deliberate thought and careful
evaluation of the evidence, may either make a negative preliminary determination
as he is so empowered under Section 7 of the SMA, or refuse to adopt the
definitive safeguard measure under Section 13 of the same law. Adopting the
respondents' theory, this negative ruling is susceptible to reversal only through a
special civil action for certiorari, thus depriving the affected party the chance to
elevate the ruling on appeal on the rudimentary grounds of errors in fact or in law.
Instead, and despite whatever indications that the DTI Secretary acted with
measure and within the bounds of his jurisdiction are, the aggrieved party will be
forced to resort to a gymnastic exercise, contorting the straight and narrow in an
effort to discombobulate the courts into believing that what was within was
actually beyond and what was studied and deliberate actually whimsical and
capricious. What then would be the remedy of the party aggrieved by a negative
ruling that simply erred in interpreting the facts or the law? It certainly cannot be
the special civil action for certiorari, for as the Court held in Silverio v. Court of
Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its character.
It is not a general utility tool in the legal workshop." 87
Fortunately, this theoretical quandary need not come to pass. Section 29 of the
SMA is worded in such a way that it places under the CTA's judicial review all
rulings of the DTI Secretary, which are connected with the imposition of a
safeguard measure. This is sound and proper in light of the specialized
jurisdiction of the CTA over tax matters. In the same way that a question of
whether to tax or not to tax is properly a tax matter, so is the question of whether
to impose or not to impose a definitive safeguard measure.

On another note, the second paragraph of Section 29 similarly reveals the

legislative intent that rulings of the DTI Secretary over safeguard measures
should first be reviewed by the CTA and not the Court of Appeals. It reads:
The petition for review shall comply with the same requirements and
shall follow the same rules of procedure and shall be subject to the same
disposition as in appeals in connection with adverse rulings on tax
matters to the Court of Appeals.

This is the only passage in the SMA in which the Court of Appeals is mentioned.
The express wish of Congress is that the petition conform to the requirements
and procedure under Rule 43 of the Rules of Civil Procedure. Since Congress
mandated that the form and procedure adopted be analogous to a review of a
CTA ruling by the Court of Appeals, the legislative contemplation could not have
been that the appeal be directly taken to the Court of Appeals.
Issue
of
Commission's
on DTI Secretary.

Binding

Factual

Effect

of

Tariff
Determination

The next issue for resolution is whether the factual determination made by the
Tariff Commission under the SMA is binding on the DTI Secretary. Otherwise
stated, the question is whether the DTI Secretary may impose general safeguard
measures in the absence of a positive final determination by the Tariff
Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the
findings of the Tariff Commission do not necessarily constitute a final decision.
Section 13 details the procedure for the adoption of a safeguard measure, as well
as the steps to be taken in case there is a negative final determination. The
implication of the Court of Appeals' holding is that the DTI Secretary may adopt a
definitive safeguard measure, notwithstanding a negative determination made by
the Tariff Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before
general safeguard measures may be imposed. However, the most fundamental
restriction on the DTI Secretary's power in that respect is contained in Section 5
of the SMA that there should first be a positive final determination of the Tariff

Commission which the Court of Appeals curiously all but ignored. Section 5
reads:
Sec. 5. Conditions for the Application of General Safeguard Measures.
The Secretary shall apply a general safeguard measure upon a
positive final determination of the [Tariff] Commission that a product is
being imported into the country in increased quantities, whether absolute
or relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry; however, in the
case of non-agricultural products, the Secretary shall first establish that
the application of such safeguard measures will be in the public interest.
(emphasis supplied)

The plain meaning of Section 5 shows that it is the Tariff Commission that has the
power to make a "positive final determination." This power lodged in the Tariff
Commission, must be distinguished from the power to impose the general
safeguard measure which is properly vested on the DTI Secretary. 88
All in all, there are two condition precedents that must be satisfied before the DTI
Secretary may impose a general safeguard measure on grey Portland cement.
First, there must be a positive final determination by the Tariff Commission that a
product is being imported into the country in increased quantities (whether
absolute or relative to domestic production), as to be a substantial cause of
serious injury or threat to the domestic industry. Second, in the case of nonagricultural products the Secretary must establish that the application of such
safeguard measures is in the public interest. 89 As Southern Cross argues,
Section 5 is quite clear-cut, and it is impossible to finagle a different conclusion
even through overarching methods of statutory construction. There is no safer nor
better settled canon of interpretation that when language is clear and
unambiguous it must be held to mean what it plainly expresses: 90 In the quotable
words of an illustrious member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its
literal meaning and applied without attempted interpretation. The verba
legis or plain meaning rule rests on the valid presumption that the words
employed by the legislature in a statute correctly express its intent or will
and preclude the court from construing it differently. The legislature is
presumed to know the meaning of the words, to have used words

advisedly, and to have expressed its intent by the use of such words as
are found in the statute. 91

Moreover, Rule 5 of the Implementing Rules and Regulations of the

SMA, 92 which interprets Section 5 of the law, likewise requires a positive final
determination on the part of the Tariff Commission before the application of the
general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff
Commission and the DTI Secretary. The plain meaning of Section 5 shows that it
is the Tariff Commission that has the power to make a "positive final
determination." This power, which belongs to the Tariff Commission, must be
distinguished from the power to impose general safeguard measure properly
vested on the DTI Secretary. The distinction is vital, as a "positive final
determination" clearly antecedes, as a condition precedent, the imposition of a
general safeguard measure. At the same time, a positive final determination does
not necessarily result in the imposition of a general safeguard measure. Under
Section 5, notwithstanding the positive final determination of the Tariff
Commission, the DTI Secretary is tasked to decide whether or not that the
application of the safeguard measures is in the public interest.
It is also clear from Section 5 of the SMA that the positive final determination to
be undertaken by the Tariff Commission does not entail a mere gathering of
statistical data. In order to arrive at such determination, it has to establish causal
linkages from the statistics that it compiles and evaluates: after finding there is an
importation in increased quantities of the product in question, that such
importation is a substantial cause of serious threat or injury to the domestic
industry.
The Court of Appeals relies heavily on the legislative record of a congressional
debate during deliberations on the SMA to assert a purported legislative intent
that the findings of the Tariff Commission do not bind the DTI Secretary. 93 Yet as
explained earlier, the plain meaning of Section 5 emphasizes that only if the Tariff
Commission renders a positive determination could the DTI Secretary impose a
safeguard measure. Resort to the congressional records to ascertain legislative
intent is not warranted if a statute is clear, plain and free from ambiguity. The
legislature is presumed to know the meaning of the words, to have used words

advisedly, and to have expressed its intent by the use of such words as are found
in the statute. 94
Indeed, the legislative record, if at all to be availed of, should be approached with
extreme caution, as legislative debates and proceedings are powerless to vary
the terms of the statute when the meaning is clear. 95 Our holding in Civil
Liberties Union v. Executive Secretary 96 on the resort to deliberations of the
constitutional convention to interpret the Constitution is likewise appropriate in
ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates and
proceedings of the constitutional convention in order to arrive at the
reason and purpose of the resulting Constitution,resort thereto may be
had only when other guides fail as said proceedings are powerless to
vary the terms of the Constitution when the meaning is clear. Debates in
the constitutional convention "are of value as showing the views of the
individual members, and as indicating the reasons for their votes, but
they give us no light as to the views of the large majority who did not
talk . . . We think it safer to construe the constitution from what appears
upon its face." 97

Moreover, it is easy to selectively cite passages, sometimes out of their proper

context, in order to assert a misleading interpretation. The effect can be
dangerous. Minority or solitary views, anecdotal ruminations, or even the
occasional crude witticisms, may improperly acquire the mantle of legislative
intent by the sole virtue of their publication in the authoritative congressional
record. Hence, resort to legislative deliberations is allowable when the statute is
crafted in such a manner as to leave room for doubt on the real intent of the
legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to
impose a general safeguard measure by preconditioning such imposition on a
positive determination by the Tariff Commission. Such legislative intent should be
given full force and effect, as the executive power to impose definitive safeguard
measures is but a delegated power the power of taxation, by nature and by
command of the fundamental law, being a preserve of the legislature. 98 Section
28(2), Article VI of the1987 Constitution confirms the delegation of legislative

power, yet ensures that the prerogative of Congress to impose limitations and
restrictions on the executive exercise of this power:
DCcIaE

The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national development
program of the Government. 99

The safeguard measures which the DTI Secretary may impose under the SMA
may take the following variations, to wit: (a) an increase in, or imposition of any
duty on the imported product; (b) a decrease in or the imposition of a tariff-rate
quota on the product; (c) a modification or imposition of any quantitative
restriction on the importation of the product into the Philippines; (d) one or more
appropriate adjustment measures, including the provision of trade adjustment
assistance; and (e) any combination of the above-described actions. Except for
the provision of trade adjustment assistance, the measures enumerated by the
SMA are essentially imposts, which precisely are the subject of delegation under
Section 28(2), Article VI of the 1987 Constitution. 100
This delegation of the taxation power by the legislative to the executive is
authorized by the Constitution itself. 101 At the same time, the Constitution also
grants the delegating authority (Congress) the right to impose restrictions and
limitations on the taxation power delegated to the President. 102 The restrictions
and limitations imposed by Congress take on the mantle of a constitutional
command, which the executive branch is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President, 103 to
impose definitive general safeguard measures, which basically are tariff imposts
of the type spoken of in the Constitution. However, the law did not grant him full,
uninhibited discretion to impose such measures. The DTI Secretary authority is
derived from the SMA; it does not flow from any inherent executive power. Thus,
the limitations imposed by Section 5 are absolute, warranted as they are by a
constitutional fiat. 104
Philcemcor cites our 1912 ruling in Lamb v. Phipps 105 to assert that the DTI
Secretary, having the final decision on the safeguard measure, has the power to

evaluate the findings of the Tariff Commission and make an independent

judgment thereon. Given the constitutional and statutory limitations governing the
present case, the citation is misplaced. Lamb pertained to the discretion of the
Insular Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he
statutes of the United States require[d] . . . to exercise his judgment upon the
legality . . . [of] provisions of law and resolutions of Congress providing for the
payment of money, the means of procuring testimony upon which he may act." 106
Thus in Lamb, while the Court recognized the wide latitude of discretion that may
have been vested on the Insular Auditor, it also recognized that such latitude
flowed from, and is consequently limited by, statutory grant. However, in this
case, the provision of the Constitution in point expressly recognizes the authority
of Congress to prescribe limitations in the case of tariffs, export/import quotas
and other such safeguard measures. Thus, the broad discretion granted to the
Insular Auditor of the Philippine Islands cannot be analogous to the discretion of
the DTI Secretary which is circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human Rights, 107 likewise cited by
Philcemcor, is also inapplicable owing to the different statutory regimes prevailing
over that case and the present petition. In Cario, the Court ruled that the
constitutional power of the Commission on Human Rights (CHR) to investigate
human rights' violations did not extend to adjudicating claims on the
merits. 108 Philcemcor claims that the functions of the Tariff Commission being
"only investigatory," it could neither decide nor adjudicate. 109
The applicable law governing the issue in Cario is Section 18, Article XIII of the
Constitution, which delineates the powers and functions of the CHR. The
provision does not vest on the CHR the power to adjudicate cases, but only to
investigate all forms of human rights violations. 110 Yet, without modifying the
thorough disquisition of the Court in Cario on the general limitations on the
investigatory power, the precedent is inapplicable because of the difference in the
involved statutory frameworks.The Constitution does not repose binding effect on
the results of the CHR's investigation. 111 On the other hand, through Section 5 of
the SMA and under the authority of Section 28(2), Article VI of the Constitution,
Congress did intend to bind the DTI Secretary to the determination made by the
Tariff Commission. 112 It is of no consequence that such determination results

from the exercise of investigatory powers by the Tariff Commission since

Congress is well within its constitutional mandate to limit the authority of the DTI
Secretary to impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and
Rule 13 of the SMA's Implementing Rules in support of the view that the DTI
Secretary may decide independently of the determination made by the Tariff
Commission. Admittedly, there are certain infelicities in the language of Section
13 and Rule 13. But reliance should not be placed on the textual imprecisions.
Rather, Section 13 and Rule 13 must be viewed in light of the fundamental
prescription imposed by Section 5.113
Section 13 of the SMA lays down the procedure to be followed after the Tariff
Commission renders its report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive
determination, the Commission shall recommend to the Secretary an
appropriate definitive measure, in the form of:
(a) An increase in, or imposition of, any duty on the imported
product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on
the product;
(c) A modification or imposition of any quantitative restriction on
the importation of the product into the Philippines;
(d) One or more appropriate adjustment measures, including the
provision of trade adjustment assistance;
(e) Any combination of actions described in subparagraphs (a) to
(d).
The Commission may also recommend other actions, including the
initiation of international negotiations to address the underlying cause of
the increase of imports of the product, to alleviate the injury or threat
thereof to the domestic industry, and to facilitate positive adjustment to
import competition.
The general safeguard measure shall be limited to the extent of
redressing or preventing the injury and to facilitate adjustment by the
domestic industry from the adverse effects directly attributed to the

increased imports: Provided, however, That when quantitative import

restrictions are used, such measures shall not reduce the quantity of
imports below the average imports for the three (3) preceding
representative years, unless clear justification is given that a different
level is necessary to prevent or remedy a serious injury.
A general safeguard measure shall not be applied to a product
originating from a developing country if its share of total imports of the
product is less than three percent (3%): Provided, however, That
developing countries with less than three percent (3%) share collectively
account for not more than nine percent (9%) of the total imports.
The decision imposing a general safeguard measure, the duration of
which is more than one (1) year, shall be reviewed at regular intervals for
purposes of liberalizing or reducing its intensity. The industry benefiting
from the application of a general safeguard measure shall be required to
show positive adjustment within the allowable period. A general
safeguard measure shall be terminated where the benefiting industry
fails to show any improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the
concerned government agencies to implement the appropriate general
safeguard measure as determined by the Secretary within fifteen (15)
days from receipt of the report.
In the event of a negative final determination, or if the cash bond is in
excess of the definitive safeguard duty assessed, the Secretary shall
immediately issue, through the Secretary of Finance, a written instruction
to the Commissioner of Customs, authorizing the return of the cash bond
or the remainder thereof, as the case may be, previously collected as
provisional general safeguard measure within ten (10) days from the
date a final decision has been made: Provided, That the government
shall not be liable for any interest on the amount to be returned. The
Secretary shall not accept for consideration another petition from the
same industry, with respect to the same imports of the product under
consideration within one (1) year after the date of rendering such a
decision.
When the definitive safeguard measure is in the form of a tariff increase,
such increase shall not be subject or limited to the maximum levels of

tariff as set forth in Section 401(a) of the Tariff and Customs Code of the
Philippines.

To better comprehend Section 13, note must be taken of the distinction between
the investigatory and recommendatory functions of the Tariff Commission under
the SMA.
The word "determination," as used in the SMA, pertains to the factual findings on
whether there are increased imports into the country of the product under
consideration, and on whether such increased imports are a substantial cause of
serious injury or threaten to substantially cause serious injury to the domestic
industry. 114 The SMA explicitly authorizes the DTI Secretary to make a
preliminary determination, 115 and the Tariff Commission to make the final
determination. 116 The distinction is fundamental, as these functions are not
interchangeable. The Tariff Commission makes its determination only after a
formal investigation process, with such investigation initiated only if there is a
positive preliminary determination by the DTI Secretary under Section 7 of the
SMA. 117 On the other hand, the DTI Secretary may impose definitive safeguard
measure only if there is a positive final determination made by the Tariff
Commission. 118
In contrast, a "recommendation" is a suggested remedial measure submitted by
the Tariff Commission under Section 13 after making a positive final
determination in accordance with Section 5. The Tariff Commission is not
empowered to make a recommendation absent a positive final determination on
its part. 119 Under Section 13, the Tariff Commission is required to recommend to
the [DTI] Secretary an "appropriate definitive measure." 120 The Tariff Commission
"may also recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of the
products, to alleviate the injury or threat thereof to the domestic industry and to
facilitate positive adjustment to import competition." 121
The recommendations of the Tariff Commission, as rendered under Section 13,
are not obligatory on the DTI Secretary. Nothing in the SMA mandates the DTI
Secretary to adopt the recommendations made by the Tariff Commission. In fact,
the SMA requires that the DTI Secretary establish that the application of such
safeguard measures is in the public interest, notwithstanding the Tariff

Commission's recommendation on the appropriate safeguard measure based on

its positive final determination. 122 The non-binding force of the Tariff
Commission's recommendations is congruent with the command of Section
28(2), Article VI of the 1987 Constitution that only the President may be
empowered by the Congress to impose appropriate tariff rates, import/export
quotas and other similar measures. 123 It is the DTI Secretary, as alter ego of the
President, who under the SMA may impose such safeguard measures subject to
the limitations imposed therein. A contrary conclusion would in essence unduly
arrogate to the Tariff Commission the executive power to impose the appropriate
tariff measures. That is why the SMA empowers the DTI Secretary to adopt
safeguard measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a
different effect on the DTI Secretary. Only on the basis of a positive final
determination made by the Tariff Commission under Section 5 can the DTI
Secretary impose a general safeguard measure. Clearly, then the DTI Secretary
is bound by the determination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13 124 uses the
variant word "determined" in a different context, as it contemplates "the
appropriate general safeguard measure as determined by the Secretary within
fifteen (15) days from receipt of the report." Quite plainly, the word "determined"
in this context pertains to the DTI Secretary's power of choice of the appropriate
safeguard measure, as opposed to the Tariff Commission's power to determine
the existence of conditions necessary for the imposition of any safeguard
measure. In relation to Section 5, such choice also relates to the mandate of the
DTI Secretary to establish that the application of safeguard measures is in the
public interest, also within the fifteen (15) day period. Nothing in Section 13
contradicts the instruction in Section 5 that the DTI Secretary is allowed to
impose the general safeguard measures only if there is a positive determination
made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned
"Final Determination by the Secretary." The assailed Decision and Philcemcor
latch on this phraseology to imply that the factual determination rendered by the

Tariff Commission under Section 5 may be amended or reversed by the DTI

Secretary. Of course, implementing rules should conform, not clash, with the law
that they seek to implement, for a regulation which operates to create a rule out
of harmony with the statute is a nullity. 125 Yet imperfect draftsmanship aside,
nothing in Rule 13.2 implies that the DTI Secretary can set aside the
determination made by the Tariff Commission under the aegis of Section 5. This
can be seen by examining the specific provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report
of the Commission, the Secretary shall make a decision, taking into
consideration the measures recommended by the Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall
issue, within two (2) calendar days after making his decision, a written
instruction to the heads of the concerned government agencies to
immediately implement the appropriate general safeguard measure as
determined by him. Provided, however, that in the case of nonagricultural products, the Secretary shall first establish that the
imposition of the safeguard measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the
Secretary shall also order its publication in two (2) newspapers of
general circulation. He shall also furnish a copy of his Order to the
petitioner and other interested parties, whether affirmative or negative.
(Emphasis supplied.)

Moreover, the DTI Secretary does not have the power to review the findings of the
Tariff Commission for it is not subordinate to the Department of Trade and
Industry ("DTI"). It falls under the supervision, not of the DTI nor of the
Department of Finance (as mistakenly asserted by Southern Cross), 126 but of
the National Economic Development Authority, an independent planning agency
of the government of co-equal rank as the DTI. 127 As the supervision and control
of a Department Secretary is limited to the bureaus, offices, and agencies under
him, 128 the DTI Secretary generally cannot exercise review authority over actions
of the Tariff Commission. Neither does the SMA specifically authorize the DTI
Secretary to alter, amend or modify in any way the determination made by the
Tariff Commission. The most that the DTI Secretary could do to express

displeasure over the Tariff Commission's actions is to ignore its recommendation,

but not its determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules is
dissonant with the same word as employed in the SMA, which in the latter case is
undeviatingly in reference to the determination made by the Tariff Commission.
Beyond the resulting confusion, however, the divergent use in Rule 13.2 is
explicable as the Rule textually pertains to the power of the DTI Secretary to
review the recommendations of the Tariff Commission, not the latter's
determination. Indeed, an examination of the specific provisions show that there
is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by
the SMA. The Rule does not remove the essential requirement under Section 5
that a positive final determination be made by the Tariff Commission before a
definitive safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as
merely recommendatory and points to the DTI Secretary as the authority who
renders the final decision. 129 At the same time, Philcemcor asserts that the Tariff
Commission's functions are merely investigatory, and as such do not include the
power to decide or adjudicate. These contentions, viewed in the context of the
fundamental requisite set forth by Section 5, are untenable. They run counter to
the statutory prescription that a positive final determination made by the Tariff
Commission should first be obtained before the definitive safeguard measures
may be laid down.
Was it anomalous for Congress to have provided for a system whereby the Tariff
Commission may preclude the DTI, an office of higher rank, from imposing a
safeguard measure? Of course, this Court does not inquire into the wisdom of the
legislature but only charts the boundaries of powers and functions set in its
enactments. But then, it is not difficult to see the internal logic of this statutory
framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff
Commission which is not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of
check and balance involving two different governmental agencies with disparate
specializations. The matter of safeguard measures is of such national importance

that a decision either to impose or not to impose then could have ruinous effects
on companies doing business in the Philippines. Thus, it is ideal to put in place a
system which affords all due deliberation and calls to fore various governmental
agencies exercising their particular specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a
general safeguard measure, it is because such safeguard measure is the
exception, rather than the rule. The Philippines is obliged to observe its
obligations under the GATT, under whose framework trade liberalization, not
protectionism, is laid down. Verily, the GATT actually prescribes conditions before
a member-country may impose a safeguard measure. The pertinent portion of
the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if
that member has determined, pursuant to the provisions set out below,
that such product is being imported into its territory in such increased
quantities, absolute or relative to domestic production, and under such
conditions as to cause or threaten to cause serious injury to the
domestic industry that produces like or directly competitive products. 130
3.(a) A Member may apply a safeguard measure only following an
investigation by the competent authorities of that Member pursuant to
procedures previously established and made public in consonance with
Article X of the GATT 1994. This investigation shall include reasonable
public notice to all interested parties and public hearings or other
appropriate means in which importers, exporters and other interested
parties could present evidence and their views, including the opportunity
to respond to the presentations of other parties and to submit their
views, inter alia, as to whether or not the application of a safeguard
measure would be in the public interest. The competent authorities shall
publish a report setting forth their findings and reasoned conclusions
reached on all pertinent issues of fact and law. 131

The SMA was designed not to contradict the GATT, but to complement it. The two
requisites laid down in Section 5 for a positive final determination are the same
conditions provided under the GATT Agreement on Safeguards for the application
of safeguard measures by a member country. Moreover, the investigatory
procedure laid down by the SMA conforms to the procedure required by the

GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as

the competent authority to conduct such investigation. Southern Cross stresses
that applying the provision of the GATT Agreement on Safeguards, the Tariff
Commission is clearly empowered to arrive at binding conclusions. 132 We agree:
binding on the DTI Secretary is the Tariff Commission's determinations on
whether a product is imported in increased quantities, absolute or relative to
domestic production and whether any such increase is a substantial cause of
serious injury or threat thereof to the domestic industry. 133
Satisfied as we are with the proper statutory paradigm within which the SMA
should be analyzed, the flaws in the reasoning of the Court of Appeals and in the
arguments of the respondents become apparent. To better understand the
dynamics of the procedure set up by the law leading to the imposition of definitive
safeguard measures, a brief step-by-step recount thereof is in order.
1. After the initiation of an action involving a general safeguard measure, 134 the
DTI Secretary makes a preliminary determination whether the increased imports
of the product under consideration substantially cause or threaten to substantially
cause serious injury to the domestic industry, 135 and whether the imposition of a
provisional measure is warranted under Section 8 of the SMA. 136 If the
preliminary determination is negative, it is implied that no further action will be
taken on the application.
2. When his preliminary determination is positive, the Secretary immediately
transmits the records covering the application to the Tariff Commission for
immediate formal investigation. 137
3. The Tariff Commission conducts its formal investigation, keyed towards making
a final determination. In the process, it holds public hearings, providing interested
parties the opportunity to present evidence or otherwise be heard. 138 To repeat,
Section 5 enumerates what the Tariff Commission is tasked to determine: (a)
whether a product is being imported into the country in increased quantities,
irrespective of whether the product is absolute or relative to the domestic
production; and (b) whether the importation in increased quantities is such that it
causes serious injury or threat to the domestic industry. 139 The findings of the

Tariff Commission as to these matters constitute the final determination, which

may be either positive or negative.
4. Under Section 13 of the SMA, if the Tariff Commission makes a positive
determination, the Tariff Commission "recommends to the [DTI] Secretary an
appropriate definitive measure." The Tariff Commission "may also recommend
other actions, including the initiation of international negotiations to address the
underlying cause of the increase of imports of the products, to alleviate the injury
or threat thereof to the domestic industry, and to facilitate positive adjustment to
import competition." 140
5. If the Tariff Commission makes a positive final determination, the DTI Secretary
is then to decide, within fifteen (15) days from receipt of the report, as to what
appropriate safeguard measures should he impose.
6. However, if the Tariff Commission makes a negative final determination, the
DTI Secretary cannot impose any definitive safeguard measure. Under Section
13, he is instructed instead to return whatever cash bond was paid by the
applicant upon the initiation of the action for safeguard measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary, with
the instruction that the DTI Secretary may impose a general safeguard measure
even if there is no positive final determination from the Tariff Commission. More
crucially, the Court of Appeals could not have acquired jurisdiction over
Philcemcor's petition for certiorari in the first place, as Section 29 of the SMA
properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an
absolute nullity, and we declare it as such.
What is the effect of the nullity of the assailed Decision on the 5 June
2003 Decision of the DTI Secretary imposing the general safeguard measure?
We have recognized that any initial judicial review of a DTI ruling in connection
with the imposition of a safeguard measure belongs to the CTA. At the same
time, the Court also recognizes the fundamental principle that a null and void
judgment cannot produce any legal effect. There is sufficient cause to establish
that the 5 June 2003 Decision of the DTI Secretary resulted from the assailed
Court of Appeals Decision, even if the latter had not yet become final.

Conversely, it can be concluded that it was because of the putative imprimatur of

the Court of Appeals' Decision that the DTI Secretary issued his ruling imposing
the safeguard measure. Since the 5 June 2003 Decision derives its legal effect
from the void Decision of the Court of Appeals, this ruling of the DTI Secretary is
consequently void. The spring cannot rise higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from the
appellate court's Decision for in his own 5 June 2003 Decision, he declared:
From the aforementioned ruling, the CA has remanded the case to the
DTI Secretary for a final decision. Thus, there is no legal impediment for
the Secretary to decide on the application. 141

The inescapable conclusion is that the DTI Secretary needed the

assailed Decision of the Court of Appeals to justify his rendering a
second Decision. He explicitly invoked the Court of Appeals' Decision as basis for
rendering his 5 June 2003 ruling, and implicitly recognized that without
such Decision he would not have the authority to revoke his previous ruling and
render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product
of the void Decision, it being an attempt to carry out such null judgment. There is
therefore no choice but to declare it void as well, lest we sanction the perverse
existence of a fruit from a non-existent tree. It does not even matter what the
disposition of the 25 June 2003 Decision was, its nullity would be warranted even
if the DTI Secretary chose to uphold his earlier ruling denying the application for
safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce
a judicial decision which is not yet final and actually pending review on appeal.
Had it been a judge who attempted to enforce a decision that is not yet final and
executory, he or she would have readily been subjected to sanction by this Court.
The DTI Secretary may be beyond the ambit of administrative review by this
Court, but we are capacitated to allocate the boundaries set by the law of the
land and to exact fealty to the legal order, especially from the instrumentalities
and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the

DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and
SET ASIDE. No Costs.
SO ORDERED.
Puno, Quisumbing, Austria-Martinez and Callejo, Sr., JJ ., concur.
(Southern Cross Cement Corp. v. Philippine Cement Manufacturers Corp., G.R.
No. 158540, [July 8, 2004], 478 PHIL 85-152)
|||

18. TFS Inc. vs. CIR, G.R. No. 166829; April 19, 2010

SECOND DIVISION
[G.R. No. 166829. April 19, 2010.]
TFS, INCORPORATED, petitioner, vs.
INTERNAL REVENUE, respondent.

COMMISSIONER

OF

DECISION
DEL CASTILLO, J :
p

Only in highly meritorious cases, as in the instant case, may the rules
for perfecting an appeal be brushed aside.
This Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeks to set aside the November 18, 2004 1 Resolution of the Court of
Tax Appeals (CTA) En Banc in C.T.A. EB No. 29 which dismissed petitioner's
Petition for Review for having been filed out of time. Also assailed is the
January 24, 2005 2 Resolution denying the motion for reconsideration.
Factual Antecedents
Petitioner TFS, Incorporated is a duly organized domestic corporation
engaged in the pawnshop business. On January 15, 2002, petitioner received
a Preliminary Assessment Notice (PAN) 3 for deficiency value added tax

(VAT), expanded withholding tax (EWT), and compromise penalty in the

amounts of P11,764,108.74, P183,898.02 and P25,000.00, respectively, for
the taxable year 1998. Insisting that there was no basis for the issuance of
PAN, petitioner through a letter 4 dated January 28, 2002 requested the
Bureau of Internal Revenue (BIR) to withdraw and set aside the assessments.
In a letter-reply 5 dated February 7, 2002, respondent Commissioner of
Internal Revenue (CIR) informed petitioner that a Final Assessment Notice
(FAN) 6 was issued on January 25, 2002, and that petitioner had until
February 22, 2002 within which to file a protest letter.
On February 20, 2002, petitioner protested the FAN in a letter 7 dated
February 19, 2002.
ACTISE

There being no action taken by the CIR, petitioner filed a Petition for
Review 8 with the CTA on September 11, 2002, docketed as CTA Case No.
6535.
During trial, petitioner offered to compromise and to settle the
assessment for deficiency EWT with the BIR. Hence, on September 24, 2003,
it filed a Manifestation and Motion withdrawing its appeal on the deficiency
EWT, leaving only the issue of VAT on pawnshops to be threshed out. Since
no opposition was made by the CIR to the Motion, the same was granted by
the CTA on November 4, 2003.
Ruling of the Court of Tax Appeals
On April 29, 2004, the CTA rendered a Decision 9 upholding the
assessment issued against petitioner in the amount of P11,905,696.32,
representing deficiency VAT for the year 1998, inclusive of 25% surcharge and
20% deficiency interest, plus 20% delinquency interest from February 25,
2002 until full payment, pursuant to Sections 248 and 249 (B) of the National
Internal Revenue Code of 1997 (NIRC). The CTA ruled that pawnshops are
subject to VAT under Section 108 (A) of the NIRC as they are engaged in the
sale of services for a fee, remuneration or consideration. 10
Aggrieved, petitioner moved for reconsideration 11 but the motion was
denied by the CTA in its Resolution dated July 20, 2004, 12 which was received
by petitioner on July 30, 2004.

Ruling of the Court of Appeals

On August 16, 2004, petitioner filed before the Court of Appeals (CA) a
Motion for Extension of Time to File Petition for Review. 13 On August 24,
2004, it filed a Petition for Review 14 but it was dismissed by the CA in its
Resolution 15 dated August 31, 2004, for lack of jurisdiction in view of the
enactment of Republic Act No. 9282 (RA 9282). 16
Ruling of the Court of Tax Appeals En Banc
Realizing its error, petitioner filed a Petition for Review 17 with the
CTA En Banc on September 16, 2004. The petition, however, was dismissed
for having been filed out of time per Resolution dated November 18, 2004.
Petitioner filed a Motion for Reconsideration but it was denied in a Resolution
dated January 24, 2005.
Hence, this petition.
Issues
In its Memorandum, 18 petitioner interposes the following issues:
WHETHER THE HONORABLE COURT OF TAX APPEALS EN
BANC SHOULD HAVE GIVEN DUE COURSE TO THE PETITION FOR
REVIEW AND NOT STRICTLY APPLIED THE TECHNICAL RULES OF
PROCEDURE TO THE DETRIMENT OF JUSTICE.
DcaCSE

WHETHER OR NOT PETITIONER IS SUBJECT TO THE 10% VAT. 19

Petitioner's Arguments
Petitioner admits that it failed to timely file its Petition for Review with the
proper court (CTA). However, it attributes the procedural lapse to the
inadvertence or honest oversight of its counsel, who believed that at the time
the petition was filed on August 24, 2004, the CA still had jurisdiction since the
rules and regulations to implement the newly enacted RA 9282 had not yet
been issued and the membership of the CTA En Banc was not complete. In
view of these circumstances, petitioner implores us to reverse the dismissal of
its petition and consider the timely filing of its petition with the CA, which
previously exercised jurisdiction over appeals from decisions/resolutions of the
CTA, as substantial compliance with the then recently enacted RA 9282.

Petitioner also insists that the substantive merit of its case outweighs
the procedural infirmity it committed. It claims that the deficiency VAT
assessment issued by the BIR has no legal basis because pawnshops are not
subject to VAT as they are not included in the enumeration of services under
Section 108 (A) of the NIRC.
Respondent's Arguments
The CIR, on the other hand, maintains that since the petition was filed
with the CTA beyond the reglementary period, the Decision had already
attained finality and can no longer be opened for review. As to the issue of
VAT on pawnshops, he opines that petitioner's liability is a matter of law; and
in the absence of any provision providing for a tax exemption, petitioner's
pawnshop business is subject to VAT.
Our Ruling
The petition is meritorious.
Jurisdiction to review decisions or resolutions issued by the Divisions of
the CTA is no longer with the CA but with the CTA En Banc. This rule is
embodied in Section 11 of RA 9282, which provides that:
SECTION 11. Section 18 of the same Act is hereby amended as follows:
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil
proceeding involving matters arising under the National Internal Revenue
Code, the Tariff and Customs Code or the Local Government Code shall
be maintained, except as herein provided, until and unless an appeal
has been previously filed with the CTA and disposed of in accordance
with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA
on a motion for reconsideration or new trial, may file a petition for
review with the CTA en banc. (Emphasis supplied)

Procedural rules may be relaxed in the interest of substantial justice

It is settled that an appeal must be perfected within the reglementary
period provided by law; otherwise, the decision becomes final and
executory. 20However, as in all cases, there are exceptions to the strict
application of the rules for perfecting an appeal. 21
AIHaCc

We are aware of our rulings in Mactan Cebu International Airport

Authority v. Mangubat 22 and in Alfonso v. Sps. Andres, 23 wherein we excused
the late filing of the notices of appeal because at the time the said notices of
appeal were filed, the new rules 24 applicable therein had just been recently
issued. We noted that judges and lawyers need time to familiarize themselves
with recent rules.
However, in Cuevas v. Bais Steel Corporation 25 we found that the
relaxation of rules was unwarranted because the delay incurred therein was
inexcusable. The subject SC Circular 39-98 therein took effect on September
1, 1998, but the petitioners therein filed their petition for certiorari five months
after the circular took effect.
In the instant case, RA 9282 took effect on April 23, 2004, while
petitioner filed its Petition for Review on Certiorari with the CA on August 24,
2004, or four months after the effectivity of the law. By then, petitioner's
counsel should have been aware of and familiar with the changes introduced
by RA 9282. Thus, we find petitioner's argument on the newness of RA
9282 a bit of a stretch.
Petitioner likewise cannot validly claim that its erroneous filing of the
petition with the CA was justified by the absence of the CTA rules and
regulations and the incomplete membership of the CTA En Banc as these did
not defer the effectivity 26 and implementation of RA 9282. In fact, under
Section 2 of RA 9282, 27 the presence of four justices already constitutes a
quorum for En Banc sessions and the affirmative votes of four members of the
CTA En Banc are sufficient to render judgment. 28 Thus, to us, the petitioner's
excuse of "inadvertence or honest oversight of counsel" deserves scant
consideration.
However, we will overlook this procedural lapse in the interest of
substantial justice. Although a client is bound by the acts of his counsel,
including the latter's mistakes and negligence, a departure from this rule is
warranted where such mistake or neglect would result in serious injustice to
the client. 29 Procedural rules may thus be relaxed for persuasive reasons to
relieve a litigant of an injustice not commensurate with his failure to comply
with the prescribed procedure. 30 Such is the situation in this case.

Imposition of VAT on pawnshops for

the tax years 1996 to 2002 was deferred
Petitioner disputes the assessment made by the BIR for VAT deficiency
in the amount of P11,905,696.32 for taxable year 1998 on the ground that
pawnshops are not included in the coverage of VAT.
We agree.
In First Planters Pawnshop,
Revenue, 31 we ruled that:

Inc.

v.

Commissioner

of

Internal

. . . Since petitioner is a non-bank financial intermediary, it is subject to

10% VAT for the tax years 1996 to 2002; however, with the levy,
assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is
not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial intermediaries
starting January 1, 2003, petitioner is liable for 10% VAT for said tax
year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to percentage tax on
gross receipts from 0% to 5%, as the case may be. (Emphasis in the
original text)
THAECc

Guided by the foregoing, petitioner is not liable for VAT for the year
1998. Consequently, the VAT deficiency assessment issued by the BIR
against petitioner has no legal basis and must therefore be cancelled. In the
same vein, the imposition of surcharge and interest must be deleted. 32
In fine, although strict compliance with the rules for perfecting an appeal
is indispensable for the prevention of needless delays and for the orderly and
expeditious dispatch of judicial business, strong compelling reasons such as
serving the ends of justice and preventing a grave miscarriage may
nevertheless warrant the suspension of the rules. 33 In the instant case, we are
constrained to disregard procedural rules because we cannot in conscience
allow the government to collect deficiency VAT from petitioner considering that
the government has no right at all to collect or to receive the same. Besides,
dismissing this case on a mere technicality would lead to the unjust
enrichment of the government at the expense of petitioner, which we cannot

permit. Technicalities should never be used as a shield to perpetrate or

commit an injustice.
WHEREFORE, the Petition is GRANTED. The assailed November 18,
2004 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 29
which dismissed petitioner's Petition for Review for having been filed out of
time, and the January 24, 2005 Resolution which denied the motion for
reconsideration, are herebyREVERSED and SET ASIDE. The assessment for
deficiency Value Added Tax for the taxable year 1998, including surcharges,
deficiency
interest
and
delinquency
interest,
are
hereby CANCELLED and SET ASIDE.
SO ORDERED.
Carpio, Nachura, * Abad and Perez, JJ., concur.
(TFS, Inc. v. Commissioner of Internal Revenue, G.R. No. 166829, [April 19,
2010], 632 PHIL 356-367)
|||

19. Egis Projects S.A. vs. The Secretary of Finance and Commissioner of
Internal Revenue, CTA Case No. 8413, January 29, 2013
20. Delta Air Lines, Inc. vs. Cesar V. Purisima, in his capacity as Department
of Finance Secretary and Kim S. Jacinto-Henares, in her capacity as
Commissioner of Internal Revenue (CTA (En Banc) Case No. 1113
promulgated September 10, 2015)
21. CIR vs. Elric Auxiliary Services Corporation/Sacred Heart Services Gas
Station (CTA (En Banc) Case No. 1174 promulgated March 3, 2016)
22. Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao vs. The Court of
Tax Appeals and the Commissioner of Internal Revenue (G.R. No. 213394
promulgated 06 April 2016)

SECOND DIVISION
[G.R. No. 213394. April 6, 2016.]

SPOUSES EMMANUEL D. PACQUIAO and JINKEE J.

PACQUIAO, petitioners, vs. THE COURT OF TAX APPEALSFIRST DIVISION and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
MENDOZA, J :
p

Before this Court is a petition for review on certiorari under Rule 65 of

the Rules of Court filed by petitioner spouses, now Congressman Emmanuel
D. Pacquiao (Pacquiao) and Vice-Governor Jinkee J. Pacquiao (Jinkee),to set
aside and annul the April 22, 2014 Resolution and the July 11, 2014
Resolution of the Court of Tax Appeals (CTA),First Division, in CTA Case No.
8683.
1

Through the assailed issuances, the CTA granted the petitioners' Urgent
Motion to Lift Warrants of Distraint & Levy and Garnishment and for the
Issuance of an Order to Suspend the Collection of Tax (with Prayer for the
Issuance of a Temporary Restraining Order [Urgent Motion],dated October
18, 2013, but required them, as a condition, to deposit a cash bond in the
amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53.
4

The Antecedents
The genesis of the foregoing controversy began a few years before the
petitioners became elected officials in their own right. Prior to their election as
public officers, the petitioners relied heavily on Pacquiao's claim to fame as a
world-class professional boxer. Due to his success, Pacquiao was able to
amass income from both the Philippines and the United States of
America (US).His income from the US came primarily from the purses he
received for the boxing matches he took part under Top Rank, Inc. On the
other hand, his income from the Philippines consisted of talent fees received
from various Philippine corporations for product endorsements, advertising
commercials and television appearances.

In compliance with his duty to his home country, Pacquiao filed his 2008
income tax return on April 15, 2009 reporting his Philippine-sourced
income. It was subsequently amended to include his US-sourced income.
5

The controversy began on March 25, 2010, when Pacquiao received a

Letter of Authority (March LA) from the Regional District Office No.
43 (RDO) of the Bureau of Internal Revenue (BIR) for the examination of his
books of accounts and other accounting records for the period covering
January 1, 2008 to December 31, 2008.
7

On April 15, 2010, Pacquiao filed his 2009 income tax return, which
although reflecting his Philippines-sourced income, failed to include his
income derived from his earnings in the US. He also failed to file his Value
Added Tax (VAT) returns for the years 2008 and 2009.
8

10 aScITE

Finding the need to directly conduct the investigation and determine the
tax liabilities of the petitioners, respondent Commissioner on Internal
Revenue (CIR)issued another Letter of Authority, dated July 27, 2010 (July
LA),authorizing the BIR's National Investigation Division (NID) to examine the
books of accounts and other accounting records of both Pacquiao and Jinkee
for the last 15 years, from 1995 to 2009. On September 21, 2010 and
September 22, 2010, the CIR replaced the July LA by issuing to both
Pacquiao and Jinkee separate electronic versions of the July LA pursuant
to Revenue Memorandum Circular (RMC) No. 56-2010.
11

12

13

14

Due to these developments, the petitioners, through counsel, wrote a

letter questioning the propriety of the CIR investigation. According to the
petitioners, they were already subjected to an earlier investigation by the BIR
for the years prior to 2007, and no fraud was ever found to have been
committed. They added that pursuant to the March LA issued by the RDO,
they were already being investigated for the year 2008.
15

In its letter, dated December 13, 2010, the NID informed the counsel
of the petitioners that the July LA issued by the CIR had effectively cancelled
and superseded the March LA issued by its RDO. The same letter also stated
that:
16

Although fraud had been established in the instant case as

determined by the Commissioner,your clients would still be given the
opportunity to present documents as part of their procedural rights to
due process with regard to the civil aspect thereof. Moreover, any tax
credits and/or payments from the taxable year 2007 & prior years will
be properly considered and credited in the current investigation.
17

[Emphasis Supplied]

The CIR informed the petitioners that its reinvestigation of years prior to
2007 was justified because the assessment thereof was pursuant to a "fraud
investigation" against the petitioners under the "Run After Tax
Evaders" (RATE) program of the BIR.
On January 5 and 21, 2011, the petitioners submitted various income
tax related documents for the years 2007-2009. As for the years 1995 to
2006, the petitioners explained that they could not furnish the bureau with the
books of accounts and other tax related documents as they had already been
disposed in accordance with Section 235 of the Tax Code. They added that
even if they wanted to, they could no longer find copies of the documents
because during those years, their accounting records were then managed by
previous counsels, who had since passed away. Finally, the petitioners
pointed out that their tax liabilities for the said years had already been fully
settled with then CIR Jose Mario Buag, who after a review, found no fraud
against them.
18

19

20

On June 21, 2011, on the same day that the petitioners made their last
compliance in submitting their tax-related documents, the CIR issued
a subpoena duces tecum, requiring the petitioners to submit additional
income tax and VAT-related documents for the years 1995-2009.
21

HEITAD

After conducting its own investigation, the CIR made its initial
assessment finding that the petitioners were unable to fully settle their tax
liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal
Conference (NIC), dated January 31, 2012, directly addressed to the
petitioners,informing them that based on the best evidence obtainable, they
were liable for deficiency income taxes in the amount of P714,061,116.30 for
2008 and P1,446,245,864.33 for 2009, inclusive of interests and surcharges.
22

After being informed of this development, the counsel for the petitioners
sought to have the conference reset but he never received a response.
Then, on February 20, 2012, the CIR issued the Preliminary
Assessment Notice (PAN),informing the petitioners that based on third-party
information allowed under Section 5 (B) and 6 of the National Internal
Revenue Code (NIRC), they found the petitioners liable not only for
deficiency income taxes in the amount of P714,061,116.30 for 2008 and
P1,446,245,864.33 for 2009, but also for their non-payment of their VAT
liabilities in the amount P4,104,360.01 for 2008 and P24,901,276.77 for
2009.
23

24

25

The petitioners filed their protest against the PAN.

26

After denying the protest, the BIR issued its Formal Letter
Demand (FLD),dated May 2, 2012, finding the petitioners liable for deficiency
income tax and VAT amounting to P766,899,530.62 for taxable years 2008
and P1,433,421,214.61 for 2009, inclusive of interests and surcharges. Again,
the petitioners questioned the findings of the CIR.
27

28

On May 14, 2013, the BIR issued its Final Decision on Disputed
Assessment (FDDA), addressed to Pacquiao only,informing him that the CIR
found him liable for deficiency income tax and VAT for taxable years 2008 and
2009 which, inclusive of interests and surcharges, amounted to a total of
P2,261,217,439.92.
29

Seeking to collect the total outstanding tax liabilities of the petitioners,

the Accounts Receivable Monitoring Division of the BIR (BIR-ARMD),issued
the Preliminary Collection Letter (PCL), dated July 19, 2013, demanding that
both Pacquiao and Jinkee pay the amount of P2,261,217,439.92, inclusive of
interests and surcharges.
30

ATICcS

Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the
Final Notice Before Seizure (FNBS), informing the petitioners of their last
opportunity to make the necessary settlement of deficiency income and VAT
liabilities before the bureau would proceed against their property.
31

Although they no longer questioned the BIR's assessment of

their deficiency VAT liability,the petitioners requested that they be allowed to

pay the same in four (4) quarterly installments. Eventually, through a series of
installments, Pacquiao and Jinkee paid a total P32,196,534.40 in satisfaction
of their liability for deficiency VAT.
32

Proceedings at the CTA

Aggrieved that they were being made liable for deficiency income
taxes for the years 2008 and 2009, the petitioners sought redress and filed a
petition for review with the CTA.
33

Before the CTA, the petitioners contended that the assessment of the
CIR was defective because it was predicated on its mere allegation that they
were guilty of fraud.
34

They also questioned the validity of the attempt by the CIR to collect
deficiency taxes from Jinkee, arguing that she was denied due process.
According to the petitioners, as all previous communications and notices from
the CIR were addressed to both petitioners, the FDDA was void because it
was only addressed to Pacquiao. Moreover, considering that the PCL and
FNBS were based on the FDDA, the same should likewise be declared void.
35

The petitioners added that the CIR assessment, which was not based
on actual transaction documents but simply on "best possible
sources," was not sanctioned by the Tax Code. They also argue that the
assessment failed to consider not only the taxes paid by Pacquiao to the US
authorities for his fights, but also the deductions claimed by him for his
expenses.
36

Pending the resolution by the CTA of their appeal, the petitioners sought
the suspension of the issuance of warrants of distraint and/or levy and
warrants of garnishment.
37

Meanwhile, in a letter, dated October 14, 2013, the BIR-ARMD

informed the petitioners that they were denying their request to defer the
collection enforcement action for lack of legal basis. The same letter also
informed the petitioners that despite their initial payment, the amount to be
collected from both of them still amounted to P3,259,643,792.24,
for deficiency
income
tax for
taxable
years
2008
and
2009, and P46,920,235.74 for deficiency VAT for the same period. A warrant
38

of distraint and/or levy against Pacquiao and Jinkee was included in the
letter.
39

Aggrieved, the petitioners filed the subject Urgent Motion for the CTA to
lift the warrants of distraint, levy and garnishments issued by the CIR against
their assets and to enjoin the CIR from collecting the assessed deficiency
taxes pending the resolution of their appeal. As for the cash deposit and bond
requirement under Section 11 of Republic Act (R.A.) No. 1125, the petitioners
question the necessity thereof, arguing that the CIR's assessment of their tax
liabilities was highly questionable. At the same time, the petitioners
manifested that they were willing to file a bond for such reasonable amount to
be fixed by the tax court.
TIADCc

On April 22, 2014, the CTA issued the first assailed resolution granting
the petitioner's Urgent Motion, ordering the CIR to desist from collecting on
the deficiency tax assessments against the petitioners. In its resolution, the
CTA noted that the amount sought to be collected was way beyond the
petitioners' net worth, which, based on Pacquiao's Statement of Assets,
Liabilities and Net Worth (SALN), only amounted to P1,185,984,697.00.
Considering that the petitioners still needed to cover the costs of their daily
subsistence, the CTA opined that the collection of the total amount of
P3,298,514,894.35 from the petitioners would be highly prejudicial to their
interests and should, thus, be suspended pursuant to Section 11 of R.A. No.
1125, as amended.
The CTA, however, saw no justification that the petitioners should
deposit less than the disputed amount. They were, thus, required to deposit
the amount of P3,298,514,894.35 or post a bond in the amount of
P4,947,772,341.53.
The petitioners sought partial reconsideration of the April 22, 2014 CTA
resolution, praying for the reduction of the amount of the bond required or an
extension of 30 days to file the same. On July 11, 2014, the CTA issued the
second assailed resolution denying the petitioner's motion to reduce the
required cash deposit or bond, but allowed them an extension of thirty (30)
days within which to file the same.
40

Hence, this petition, raising the following

GROUNDS
A.
Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in presuming the
correctness of a fraud assessment without evidentiary support
other than the issuance of the fraud assessments themselves,
thereby violating Petitioner's constitutional right to due process.
B.
Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it required the
Petitioners to post a bond even if the tax collection processes
employed by Respondent Commissioner against Petitioners was
patently in violation of law thereby blatantly breaching
Petitioners' constitutional right to due process, to wit:
1. Respondent Commissioner commenced tax collection
process against Jinkee without issuing or serving an
FDDA against her.
2. Respondent Commissioner failed to comply with the
procedural due process requirements for summary tax
collection remedies under Section 207(A) and (B) of
the Tax Code when she commenced summary
collection remedies before the expiration of the period
for Petitioners to pay the assessed deficiency taxes.
3. Respondent Commissioner failed to comply with the
procedural due process requirements for summary tax
collection remedies under Section 208 of the Tax
Code when she failed to serve Petitioners with
warrants of garnishment against their bank
accounts.
AIDSTE

4. The Chief of the ARMD, without any authority from

Respondent Commissioner, increased the aggregate
amount of deficiency income tax and VAT assessed
against Petitioners
from
P2,261,217,439.92 to
P3,298,514,894.35 after the filing of the Petition for
Review with the Court of Tax Appeals.

5. Respondent Commissioner arbitrarily refused to admit that

Petitioners had already paid the deficiency VAT
assessments for the years 2008 and 2009.
C.
Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in requiring
Petitioners to post a cash bond in the amount of
P3,298,514,894.35 or a surety bond in the amount of
P4,947,772,341.53, which is effectively an impossible condition
given that their undisputed net worth is only P1,185,984,697.00.
D.
Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it imposed a
bond requirement which will effectively prevent Petitioners from
continuing the prosecution of its appeal from the arbitrary and
bloated assessments issued by Respondent Commissioner.
41 SDAaTC

Arguments of the Petitioners

Contending that the CTA En Banc has no certiorari jurisdiction over
interlocutory orders issued by its division, the petitioners come before the
Court, asking it to 1] direct the CTA to dispense with the bond requirement
imposed under Section 11 of R.A. No. 1125, as amended; and 2] direct the
CIR to suspend the collection of the deficiency income tax and VAT for the
years 2008 and 2009. The petitioners also pray that a temporary restraining
order (TRO) be issued seeking a similar relief pending the disposition of the
subject petition.
In support of their position, the petitioners assert that the CTA acted
with grave abuse of discretion amounting to lack or excess of jurisdiction in
requiring them to provide security required under Section 11 of R.A. No. 1125.
Under the circumstances, they claim that they should not be required to make
a cash deposit or post a bond to stay the collection of the questioned
deficiency taxes considering that the assessment and collection efforts of the
BIR was marred by both procedural and substantive errors. They are
synthesized as follows:

First. The CTA erred when it required them to make a cash deposit or
post a bond on the basis of the fraud assessment by the CIR. Similar to the
argument they raised in their petition for review with the CTA, they insist that
the fraud assessment by the CIR could not serve as basis for security
because the amount assessed by the CIR was made without evidentiary
basis, but just grounded on the "best possible sources," without any detail.
42

Second. The BIR failed to accord them procedural due process when it
initiated summary collection remedies even before the expiration of the period
allowed for them to pay the assessed deficiency taxes. They also claimed
that they were not served with warrants of garnishment and that the warrants
of garnishment served on their banks of account were made even before they
received the FDDA and PCL.
43

44

Third. The BIR only served the FDDA to Pacquiao. There was no similar
notice to Jinkee. Considering such failure, the CIR effectively did not find
Jinkee liable for deficiency taxes. The collection of deficiency taxes against
Jinkee was improper as it violated her right to due process of
law. Accordingly, the petitioners question the propriety of the CIR's attempt to
collect deficiency taxes from Jinkee.
45

Fourth. The amount assessed by the BIR as deficiency taxes included

the deficiency VAT for the years 2008 and 2009 which they had already paid,
albeit in installments.
Fifth. The posting of the required security is effectively an impossible
condition given that their undisputed net worth is only P1,185,984,697.00.
Considering the issues raised, it is the position of the petitioners that the
circumstances of the case warrant the application of the exception provided
under Section 11 of R.A. No. 1125 as affirmed by the ruling of the Court
in Collector of Internal Revenue v. Avelino (Avelino) and Collector of Internal
Revenue v. Zulueta, (Zulueta) and that they should have been exempted from
posting the required security as a prerequisite to suspend the collection of
deficiency taxes from them.
46

47

acEHCD

On August 18, 2014, the Court resolved to grant the petitioners' prayer
for the issuance of a TRO and to require the CIR to file its comment.
48

Arguments of the CIR

For its part, the CIR asserts that the CTA was correct in insisting that
the petitioners post the required cash deposit or bond as a condition to
suspend the collection of deficiency taxes. According to the tax administrator,
Section 11 of R.A. No. 1125, as amended, is without exception when it states
that notwithstanding an appeal to the CTA, a taxpayer, in order to suspend the
payment of his tax liabilities, is required to deposit the amount claimed by the
CIR or to file a surety bond for not more than double the amount due.
49

As for the Court's rulings in Avelino and Zulueta invoked by the

petitioners, the CIR argues that they are inapplicable considering that in the
said cases, it was ruled that the requirement of posting a bond to suspend the
collection of taxes could be dispensed with only if the methods employed by
the CIR in the tax collection were clearly null and void and prejudicial to the
taxpayer. The CIR points out that, in this case, the CTA itself made no finding
that its collection by summary methods was void and even ruled that "the
alleged illegality of the methods employed by the respondent (CIR) to effect
the collection of tax [is] not at all patent or evident ..." and could only be
determined after a full-blown trial. The CIR even suggests that the Court
revisit its ruling in Avelino and Zulueta as Section 11 of R.A. No. 1125, as
amended, gives the CTA no discretion to allow the dispensation of the
required bond as a condition to suspend the collection of taxes.
50

51

Finally, the CIR adds that whether the assessment and collection of the
petitioners' tax liabilities were proper as to justify the application
of Avelino and Zuluetais a question of fact which is not proper in a petition
for certiorari under Rule 65, considering that the rule is only confined to issues
of jurisdiction.
52

The Court's Ruling

Appeal will not suspend
the collection of tax;
Exception
Section 11 of R.A. No. 1125, as amended by R.A. No.
9282, embodies the rule that an appeal to the CTA from the decision of the
53

CIR will not suspend the payment, levy, distraint, and/or sale of any property
of the taxpayer for the satisfaction of his tax liability as provided by existing
law. When, in the view of the CTA, the collection may jeopardize the interest of
the Government and/or the taxpayer, it may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety
bond.
The application of the exception to the rule is the crux of the subject
controversy. Specifically, Section 11 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any
party adversely affected by a decision, ruling or inaction of the
Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within
thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein.

xxx xxx xxx

No appeal taken to the CTA from the decision of the Commissioner of
Internal Revenue or the Commissioner of Customs or the Regional
Trial Court, provincial, city or municipal treasurer or the Secretary of
Finance, the Secretary of Trade and Industry and Secretary of
Agriculture, as the case may be shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction
of his tax liability as provided by existing law:
Provided, however, That when in the opinion of the Court the
collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer, the
Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the
amount with the Court.
HSAcaE

xxx xxx xxx

[Emphasis Supplied]

Essentially, the petitioners ascribe grave abuse of discretion on the part

of the CTA when it issued the subject resolutions requiring them to deposit the
amount of P3,298,514,894.35 or post a bond in the amount of
P4,947,772,341.53 as a condition for its order enjoining the CIR from
collecting the taxes from them. The petitioners anchor their contention on the
premise that the assessment and collection processes employed by the CIR in
exacting their tax liabilities were in patent violation of their constitutional right
to
due
process
of
law.
They,
thus,
posit
that
pursuant
to Avelino and Zulueta,the tax court should have not only ordered the CIR to
suspend the collection efforts it was pursuing in satisfaction of their tax
liability, but also dispensed with the requirement of depositing a cash or filing
a surety bond.
To recall, the Court in Avelino upheld the decision of the CTA to declare
the warrants of garnishment, distraint and levy and the notice of sale of the
properties of Jose Avelino null and void and ordered the CIR to desist from
collecting the deficiency income taxes which were assessed for the years
1946 to 1948 through summary administrative methods. The Court therein
found that the demand of the then CIR was made without authority of law
because it was made five (5) years and thirty-five (35) days after the last two
returns of Jose Avelino were filed clearly beyond the three (3)-year
prescriptive period provided under what was then Section 51 (d) of
the National Internal Revenue Code. Dismissing the contention of the CIR that
the deposit of the amount claimed or the filing of a bond as required by law
was a requisite before relief was granted, the Court therein concurred with the
opinion of the CTA that the courts were clothed with authority to dispense with
the requirement "if the method employed by the Collector of Internal Revenue
in the collection of tax is not sanctioned by law."
54

In Zulueta,the Court likewise dismissed the argument that the CTA

erred in issuing the injunction without requiring the taxpayer either to deposit
the amount claimed or to file a surety bond for an amount not more than
double the tax sought to be collected. The Court cited Collector of Internal
Revenue v. Aurelio P. Reyes and the Court of Tax Appeals where it was
written:
55

....At first blush it might be as contended by the Solicitor

General, but a careful analysis of the second paragraph of said Section
11 will lead Us to the conclusion that the requirement of the bond as a
condition precedent to the issuance of a writ of injunction applies only
in cases where the processes by which the collection sought to be
made by means thereof are carried out in consonance with law for
such cases provided and not when said processes are obviously in
violation of the law to the extreme that they have to be SUSPENDED
for jeopardizing the interests of the taxpayer.
56

[Italics included]

The Court went on to explain the reason for empowering the courts to
issue such injunctive writs. It wrote:
HESIcT

"Section 11 of Republic Act No. 1125 is therefore premised on

the assumption that the collection by summary proceedings is by itself
in accordance with existing laws; and then what is suspended is the act
of collecting, whereas, in the case at bar what the respondent Court
suspended was the use of the method employed to verify the collection
which was evidently illegal after the lapse of the three-year limitation
period. The respondent Court issued the injunction in question on the
basis of its findings that the means intended to be used by petitioner in
the collection of the alleged deficiency taxes were in violation of law. It
would certainly be an absurdity on the part of the Court of Tax
Appeals to declare that the collection by the summary methods of
distraint and levy was violative of the law, and then, on the same
breath require the petitioner to deposit or file a bond as a
prerequisite of the issuance of a writ of injunction.Let us suppose,
for the sake of argument, that the Court a quo would have required the
petitioner to post the bond in question and that the taxpayer would
refuse or fail to furnish said bond, would the Court a quo be obliged to
authorize or allow the Collector of Internal Revenue to proceed with the
collection from the petitioner of the taxes due by a means it previously
declared to be contrary to law?"
57

[Italics included. Emphases and Underlining Supplied]

Thus, despite the amendments to the law, the Court still holds that the
CTA has ample authority to issue injunctive writs to restrain the collection of

tax and to even dispense with the deposit of the amount claimed or the
filing of the required bond,whenever the method employed by the CIR in
the collection of tax jeopardizes the interests of a taxpayer for being patently
in violation of the law. Such authority emanates from the jurisdiction
conferred to it not only by Section 11 of R.A. No. 1125, but also by Section 7
of the same law, which, as amended provides:
Sec. 7. Jurisdiction. The Court of Tax Appeals shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

xxx xxx xxx

[Emphasis Supplied]

From all the foregoing, it is clear that the authority of the courts to issue
injunctive writs to restrain the collection of tax and to dispense with the deposit
of the amount claimed or the filing of the required bond is not simply
confined to cases where prescription has set in.As explained by the Court
in those cases,whenever it is determined by the courts that the method
employed by the Collector of Internal Revenue in the collection of tax is
not sanctioned by law,the bond requirement under Section 11 of R.A. No.
1125 should be dispensed with.The purpose of the rule is not only to
prevent jeopardizing the interest of the taxpayer, but more importantly, to
prevent the absurd situation wherein the court would declare "that the
collection by the summary methods of distraint and levy was violative of law,
and then, in the same breath require the petitioner to deposit or file a bond as
a prerequisite for the issuance of a writ of injunction."
58 caITAC

The determination of whether

the petitioners' case falls within
the exception provided under

Section 11, R.A. No. 1125 cannot be

determined at this point
Applying the foregoing precepts to the subject controversy, the Court
finds no sufficient basis in the records for the Court to determine whether the
dispensation of the required cash deposit or bond provided under Section
11, R.A. No. 1125 is appropriate.
It should first be highlighted that in rendering the assailed resolution, the
CTA, without stating the facts and law, made a determination that the illegality
of the methods employed by the CIR to effect the collection of tax was not
patent. To quote the CTA:
In this case, the alleged illegality of the methods employed by
respondent to effect the collection of tax is not at all patent or evident
as in the foregoing cases.At this early stage of the proceedings, it is
premature for this Court to rule on the issues of whether or not the
warrants were defectively issued; or whether the service thereof was
done in violation of the rules; or whether or not respondent's
assessments were valid. These matters are evidentiary in nature,
the resolution of which can only be made after a full blown trial.
Apropos,
the
Court
finds
no
legal
basis
to
apply Avelino and Zulueta to the instant case and exempt petitioners
from depositing a cash bond or filing a surety bond before a
suspension order may be effected.
59

Though it may be true that it would have been premature for the CTA to
immediately determine whether the assessment made against the petitioners
was valid or whether the warrants were properly issued and served, still, it
behooved upon the CTA to properly determine, at least preliminarily,
whether the CIR,in its assessment of the tax liability of the petitioners, and its
effort of collecting the same, complied with the law and the pertinent
issuances of the BIR itself. The CTA should have conducted a preliminary
hearing and received evidence so it could have properly determined whether
the requirement of providing the required security under Section 11, R.A. No.
1125 could be reduced or dispensed with pendente lite.

The Court cannot make a

preliminary determination
on whether the CIR used
methods not sanctioned by law
Absent any evidence and preliminary determination by the CTA, the
Court cannot make any factual finding and settle the issue of whether the
petitioners should comply with the security requirement under Section
11, R.A. No. 1125. The determination of whether the methods, employed by
the CIR in its assessment, jeopardized the interests of a taxpayer for being
patently in violation of the law is a question of fact that calls for the
reception of evidence which would serve as basis. In this regard, the CTA is
in a better position to initiate this given its time and resources. The remand of
the case to the CTA on this question is, therefore, more sensible and proper.
For the Court to make any finding of fact on this point would be
premature. As stated earlier, there is no evidentiary basis. All the arguments
are mere allegations from both sides. Moreover, any finding by the Court
would pre-empt the CTA from properly exercising its jurisdiction and settle
the main issues presented before it, that is, whether the petitioners were
afforded due process; whether the CIR has valid basis for its assessment; and
whether the petitioners should be held liable for the deficiency taxes.
Petition to be remanded to
the CTA; CTA to conduct
preliminary hearing
As the CTA is in a better position to make such a preliminary
determination, a remand to the CTA is in order. To resolve the issue of
whether the petitioners should be required to post the security bond under
Section 11 of R.A. No. 1125, and, if so, in what amount, the CTA must take
into account, among others, the following:
First. Whether the requirement of a Notice of Informal Conference was
complied with The petitioners contend that the BIR issued the PAN without
first sending a NIC to petitioners. One of the first requirements of Section 3 of
Revenue Regulations (R.R.) No. 12-99, the then prevailing regulation on the
due process requirement in tax audits and/or investigation, is that a NIC be
60

61

first accorded to the taxpayer. The use of the word "shall" in subsection 3.1.1
describes the mandatory nature of the service of a NIC. As with the other
notices required under the regulation, the purpose of sending a NIC is but part
of the "due process requirement in the issuance of a deficiency tax
assessment," the absence of which renders nugatory any assessment made
by the tax authorities.
62 cDHAES

Second. Whether the 15-year period subject of the CIR's investigation

is arbitrary and excessive. Section 203 of the Tax Code provides a 3-year
limit for the assessment of internal revenue taxes. While the prescriptive
period to assess deficiency taxes may be extended to 10 years in cases
where there is false, fraudulent, or non-filing of a tax return the fraud
contemplated by law must be actual. It must be intentional, consisting of
deception willfully and deliberately done or resorted to in order to induce
another to give up some right.
63

64

Third. Whether fraud was duly established. In its letter, dated

December 13, 2010, the NID had been conducting a fraud investigation
against the petitioners under its RATE program and that it found that "fraud
had been established in the instant case as determined by the
Commissioner." Under Revenue Memorandum Order (RMO) No. 27-10, it is
required that a preliminary investigation must first be conducted before a
LA is issued.
65

Fourth. Whether the FLD issued against the petitioners was

irregular. The FLD issued against the petitioners allegedly stated that the
amounts therein were"estimates based on best possible sources." A
taxpayer should be informed in writing of the law and the facts on which the
assessment is made, otherwise, the assessment is void. An assessment, in
order to stand judicial scrutiny, must be based on facts. The presumption of
the correctness of an assessment, being a mere presumption, cannot be
made to rest on another presumption.
66

67

To stress, the petitioners had asserted that the assessment of the CIR
was not based on actual transactions but on "estimates based on best
possible sources." This assertion has not been satisfactorily addressed by

the CIR in detail. Thus, there is a need for the CTA to conduct a preliminary
hearing.
TCAScE

Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of
Distraint and/or Levy were validly issued. In its hearing, the CTA must also
determine if the following allegations of the petitioners have merit:
a. The FDDA and PCL were issued against petitioner Pacquiao
only.The Warrant of Distraint and/or Levy/Garnishment issued by
the CIR, however, were made against the assets of both
petitioners;
b. The warrants of garnishment had been served on the banks of both
petitioners even before the petitioners received the FDDA and
PCL;
c. The Warrant of Distraint and/or Levy/Garnishment against the
petitioners was allegedly made prior to the expiration of the
period allowed for the petitioners to pay the assessed
deficiency taxes;
d. The Warrant of Distraint and/or Levy/Garnishment against petitioners
failed to take into consideration that the deficiency VAT was
already paid in full;and
e. Petitioners were not given a copy of the Warrants. Sections
207 and 208 of the Tax Code require the Warrant of Distraint
and/or Levy/Garnishment be served upon the taxpayer.
68

69

Additional Factors
In case the CTA finds that the petitioners should provide the necessary
security under Section 11 of R.A. 1125, a recomputation of the amount thereof
is in order. If there would be a need for a bond or to reduce the same, the CTA
should take note that the Court, in A.M. No. 15-92-01-CTA, resolved to
approve the CTA En Banc Resolution No. 02-2015, where the phrase "amount
claimed" stated in Section 11 of R.A. No. 1125 was construed to refer to
the principal amount of the deficiency taxes, excluding penalties, interests
and surcharges.

Moreover, the CTA should also consider the claim of the petitioners that
they already paid a total of P32,196,534.40 deficiency VAT assessed against
them. Despite said payment, the CIR still assessed them the total amount of
P3,298,514,894.35, including the amount assessed as VAT deficiency, plus
surcharges, penalties and interest. If so, these should also be deducted from
the amount of the bond to be computed and required.
In the conduct of its preliminary hearing, the CTA must balance the
scale between the inherent power of the State to tax and its right to prosecute
perceived transgressors of the law, on one side; and the constitutional rights
of petitioners to due process of law and the equal protection of the laws, on
the other. In case of doubt, the tax court must remember that as in all tax
cases, such scale should favor the taxpayer, for a citizen's right to due process
and equal protection of the law is amply protected by the Bill of Rights under
the Constitution.
70 cTDaEH

In view of all the foregoing, the April 22, 2014 and July 11, 2014
Resolutions of the CTA, in so far as it required the petitioners to deposit first a
cash bond in the amount of P3,298,514,894.35 or post a bond of
P4,947,772,341.53, should be further enjoined until the issues
aforementioned are settled in a preliminary hearing to be conducted by it.
Thereafter, it should make a determination if the posting of a bond would still
be required and, if so, compute it taking into account the CTA En
Banc Resolution, which was approved by the Court in A.M. No. 15-02-01-CTA,
and the claimed payment of P32,196,534.40, among others.
WHEREFORE,the petition is PARTIALLY GRANTED.Let a Writ of
Preliminary Injunction be issued, enjoining the implementation of the April 22,
2014 and July 11, 2014 Resolutions of the Court of Tax Appeals, First
Division, in CTA Case No. 8683, requiring the petitioners to first deposit a
cash bond in the amount of P3,298,514,894.35 or post a bond of
P4,947,772,341.53, as a condition to restrain the collection of the deficiency
taxes assessed against them.
The writ shall remain in effect until the issues aforementioned are
settled in a preliminary hearing to be conducted by the Court of Tax Appeals,
First Division.

Accordingly, the case is hereby REMANDED to the Court of Tax

Appeals, First Division, which is ordered to conduct a preliminary hearing to
determine whether the dispensation or reduction of the required cash deposit
or bond provided under Section 11, Republic Act No. 1125 is proper to
restrain the collection of deficiency taxes assessed against the petitioners.
ITAaHc

If required, the Court of Tax Appeals, First Division, shall proceed to

compute the amount of the bond in accordance with the guidelines
aforestated, particularly the provisions of A.M. No. 15-02-01-CTA. It should
also take into account the amounts already paid by the petitioners.
After the posting of the required bond, or if the Court of Tax Appeals,
First Division, determines that no bond is necessary, it shall proceed to hear
and resolve the petition for review pending before it.
SO ORDERED.
Carpio, Brion, Reyes and Leonen, JJ.,concur.
*

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(Spouses Pacquiao v. Court of Tax Appeals, G.R. No. 213394, [April 6, 2016])

23. CIR vs. Kepco Ilijan Corporation (G.R. No. 199422 promulgated 21 June
2016)

EN BANC
[G.R. No. 199422. June 21, 2016.]
COMMISSIONER
OF
REVENUE, petitioner, vs. KEPCO
CORPORATION, respondent.
DECISION
PERALTA, J :
p

INTERNAL
ILIJAN

This is a petition for Review on Certiorari under Rule 45 of the Rules of

Court seeking the reversal of the Resolutions 1 dated July 27, 2011 2 and
November 15, 2011 3 of the Court of Tax Appeals (CTA) En Banc.
The facts follow.
For the first 4 and second 5 quarters of the calendar year 2000,
respondent filed its Quarterly value-added tax (VAT) returns with the Bureau of
Internal Revenue (BIR). It also filed the Application for Zero Rated Sales for
calendar year 2000 which was duly approved by the BIR. 6
Thereafter, respondent filed with the BIR its claim for refund in the
amount of P449,569,448.73 representing input tax incurred for the first and
second quarters of the calendar year 2000 from its importation and domestic
purchases of capital goods and services preparatory to its production and
sales of electricity to the National Power Corporation. 7
Petitioner did not act upon respondent's claim for refund or issuance of
tax credit certificate for the first and second quarters of the calendar year
2000. Consequently, respondent filed a Petition for Review 8 on March 21,
2002, and an Amended Petition for Review 9 on September 12, 2003.
In her Answer, 10 petitioner alleged the following Special and Affirmative
Defenses: (1) respondent is not entitled to the refund of the amounts prayed
for; (2) the petition was prematurely filed for respondent's failure to exhaust
administrative remedies; (3) respondent failed to show that the taxes paid
were erroneously or illegally collected; and (4) respondent has no cause of
action.
After the issues were joined, trial on the merits ensued.
Respondent, thereafter, filed its Memorandum on September 1, 2008.
For failure of petitioner to file the required Memorandum despite notice, the
CTA First Division issued a Resolution 11 dated September 12, 2008
submitting the case for decision.
On September 11, 2009, the CTA First Division rendered a
Decision, 12 the dispositive portion 13 of which reads as follows:
IN VIEW OF THE FOREGOING, THIS Court finds petitioner
entitled to a refund in the amount of P443,447,184.50, representing

unutilized input VAT paid on its domestic purchases and importation of

capital goods for the first and second quarters of 2000, as computed
below:
Amount of Input VAT Claim
Less: Input VAT Pertaining to Non-Capital Goods
Input VAT Claim Pertaining to Capital Goods Purchases
Less: Not Properly Substantiated Input VAT
Per ICPA's Findings
Per this Court's Further Verification
Refundable Input VAT on Capital Goods Purchases

P449,569,448.73
706,328.22
P448,863,120.51
45,878.55
5,370,057.46
P443,447,184.50

There being no motion for reconsideration filed by the petitioner, the

abovementioned decision became final and executory and a corresponding
Entry of Judgment was issued on October 10, 2009. Thus, on February 16,
2010, the Court issued a Writ of Execution, 14 the pertinent portion of which
reads as follows:
You are hereby ORDERED to REFUND in favor of the petitioner
KEPCO ILIJAN CORPORATION, the amount of P443,447,184.50
representing unutilized input VAT paid on its domestic purchases and
importation of capital goods for the first and second quarters of 2000,
pursuant to the Decision of this Court, promulgated on September 11,
2009, which has become final and executory on October 10, 2009, by
virtue of the Entry of Judgment issued on said date.
The Sheriff of this Court is hereby directed to see to it that this
Writ is carried out by the Respondent and/or his agents, and shall
make the corresponding return/report thereon within thirty (30) days
after receipt of the Writ.
SO ORDERED.

Petitioner alleges that she learned only of the Decision and the
subsequent issuance of the writ of March 7, 2011 when the Office of the
Deputy Commissioner for Legal and Inspection Group received a
Memorandum from the Appellate Division of the National Office
recommending the issuance of a Tax Credit Certificate in favor of the
respondent in the amount of P443,447,184.50.

Accordingly, on April 11, 2011 petitioner filed a petition for annulment of

judgment with the CTA En Banc, praying for the following reliefs: (1) that the
Decision dated September 11, 2009 of the CTA First Division in CTA Case No.
6412 be annulled and set aside; (2) that the Entry of Judgment on October 10,
2009 and Writ of Execution on February 16, 2010 be nullified; and (3) that the
CTA First Division be directed to re-open CTA Case No. 6412 to allow
petitioner to submit her memoranda setting forth her substantial legal
defenses.
In opposition, respondent filed its Motion to Deny Due Course (To The
Petition for Annulment of Judgment), arguing, among others, that petitioner is
not lawfully entitled to the annulment of judgment on the ground that the
CTA En Banc is bereft of jurisdiction to entertain annulment of judgments on
the premise that the Rules of Court, Republic Act No. (RA No.) 9282, 15 and
the Revised Rules of the Court of Tax Appeals do not expressly provide a
remedy on annulment of judgments.
On July 27, 2011, the CTA En Banc issued a Resolution 16 dismissing
the petition. Petitioner filed a motion for reconsideration, but the same was
denied in a Resolution 17 dated November 15, 2011.
Hence, this petition.
Petitioner raises the following arguments to support her petition:
I
THE COURT OF TAX APPEALS (EN BANC) HAS JURISDICTION TO
TAKE COGNIZANCE OF THE PETITION FOR ANNULMENT OF
JUDGMENT.
II
THE NEGLIGENCE COMMITTED BY PETITIONER'S COUNSEL IS
GROSS, PALPABLE AND CONSTITUTES TOTAL ABANDONMENT
OF PETITIONER'S CAUSE WHICH IS TANTAMOUNT TO EXTRINSIC
FRAUD.
III

THE COURT OF TAX APPEALS (FIRST DIVISION) HAS NO

JURISDICTION OVER THE ORIGINAL PETITION FILED BY
RESPONDENT.
IV
PETITIONER IS NOT BARRED BY LACHES FROM ASSAILING THE
JURISDICTION OF THE COURT OF TAX APPEALS (FIRST
DIVISION) OVER THE PETITION FILED BY RESPONDENT. 18

Prefatorily, we first pass upon the issue of whether the CTA En

Banc has jurisdiction to take cognizance of the petition for annulment of
judgment filed by petitioner.
Annulment of judgment, as provided for in Rule 47 of the Rules of
Court, is based only on the grounds of extrinsic fraud and lack of jurisdiction. It
is a recourse that presupposes the filing of a separate and original action for
the purpose of annulling or avoiding a decision in another case. Annulment is
a remedy in law independent of the case where the judgment sought to be
annulled is rendered. 19 It is unlike a motion for reconsideration, appeal or
even a petition for relief from judgment, because annulment is not a
continuation or progression of the same case, as in fact the case it seeks to
annul is already final and executory. Rather, it is an extraordinary remedy that
is equitable in character and is permitted only in exceptional cases. 20
Annulment of judgment involves the exercise of original jurisdiction, as
expressly conferred on the Court of Appeals by Batas Pambansa Bilang (BP
Blg.) 129, Section 9 (2). It also implies power by a superior court over a
subordinate one, as provided for in Rule 47 of the Rules of Court, wherein the
appellate court may annul a decision of the regional trial court, or the latter
court may annul a decision of the municipal or metropolitan trial court.
But the law and the rules are silent when it comes to a situation similar
to the case at bar, in which a court, in this case the Court of Tax Appeals, is
called upon to annul its own judgment. More specifically, in the case at bar,
the CTA sitting en banc is being asked to annul a decision of one of its
divisions. However, the laws creating the CTA and expanding its jurisdiction
(RA Nos. 1125 and 9282) and the court's own rules of procedure (the Revised
Rules of the CTA) do not provide for such a scenario.

It is the same situation among other collegial courts. To illustrate, the

Supreme Court or the Court of Appeals may sit and adjudicate cases in
divisions consisting of only a number of members, and such adjudication is
already regarded as the decision of the Court itself. 21 It is provided for in
the Constitution, Article VIII, Section 4 (1) and BP Blg. 129, Section 4,
respectively. The divisions are not considered separate and distinct courts but
are divisions of one and the same court; there is no hierarchy of courts within
the Supreme Court and the Court of Appeals, for they each remain as one
court notwithstanding that they also work in divisions. 22 The Supreme Court
sitting en banc is not an appellate court vis-a-vis its divisions, and it exercises
no appellate jurisdiction over the latter. 23 As for the Court of Appeals en banc,
it sits as such only for the purpose of exercising administrative, ceremonial, or
other non-adjudicatory functions. 24
Thus, it appears contrary to these features that a collegial court,
sitting en banc, may be called upon to annul a decision of one of its divisions
which had become final and executory, for it is tantamount to allowing a court
to annul its own judgment and acknowledging that a hierarchy exists within
such court. In the process, it also betrays the principle that judgments must, at
some point, attain finality. A court that can revisit its own final judgments
leaves the door open to possible endless reversals or modifications which is
anathema to a stable legal system.
Thus, the Revised Rules of the CTA and even the Rules of Court which
apply suppletorily thereto provide for no instance in which the en banc may
reverse, annul or void a final decision of a division. Verily, the Revised Rules
of the CTA provide for no instance of an annulment of judgment at all. On the
other hand, theRules of Court, through Rule 47, provides, with certain
conditions, for annulment of judgment done by a superior court, like the Court
of Appeals, against the final judgment, decision or ruling of an inferior court,
which is the Regional Trial Court, based on the grounds of extrinsic fraud and
lack of jurisdiction. The Regional Trial Court, in turn, also is empowered to,
upon a similar action, annul a judgment or ruling of the Metropolitan or
Municipal Trial Courts within its territorial jurisdiction. But, again, the said
Rules are silent as to whether a collegial court sitting en banc may annul a
final judgment of its own division.

As earlier explained, the silence of the Rules may be attributed to the

need to preserve the principles that there can be no hierarchy within a
collegial court between its divisions and the en banc, and that a court's
judgment, once final, is immutable.
A direct petition for annulment of a judgment of the CTA to the Supreme
Court, meanwhile, is likewise unavailing, for the same reason that there is no
identical remedy with the High Court to annul a final and executory judgment
of the Court of Appeals. RA No. 9282, Section 1 puts the CTA on the same
level as the Court of Appeals, so that if the latter's final judgments may not be
annulled before the Supreme Court, then the CTA's own decisions similarly
may not be so annulled. And more importantly, it has been previously
discussed that annulment of judgment is an original action, yet, it is not among
the cases enumerated in the Constitution's Article VIII, Section 5 over which
the Supreme Court exercises original jurisdiction. Annulment of judgment also
often requires an adjudication of facts, a task that the Court loathes to
perform, as it is not a trier of facts. 25
Nevertheless, there will be extraordinary cases, when the interest of
justice highly demands it, where final judgments of the Court of Appeals, the
CTA or any other inferior court may still be vacated or subjected to the
Supreme Court's modification, reversal, annulment or declaration as void. But
it will be accomplished not through the same species of original action or
petition for annulment as that found in Rule 47 of the Rules of Court, but
through any of the actions over which the Supreme Court has original
jurisdiction as specified in the Constitution, like 65 of the Rules of Court.
Hence, the next query is: Did the CTA En Banc correctly deny the
petition for annulment of judgment filed by petitioner?
As earlier discussed, the petition designated as one for annulment of
judgment (following Rule 47) was legally and procedurally infirm and, thus,
was soundly dismissed by the CTA En Banc on such ground. Also, the CTA
could not have treated the petition as an appeal or a continuation of the case
before the CTA First Division because the latter's decision had become final
and executory and, thus, no longer subject to an appeal.

Instead, what remained as a remedy for the petitioner was to file a

petition for certiorari under Rule 65, which could have been filed as an original
action before this Court and not before the CTA En Banc. Certiorari is
available when there is no appeal or any other plain, speedy and adequate
remedy in the ordinary course of law, such as in the case at bar. Since the
petition below invoked the gross and palpable negligence of petitioner's
counsel which is allegedly tantamount to its being deprived of due process
and its day in court as party-litigant 26 and, as it also invokes lack of jurisdiction
of the CTA First Division to entertain the petition filed by private respondent
since the same allegedly fails to comply with the reglementary periods for
judicial remedies involving administrative claims for refund of excess unutilized
input VAT under the National Internal Revenue Code (NIRC), 27 which periods
it claims to be jurisdictional, then the proper remedy that petitioner should
have availed of was indeed a petition for certiorari under Rule 65, an original
or independent action premised on the public respondent having acted without
or in excess of jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction. However, since a certiorari petition is not a
continuation of the appellate process borne out of the original case but is a
separate action focused on actions that are in excess or wanting of
jurisdiction, 28 then it cannot be filed in the same tribunal whose actions are
being assailed but is instead cognizable by a higher tribunal which, in the case
of the CTA, is this Court. 29 In the case involving petitioner, the petition could
have been filed directly with this Court, even without any need to file a motion
for reconsideration with the CTA division or En Banc, as the case appears to
fall under one of the recognized exceptions to the rule requiring such a motion
as a prerequisite to filing such petition. 30
The office of a certiorari petition is detailed in the Rules of Court, thus:
Section 1. Petition for certiorari. When any tribunal, board or
officer exercising judicial or quasi-judicial functions has acted without
or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying that

judgment be rendered annulling or modifying the proceedings of such

tribunal, board or officer, and granting such incidental reliefs as law and
justice may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all pleadings
and documents relevant and pertinent thereto, and a sworn certification
of non-forum shopping as provided in the third paragraph of section 3,
Rule 46. (1a)

The writ of certiorari is an "extraordinary remedy" that is justified in the

"absence of an appeal or any plain, speedy and adequate remedy in the
ordinary course of law." 31 It may be given due course as long as petitioners
allege that they had no appeal or any other efficacious remedy against the
appellate court's decision. 32
Direct resort to this Court via a certiorari petition on the same grounds
as in this case has jurisprudential precedents. In one, We held that when the
appellate court's decision is void for lack of due process, the filing of a petition
for certiorari with this court without a motion for reconsideration is
justified. 33 This Court also has held that a petition for certiorari under Rule 65
of the Rules of Court is available when the proceedings in question amount to
depriving the petitioner his day in court. 34 It is true that certiorari is not a
substitute for appeal, but exempt from this rule is a case when the trial court's
decision or resolution was issued without jurisdiction or with grave abuse of
discretion. 35 When a fraudulent scheme prevents a party from having his
day in court or from presenting his case, the fraud is one that affects
and goes into the jurisdiction of the court. 36 A question as to lack of
jurisdiction of the respondent tribunal or agency is properly the office of a
petition for certiorari.
In any event, petitioner's failure to avail of this remedy and mistaken
filing of the wrong action are fatal to its case and renders and leaves the CTA
First Division's decision as indeed final and executory. By the time the instant
petition for review was filed by petitioner with this Court on December 9, 2011,
more than sixty (60) days have passed since petitioner's alleged discovery (on
March 7, 2011) of its loss in the case as brought about by the alleged
negligence or fraud of its counsel.

Thus, the current discussion serves no further purpose other than as

merely a future guide to the bench and the bar when confronted with a similar
situation.
Although in select cases, this Court has asseverated that "it is always
within its power to suspend its own rules or to except a particular case from its
operation, whenever the purposes of justice require it" and that the Rules of
Court were conceived and promulgated to set forth guidelines in the
dispensation of justice but not to bind and chain the hand that dispenses it, for
otherwise, courts will be mere slaves to or robots of technical rules, shorn of
judicial discretion. 37 We have also equally stressed that strict compliance with
the rules of procedure is essential to the administration of justice. 38
In this case, even if there was allegedly a deliberate effort from
petitioner's counsel to refuse to participate, despite notice, in the conduct of
the case after the filing of the Answer right up to the issuance of the Writ of
Execution against petitioner, 38 equally apparent is the failure of petitioner
and/or petitioner's responsible subordinates to supervise the said counsel as
well as the conduct and progress of the case. Not only was there an apparent
negligence of counsel, 39 which binds the client, there likewise appears to have
been lapses on the part of the client the petitioner and the petitioner's
responsible subordinates themselves. Equally oft-repeated is the rule that
service made upon the present counsel of record at his given address is
service to the client. 40 Thus, it is harder to justify a relaxation of the rules
when the litigant itself suffers from inexcusable neglect. It is an oft-repeated
pronouncement that clients should take the initiative of periodically checking
the progress of their cases, so that they could take timely steps to protect their
interest. 41 Failing such, clients are left with more recourse against the
consequence of their and their counsel's omissions.
To prevent similar disadvantageous incidents against the government in
the future, the BIR is DIRECTED to ADOPT mechanisms, procedures, or
measures that can effectively monitor the progress of cases being handled by
its counsels. Likewise, the Ombudsman is DIRECTED to CONDUCT an indepth investigation to determine who were responsible for the apparent
mishandling of the present case that resulted in the loss of almost half-a-

billion pesos, which the government could have used to finance its much
needed infrastructure, livelihood projects, and other equally important
projects.
WHEREFORE, premises considered, the petition for review is
hereby DENIED. The assailed Resolutions dated July 27, 2011 and November
15, 2011 of the Court of Tax Appeals En Banc are AFFIRMED.
SO ORDERED.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Brion,
Bersamin, Perez, Mendoza, Reyes, Perlas-Bernabe, Leonen and Caguioa,
JJ., concur.
Del Castillo, * J., is on official leave.
Jardeleza, * J., took no part.
(Commissioner of Internal Revenue v. Kepco Ilijan Corp., G.R. No. 199422,
[June 21, 2016])
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