G.R. No.

134062 April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

CORONA, J.:

This is a petition for review on certiorari 1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025
which reversed and set aside the decision 3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27,
1996, respectively, in CTA Case No. 4715.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine
Islands’ (BPI’s) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of ₱129,488,656.63:

1986 – Deficiency Percentage Tax

Deficiency percentage tax ₱ 7, 270,892.88

Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to 10-28-88 3,215,825.03
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13

1986 – Deficiency Documentary Stamp Tax

Deficiency percentage tax ₱93,723,372.40

Add: 25% surcharge 23,430,843.10
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown above. Said assessment has
been based on return – (filed by you) – (as verified) – (made by this Office) – (pending investigation) – (after investigation). You are
requested to pay the above amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of
xxx6

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is
being assessed a deficiency. The very purpose of a deficiency assessment is to inform taxpayer why he has incurred a
deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more so
when the assessment involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer
has a deficiency documentary and percentage taxes, and as to the percentage tax, it is important that the taxpayer be
informed also as to what particular percentage tax the assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and the
Bankers Association of the Philippines [BAP] on this issue and of BPI’s submission of its computations under this compromise.
There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP compromise. On the
other hand, if it relates to documentary stamp tax on some other issue, we should like to be informed about what those issues
are.
 3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since
your letter does not even tell the taxpayer what particular percentage tax is involved and how your examiner arrived at the
deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayer’s
decision on whether to pay or protest the assessment.7

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

… although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and therefore not deserving of
any rejoinder by this office as no valid issue was raised against the validity of our assessment… still we obliged to explain the basis of
the assessments.

xxx xxx xxx

… this constitutes the final decision of this office on the matter. 8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8, 1991 letter. 9 This was denied in a
letter dated December 12, 1991, received by BPI on January 21, 1992. 10

On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16, 1995, the CTA dismissed the case
for lack of jurisdiction since the subject assessments had become final and unappealable. The CTA ruled that BPI failed to protest on
time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125.12 It
denied reconsideration in a resolution dated May 27, 1996. 13

On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the CTA14 for a decision on the
merits.15 It ruled that the October 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal
and factual bases therefor. It declared that the proper assessments were those contained in the May 8, 1991 letter which provided the
reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on time. 17 The CIR elevated the
case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had
already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 27018 (now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue an assessment based on
his findings.

xxx xxx xxx (emphasis supplied)

Were the October 28, 1988 Notices Valid Assessments?

The first issue for our resolution is whether or not the October 28, 1988 notices 19 were valid assessments. If they were not, as held by
the CA, then the correct assessments were in the May 8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter,
seasonably asked for a reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by BPI on
January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18, 1992 would be well within the 30-day
period provided by law.20

The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments. He asserts that he used BIR
Form No. 17.08 (as revised in November 1964) which was designed for the precise purpose of notifying taxpayers of the assessed
amounts due and demanding payment thereof. 21 He contends that there was no law or jurisprudence then that required notices to state
the reasons for assessing deficiency tax liabilities.22

BPI counters that due process demanded that the facts, data and law upon which the assessments were based be provided to the
taxpayer. It insists that the NIRC, as worded now (referring to Section 228), specifically provides that:

"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall
be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due process requires even und er the
former Section 270.

BPI’s contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in
the following cases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void.

xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes were made. He
merely notified BPI of his findings, consisting only of the computation of the tax liabilities and a demand for payment thereof within 30
days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424
(also known as the Tax Reform Act of 1997).23 In CIR v. Reyes,24 we held that:

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been
made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax
assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.25(emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to "notify" or
inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and facts on which
the assessments were based. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial
legislation, nothing less.

Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer
was to pay and a demand for payment within a prescribed period. 26 Everything considered, there was no doubt the October 28, 1988
notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence.

The sentence

[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall
be void

was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Evidently, the legislature saw the
need to modify the former Section 270 by inserting the aforequoted sentence. 27 The fact that the amendment was necessary showed
that, prior to the introduction of the amendment, the statute had an entirely different meaning. 28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an affirmation of what the law required
under the former Section 270. The amendment introduced by RA 8424 was an innovation and could not be reasonably inferred from the
old law.29 Clearly, the legislature intended to insert a new provision regarding the form and substance of assessments issued by the
CIR.30

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the legal and factual basis of the
former’s decision to charge the latter for deficiency documentary stamp and gross receipts taxes. 31
In other words, the CA’s theory was that BPI was deprived of due process when the CIR failed to inform it in writing of the factual and
legal bases of the assessments —even if these were not called for under the old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be deprived of his property
without due process of law."32 We note, however, what the CTA had to say:

xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to discuss with the [CIR] when the
latter issued the former a Pre-Assessment Notice (which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk to
them and we try to [thresh] out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel honestly tell
this Court that they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to the allegations of its
counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified to the fact that
he prepared worksheets which contain his analysis regarding the findings of the [CIR’s] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the assessments, and
was given all the opportunity to contest the same but ignored it despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client.33

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an
abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the [CTA]. 34

Under the former Section 270, there were two instances when an assessment became final and unappealable: (1) when it was not
protested within 30 days from receipt and (2) when the adverse decision on the protest was not appealed to the CTA within 30 days
from receipt of the final decision:35

Sec. 270. Protesting of assessment.1a\^/phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner
as may be prescribed by the implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest
may appeal to the [CTA] within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory
and demandable.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30 days from
receipt thereof. The December 10, 1988 reply it sent to the CIR did not qualify as a protest since the letter itself stated that "[a]s soon as
this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayer’s decision on whether to pay or
protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a protest against the assessments. As a
matter of fact, BPI never deemed this a protest since it did not even consider the October 28, 1988 notices as valid or proper
assessments.

The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day period provided in the former Section 270
meant that they became final and unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from
then on, barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability
on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax
assessments.38

Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIR’s
final decision regarding the disputed assessments within the 30-day period provided by law. The CIR, in his May 8, 1991 response,
stated that it was his "final decision … on the matter." BPI therefore had 30 days from the time it received the decision on June 27,
1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18, 1992,
way beyond the reglementary period. BPI must now suffer the repercussions of its omission. We have already declared that:

… the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of [RA
1125], as amended. On the basis of his statement indubitably showing that the Commissioner's communicated action is his
final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the
opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court
accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of
the assessment — and, consequently, the collection of the amount demanded as taxes — by repeated requests for
recomputation and reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and thorough study
of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the [CIR]
from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax
court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative
action.39(emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a considerable amount of money. Be that as
it may, we cannot legally presume the existence of something which was never there. The state will be deprived of the taxes validly due
it and the public will suffer if taxpayers will not be held liable for the proper taxes assessed against them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.40

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-G.R. SP No. 41025
is REVERSED and SET ASIDE.

SO ORDERED.
G.R. No. 166408 October 6, 2008

QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

REYES, R.T., J.:

CLAIMS for tax exemption must be based on language in law too plain to be mistaken. It cannot be made out of inference or
implication.

The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of Appeals (CA) and that2 of the Regional
Trial Court (RTC) ordering the refund and declaring invalid the imposition and collection of local franchise tax by the City Treasurer of
Quezon City on ABS-CBN Broadcasting Corporation (ABS-CBN).

The Facts

Petitioner City Government of Quezon City is a local government unit duly organized and existing by virtue of Republic Act (R.A.) No.
537, otherwise known as the Revised Charter of Quezon City. Petitioner City Treasurer of Quezon City is primarily responsible for the
imposition and collection of taxes within the territorial jurisdiction of Quezon City.

Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a franchise tax was imposed on businesses operating within
its jurisdiction. The provision states:

Section 31. Imposition of Tax. - Any provision of special laws or grant of tax exemption to the contrary notwithstanding, any
person, corporation, partnership or association enjoying a franchise whether issued by the national government or local
government and, doing business in Quezon City, shall pay a franchise tax at the rate of ten percent (10%) of one percent (1%)
for 1993-1994, twenty percent (20%) of one percent (1%) for 1995, and thirty percent (30%) of one percent (1%) for 1996 and
the succeeding years thereafter, of gross receipts and sales derived from the operation of the business in Quezon City during
the preceding calendar year.

On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and television broadcasting stations in the Philippines
under R.A. No. 7966.4 Section 8 of R.A. No. 7966 provides the tax liabilities of ABS-CBN which reads:

Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the same taxes on their real estate,
buildings and personal property, exclusive of this franchise, as other persons or corporations are now hereafter may be
required by law to pay. In addition thereto, the grantee, its successors or assigns, shall pay a franchise tax equivalent to
three percent (3%) of all gross receipts of the radio/television business transacted under this franchise by the
grantee, its successors or assigns, and the said percentage tax shall be in lieu of all taxes on this franchise or
earnings thereof; Provided that the grantee, its successors or assigns shall continue to be liable for income taxes under Title
II of the National Internal Revenue Code pursuant to Section 2 of Executive No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be applicable thereto. (Emphasis added)

ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view of the above provision in R.A. No. 9766 that
it "shall pay a franchise tax x x x in lieu of all taxes," the corporation developed the opinion that it is not liable to pay the local franchise
tax imposed by Quezon City. Consequently, ABS-CBN paid under protest the local franchise tax imposed by Quezon City on the dates,
in the amounts and under the official receipts as follows:

O.R. No. Date Amount Paid

2464274 7/18/1995 P 1,489,977.28
2484651 10/20/1995 1,489,977.28
2536134 1/22/1996 2,880,975.65
8354906 1/23/1997 8,621,470.83
48756 1/23/1997 2,731,135.81
67352 4/3/1997 2,731,135.81
Total P19,944,672.665

On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise tax paid to Quezon City for 1996 and for the first
quarter of 1997 in the total amount of Fourteen Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and 29/100
centavos (P14,233,582.29) broken down as follows:
 O.R. No. Date Amount Paid
2536134 1-22-96 P 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
Total P14,233,582.296

In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated its claim for refund of local franchise taxes paid.

On June 25, 1997, for failure to obtain any response from the Quezon City Treasurer, ABS-CBN filed a complaint before the RTC in
Quezon City seeking the declaration of nullity of the imposition of local franchise tax by the City Government of Quezon City for being
unconstitutional. It likewise prayed for the refund of local franchise tax in the amount of Nineteen Million Nine Hundred Forty-Four
Thousand Six Hundred Seventy-Two and 66/100 centavos (P19,944,672.66) broken down as follows:

O.R. No. Date Amount Paid

2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.667

Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not have been intended to prevail over a constitutional
mandate which ensures the viability and self-sufficiency of local government units. Further, that taxes collectible by and payable to the
local government were distinct from taxes collectible by and payable to the national government, considering that the Constitution
specifically declared that the taxes imposed by local government units "shall accrue exclusively to the local governments." Lastly, the
City contended that the exemption claimed by ABS-CBN under R.A. No. 7966 was withdrawn by Congress when the Local Government
Code (LGC) was passed.8 Section 193 of the LGC provides:

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or -controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis added)

On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for refund the local franchise tax paid for the third
quarter of 1997 in the amount of Two Million Seven Hundred Thirty-One Thousand One Hundred Thirty-Five and 81/100 centavos
(P2,731,135.81) and of other amounts of local franchise tax as may have been and will be paid by ABS-CBN until the resolution of the
case.

Quezon City insisted that the claim for refund must fail because of the absence of a prior written claim for it.

RTC and CA Dispositions

On January 20, 1999, the RTC rendered judgment declaring as invalid the imposition on and collection from ABS-CBN of local
franchise tax paid pursuant to Quezon City Ordinance No. SP-91, S-93, after the enactment of R.A. No. 7966, and ordered the refund
of all payments made. The dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered declaring the imposition on and collection from plaintiff ABS-CBN
BROADCASTING CORPORATION of local franchise taxes pursuant to Quezon City Ordinance No. SP-91, S-93 after the
enactment of Republic Act No. 7966 to be invalid, and, accordingly, the Court hereby orders the defendants to refund all its
payments made after the effectivity of its legislative franchise on May 3, 1995.

SO ORDERED.9

In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in Section 8 of R.A. No. 7966 absolutely excused ABS-
CBN from the payment of local franchise tax imposed under Quezon City Ordinance No. SP-91, S-93. The intent of the legislature to
excuse ABS-CBN from payment of local franchise tax could be discerned from the usage of the "in lieu of all taxes" provision and from
the absence of any qualification except income taxes. Had Congress intended to exclude taxes imposed from the exemption, it would
have expressly mentioned so in a fashion similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc.
(CEPALCO).10 In said case, the exemption of respondent electric company CEPALCO from payment of provincial franchise tax was
upheld on the ground that the franchise of CEPALCO was a special law, while the Local Tax Code, on which the provincial ordinance
imposing the local franchise tax was based, was a general law. Further, it was held that whenever there is a conflict between two laws,
one special and particular and the other general, the special law must be taken as intended to constitute an exception to the general
act.

The RTC noted that the legislative franchise of ABS-CBN was granted years after the effectivity of the LGC. Thus, it was unavoidable to
conclude that Section 8 of R.A. No. 7966 was an exception since the legislature ought to be presumed to have enacted it with the
knowledge and awareness of the existence and prior enactment of Section 137 11 of the LGC.

In addition, the RTC, again citing the case of Province of Misamis Oriental v. Cagayan Electric Power and Light Company,
Inc. (CEPALCO),12 ruled that the imposition of the local franchise tax was an impairment of ABS-CBN's contract with the government.
The imposition of another franchise on the corporation by the local authority would constitute an impairment of the former's charter,
which is in the nature of a private contract between it and the government.

As to the amounts to be refunded, the RTC rejected Quezon City's position that a written claim for refund pursuant to Section 196 of the
LGC was a condition sine qua non before filing the case in court. The RTC ruled that although Fourteen Million Two Hundred Thirty-
Three Thousand Five Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) was the only amount stated in the letter to the
Quezon City Treasurer claiming refund, ABS-CBN should nonetheless be also refunded of all payments made after the effectivity of
R.A. No. 7966. The inaction of the City Treasurer on the claim for refund of ABS-CBN legally rendered any further claims for refund on
the part of plaintiff absurd and futile in relation to the succeeding payments.

The City of Quezon and its Treasurer filed a motion for reconsideration which was subsequently denied by the RTC. Thus, appeal was
made to the CA. On September 1, 2004, the CA dismissed the petition of Quezon City and its Treasurer. According to the appellate
court, the issues raised were purely legal questions cognizable only by the Supreme Court. The CA ratiocinated:

For another, the issues which appellants submit for this Court's consideration are more of legal query necessitating a legal
opinion rather than a call for adjudication on the matter in dispute.

xxxx

The first issue has earlier been categorized in Province of Misamis Oriental v. Cagayan Electric and Power Co., Inc. to be a
legal one. There is no more argument to this.

The next issue although it may need the reexamination of the pertinent provisions of the local franchise and the legislative
franchise given to appellee, also needs no evaluation of facts. It suffices that there may be a conflict which may need to be
reconciled, without regard to the factual backdrop of the case.

The last issue deals with a legal question, because whether or not there is a prior written claim for refund is no longer in
dispute. Rather, the question revolves on whether the said requirement may be dispensed with, which obviously is not a
factual issue.13

On September 23, 2004, petitioner moved for reconsideration. The motion was, however, denied by the CA in its Resolution dated
December 16, 2004. Hence, the present recourse.

Issues

Petitioner submits the following issues for resolution:

I.

Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent appellee (Section 8 of RA 7966)
serves to exempt it from the payment of the local franchise tax imposed by the petitioners-appellants.

II.

Whether or not the petitioners-appellants raised factual and legal issues before the Honorable Court of Appeals.14

Our Ruling

The second issue, being procedural in nature, shall be dealt with immediately. But there are other resultant issues linked to the first.
I. The dismissal by the CA of petitioners' appeal is in order because it raised purely legal issues, namely:

1) Whether appellee, whose franchise expressly provides that its payment of franchise tax shall be in lieu of all taxes in this
franchise or earnings thereof, is absolutely excused from paying the franchise tax imposed by appellants;

2) Whether appellants' imposition of local franchise tax is a violation of appellee's legislative franchise; and

3) Whether one can do away with the requirement on prior written claim for refund.15

Obviously, these are purely legal questions, cognizable by this Court, to the exclusion of all other courts. There is a question of law
when the doubt or difference arises as to what the law is pertaining to a certain state of facts. 16

Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA under Rule 41 raising only questions of law is
erroneous and shall be dismissed, issues of pure law not being within its jurisdiction. 17Consequently, the dismissal by the CA of
petitioners' appeal was in order.

In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the appeal of petitioner was valid, considering the issues
raised there were pure questions of law, viz.:

Petitioners interposed an appeal to the Court of Appeals but it was dismissed for being the wrong mode of appeal. The
appellate court held that since the issue being raised is whether the RTC has jurisdiction over the subject matter of the case,
which is a question of law, the appeal should have been elevated to the Supreme Court under Rule 45 of the 1997 Rules of
Civil Procedure, as amended. Section 2, Rule 41 of the same Rules which governs appeals from judgments and final orders of
the RTC to the Court of Appeals, provides:

SEC. 2. Modes of appeal. -

(a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise
of its original jurisdiction shall be taken by filing a notice of appeal with the court which rendered the judgment or final
order appealed from and serving a copy thereof upon the adverse party. No record on appeal shall be required
except in special proceedings and other cases of multiple or separate appeals where the law or these Rules so
require. In such cases, the record on appeal shall be filed and served in like manner.

(b) Petition for review. - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the
exercise of its appellate jurisdiction shall be by petition for review in accordance with Rule 42.

(c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the appeal shall be to the
Supreme Court by petition for review on certiorari in accordance with Rule 45.

In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we summarized the rule on appeals as follows:

(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal may be made to the Court of
Appeals by mere notice of appeal where the appellant raises questions of fact or mixed questions of fact and law;

(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the appellant raises only questions
of law, the appeal must be taken to the Supreme Court on a petition for review on certiorari under Rule 45;

(3) All appeals from judgments rendered by the RTC in the exercise of its appellate jurisdiction, regardless of whether
the appellant raises questions of fact, questions of law, or mixed questions of fact and law, shall be brought to the
Court of Appeals by filing a petition for review under Rule 42.

It is not disputed that the issue brought by petitioners to the Court of Appeals involves the jurisdiction of the RTC over the
subject matter of the case. We have a long standing rule that a court's jurisdiction over the subject matter of an action is
conferred only by the Constitution or by statute. Otherwise put, jurisdiction of a court over the subject matter of the action is a
matter of law. Consequently, issues which deal with the jurisdiction of a court over the subject matter of a case are pure
questions of law. As petitioners' appeal solely involves a question of law, they should have directly taken their appeal to this
Court by filing a petition for review on certiorari under Rule 45, not an ordinary appeal with the Court of Appeals under Rule 41.
Clearly, the appellate court did not err in holding that petitioners pursued the wrong mode of appeal.

Indeed, the Court of Appeals did not err in dismissing petitioners' appeal. Section 2, Rule 50 of the same Rules provides
that an appeal from the RTC to the Court of Appeals raising only questions of law shall be dismissed; and that an appeal
erroneously taken to the Court of Appeals shall be dismissed outright, x x x.19(Emphasis added)
However, to serve the demands of substantial justice and equity, the Court opts to relax procedural rules and rule upon on the merits of
the case. In Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation,20 this Court stated:

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the duty to reconcile
both the need to speedily put an end to litigation and the parties' right to due process. In numerous cases, this Court has
allowed liberal construction of the rules when to do so would serve the demands of substantial justice and equity. In Aguam v.
Court of Appeals, the Court explained:

"The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court,
not a duty. The "discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play,
having in mind the circumstances obtaining in each case." Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "A litigation is
not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided on their merits and not on technicality. Every party litigant
must be afforded the amplest opportunity for the proper and just determination of his cause, free from the
unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where
the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be
applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial
justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the
parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and
cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.21

II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment of local franchise tax.

A. The present controversy essentially boils down to a dispute between the inherent taxing power of Congress and the delegated
authority to tax of local governments under the 1987 Constitution and effected under the LGC of 1991.

The power of the local government of Quezon City to impose franchise tax is based on Section 151 in relation to Section 137 of the
LGC, to wit:

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may
impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming receipt, or realized within its territorial
jurisdiction. x x x

xxxx

Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may levy the taxes, fees and
charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and component cities shall accrue to them and distributed in accordance with the provisions of
this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more
than fifty percent (50%) except the rates of professional and amusement taxes. (Emphasis supplied)

Such taxing power by the local government, however, is limited in the sense that Congress can enact legislation granting exemptions.
This principle was upheld in City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.22 Said this Court:

This thus raises the question of whether or not the City's Revenue Code pursuant to which the city treasurer of Quezon City
levied real property taxes against Bayantel's real properties located within the City effectively withdrew the tax exemption
enjoyed by Bayantel under its franchise, as amended.

Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other
persons or corporations on all its real or personal properties, exclusive of its franchise."

Bayantel's posture is well-taken. While the system of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu International Airport
Authority:

"The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such
 guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of
local autonomy. x x x"

Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local
government units' delegated power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now
in place, the basic doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to
tax is [still] primarily vested in the Congress."

This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional
Commission which crafted the 1987 Constitution, thus:

"What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of taxation. What it does is to confer municipal
corporations a general power to levy taxes and otherwise create sources of revenue. They no longer have to wait for
a statutory grant of these powers. The power of the legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to impose limitations on municipal powers. Moreover, these
limitations must be "consistent with the basic policy of local autonomy." The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal corporations. Henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood,
however, that taxes imposed by local government must be for a public purpose, uniform within a locality, must not be
confiscatory, and must be within the jurisdiction of the local unit to pass."

In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of the
legislature, which necessarily includes the power to exempt, and the local government's delegated power to tax under the
aegis of the 1987 Constitution.

Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the city's
territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or
juridical [x x x]" there can really be no dispute that the power of the Quezon City Government to tax is limited by Section 232 of
the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may levy an
annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically
exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the taxing power of
local government units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter
specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such absurd situation is
unacceptable.

For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, this Court has upheld the power of
Congress to grant exemptions over the power of local government units to impose taxes. There, the Court wrote:

"Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the
power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of
the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations." 23 (Emphasis supplied)

In the case under review, the Philippine Congress enacted R.A. No. 7966 on March 30, 1995, subsequent to the effectivity of the LGC
on January 1, 1992. Under it, ABS-CBN was granted the franchise to install and operate radio and television broadcasting stations in
the Philippines. Likewise, Section 8 imposed on ABS-CBN the duty of paying 3% franchise tax. It bears stressing, however, that
payment of the percentage franchise tax shall be "in lieu of all taxes" on the said franchise. 24

Congress has the inherent power to tax, which includes the power to grant tax exemptions. On the other hand, the power of Quezon
City to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any
exemption granted by any law or other special law, the City may impose a franchise tax. It must be noted that Section 137 of the LGC
does not prohibit grant of future exemptions. As earlier discussed, this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc.25 sustained the power of Congress to grant tax exemptions over and above the power of the local
government's delegated power to tax.

B. The more pertinent issue now to consider is whether or not by passing R.A. No. 7966, which contains the "in lieu of all taxes"
provision, Congress intended to exempt ABS-CBN from local franchise tax.

Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not expressly exempt it from payment of local
franchise tax. They contend that a tax exemption cannot be created by mere implication and that one who claims tax exemptions must
be able to justify his claim by clearest grant of organic law or statute.

Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus, statutes granting tax exemptions are
construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly
shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the excepti on.26 The
burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed. 27

The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions is to minimize differential
treatment and foster impartiality, fairness and equality of treatment among taxpayers. 28 He who claims an exemption from his share of
common burden must justify his claim that the legislature intended to exempt him by unmistakable terms. For exemptions from taxation
are not favored in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language and not left to
mere implications. It has been held that "exemptions are never presumed, the burden is on the claimant to establish clearly his right to
exemption and cannot be made out of inference or implications but must be laid beyond reasonable doubt. In other words, since
taxation is the rule and exemption the exception, the intention to make an exemption ought to be expressed in clear and unambiguous
terms.29

Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3) percent of all gross receipts of the
radio/television business transacted under the franchise and the franchise tax shall be "in lieu of all taxes" on the franchise or earnings
thereof.

The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted
from. It is not clear whether the exemption would include both local, whether municipal, city or provincial, and national tax. What is clear
is that ABS-CBN shall be liable to pay three (3) percent franchise tax and income taxes under Title II of the NIRC. But whether the "in
lieu of all taxes provision" would include exemption from local tax is not unequivocal.

As adverted to earlier, the right to exemption from local franchise tax must be clearly established and cannot be made out of inference
or implications but must be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should be
construed against ABS-CBN. ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN
miserably failed in this regard.

ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal Revenue,30 Manila Railroad v. Rafferty,31 Philippine
Railway Co. v. Collector of Internal Revenue,32 and Visayan Electric Co. v. David33 to support its claim that that the "in lieu of all taxes"
clause includes exemption from all taxes.

However, a review of the foregoing case law reveals that the grantees' respective franchises expressly exempt them from municipal
and provincial taxes. Said the Court in Manila Railroad v. Rafferty:34

On the 7th day of July 1906, by an Act of the Philippine Legislature, a special charter was granted to the Manila Railroad
Company. Subsection 12 of Section 1 of said Act (No. 1510) provides that:

"In consideration of the premises and of the granting of this concession or franchise, there shall be paid by the
grantee to the Philippine Government, annually, for the period of thirty (30) years from the date hereof, an amount
equal to one-half (1/2) of one per cent of the gross earnings of the grantee in respect of the lines covered hereby for
the preceding year; after said period of thirty (30) years, and for the fifty (50) years thereafter, the amount so to be
paid annually shall be an amount equal to one and one-half (1 1/2) per cent of such gross earnings for the preceding
year; and after such period of eighty (80) years, the percentage and amount so to be paid annually by the grantee
shall be fixed by the Philippine Government.

Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and
nature - municipal, provincial or central - upon its capital stock, franchises, right of way, earnings, and all other
property owned or operated by the grantee under this concession or franchise." 35 (Underscoring supplied)

In the case under review, ABS-CBN's franchise did not embody an exemption similar to those in Carcar, Manila Railroad, Philippine
Railway, and Visayan Electric. Too, the franchise failed to specify the taxing authority from whose jurisdiction the taxing power is
withheld, whether municipal, provincial, or national. In fine, since ABS-CBN failed to justify its claim for exemption from local franchise
tax, by a grant expressed in terms "too plain to be mistaken" its claim for exemption for local franchise tax must fail.

C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the abolition of the franchise tax on
broadcasting companies with yearly gross receipts exceeding Ten Million Pesos.

In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of all taxes" provision contained in Secti on 8 of R.A.
No. 7966, ABS-CBN is exempt from the payment of the local franchise tax. The RTC further pronounced that ABS-CBN shall instead be
liable to pay a franchise tax of 3% of all gross receipts in lieu of all other taxes.

On this score, the RTC ruling is flawed. In keeping with the laws that have been passed since the grant of ABS-CBN's franchise, the
corporation should now be subject to VAT, instead of the 3% franchise tax.
At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject to 3% franchise tax under Section 117(b) of the
1977 National Internal Revenue Code (NIRC), as amended, viz.:

SECTION 117. Tax on franchises. - Any provision of general or special laws to the contrary notwithstanding, there shall be
levied, assessed and collected in respect to all franchise, upon the gross receipts from the business covered by the law
granting the franchise, a tax in accordance with the schedule prescribed hereunder:

(a) On electric utilities, city gas, and water supplies Two (2%) percent

(b) On telephone and/or telegraph systems, radio and/or broadcasting stations Three (3%) percent

(c) On other franchises Five (5%) percent. (Emphasis supplied)

On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added Tax Law, 36 took effect and subjected to VAT those
services rendered by radio and/or broadcasting stations. Section 3 of R.A. No. 7716 provides:

Section 3. Section 102 of the National Internal Revenue Code, as amended is hereby further amended to read as follows:

SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate and base of tax. - There
shall be levied, assessed and collected, as value-added tax equivalent to 10% of gross receipts derived from the sale
or exchange of services, including the use or lease of properties.

The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines, for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; x x x services of franchise grantees of telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 117 of this Code; x x x (Emphasis supplied)

Notably, under the same law, "telephone and/or telegraph systems, broadcasting stations and other franchise grantees" were omitted
from the list of entities subject to franchise tax. The impression was that these entities were subject to 10% VAT but not to franchise tax.
Only the franchise tax on "electric, gas and water utilities" remained. Section 12 of R.A. No. 7716 provides:

Section 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

SEC. 117. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding there shall be
levied, assessed and collected in respect to all franchises on electric, gas and water utilities a tax of two percent (2%)
on the gross receipts derived from the business covered by the law granting the franchise. (Emphasis added)

Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more amendments to the NIRC. Radio and/or television
companies whose annual gross receipts do not exceed P10,000,000.00 were granted the option to choose between paying 3% national
franchise tax or 10% VAT. Section 9 of R.A. No. 8241 provides:

SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as follows:

"Sec. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

"Sec. 117. Tax on franchise. - Any provision of general or special law to the contrary, notwithstanding, there shall be
levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose
annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000,000.00), subject to Section
107(d) of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent (2%) on
the gross receipts derived from the business covered by the law granting the franchise: Provided, however, That
radio and television broadcasting companies referred to in this section, shall have an option to be registered as a
value-added tax payer and pay the tax due thereon: Provided, further, That once the option is exercised, it shall not
be revoked. (Emphasis supplied)

On the other hand, radio and/or television companies with yearly gross receipts exceeding P10,000,000.00 were subject to 10% VAT,
pursuant to Section 102 of the NIRC.

On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT liability of radio and/or television companies with yearly
gross receipts exceeding P10,000,000.00.

R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The said law further amended the NIRC by increasing
the rate of VAT to 12%. The effectivity of the imposition of the 12% VAT was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the matter, ABS-CBN is subject to the payment of VAT. It does not have the
option to choose between the payment of franchise tax or VAT since it is a broadcasting company with yearly gross receipts exceeding
Ten Million Pesos (P10,000,000.00).

VAT is a percentage tax imposed on any person whether or not a franchise grantee, who in the course of trade or business, sells,
barters, exchanges, leases, goods or properties, renders services. It is also levied on every importation of goods whether or not in the
course of trade or business. The tax base of the VAT is limited only to the value added to such goods, properties, or services by the
seller, transferor or lessor. Further, the VAT is an indirect tax and can be passed on to the buyer.

The franchise tax, on the other hand, is a percentage tax imposed only on franchise holders. It is imposed under Section 119 of the Tax
Code and is a direct liability of the franchise grantee.

The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot apply when what is paid is a tax other than a
franchise tax. Since the franchise tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been
abolished, the "in lieu of all taxes" clause has now become functus officio, rendered inoperative.

In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all taxes" clause in its franchise failed to specify
the taxes the company is sought to be exempted from. Neither did it particularize the jurisdiction from which the taxing power is
withheld. Second, the clause has become functus officio because as the law now stands, ABS-CBN is no longer subject to a franchise
tax. It is now liable for VAT.

WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED AND SET ASIDE. The petition in the trial court for
refund of local franchise tax is DISMISSED.

SO ORDERED.
G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity as National
Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a re-examination of the latest decision
on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the then Court of First
Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act No.
4136, otherwise known as the Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air
transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its
franchise, PAL is exempt from the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the National
Government during the life of this franchise a tax of two per cent of the gross revenue or gross earning derived by the
grantee from its operations under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of all
taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national
automobiles, Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten days from the receipt
of the assessment. The grantee shall pay the tax on its real property in conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor
vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among
them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under
Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor
vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu demanding a refund of the
amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are
in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA
211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory exceptional. and not revenue measures and,
therefore, do not come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against Land
Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch
18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National Treasurer, filed a
motion to dismiss alleging that the complaint states no cause of action. In support of the motion to dismiss, defendants repatriation the
ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the
payment of any tax except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees,
such as motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later ruling laid d own by the
Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of
Appeals which certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and Commissioner Romeo F. Edu
respectively, discuss the main points of contention in the case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor Vehicle
Law (Republic Act No. 587 [1950]). Its heading speaks of "registration fees." The term is repeated four times in the
body thereof. Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts with a
categorical statement "No fees shall be charged." (lbid.,Subsection H) The conclusion is difficult to resist therefore
that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power. Hence
the incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It is not held liable for a tax
but for a registration fee. It therefore cannot make use of a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by Republic Act No.
5448. ([1968]. Section 3 thereof as to the imposition of additional tax on privately-owned passenger automobiles,
motorcycles and scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A
special science fund was thereby created and its title expressly sets forth that a tax on privately-owned passenger
automobiles, motorcycles and scooters was imposed. The rates thereof were provided for in its Section 3 which
clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the registration fee under the Motor
Vehicle Act. There cannot be any clearer expression therefore of the legislative will, even on the assumption that the
earlier legislation could by subdivision the point be susceptible of the interpretation that a tax rather than a fee was
levied. What is thus most apparent is that where the legislative body relies on its authority to tax it expressly so
states, and where it is enacting a regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles are in section 8 of
that law called "fees". But the appellation is no impediment to their being considered taxes if taxes they really are. For
not the name but the object of the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for
revenue, whereas fees are exceptional. for purposes of regulation and inspection and are for that reason limited in
amount to what is necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by
statute for the service to be person,-When by an officer, where the charge has no relation to the value of the services
performed and where the amount collected eventually finds its way into the treasury of the branch of the government
whose officer or officers collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle Office are but a
small portion—about 5 per centum—of the total collections from motor vehicle registration fees. And as proof that the
money collected is not intended for the expenditures of that office, the law itself provides that all such money shall
accrue to the funds for the construction and maintenance of public roads, streets and bridges. It is thus obvious that
the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express object is to provide revenue with
which the Government is to discharge one of its principal functions—the construction and maintenance of public
highways for everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no
other taxes or fees than those prescribed in this Act shall be imposed," thus implying that the charges therein
imposed—though called fees—are of the category of taxes. The provision is contained in section 70, of subsection
(b), of the law, as amended by section 17 of Republic Act 587, which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur, by any municipal corporation, the provisions of any city charter to the
contrary notwithstanding: Provided, however, That any provincial board, city or municipal council or
board, or other competent authority may exact and collect such reasonable and equitable toll fees
for the use of such bridges and ferries, within their respective jurisdiction, as may be authorized
and approved by the Secretary of Public Works and Communications, and also for the use of such
public roads, as may be authorized by the President of the Philippines upon the recommendation of
the Secretary of Public Works and Communications, but in none of these cases, shall any toll fee."
be charged or collected until and unless the approved schedule of tolls shall have been posted
levied, in a conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992 [19511) as amended by
Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as amended by Rep. Acts
Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep. Act Nos. 587 and
1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money collected under the provisions of this
Act shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the
centum shall during the next previous year and the remaining eighty per centum shall be deposited in the Philippine
Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges.
as well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and
Communications for projects recommended by the Director of Public Works in the different provinces and chartered
cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this Act shall be deposited in a
special trust account in the National Treasury to constitute the Highway Special Fund, which shall be apportioned and
expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the
amount necessary to maintain and equip the Land Transportation Commission but not to exceed twenty per cent of
the total collection during one year, shall be set aside for the purpose. (As amended by RA 64-67, approved August
6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners of vehicles to pay for
their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the
operating expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from
the use of the term "fees," which appears to have been favored by the legislature to distinguish fees from other taxes such as those
mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles subject to payment of taxes,
customs s duties or other charges shall be accepted unless proof of payment of the taxes due thereon has been
presented to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as
amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated by a former presiding
judge of the Court of Tax Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to as a source of
revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile
license fees. Isabela such case, the fees may properly be regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial
purposes, then the exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions
are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal
Revenue Code of 1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in
Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section
70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code.
It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or
ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a
tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax
already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under
Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks
of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they
are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees
are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise of
the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute
necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way
of raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become that
of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and
Traffic Code are actually taxes intended for additional revenues. of government even if one fifth or less of the amount collected is set
aside for the operating expenses of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were made in succeeding
years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate
taxpayers found in legislative franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio Communications of the
Philippines, Inc., was subject to both the franchise tax and income tax. In 1964, however, petitioner's franchise was
amended by Republic Act No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of all
gross receipts was provided as "in lieu of any and all taxes of any kind, nature, or description levied, established, or
collected by any authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby
expressly exempted." The issue raised to this Court now is the validity of the respondent court's decision which ruled
that the exemption under Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448 dated June
27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate
taxpayers not specifically exempt under Sections 24 (c) (1) of this Code shall pay the rates
provided in this section. All corporations, agencies, or instrumentalities owned or controlled by the
government, including the Government Service Insurance System and the Social Security System
but excluding educational institutions, shall pay such rate of tax upon their taxable net income as
are imposed by this section upon associations or corporations engaged in a similar business or
industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all corporate
taxpayers to pay income tax as provided by the statute. There can be no doubt as to the power of Congress to repeal
the earlier exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly provide that no franchise shall be granted to any individual, firm, or
corporation except under the condition that it shall be subject to amendment, alteration, or repeal by the legislature
when the public interest so requires. There is no question as to the public interest involved. The country needs
increased revenues. The repealing clause is clear and unambiguous. There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the provision. Considering the foregoing, the Court Resolved to DENY
the petition for lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax exemption in the
franchise of PAL was repealed during the period. However, an amended franchise was given to PAL in 1979. Section 13 of Presidential
Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during
the lifetime of this franchise whichever of subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in
accordance with the provisions of the Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues. derived by the grantees from all
specific. without distinction as to transport or nontransport corporations; provided that with respect
 to international airtransport service, only the gross passengers, mail, and freight revenues. from its
outgoing flights shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license and other fees and charges of any kind, nature or description imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or national authority or government, agency, now or in the
future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of airtransport equipment,
motor vehicles, and all other personal or real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259,
April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from the
payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the
basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. The Land
Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the
registration and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.
G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS,
CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO
LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION,
respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and
NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.:

Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in
representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the
Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this action
or not.

Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of
regulating and supervising the sugar industry until it was superseded by its co-respondent Sugar Regulatory Administration (SRA, for
brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a
juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against it
and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets."

Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros
Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed
no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to
intervene, which the Court allowed on February 16,1988.

Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE TRANSFER
AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN
THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND
MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT
P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF
P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID INVESTMENT HAVING BEEN
FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS
COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388.

Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that may
be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal ownership of
the questioned shares of stock.

Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D.
No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the transfer of
shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by laches.

The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and
millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in respondent
Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees
were collected or levied.

P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund as
follows:

SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. — There is hereby
established a fund for the commission for the purpose of financing the growth and development of the sugar industry
and all its components, stabilization of the domestic market including the foreign market to be administered in trust by
the Commission and deposited in the Philippine National Bank derived in the manner herein below cited from the
following sources:
 a. Stabilization fund shall be collected as provided for in the various provisions of this Decree.

b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every picul
produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for every picul
produced and milled every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under Section 4(c)
of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and allowances of
officers and employees for the purpose of accomplishing and employees for the purpose of accomplishing the
efficient performance of the duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and shall
be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission.
(paragraphing and bold supplied).

Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission."
However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters
cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of
the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises
where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the
facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S.
947).

No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied
trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out
of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM
imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically
demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself (Batchelder v.
Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).

Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by the
Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the
PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the
proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group.
Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by
PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of
respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and
necessity and that they are the true and beneficial owners thereof.

In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the stabilization
fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been clarified by the
Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-
in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf
of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not get off the ground
because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident
Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that the
aforementioned Agreement is of doubtful validity."

From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular, owns
and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its subscription
to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees are charges/levies
on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ...

The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar
industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a
"Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created
under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory
purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State
(Lutz vs. Araneta, supra.).

The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or
indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So. 857, cited
in Lutz vs. Araneta, supra).

The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose — that of
"financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the
foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even
though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec.
2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language
of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of the trust intended (See 1987 Constitution, Article VI,
Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine
National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by
law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares
of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the
shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of
the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the
fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim
that the entire amount levied is in trust for sugar, producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private
purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar
industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital
importance to the country's economy and to national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.

This Decision is immediately executory.

SO ORDERED.
G.R. No. 185371 December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
METRO STAR SUPERAMA, INC., Respondent.

DECISION

MENDOZA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR)
seeks to reverse and set aside the 1] September 16, 2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB
No. 306 and 2] its November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.

The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA Case No. 7169 reversing the
February 8, 2005 Decision of the CIR which assessed respondent Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax
and withholding tax for the taxable year 1999.

Based on a Joint Stipulation of Facts and Issues 3 of the parties, the CTA Second Division summarized the factual and procedural
antecedents of the case, the pertinent portions of which read:

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines, x x x.

On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority No. 00006561 for
Revenue Officer Daisy G. Justiniana to examine petitioner’s books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director
Leonardo Sacamos.

For petitioner’s failure to comply with several requests for the presentation of records and Subpoena Duces Tecum, [the] OIC of BIR
Legal Division issued an Indorsement dated September 26, 2001 informing Revenue District Officer of Revenue Region No. 67,
Legazpi City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice.

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15-day Letter, which petitioner
received on November 9, 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency
value-added and withholding taxes due from petitioner in the amount of ₱ 292,874.16.

On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City,
assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos
(₱292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales ₱1,697,718.90

Output Tax ₱ 154,338.08

Less: Input Tax _____________

VAT Payable ₱ 154,338.08

Add: 25% Surcharge ₱ 38,584.54

20% Interest 79,746.49

Compromise Penalty

Late Payment ₱16,000.00

Failure to File VAT returns 2,400.00 18,400.00 136,731.01

TOTAL ₱ 291,069.09

WITHHOLDING TAX
 Compensation 2,772.91

Expanded 110,103.92

Total Tax Due ₱ 112,876.83

Less: Tax Withheld 111,848.27

Deficiency Withholding Tax ₱ 1,028.56

Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00

TOTAL ₱ 1,805.07

*Expanded Withholding Tax ₱1,949,334.25 x 5% 97,466.71

Film Rental 10,000.25 x 10% 1,000.00

Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73

Security Service 156,142.01 x 1% 1,561.42

Service Contractor ₱ 110,103.92

Total

SUMMARIES OF DEFICIENCIES

VALUE ADDED TAX ₱ 291,069.09

WITHHOLDING TAX 1,805.07

TOTAL ₱ 292,874.16

Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which petitioner received
on May 15, 2003, giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof,
otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.

On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated
May 12, 2003 demanding payment of deficiency value-added tax and withholding tax payment in the amount of ₱292,874.16.

On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.

On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue Regional Director of Revenue Region
10, Legaspi City, issued a Decision denying petitioner’s Motion for Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.

x x x.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a
petition for review4 with the CTA. The parties then stipulated on the following issues to be decided by the tax court:

1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code
and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment;

1.1 Whether petitioner is liable for the respective amounts of ₱291,069.09 and ₱1,805.07 as deficiency VAT and
withholding tax for the year 1999;

1.2. Whether the assessment has become final and executory and demandable for failure of petitioner to protest the
same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National Internal
Revenue Code;
 2. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which
they are based.

2.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with
Section 228 of the National Internal Revenue Code;

3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of services under Section
108(A) of the National Internal Revenue Code;

4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal
Revenue Code.

The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a decision, the decretal portion of
which reads:

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed Decision dated February
8, 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against
petitioner.

The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the
addressee in the ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee." 5 It also found that there was no clear showing that
Metro Star actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated
April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process.6

The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was denied in the latter’s July 24, 2007
Resolution.8

Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed after a determination that no new
matters were raised. The CTA-En Banc disposed:

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the
March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star
Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.

The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution.11

The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was served nonetheless because
the latter received the Final Assessment Notice (FAN), comes now before this Court with the sole issue of whether or not Metro Star
was denied due process.

The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions,
has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of
authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, 13 the Court
wrote:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land
Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax
Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is valid in every respect.

On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz:

Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is
incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi
was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely
a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption
to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by
the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was
mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)."

x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which
would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the
very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is
executed with the intervention of the Bureau of Posts. This Court does not put much credence to the self serving documentations made
by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus:

"While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release,
mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or
control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices,
without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was
issued. Consequently, the government’s right to issue an assessment for the said period has already prescribed. (Industrial Textile
Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)

The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed
received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster
that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the
PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated that he had received the FAN dated April
3, 2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters
with the hope of lessening its tax liability.

This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under Section 228 of the National
Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed
period was sent to the taxpayer?

The answer to these questions require an examination of Section 228 of the Tax Code which reads:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: provided, however, that a preassessment notice shall not be required in the
following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the
face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding
agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall
be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said not ice. If the
taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable. (Emphasis supplied).

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes
through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and
adduce supporting evidence.14

This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall, among others, state in
his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue
Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District
Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National
Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and
regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer
fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a
formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the preliminary assessment
notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the
payment of the taxpayer's deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing
on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
 3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall be issued
by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the
taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

x x x.

From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made 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. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN.
The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly
comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. 15 Thus, for its failure to
send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.

The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of
an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85
which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting
an assessment. The old requirement of merely notifyingthe taxpayer of the CIR’s findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made. Otherwise, the assessment itself would be
invalid.17 The regulation then, on the other hand, simply provided that a notice be sent to the respondent in the form prescribed, and
that no consequence would ensue for failure to comply with that form.1avvphi1

The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is well-settled that a void assessment
bears no fruit.18

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. 19 In
balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one
side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt
in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while "taxes are the
lifeblood of the government," the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v.
Algue, Inc.,20 it was said –

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.

xxx xxx xxx

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

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer
can demonstrate x x x that the law has not been observed.21 (Emphasis supplied).

WHEREFORE, the petition is DENIED.

SO ORDERED.
G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.

VITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496,
also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal
Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:

Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be
expressed in the title thereof.

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person
be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have exceeded
their rule-making authority in applying SNIT to general professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective
memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient for
being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In
The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:

Sec. 21. Tax on citizens or residents. —

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. — A
tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year
from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual
whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his profession
herein, determined in accordance with the following schedule:
 Not over P10,000 3%

Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%

but not over P120,00 of excess over P30,000

Over P120,000 P15,600 + 20%

but not over P350,000 of excess over P120,000

Over P350,000 P61,600 + 30%

of excess over P350,000

Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under Sections 21(a), 24(a),
(b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the case of
individuals engaged in business or practice of profession, only the following direct costs shall be allowed as
deductions:

(a) Raw materials, supplies and direct labor;

(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their
profession;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

(e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken
areas declared by the President; and

(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must
be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent
(40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the
case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be
considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. The allowance
for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which has prevailed
prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net
income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well
provided under the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the
members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud
upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the
subjects of legislation.1 The above objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be
to require a virtual compendium of the law which could not have been the intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable"
in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on
corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long been the
prevailing rule even prior to Republic Act No. 7496.

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax
system towards the schedular approach2 in the income taxation of individual taxpayers and to maintain, by and large, the present global
treatment3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate.

Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance
between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all
its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have
been reached within any appreciable distance in this controversy before us.

Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must
perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such transgression is so evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded
their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.

The questioned regulation reads:

Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners comprising
the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs
mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in
their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but
are not considered as direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners
in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act No.
7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege
speech by way of commenting on the questioned implementing regulation of public respondents following the effectivity of the law,
thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak
here of individuals who are earning, I mean, who earn through business enterprises and therefore,
should file an income tax return?

MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to
individuals.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).

Other deliberations support this position, to wit:

MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is
intended to increase collections as far as individuals are concerned and to make collection of taxes
equitable?

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is categorically
stated, thus:

This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with
respect to individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of
their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section
23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a common
profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the
net profits of the general professional partnership to which any taxable partner would be entitled whether distributed
or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner —

(1) Shall take into account separately his distributive share of the partnership's income, gain, loss,
deduction, or credit to the extent provided by the pertinent provisions of this Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive
share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and
one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of
the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely
independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is
understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under
the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax
Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to
income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base
(that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process,
the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and
(4) Irrevocable Trusts (irrevocable both as to corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few
variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during
its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable
entities for income tax purposes. A general professional partnership is such an example.4 Here, the partners themselves, not the
partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of
income tax in their individual capacity computed on their respective and distributive shares of profits. In the determination of the tax
liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the
general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income
by, and the ultimate distribution of such income to, respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic
Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation
income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in
significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do
it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.
G.R. No. 155491 July 21, 2009

SMART COMMUNICATIONS, INC., Petitioner,

vs.
THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF
DAVAO CITY, Respondents.

RESOLUTION

NACHURA, J.:

Before the Court is a Motion for Reconsideration1 filed by Smart Communications, Inc. (Smart) of the Decision 2 of the Court dated
September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court (RTC) of Davao City, dated July 19, 2002
and September 26, 2002, respectively.

Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory relief 3 for the ascertainment of its rights and obligations under
the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction of
Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise tax to the City.

On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which was denied by the
trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the same was denied in a decision dated
September 16, 2008. Hence, the instant motion for reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause in
Smart’s franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction against tax exemptions is not
applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No.
79254 (RA 7925) includes a tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional
prohibition against impairment of the obligation of contracts.

Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smart’s legislative franchise contains the
contentious "in lieu of all taxes" clause. The Section reads:

Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings
and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law
to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross
receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the
latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

xxx5

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word "exemption," viz.:

SEC. 23. Equality of Treatment in the Telecommunications Industry — Any advantage, favor, privilege, exemption, or immunity granted
under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the
life span of the franchise, or the type of the service authorized by the franchise. 6

A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the interpretation of the word
"exemption" found in Section 23 of RA 7925 is imperative in order to resolve this issue once and for all.

In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,7 Digitel used as an argument the "in lieu of all taxes"
clauses/provisos found in the legislative franchises of Globe, 8 Smart and Bell,9 vis-à-vis Section 23 of RA 7925, in order to claim
exemption from the payment of local franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the
payment of any other taxes except the national franchise and income taxes. Digitel alleged that Smart was exempted from the payment
of local franchise tax.

However, it failed to substantiate its allegation, and, thus, the Court denied Digitel’s claim for exemption from provincial franchise tax.
Cited was the ruling of the Court in PLDT v. City of Davao, 10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held
that in approving Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications
entities. Section 23 cannot be considered as having amended PLDT’s franchise so as to entitle it to exemption from the imposition of
local franchise taxes. The Court further held that tax exemptions are highly disfavored and that a tax exemption must be expressed in
the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in the instances
when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.

The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word "exemption" as used in the statute
refers or pertains merely to an exemption from regulatory or reporting requirements of the Department of Transportation and
Communication or the National Transmission Corporation and not to an exemption from the grantee’s tax liability.

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,11 PLDT was a holder of a legislative franchise under
Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No.
7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax
equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue that the Court had
to resolve was whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes" clause in its
franchise and Section 23 of RA 7925.lawph!l

Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section 23 of RA 7925 could not be
considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao 12 and PLDT v. City of Bacolod,13 in
denying the claim for exemption from the payment of local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local
franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The "in lieu of
all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes;
otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority.

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of local franchise tax. It
merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a
ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit
nor abolish the imposition of local franchise tax by cities or municipaties.

The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers them to create their
own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide.
The imposition of local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio the franchise tax paid
to the national government. VAT inures to the benefit of the national government, while a local franchise tax is a revenue of the local
government unit.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

SO ORDERED.
G.R. No. 192945 September 5, 2012

CITY OF IRIGA, Petitioner,

vs.
CAMARINES SUR III ELECTRIC COOPERATIVE, INC. (CASURECO III), Respondent.

DECISION

PERLAS-BERNABE, J.:

The Court reiterates that a franchise tax is a tax levied on the exercise by an entity of the rights or privileges granted to it by the
government.1 In the absence of a clear and subsisting legal provision granting it tax exemption, a franchise holder, though non-profit in
nature, may validly be assessed franchise tax by a local government unit.

Before the Court is a petition filed under Rule 45 of the Revised Rules of Court seeking to set aside the February 11, 2010
Decision2 and July 12, 2010 Resolution3 of the Court of Appeals (CA), which reversed the February 7, 2005 Decision of the Regional
Trial Court (RTC) of Iriga City, Branch 36 and ruled that respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO III) is
exempt from payment of local franchise tax.

The Facts

CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential Decree (PD) 269,4 as amended, and
registered with the National Electrification Administration (NEA). It is engaged in the business of electric power distribution to various
end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of
Camarines Sur, otherwise known as the "Rinconada area."5

Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a report of its gross receipts for the period 1997-2002 to
serve as the basis for the computation of franchise taxes, fees and other charges.6 The latter complied7 and was subsequently
assessed taxes.

On January 7, 2004, petitioner made a final demand on CASURECO III to pay the franchise taxes due for the period 1998-2003 and
real property taxes due for the period 1995-2003.8 CASURECO III, however, refused to pay said taxes on the ground that it is an
electric cooperative provisionally registered with the Cooperative Development Authority (CDA), 9 and therefore exempt from the
payment of local taxes.10

On March 15, 2004, petitioner filed a complaint for collection of local taxes against CASURECO III before the RTC, citing its power to
tax under the Local Government Code (LGC) and the Revenue Code of Iriga City. 11

It alleged that as of December 31, 2003, CASURECO III‟s franchise and real property taxes liability, inclusive of penalties, surcharges
and interest, amounted to Seventeen Million Thirty-Seven Thousand Nine Hundred Thirty-Six Pesos and Eighty-Nine Centavos (₱
17,037,936.89) and Nine Hundred Sixteen Thousand Five Hundred Thirty-Six Pesos and Fifty Centavos (₱ 916,536.50), respectively. 12

In its Answer, CASURECO III denied liability for the assessed taxes, asserting that the computation of the petitioner was erroneous
because it included 1) gross receipts from service areas beyond the latter‟s territorial jurisdiction; 2) taxes that had already prescribed;
and 3) taxes during the period when it was still exempt from local government tax by virtue of its then subsisting registration with the
CDA.13

Ruling of the Trial Court

In its Decision dated February 7, 2005, the RTC ruled that the real property taxes due for the years 1995-1999 had already prescribed
in accordance with Section 19414 of the LGC. However, it found CASURECO III liable for franchise taxes for the years 2000-2003 based
on its gross receipts from Iriga City and the Rinconada area on the ground that the "situs of taxation is the place where the privilege is
exercised."15 The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing, defendant is hereby made liable to pay plaintiff real property taxes and franchise taxes on its
receipts, including those from service area covering Nabua, Bato, Baao and Buhi for the years 2000 up to the present. The realty taxes
for the years 1995 and 1999 is hereby declared prescribed. The City Assessor is hereby directed to make the proper classification of
defendant‟s real property in accordance with Ordinance issued by the City Council.

SO ORDERED.16

Only CASURECO III appealed from the RTC Decision, questioning its liability for franchise taxes.
Ruling of the Court of Appeals

In its assailed Decision, the CA found CASURECO III to be a non-profit entity, not falling within the purview of "businesses enjoying a
franchise" pursuant to Section 137 of the LGC. It explained that CASURECO III‟s non-profit nature is diametrically opposed to the
concept of a "business," which, as defined under Section 131 of the LGC, is a "trade or commercial activity regularly engaged in as a
means of livelihood or with a view to profit." Consequently, it relieved CASURECO III from liability to pay franchise taxes.

Petitioner moved for reconsideration, which the CA denied in its July 12, 2010 Resolution for being filed a day late, hence, the instant
petition.

Issues Before the Court

Petitioner raises two issues for resolution, which the Court restates as follows: (1) whether or not an electric cooperative registered
under PD 269 but not under RA 693817 is liable for the payment of local franchise taxes; and (2) whether or not the situs of taxation is
the place where the franchise holder exercises its franchise regardless of the place where its services or products are delivered.

CASURECO III, on the other hand, raises the procedural issue that since the motion for reconsideration of the CA Decision was filed
out of time, the same had attained finality.

The Court’s Ruling

The petition is meritorious.

Before delving into the substantive issues, the Court notes the procedural lapses extant in the present case.

Proper Mode of Appeal from the

Decision of the Regional Trial
Court involving local taxes

RA 9282,18 which took effect on April 23, 2004, expanded the jurisdiction of the Court of Tax Appeals (CTA) to include, among others,
the power to review by appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction. 19

Considering that RA 9282 was already in effect when the RTC rendered its decision on February 7, 2005, CASURECO III should have
filed its appeal, not with the CA, but with the CTA Division in accordance with the applicable law and the rules of the CTA. Resort to the
CA was, therefore, improper, rendering its decision null and void for want of jurisdiction over the subject matter. A void judgment has no
legal or binding force or efficacy for any purpose or at any place. 20 Hence, the fact that petitioner's motion for reconsideration from the
CA Decision was belatedly filed is inconsequential, because a void and non-existent decision would never have acquired finality. 21

The foregoing procedural lapses would have been sufficient to dismiss the instant petition outright and declare the decision of the RTC
final. However, the substantial merits of the case compel us to dispense with these lapses and instead, exercise the Court‟s power of
judicial review.

CASURECO III is not exempt from

payment of franchise tax

PD 269, which took effect on August 6, 1973, granted electric cooperatives registered with the NEA, like CASURECO III, several tax
privileges, one of which is exemption from the payment of "all national government, local government and municipal taxes and fees,
including franchise, filing, recordation, license or permit fees or taxes." 22

On March 10, 1990, Congress enacted into law RA 6938, 23 otherwise known as the "Cooperative Code of the Philippines," and RA
693924 creating the CDA. The latter law vested the power to register cooperatives solely on the CDA, while the former provides that
electric cooperatives registered with the NEA under PD 269 which opt not to register with the CDA shall not be entitled to the benefits
and privileges under the said law.

On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax exemptions or incentives previously enjoyed by "all
persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions."25

In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local
Government,26 the Court held that the tax privileges granted to electric cooperatives registered with NEA under PD 269 were validly
withdrawn and only those registered with the CDA under RA 6938 may continue to enjoy the tax privileges under the Cooperative
Code.
Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes. Moreover, its provisional registration with the
CDA which granted it exemption for the payment of local taxes was extended only until May 4, 1992. Thereafter, it can no longer claim
any exemption from the payment of local taxes, including the subject franchise tax.1âwphi1

Indisputably, petitioner has the power to impose local taxes. The power of the local government units to impose and collect taxes is
derived from the Constitution itself which grants them "the power to create its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitation as the Congress may provide." 27 This explicit constitutional grant of power to tax is
consistent with the basic policy of local autonomy and decentralization of governance. With this power, local government units have the
fiscal mechanisms to raise the funds needed to deliver basic services to their constituents and break the culture of dependence on the
national government. Thus, consistent with these objectives, the LGC was enacted granting the local government units, like petitioner,
the power to impose and collect franchise tax, to wit:

SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. xxx

SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which
the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized
and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of
taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes.

Taking a different tack, CASURECO III maintains that it is exempt from payment of franchise tax because of its nature as a non-profit
cooperative, as contemplated in PD 269,28 and insists that only entities engaged in business, and not non-profit entities like itself, are
subject to the said franchise tax.

The Court is not persuaded.

In National Power Corporation v. City of Cabanatuan, 29 the Court declared that "a franchise tax is „a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state." 30 It is not levied on the corporation simply for existing as
a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government.31 "It is within
this context that the phrase „tax on businesses enjoying a franchise‟ in Section 137 of the LGC should be interpreted and
understood."32

Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one has a "franchise" in the sense of a
secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the pertinent
local government unit.33

There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted CASURECO III a franchise to operate
an electric light and power service for a period of fifty (50) years from June 6, 1979, 34 and it is undisputed that CASURECO III operates
within Iriga City and the Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature.

CASURECO III is liable for

franchise tax on gross receipts
within Iriga City and
Rinconada area

CASURECO III further argued that its liability to pay franchise tax, if any, should be limited to gross receipts received from the supply of
the electricity within the City of Iriga and not those from the Rinconada area.

Again, the Court is not convinced.

It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise tax, which as defined, is a tax on the
exercise of a privilege. As Section 137 35 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a
tax on business, rather than on persons or property. 36 Since it partakes of the nature of an excise tax/ 37 the situs of taxation is the place
where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office and from where it
operates, regardless of the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga
City and the Rinconada area.

WHEREFORE, the petition is GRANTED. The assailed Decision dated February 11, 2010 and Resolution dated July 12, 2010 of the
Court of Appeals are hereby SET ASIDE and the Decision of the Regional Trial Court oflriga City, Branch 36, is REINSTATED.

SO ORDERED.