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EN BANC

[G.R. No. L-19375. May 21, 1969.]

DY PEH, AND/OR VICTORY RUBBER


MANUFACTURING, petitioner, vs. COLLECTOR OF INTERNAL
REVENUE, respondent.

Rene A. Diokno for petitioner.


Solicitor General Arturo A. Alafriz Assistant Solicitor General Felicisimo
R. Rosete and Special Attorney Alejandro B. Afurong for respondent.

SYLLABUS

1.CIVIL LAW; AGENCY; AGENT'S ACTS BIND HIS PRINCIPAL; CASE AT BAR.
— Where Tan Chuan Liong, petitioner's agent who made the payment of the
latter's taxes, falsified the official receipts, applying a portion of the amounts
given by petitioner to him to pay the tax obligation of other taxpayers such as that
the official receipts in petitioner's hands did not reflect the truth thereby making
him liable to pay deficiency percentage taxes in the total amount of P15,939.27,
the conclusion must necessarily be that the agent's acts bind his principal,
without prejudice, of course, to the latter seeking recourse against him in an
appropriate civil or criminal action.
2.TAXATION; COURT OF TAX APPEALS; APPEAL FROM DECISION
THEREOF TO SUPREME COURT; ONLY ERRORS OF LAW ARE
REVIEWABLE BY COURT. — The trial court's ruling upon these questions of
whether it was petitioner, in person, who made the payment of his taxes and
whether or not the official receipts in petitioner's possession were falsified, and if
so by whom, must be sustained pursuant to our consistent ruling to the effect that
in reviews from the decisions of the Court of Appeals, only errors of law are
reviewable by this Court.

DECISION

DIZON, J :p
Petition filed by Dy Peh for the review of the decision and resolution of the Court
of Tax Appeals dated April 29, and December 23, 1961, respectively, in C.T.A.
Case No. 538, ordering him to pay deficiency percentage taxes in the total
amount of P51,939.27.
The following facts are not disputed:
Petitioner, during all the time material to this case, was engaged in the business
of manufacturing and selling rubber shoes and allied products in the city of Cebu,
under the registered firm name Victory Rubber Manufacturing.
Sometime in the year 1955 the Bureau of Internal Revenue unearthed anomalies
committed in the office of the Treasurer of the city of Cebu in connection with the
payment of taxes by some taxpayers, amongst them petitioner herein. As a result
the respondent assessed against, and demanded from petitioner the payment of
the following sums: P4,725, including P100 as penalty, P29,980, including P50
as penalty, and P17,425 including P50 as penalty, on January 27, 1956,
November 12, 1955 and November 12, 1955, respectively. This assessment was
based upon short payments in connection with taxes due from petitioner during
the periods covered by the assessment. The investigation of the anomalies
disclosed that the amounts of the taxes allegedly paid by him, as appearing in
the original of every official receipt he had in his possession, were bigger than
the amounts appearing in the corresponding duplicate, triplicate and
quadruplicate copy thereof kept in the office of the City Treasurer of Cebu. Such
discrepancies are hereunder tabulated as follows:
OfficialAppearing in theAppearing in the Duplicate,
ReceiptOriginalTriplicate and/or
NumberDateAmountQuadruplicate
Re 1st cause of actionDateAmountDifference
6990044-20-54P3,227.474-20-54P227.47P3,000.00
7042017-20-543,681.417-20-54681.413,000.00
70900810-20-541,892.7810-20-54192.781,700.00
A-2103191-20-552,575.461-20-55175.462,400.00
A-2181054-20-553,968.684-20-55168.693,800.00
Re 2nd cause of action
19231944-21-52P4,380.374-21-52P380.37P4,000.00
19728177-21-524,140.297-21-52140.294,000.00
639918810-20-522,113.0710-20-52113.072,000.00
77691801-17-531,457.424-7-536.001,451.42
77783874-18-534,057.564-18-5257.564,000.00
84230877-20-532,850.63720-5350.632,800.00
847085110-20-532,901.8710-20-53101.872,800.00
6936131-20-542,996.261-20-5496.262,900.00
Re 3rd cause of action
A-17090181-17-52P3,815.181-17-52P115.18P3,700.00
Petitioner's contention below and here is this: since the checks issued by him
covered in full the amount due for each quarter, and were accepted and
deposited by the City Treasurer of Cebu; since the originals of the official receipts
issued by the latter show that the full amount of the taxes due from him had been
paid, he must be deemed to have paid such taxes in full, and any anomaly in the
application of the amounts paid by him consisting in the diversion of part thereof
to pay the taxes of other taxpayers — whether attributable solely to employees in
the office of said Treasurer or to other parties — should not be held against him.
Respondent's contention, on the other hand, is that the amounts actually paid by
petitioner were those appearing on the duplicates, triplicates and quadruplicates
of the official receipts mentioned heretofore; that the originals thereof were
falsified or altered to make them show payment in full of the taxes due from
petitioner.
In connection with the issues thus joined petitioner tried to prove that the
payments in question were made by him personally, while, on the other hand,
respondent claimed that said payments were made not by petitioner personally
but by Tan Chuan Liong, his authorized agent in the matter of payment of his
taxes; that Bartolome Baguio, Chief of the Internal Revenue Division of the City
Treasurer's Office of Cebu, had allowed the wrongful practice of permitting Tan
Chuan Liong to prepare the official receipts in connection with tax payments
made by him in behalf of his merchant clients; that it was Tan Chuan Liong who
applied a portion of the amounts given to him by petitioner to pay tax obligations
of other taxpayers, also his clients, and that therefore petitioner's recourse is
against him.
Whether it was petitioner, in person, who made the payment of his taxes herein
involved, or it was his aforesaid agent, is manifestly a question of fact squarely
resolved by the Court of Tax Appeals as follows:
"Petitioner sought to prove that he never employed Tan Chuan Liong as
a business agent in the payment of the tax in question. The
preponderance of the evidence shows otherwise. If, as alleged,
petitioner paid the tax personally, why were the official receipts prepared
by Tan Chuan Liong and not by Bartolome Baguio or any authorized
employee in the office of the City Treasurer of Cebu? It appears that Tan
Chuan Liong prepared the official receipts of payments of taxpayers who
employed him as business agent. It has not been shown that Tan Chuan
Liong prepared any official receipt covering payment of taxpayers other
than those who employed him business agent."
After ruling against petitioner on this question, the Court of Tax Appeals said
further:
"Even assuming that Tan Chuan Liong was not employed by petitioner
as business agent, petitioner is not entirely blameless. The records show
that the payments were made by checks. The numbers of the official
receipts covering the payments are indicated on the back of the checks.
After the checks had been deposited and the amounts credited in favor
of the Government, the cancelled checks were returned to petitioner.
Petitioner is, therefore, charged with knowledge of the fact that the
amount covered by each check was applied in payment not only of his
tax but also of taxes of other taxpayers, the numbers of the official
receipts covering which are indicated on the back of the check. The fact
that he accepted the cancelled checks without protest is evidence of his
acquiescence to the manner in which the amount covered by each check
was applied by the collecting officer. He cannot now he heard to
complain."
We can hardly add any other consideration to strengthen the lower court's ruling.
Another question of fact vital to this case is whether or not the official receipts in
petitioner's possession were falsified, and if so by whom.
In this connection, We believe it established as a fact that petitioner had
employed Tan Chuan Liong as a business agent in the matter of payment of his
taxes. The testimonies of Bartolome Baguio, Isidro Badana and Lauro Abalos on
this matter (T.s.n. pp. 200-201, 472-473, 483-484, 501-503, 508-510, 525, 535-
539) were corroborated by the statement and report of NBI handwriting expert
Felipe Logan. That Tan Chuan Liong, as such petitioner's agent, actually paid to
the government less than the amounts of the taxes due from petitioner is also
fully proven by their testimonies and the duplicate, triplicate and quadruplicate
copies of the official receipts which appear upon their face to be genuine or
authentic. The same thing cannot be claimed for the official receipts in question,
because the lower court found that, as in the case Tiu Bon Sin vs. Collector etc.,
C.T.A. No. 286, and Yap Pe Giok vs. Aranas, C.T.A. No. 533, appellant
employed the same business agent who misappropriated a portion of the
amounts entrusted to him and paid less than what was due from his principals. In
plain words, the lower court expressed the view that the official receipts in
petitioner's hands did not reflect the truth.
The trial court's ruling upon these questions must be sustained pursuant to our
consistent ruling to the effect that in reviews of the nature of the present, only
errors of law are reviewable by this Court (G.R. L-12174 Maria B.
Castro vs. Collector, April 26, 1962; G.R. L- 9738 Blas Gutierrez, et al. vs. Court
of Tax Appeals; G.R. L-8556 Benito Sanchezvs. Commissioner of Customs,
Sept. 30, 1957 and 54 O.G. No. 2, p. 361; Eugenio Perez vs. Court of Tax
Appeals, G.R. L-10507, May 30, 1958; G.R. No. L-13387 Sy Chiuco vs.
Collector, March 23, 1960; G.R. No. L-11622 Collector vs. Fisher and G.R. No. L-
1168 Fisher vs. Collector, January 28, 1961).
The foregoing disposes of the first two assignments of error submitted in
petitioner's brief. In the third, it is his contention that the Court a quo erred in
holding that he is estopped from questioning the misapplication of his payments.

This is only a corollary of the questions raised in the previous assignments of


error. Inasmuch as We have held in resolving the latter that, in point of fact, Tan
Chuan Liong was petitioner's agent, the conclusion must necessarily be that the
agent's acts bind his principal; without prejudice, of course, to the latter seeking
recourse against him in an appropriate civil or criminal action.
The fourth and last assignment of error has been impliedly resolved adversely to
petitioner in our rulings upon the first three.
PREMISES CONSIDERED, the decision appealed from is hereby affirmed, with
costs
(Dy Peh v. Collector of Internal Revenue, G.R. No. L-19375, [May 21,
|||

1969], 138 PHIL 222-228)

FIRST DIVISION

[G.R. No. 163445. December 18, 2007.]

ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC BAY


MOTORS CORPORATION, Petitioners, vs. HON. GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of the
Bureau of Internal Revenue (BIR), THE REGIONAL DIRECTOR,
BIR, Region III, THE REVENUE DISTRICT OFFICER, BIR,
Special Economic Zone, and OFFICE OF THE SOLICITOR
GENERAL, respondents.

DECISION

PUNO, C.J : p

At bar is a petition for review on certiorari seeking the reversal of the


decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 79329 declaring
the Regional Trial Court (RTC) of Olongapo City, Branch 74, without
jurisdiction over Civil Case No. 275-0-2003.
The facts are undisputed.
Congress enacted Republic Act (R.A.) No. 7227 creating the Subic
Special Economic Zone (SSEZ) and extending a number of economic or tax
incentives therein. Section 12 of the law provides:
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the Local
Government Code, the [SSEZ] shall be developed into a self-sustaining,
industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and
promote productive foreign investments;
(b) The [SSEZ] shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital
within, into and exported out of the [SSEZ], as well as provide incentives
such as tax and duty-free importations of raw materials, capital and
equipment. However, exportation or removal of goods from the
territory of the [SSEZ] to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs
and Tariff Code and other relevant tax laws of the Philippines;
(c) The provision of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be imposed
within the [SSEZ]. In lieu of paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprise within the [SSEZ] shall
be remitted to the National Government, one percent (1%) each to the
local government units affected by the declaration of the zone in
proportion to their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%) of the gross
income earned by all business and enterprise within the [SSEZ] to be
utilized for the development of municipalities outside the City of
Olongapo and the Municipality of Subic, and other municipalities
contiguous to the base areas.
In case of conflict between national and local laws with respect to
tax exemption privileges in the [SSEZ], the same shall be resolved in
favor of the latter;
(d) No exchange control policy shall be applied and free markets
for foreign exchange, gold, securities and future shall be allowed and
maintained in the [SSEZ]; (emphasis supplied)
On January 24, 1995, then Secretary of Finance Roberto F. De
Ocampo, through the recommendation of then Commissioner of Internal
Revenue (CIR) Liwayway Vinzons-Chato, issued Revenue Regulations [Rev.
Reg.] No. 1-95, 2 providing the "Rules and Regulations to Implement the Tax
Incentives Provisions Under Paragraphs (b) and (c) of Section 12, [R.A.] No.
7227, [o]therwise known as the Bases Conversion and Development Act of
1992." Subsequently, Rev. Reg. No. 12-97 3 was issued providing for the
"Regulations Implementing Sections 12 (c) and 15 of [R.A.] No. 7227 and
Sections 24 (b) and (c) of [R.A.] No. 7916 Allocating Two Percent (2%) of the
Gross Income Earned by All Businesses and Enterprises Within the Subic,
Clark, John Hay, Poro Point Special Economic Zones and other Special
Economic Zones under PEZA." On September 27, 1999, Rev. Reg. No. 16-
99 4 was issued "Amending [RR] No. 1-95, as amended, and other related
Rules and Regulations to Implement the Provisions of paragraphs (b) and (c)
of Section 12 of [R.A.] No. 7227, otherwise known as the 'Bases Conversion
and Development Act of 1992' Relative to the Tax Incentives Granted to
Enterprises Registered in the Subic Special Economic and Freeport Zone."
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue
Memorandum Circular (RMC) No. 31-2003 setting the "Uniform Guidelines on
the Taxation of Imported Motor Vehicles through the Subic Free Port Zone
and Other Freeport Zones that are Sold at Public Auction." The assailed
portions of the RMC read:
II. Tax treatments on the transactions involved in the importation of
motor vehicles through the SSEFZ and other legislated Freeport
zones and subsequent sale thereof through public auction. —
Pursuant to existing revenue issuances, the following are the
uniform tax treatments that are to be adopted on the different
transactions involved in the importation of motor vehicles through
the SSEFZ and other legislated Freeport zones that are
subsequently sold through public auction:
A. Importation of motor vehicles into the freeport zones
1. Motor vehicles that are imported into the Freeport zones
for exclusive use within the zones are, as a general
rule, exempt from customs duties, taxes and other
charges, provided that the importer-consignee is a
registered enterprise within such freeport zone.
However, should these motor vehicles be brought
out into the customs territory without returning to the
freeport zones, the customs duties, taxes and other
charges shall be paid to the BOC before release
thereof from its custody.
xxx xxx xxx
3. For imported motor vehicles that are imported by
persons that are not duly registered enterprises of
the freeport zones, or that the same are intended for
public auction within the freeport zones, the
importer-consignee/auctioneer shall pay the value-
added tax (VAT) and excise tax to the BOC before
the registration thereof under its name with the LTO
and/or the conduct of the public auction.
xxx xxx xxx
B. Subsequent sale/public auction of the motor vehicles
1. Scenario One — The public auction is conducted by the
consignee of the imported motor vehicles within the
freeport zone
xxx xxx xxx
1.2. In case the consignee-auctioneer is a registered
enterprise and/or locator not entitled to the
preferential tax treatment or if the same is entitled
from such incentive but its total income from the
customs territory exceeds 30% of its entire income
derived from the customs territory and the freeport
zone, the income derived from the public auction
shall be subjected to the regular internal revenue
taxes imposed by the Tax Code.
xxx xxx xxx
1.4. In the event that the winning bidder shall bring
the motor vehicles into the customs territory, the
winning bidder shall be deemed the importer thereof
and shall be liable to pay the VAT and excise tax, if
applicable, based on the winning bid price.
However, in cases where the consignee-auctioneer
has already paid the VAT and excise tax on the
motor vehicles before the registration thereof with
LTO and the conduct of public auction, the
additional VAT and excise tax shall be paid by
winning bidder resulting from the difference between
the winning bid price and the value used by the
consignee-auctioneer in payment of such taxes. For
excise tax purposes, in case the winning bid price is
lower than the total costs to import,
reconditioning/rehabilitation of the motor vehicles,
and other administrative and selling expenses, the
basis for the computation of the excise tax shall be
the total costs plus ten percent (10%) thereof. The
additional VAT and excise taxes shall be paid to the
BIR before the auctioned motor vehicles are
registered with the LTO.
1.5 In case the services of a professional auctioneer
is employed for the public auction, the final
withholding tax of 25%, in case he/she is a non-
resident citizen or alien, or the expanded
withholding tax of 20%, in case he/she is a resident
citizen or alien, shall be withheld by the consignee-
auctioneer from the amount of consideration to be
paid to the professional auctioneer and shall be
remitted accordingly to the BIR.
This was later amended by RMC No. 32-2003, 5 to wit:
II. The imported motor vehicles after its release from Customs custody
are sold through public auction/negotiated sale by the consignee
within or outside of the Freeport Zone:
A. The gross income earned by the consignee-seller from the
public auction/negotiated sale of the imported vehicles
shall be subject to the preferential tax rate of five percent
(5%) in lieu of the internal revenue taxes imposed by
the National Internal Revenue Code of 1997, provided that
the following conditions are present:
1. That the consignee-seller is a duly registered enterprise
entitled to such preferential tax rate as well as a
registered taxpayer with the Bureau of Internal
Revenue (BIR).
2. That the total income generated by the consignee-seller
from sources within the customs territory does not
exceed thirty percent (30%) of the total income
derived from all sources.
B. In case the consignee-seller is a registered enterprise and/or
locator not entitled to the preferential tax treatment or if the
same is entitled from such incentive but its total income
from the customs territory exceeds thirty percent (30%) of
its entire income derived from the customs territory and the
freeport zone, the sales or income derived from the public
auction/negotiated sale shall be subjected to the regular
internal revenue taxes imposed by the Tax Code. The
consignee-seller shall also observe the compliance
requirements prescribed by the Tax Code. When public
auction or negotiated sale is conducted within or outside of
the freeport zone, the following tax treatment shall be
observed:
1. Value Added Tax (VAT)/Percentage Tax (PT) — VAT or
PT shall be imposed on every public auction or
negotiated sale.
2. Excise Tax — The imposition of excise tax on public
auction or negotiated sale shall be held in abeyance
pending verification that the importer's selling price
used as a basis by the Bureau of Customs in
computing the excise tax is correctly determined.
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay
Motors Corporation are corporations organized under Philippine laws with
principal place of business within the SSEZ. They are engaged in the
importation of mainly secondhand or used motor vehicles and heavy
transportation or construction equipment which they sell to the public through
auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying
for the nullification of RMC No. 31-2003 for being unconstitutional and an ultra
vires act. The complaint was docketed as Civil Case No. 275-0-2003 and
raffled to Branch 74. Subsequently, petitioners filed their "First Amended
Complaint to Declare Void, Ultra Vires, and Unconstitutional [RMC] No. 31-
2003 dated June 3, 2003 and [RMC] No. 32-2003 dated June 5, 2003, with
Application for a Writ of Temporary Restraining Order and Preliminary
Injunction" 6 to enjoin respondents from implementing the questioned RMCs
while the case is pending. Particularly, they question paragraphs II (A) (1) and
(3), II (B) (1.2), (1.4) and (1.5) of RMC No. 31-2003 and paragraphs II (A) (2)
and (B) of RMC No. 32-2003. Before a responsive pleading was filed,
petitioners filed their Second Amended Complaint 7 to include Rev. Reg. Nos.
1-95, 12-97 and 16-99 dated January 24, 1995, August 7, 1997 and
September 27, 1999, respectively, which allegedly contain some identical
provisions as the questioned RMCs, but without changing the cause of action
in their First Amended Complaint.
The Office of the Solicitor General (OSG) submitted its "Comment (In
Opposition to the Application for Issuance of a Writ of Preliminary
Injunction)." 8 Respondents CIR, Regional Director and Revenue District
Officer submitted their joint "Opposition (To The Prayer for Preliminary
Injunction and/or Temporary Restraining Order by Petitioners)." 9
Then Secretary of Finance Jose Isidro N. Camacho filed a Motion to
Dismiss the case against him, alleging that he is not a party to the suit and
petitioners have no cause of action against him. 10 Respondents CIR, BIR
Regional Director and BIR Revenue District Officer also filed their joint Motion
to Dismiss on the grounds that "[t]he trial court has no jurisdiction over the
subject matter of the complaint" and "[a] condition precedent, that is,
exhaustion of administrative remedies, has not been complied
with." 11 Petitioners filed their "Motion to Expunge from the Records the
Respondents['] Motion to Dismiss" 12 for allegedly failing to comply with
Section 4, Rule 15 of the Rules of Court. To this, the respondents filed their
Opposition. 13
Meantime, BIR Revenue District Officer Rey Asterio L. Tambis sent a
10-Day Preliminary Notice 14 to the president of petitioner AIAI for unpaid VAT
on auction sales conducted on June 6-8, 2003, as per RMC No. 32-2003.
On August 1, 2003, the trial court issued its order 15 granting the
application for a writ of preliminary injunction. The dispositive portion of the
order states:
WHEREFORE, premises considered, petitioners' application for
the issuance of a writ of preliminary injunction is hereby GRANTED. Let
the writ issue upon the filing and approval by the court of an injunction
bond in the amount of Php1 Million.
SO ORDERED. 16
Consequently, respondents CIR, the BIR Regional Director of Region
III, the BIR Revenue District Officer of the SSEZ, and the OSG filed with the
CA a petition forcertiorari under Rule 65 of the Rules of Court with prayer for
the issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction to enjoin the trial court from exercising jurisdiction over the case. 17
Meantime, BIR Regional Director Danilo A. Duncano sent a Preliminary
Assessment Notice 18 to the President of AIAI, informing him of the VAT due
from the company for the auction sales conducted on June 6-8, 2003 as per
RMC No. 32-2003, plus surcharge, interest and compromise penalty.
Thereafter, a Formal Letter of Demand 19 was sent to the President of
petitioner AIAI by the Officer-in-Charge of the BIR Office of the Regional
Director.
On March 31, 2004, the CA issued its assailed decision, the dispositive
portion of which states:
WHEREFORE, the petition is GRANTED. Public respondent
Regional Trial Court, Branch 74, of Olongapo City is hereby declared
bereft of jurisdiction to take cognizance of Civil Case No. 275-0-2003.
Accordingly, said Civil Case No. 275-0-2003 is hereby DISMISSED and
the assailed Order dated August 1, 2003, ANNULLED andSET ASIDE.
SO ORDERED. 20
Hence, this Petition for Review on Certiorari 21 with an application for a
temporary restraining order and a writ of preliminary injunction to enjoin
respondents "from pursuing sending letters of assessments to petitioners."
Petitioners raise the following issues:
[a] [W]hether a petition for certiorari under Rule 65 of the New
Rules is proper where the issue raised therein has not yet been resolved
at the first instance by the Court where the original action was filed, and,
necessarily, without first filing a motion for reconsideration;
[b] [W]hich Court- the regular courts of justice established
under Batas Pambansa Blg. 129 or the Court of Tax Appeals — is the
proper court of jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional and against an existing law
where the challenge does not involve the rate and figures of the imposed
taxes;
[c] [D]ependent on an affirmative resolution of the second issue in
favor of the regular courts of justice, whether the writ of preliminary
injunction granted by the Court at Olongapo City was properly and
legally issued. 22
Petitioners contend that there were fatal procedural defects in
respondents' petition for certiorari with the CA. They point out that the CA
resolved the issue of jurisdiction without waiting for the lower court to first rule
on the issue. Also, respondents did not file a motion for reconsideration of the
trial court's order granting the writ of preliminary injunction before filing the
petition with the CA.
The arguments are unmeritorious.
Jurisdiction is defined as the power and authority of a court to hear, try
and decide a case. 23 The issue is so basic that it may be raised at any stage
of the proceedings, even on appeal. 24 In fact, courts may take cognizance of
the issue even if not raised by the parties themselves. 25 There is thus no
reason to preclude the CA from ruling on this issue even if allegedly, the same
has not yet been resolved by the trial court.
As to respondents' failure to file a motion for reconsideration, we agree
with the ruling of the CA, which states:
It is now settled that the filing of a motion for reconsideration is
not always sine qua non before availing of the remedy
of certiorari. 26 Hence, the general rule of requiring a motion for
reconsideration finds no application in a case where what is precisely
being assailed is lack of jurisdiction of the respondent court. 27 And
considering also the urgent necessity for resolving the issues raised
herein, where further delay could prejudice the interests of the
government, 28 the haste with which the Solicitor General raised these
issues before this Court becomes understandable. 29
Now, to the main issue: does the trial court have jurisdiction over the
subject matter of this case?
Petitioners contend that jurisdiction over the case at bar properly
pertains to the regular courts as this is "an action to declare as
unconstitutional, void and against the provisions of [R.A. No.] 7227" the RMCs
issued by the CIR. They explain that they "do not challenge the rate, structure
or figures of the imposed taxes, rather they challenge the authority of the
respondent Commissioner to impose and collect the said taxes." They claim
that the challenge on the authority of the CIR to issue the RMCs does not fall
within the jurisdiction of the Court of Tax Appeals (CTA).
Petitioners' arguments do not sway.
R.A. No. 1125, as amended, states:
Sec. 7. Jurisdiction. — The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein provided

(1) Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue
Code or other laws or part of law administered by the Bureau of
Internal Revenue; . . . (emphases supplied)
We have held that RMCs are considered administrative rulings which
are issued from time to time by the CIR. 30
Rodriguez v. Blaquera 31 is in point. This case
involves Commonwealth Act No. 466, as amended by R.A. No. 84, which
imposed upon firearm holders the duty to pay an initial license fee of P15 and
an annual fee of P10 for each firearm, with the exception that in case of "bona
fide and active members of duly organized gun clubs and accredited by the
Provost Marshal General," the annual fee is reduced to P5 for each firearm.
Pursuant to this, the CIR issued General Circular No. V-148 which stated that
"bona fide and active members of duly organized gun clubs and accredited by
the Provost Marshal General . . . shall pay an initial fee of fifteen pesos and
an annual fee of five pesos for each firearm held on license except caliber .22
revolver or rifle." The General Circular further provided that "[m]ere
membership in the gun club does not, as a matter of right, entitle the member
to the reduced rates prescribed by law. The licensee must be accredited by
the Chief of Constabulary . . . [and] the firearm covered by the license of the
member must be of the target model in order that he may be entitled to the
reduced rates." Rodriguez, as manager of the Philippine Rifle and Pistol
Association, Inc., a duly accredited gun club, in behalf of the members who
have paid under protest the regular annual fee of P10, filed an action in the
Court of First Instance (now RTC) of Manila for the nullification of the circular
and the refund of P5. On the issue of jurisdiction, plaintiff similarly contended
that the action was not an appeal from a ruling of the CIR but merely an
attempt to nullify General Circular No. V-148, hence, not within the jurisdiction
of the CTA. The Court, in finding this argument unmeritorious, explained:
We find no merit in this pretense. General Circular No. V-148
directs the officers charged with the collection of taxes and license fees
to adhere strictly to the interpretation given by the defendant to the
statutory provision above mentioned, as set forth in the circular. The
same incorporates, therefore, a decision of the Collector of Internal
Revenue (now Commissioner of Internal Revenue) on the manner of
enforcement of said statute, the administration of which is entrusted by
law to the Bureau of Internal Revenue. As such, it comes within the
purview of [R.A.] No. 1125, section 7 of which provides that the [CTA]
"shall exercise exclusive appellate jurisdiction to review by appeal . . .
decisions of the Collector of Internal Revenue in . . . matters arising
under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue." Besides, it is plain
from plaintiff's original complaint that one of its main purposes was to
secure an order for the refund of the sums collected in excess of the
amount he claims to be due by way of annual fee from the gun club
members, regardless of the class of firearms they have. Although the
prayer for reimbursement has been eliminated from his amended
complaint, it is only too obvious that the nullification of General Circular
No. V-148 is merely a step preparatory to a claim for refund.
Similarly, in CIR v. Leal, 32 pursuant to Section 116 of Presidential
Decree No. 1158 (The National Internal Revenue Code, as amended) which
states that "[d]ealers in securities shall pay a tax equivalent to six (6%) per
centum of their gross income. Lending investors shall pay a tax equivalent to
five (5%) per cent, of their gross income," the CIR issued Revenue
Memorandum Order (RMO) No. 15-91 imposing 5% lending investor's tax on
pawnshops based on their gross income and requiring all investigating units
of the BIR to investigate and assess the lending investor's tax due from them.
The issuance of RMO No. 15-91 was an offshoot of the CIR's finding that the
pawnshop business is akin to that of "lending investors" as defined in Section
157 (u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91
subjecting pawn tickets to documentary stamp tax. Respondent therein,
Josefina Leal, owner and operator of Josefina's Pawnshop, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the same
was denied by petitioner CIR. Leal then filed a petition for prohibition with the
RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from
implementing the revenue orders. The CIR, through the OSG, filed a motion
to dismiss on the ground of lack of jurisdiction. The RTC denied the motion.
Petitioner filed a petition for certiorari and prohibition with the CA which
dismissed the petition "for lack of basis." In reversing the CA, dissolving the
Writ of Preliminary Injunction issued by the trial court and ordering the
dismissal of the case before the trial court, the Supreme Court held that "[t]he
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or
opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops." They were issued pursuant to the CIR's power under Section
245 33 of the Tax Code "to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws, including ruling on
the classification of articles of sales and similar purposes." The Court held that
under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as
amended, such rulings of the CIR are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue
memorandum circulars are actually rulings or opinions of the CIR on the tax
treatment of motor vehicles sold at public auction within the SSEZ to
implement Section 12 of R.A. No. 7227 which provides that "exportation or
removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the Philippines." They
were issued pursuant to the power of the CIR under Section 4 of the National
Internal Revenue Code, 34 viz:
Section 4. Power of the Commissioner to Interpret Tax Laws and
to Decide Tax Cases. — The power to interpret the provisions of this
Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (emphases supplied)
Petitioners point out that the CA based its decision on Section 7 of R.A.
No. 1125 that the CTA "shall exercise exclusive appellate jurisdiction to
review by appeal . . ." decisions of the CIR. They argue that in the instant
case, there is no decision of the respondent CIR on any disputed assessment
to speak of as what is being questioned is purely the authority of the CIR to
impose and collect value-added and excise taxes.
Petitioners' failure to ask the CIR for a reconsideration of the assailed
revenue regulations and RMCs is another reason why the instant case should
be dismissed. It is settled that the premature invocation of the court's
intervention is fatal to one's cause of action. If a remedy within the
administrative machinery can still be resorted to by giving the administrative
officer every opportunity to decide on a matter that comes within his
jurisdiction, then such remedy must first be exhausted before the court's
power of judicial review can be sought. 35 The party with an administrative
remedy must not only initiate the prescribed administrative procedure to
obtain relief but also pursue it to its appropriate conclusion before seeking
judicial intervention in order to give the administrative agency an opportunity
to decide the matter itself correctly and prevent unnecessary and premature
resort to the court. 36
Petitioners' insistence for this Court to rule on the merits of the case
would only prove futile. Having declared the court a quo without jurisdiction
over the subject matter of the instant case, any further disquisition would
be obiter dictum.
IN VIEW WHEREOF, the petition is DENIED.
SO ORDERED
(Asia International Auctioneers, Inc. v. Parayno, Jr., G.R. No. 163445,
|||

[December 18, 2007], 565 PHIL 255-271)

SECOND DIVISION

[G.R. No. 112024. January 28, 1999.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.


COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS,respondents.

The Solicitor General for respondents.


Angara, Abello Concepcion Regala for petitioner.

SYNOPSIS

Petitioner, Philippine Bank of Communications, on August 7, 1987, requested the


Commissioner of Internal Revenue (CIR) for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second quartets of 1985.
On July 25, 1988, it filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69. Pending investigation by the CIR, petitioner instituted a petition for
review on Nov. 18, 1988 before the Court of Tax Appeals (CTA). In 1993, the
CTA rendered a decision denying the request for a tax refund or credit in the
amount of P5,299,749.95 on the ground that it was filed beyond the two-year
reglementary period. The petitioner's claim for refund in 1986 was likewise
denied on the assumption that it was automatically credited by PBCom against
its tax payment in the succeeding year. These pronouncements by the CTA were
affirmed in toto by the CA. Hence, this petition. Petitioner argues that its claim for
refund tax credits are not yet barred by prescription relying on the applicability of
Revenue Memorandum Circular No. 7-85 stating that overpaid income taxes are
not covered by the two-year prescriptive period under the Tax Code and that
taxpayers may claim refund or tax credits within (ten) 10 years under Art. 1414 of
the Civil Code. CTAIDE

The Supreme Court ruled that when the Acting Commissioner of Internal
Revenue issued RMC 7-85, changing the prescriptive period of two years to ten
years on claims of excess quarterly income tax payments, such circular created a
clear inconsistency with the provision of Sec. 230 of the 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated guidelines contrary to
the statute passed by Congress. It bears repeating that Revenue memorandum-
circulars are considered administrative rulings (in the sense of more specific and
less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Thus, courts will
not countenance administrative issuances that override, instead of remaining
consistent and in harmony with, the law they seek to apply and implement.

SYLLABUS

1. TAXATION; GENERAL PRINCIPLES; BASIS AND PURPOSE; GENERATE


FUNDS FOR THE STATE TO FINANCE THE NEEDS OF THE CITIZENRY AND
ADVANCE THE COMMON WEAL. — Basic is the principle that "taxes are the
lifeblood of the nation." The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. Due
process of law under the Constitution does not require judicial proceedings in tax
cases. This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations and it is
of utmost importance that the modes adopted to enforce the collection of taxes
levied should be summary and interfered with as little as possible.
2. ID.; TAX REFUND FOR CLAIMING REFUND ON OVERPAYMENT;
PRESCRIPTIVE PERIOD THEREOF. — From the same perspective, claims for
refund or tax credit should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its functions should
not be unduly delayed or hampered by incidental matters. Section 230 of the
National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court proceeding for the recovery
of tax erroneously or illegally collected. The rule states that the taxpayer may file
a claim for refund or credit with the Commissioner of Internal Revenue, with two
(2) years after payment of tax, before any suit in CTA is commenced. The two-
year prescriptive period provided, should be computed from the time of filing the
Adjustment Return and final payment of the tax for the year.
3. ADMINISTRATIVE LAW; ADMINISTRATIVE BODIES; CIRCULARS AND
ISSUANCES; SHOULD NOT RUN AGAINST THE STATUTE PASSED BY
CONGRESS. — When the Acting Commissioner of Internal Revenue issued
RMC 7-85, changing the prescriptive period of two to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NLRC. In so doing, the BIR
did not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. It bears repeating that Revenue memorandum-
circulars are considered administrative rulings which are issued from time to time
by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be
erroneous. Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the law they seek
to apply and implement.
4. ID.; COMMISSIONER OF INTERNAL REVENUE; ERRORS IN
ADMINISTRATIVE INTERPRETATION; CANNOT PUT THE STATE IN
ESTOPPEL. — Fundamental is the rule that the State cannot be put in estoppel
by the mistakes or errors of its officials or agents. As pointed out by the
respondent courts, the nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative interpretation which is not
in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express
provision of a statute. Hence, his interpretation could not be given weight for to
do so would, in effect, amend the statute.
5. ID.; ADMINISTRATIVE BODIES; ADMINISTRATIVE DECISIONS; DO NOT
FORM PART OF THE LEGAL SYSTEM. — Article 8 of the Civil Code recognizes
judicial decisions, applying or interpreting statutes as part of the legal system of
the country. But administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer with
a shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and
such wrong interpretation could not place the Government in estoppel to correct
or overrule the same. Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the
nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue.
6. TAXATION; PAYMENT; CLAIM FOR REFUND; CONSTRUED IN
STRICTISSIMI JURIS AGAINST THE TAXPAYER. — As repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption and should be
construed in strictissimi juris against the taxpayer.
7. ID.; NATIONAL INTERNAL REVENUE CODE, INCOME TAX; EXCESS OF
THE TOTAL QUARTERLY PAYMENTS THEREOF IS EITHER REFUNDED OR
CREDITED AGAINST THE ESTIMATED QUARTERLY INCOME TAX
LIABILITIES FOR THE SUCCEEDING TAXABLE YEAR. — Sec. 69 of the 1977
NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or
final corporate income tax return, shall either (a) be refunded to the corporation,
or (b) may be credited against the estimated quarterly income tax liabilities for
the quarters of the succeeding taxable year.
8. ID.; ID.; ID.; ID.; REMEDIES ARE IN THE ALTERNATIVE AND THE CHOICE
OF ONE PRECLUDES THE OTHER. — The corporation must signify in its
annual corporate adjustment return (by marking the option box provided in the
BIR form) its intention, whether to request for a refund or claim for an automatic
tax credit for the succeeding taxable year. To ease the administration of tax
collection, these remedies are in the alternative, and the choice of one precludes
the other.
9. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF QUASI-JUDICIAL
BODIES; ACCORDED GREAT WEIGHT. — That the petitioner opted for an
automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in
its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must
respect. Moreover, the 1987 annual corporate tax return of the petitioner was not
offered as evidence to controvert said fact. Thus, we are bound by the findings of
fact by respondent courts, there being no showing of gross error or abuse on
their part to disturb out reliance thereon.
aEIADT

DECISION

QUISUMBING, J : p

This petition for review assails the Resolution 1 of the Court of Appeals
dated September 22, 1993, affirming the Decision 2 and Resolution 3 of the
Court of Tax Appeals which denied the claims of the petitioner for tax refund
and tax credits, and disposing as follows: dctai

"IN VIEW OF ALL THE FOREGOING, the instant petition for


review is DENIED due course. The Decision of the Court of Tax Appeals
dated May 20, 1993 and its resolution dated July 20, 1993, are hereby
AFFIRMED in toto.
SO ORDERED." 4
The Court of Tax Appeals earlier ruled as follows:
"WHEREFORE, petitioner's claim for refund/tax credit of overpaid
income tax for 1985 in the amount of P5,299,749.95 is hereby denied for
having been filed beyond the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise denied since petitioner has
opted and in all likelihood automatically credited the same to the
succeeding year. The petition for review is dismissed for lack of merit.

SO ORDERED." 5
The facts on record show the antecedent circumstances pertinent to
this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial
banking corporation duly organized under Philippine laws, filed its quarterly
income tax returns for the first and second quarters of 1985, reported profits,
and paid the total income tax of P5,016,954.00. The taxes due were settled by
applying PBCom's tax credit memos and accordingly, the Bureau of Internal
Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for
P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its
Annual Income Tax Returns for the year-ended December 31, 1985, it
declared a net loss of P25,317,228.00, thereby showing no income tax
liability. For the succeeding year, ending December 31, 1986, the petitioner
likewise reported a net loss of P14,129,602.00, and thus declared no tax
payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal
Revenue, among others, for a tax credit of P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of
creditable taxes withheld by their lessees from property rentals in 1985 for
P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal
Revenue, petitioner instituted a Petition for Review on November 18, 1988
before the Court of Tax Appeals (CTA). The petition was docketed as CTA
Case No. 4309 entitled: "Philippine Bank of Communications vs.
Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims
for refund and tax credit for 1985 and 1986, filed before the Court of Tax
Appeals, are as follows:
1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax
Payments Made 5,016,954.00 —
Tax Withheld at Source 282,795.50 234,077.69
—————— ——————
Excess Tax Payments P5,299,749.50* P234,077.69
============== ==============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A
forty-five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the
outset, denied the request of petitioner for a tax refund or credit in the sum
amount of P5,299,749.95, on the ground that it was filed beyond the two-year
reglementary period provided for by law. The petitioner's claim for refund in
1986 amounting to P234,077.69 was likewise denied on the assumption that it
was automatically credited by PBCom against its tax payment in the
succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the
CTA's decision but the same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and
resolution of the CTA with the Court of Appeals. However on September 22,
1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20,
1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom — which relied in good faith on the formal
assurances of BIR in RMC No. 7-85 and did not immediately file
with the CTA a petition for review asking for the refund/tax credit
of its 1985-86 excess quarterly income tax payments — can be
prejudiced by the subsequent BIR rejection, applied retroactively,
of its assurances in RMC No. 7-85 that the prescriptive period for
the refund/tax credit of excess quarterly income tax payments is
not two years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA
decision which denied PBCom's claim for the refund of
P234,077.69 income tax overpaid in 1986 on the mere
speculation, without proof, that there were taxes due in 1987 and
that PBCom availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of
Appeals erred in denying the plea for tax refund or tax credits on the ground
of prescription, despite petitioner's reliance on RMC No. 7-85, changing the
prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet
barred by prescription relying on the applicability of Revenue Memorandum
Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid
income taxes are not covered by the two-year prescriptive period under the
tax Code and that taxpayers may claim refund or tax credits for the excess
quarterly income tax with the BIR with ten (10) years under Article 1144 of the
Civil Code. The pertinent portions of the circular reads:
"REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS
CORPORATE INCOME TAX RESULTING FROM THE
FILING OF THE FINAL ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code
provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of
Revenue Regulations Nos. 10-77 which provide:
xxx xxx xxx
It has been observed, however, that because of the excess tax
payments, corporations file claims for recovery of overpaid income tax
with the Court of Tax Appeals within the two-year period from the date of
payment, in accordance with Sections 292 and 295 of the National
Internal Revenue Code. It is obvious that the filing of the case in court is
to preserve the judicial right of the corporation to claim the refund or tax
credit.
It should be noted, however, that this is not a case of erroneously
or illegally paid tax under the provisions of Sections 292 and 295 of the
Tax Code.
In the above provision of the Regulations the corporation may
request for the refund of the overpaid income tax or claim for automatic
tax credit. To insure prompt action on corporate annual income tax
returns showing refundable amounts arising from overpaid quarterly
income taxes, this Office has promulgated Revenue Memorandum Order
No. 32-76 dated June 11, 1976, containing the procedure in processing
said returns. Under these procedures, the returns are merely pre-audited
which consist mainly of checking mathematical accuracy of the figures of
the return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for
review in the Court of Tax Appeals in order to preserve the right to claim
refund or tax credit within the two-year period. As already stated, actions
hereon by the Bureau are immediate after only a cursory pre-audit of the
income tax returns. Moreover, a taxpayer may recover from the Bureau
of Internal Revenue excess income tax paid under the provisions of
Section 86 of the Tax Code within 10 years from the date of payment
considering that it is an obligation created by law (Article 1144 of the
Civil Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a
position contrary to its declared circular if it would result to injustice to
taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax
Appeals 10 petitioner claims that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive effect if it would be
prejudicial to taxpayers. In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom or where there has
been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue
Code explicitly provides for this rule as follows: Cdpr

"Sec. 246. Non-retroactivity of rulings. — Any revocation,


modification or reversal of any of the rules and regulations promulgated
in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification, or reversal will be prejudicial to
the taxpayers except in the following cases:
a) where the taxpayer deliberately misstates or omits material facts from
his return or in any document required of him by the Bureau of
Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling
is based;
c) where the taxpayer acted in bad faith."
Respondent Commissioner of Internal Revenue, through the Solicitor
General, argues that the two-year prescriptive period for filing tax cases in
court concerning income tax payments of Corporations is reckoned from the
date of filing the Final Adjusted Income Tax Return, which is generally done
on April 15 following the close of the calendar year. As precedents,
respondent Commissioner cited cases which adhered to this principle, to
wit: ACCRA Investments Corp. vs. Court of Appeals, et
al., 11 andCommissioner of Internal Revenue vs. TMX Sales, Inc., et
al., 12 Respondent Commissioner also states that since the Final Adjusted
Income Tax Return of the petitioner for the taxable year 1985 was supposed
to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek
relief from the court. Further, respondent Commissioner stresses that when
the petitioner filed the case before the CTA on November 18, 1988, the same
was filed beyond the time fixed by law, and such failure is fatal to petitioner's
cause of action.
After a careful study of the records and applicable jurisprudence on the
matter, we find that, contrary to the petitioner's contention, the relaxation of
revenue regulations by RMC 7-85 is not warranted as it disregards the two-
year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The
primary purpose is to generate funds for the State to finance the needs of the
citizenry and to advance the common weal. 13 Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977
(now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a
court proceeding for the recovery of tax erroneously or illegally collected, viz.:
"Sec. 230. Recovery of tax erroneously or illegally collected. —
No suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to have
been excessive or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment;
Provided however, That the Commissioner may, even without a written
claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have
been erroneously paid." (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing the
Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life
Insurance Co., 15 this Court explained the application of Sec. 230 of 1977
NIRC, as follows:
"Clearly, the prescriptive period of two years should commence to
run only from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished. In the
present case, this date is April 16, 1984, and two years from this date
would be April 16, 1986. . . . As we have earlier said in the TMX Sales
case, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax
Payment and Section 321 should be considered in conjunction with it." 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency
with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be
erroneous. 20 Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the law they
seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations
issued by administrative officials to implement a law cannot go beyond the
terms and provisions of the latter.
"Appellant contends that Section 2 of FAO No. 37-1 is void
because it is not only inconsistent with but is contrary to the provisions
and spirit of Act No. 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not
exceeding five years duration, FAO No. 37-1 fixed no period, that is to
say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an
oversight on the part of Secretary of Agriculture and Natural Resources.
Of course, in case of discrepancy, the basic Act prevails, for the reason
that the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the latter. . . . In this connection, the
attention of the technical men in the offices of Department Heads who
draft rules and regulations is called to the importance and necessity of
closely following the terms and provisions of the law which they intended
to implement, this to avoid any possible misunderstanding or confusion
as in the present case." 23
Further, fundamental is the rule that the State cannot be put in estoppel
by the mistakes or errors of its officials or agents. 24 As pointed out by the
respondent courts, the nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative interpretation which is
not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express
provision of a statute. Hence, his interpretation could not be given weight for
to do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:
"It is likewise argued that the Commissioner of Internal Revenue,
after promulgating RMC No. 7-85, is estopped by the principle of non-
retroactivity of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation
created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding
petition for review within the two-year prescription period, and that the
lengthening of the period of limitation on refund from two to ten years
would be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, — was the ruling and judicial interpretation
of the Court of Tax Appeals. Estoppel has no application in the case at
bar because it was not the Commissioner of Internal Revenue who
denied petitioner's claim of refund or tax credit. Rather, it was the Court
of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled
that the RMC No. 7-85 issued by the Commissioner of Internal Revenue
is an administrative interpretation which is out of harmony with or
contrary to the express provision of a statute (specifically Sec. 230,
NIRC), hence, cannot be given weight for to do so would in effect amend
the statute." 25
Article 8 of the Civil Code 26 recognizes judicial decisions, applying or
interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer
with a shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and
such wrong interpretation could not place the Government in estoppel to
correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by
the Commissioner of Internal Revenue is not applicable in this case because
the nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals
seriously erred in affirming CTA's decision denying its claim for refund of
P234,077.69 (tax overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in 1987. prcd

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides
that any excess of the total quarterly payments over the actual income tax
computed in the adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of the succeeding
taxable year.
The corporation must signify in its annual corporate adjustment return
(by marking the option box provided in the BIR form) its intention, whether to
request for a refund or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection, these remedies are
in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
"Finally, as to the claimed refund of income tax over-paid in 1986
— the Court of Tax Appeals, after examining the adjusted final corporate
annual income tax return for taxable year 1986, found out that petitioner
opted to apply for automatic tax credit. This was the basis used (vis-a-vis
the fact that the 1987 annual corporate tax return was not offered by the
petitioner as evidence) by the CTA in concluding that petitioner had
indeed availed of and applied the automatic tax credit to the succeeding
year, hence it can no longer ask for refund, as to [sic] the two remedies
of refund and tax credit are alternative." 30

That the petitioner opted for an automatic tax credit in accordance with
Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax
Return, is a finding of fact which we must respect. Moreover, the 1987 annual
corporate tax return of the petitioner was not offered as evidence to controvert
said fact. Thus, we are bound by the findings of fact by respondent courts,
there being no showing of gross error or abuse on their part to disturb our
reliance thereon. 31
WHEREFORE, the petition is hereby DENIED. The decision of the
Court of Appeals appealed from is AFFIRMED, with COSTS against the
petitioner.
cdphil

SO ORDERED
(Philippine Bank of Communications v. Commissioner of Internal Revenue, G.R.
|||

No. 112024, [January 28, 1999], 361 PHIL 916-933)


EN BANC

[G.R. No. 187485. February 12, 2013.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SAN


ROQUE POWER CORPORATION, respondent.

[G.R. No. 196113. February 12, 2013.]

TAGANITO MINING CORPORATION, petitioner, vs.


COMMISSIONER OF INTERNAL REVENUE, respondent.

[G.R. No. 197156. February 12, 2013.]

PHILEX MINING CORPORATION, petitioner, vs.


COMMISSIONER OF INTERNAL REVENUE, respondent

(Commissioner of Internal Revenue v. San Roque Power Corp., G.R. No.


|||

187485, 196113, 197156, [February 12, 2013], 703 PHIL 310-434)

FIRST DIVISION

[G.R. No. 151908. August 12, 2003.]

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO


TELEPHONE CORPORATION (PILTEL), petitioners, vs.
NATIONAL TELECOMMUNICATIONS COMMISSION
(NTC), respondent.

[G.R. No. 152063. August 12, 2003.]

GLOBE TELECOM, INC. (GLOBE) and ISLA


COMMUNICATIONS CO., INC. (ISLACOM), petitioners, vs.
COURT OF APPEALS (The Former 6th Division) and the
NATIONAL TELECOMMUNICATIONS
COMMISSION, respondents.
Quevedo Español Ibay Syquia-Santos & Plaza-Cortes and Ian R.A.
Pangalangan for petitioners in G.R. No. 151908.
Salalima and Gonzales for Globe Telecoms, Inc.
Latina and Carelo for Isla Communications Co., Inc.

SYNOPSIS

Pursuant to its rule-making and regulatory powers, the National


Telecommunications Commission (NTC) promulgated rules and regulations on
the billing of telecommunications services. Petitioners-communications
companies filed an action for declaration of nullity of the billing circulars, alleging,
among others: that NTC contravened the Civil Code provisions on sales in
regulating the sale of prepaid call cards; and that the billing circular violated the
constitutional prohibition against the deprivation of property without due process
of law. The NTC moved to dismiss the case for failure of petitioners to exhaust
administrative remedies. The trial court denied the motion to dismiss and
enjoined the NTC from implementing the questioned circulars. The CA, however,
dismissed the case on appeal without prejudice to the referral of the petitioners'
grievances and disputes on the assailed issuances with the NTC.
On appeal, the Supreme Court held that the trial court has jurisdiction to hear
and decide the civil case. Judicial power includes the authority of the courts to
determine the validity of the acts of administrative agencies. In questioning the
validity or constitutionality of a rule or regulation issued by an administrative
agency, a party need not exhaust administrative remedies before going to court.
This principle applies only where the act of the administrative agency concerned
was performed pursuant to its quasi-judicial function, and not when the assailed
act pertained to its rule-making or quasi-legislative power. In like manner, the
doctrine of primary jurisdiction applies only where the administrative agency
exercises its quasi judicial or adjudicatory function.

SYLLABUS

1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES;


POSSESS QUASI-LEGISLATIVE AND QUASI-JUDICIAL FUNCTIONS;
DISTINCTIONS. — Administrative agencies possess quasi-legislative or rule-
making powers and quasi judicial or administrative adjudicatory powers. Quasi-
legislative or rule-making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute
and the doctrine of non-delegability and separability of powers. The rules and
regulations that administrative agencies promulgate, which are the product of a
delegated legislative power to create new and additional legal provisions that
have the effect of law, should be within the scope of the statutory authority
granted by the legislature to the administrative agency. It is required that the
regulation be germane to the objects and purposes of the law, and be not in
contradiction to, but in conformity with, the standards prescribed by law. They
must conform to and be consistent with the provisions of the enabling statute in
order for such rule or regulation to be valid. Not to be confused with the quasi-
legislative or rule-making power of an administrative agency is its quasi-judicial
or administrative adjudicatory power. This is the power to hear and determine
questions of fact to which the legislative policy is to apply and to decide in
accordance with the standards laid down by the law itself in enforcing and
administering the same law. The administrative body exercises its quasi judicial
power when it performs in a judicial manner an act which is essentially of an
executive or administrative nature, where the power to act in such manner is
incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial functions,
the administrative officers or bodies are required to investigate facts or ascertain
the existence of facts, hold hearings, weigh evidence, and draw conclusions from
them as basis for their official action and exercise of discretion in a judicial
nature.
2. ID.; ID.; ID.; ID.; EXHAUSTION DOCTRINE; APPLIES ONLY TO JUDICIAL
REVIEW OF DECISIONS OF ADMINISTRATIVE AGENCIES; CASE AT BAR. —
In questioning the validity or constitutionality of a rule or regulation issued by an
administrative agency, a party need not exhaust administrative remedies before
going to court. This principle applies only where the act of the administrative
agency concerned was performed pursuant to its quasi-judicial function, and not
when the assailed act pertained to its rule-making or quasi-legislative power.
Even assuming arguendo that the principle of exhaustion of administrative
remedies apply in this case, the records reveal that petitioners sufficiently
complied with this requirement. Even during the drafting and deliberation stages
leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were
able to register their protests to the proposed billing guidelines. They submitted
their respective position papers setting forth their objections and submitting
proposed schemes for the billing circular. After the same was issued, petitioners
wrote successive letters dated July 3, 2000 and July 5, 2000, asking for the
suspension and reconsideration of the so-called Billing Circular. These letters
were not acted upon until October 6, 2000, when respondent NTC issued the
second assailed Memorandum implementing certain provisions of the Billing
Circular. This was taken by petitioners as a clear denial of the requests contained
in their previous letters, thus prompting them to seek judicial relief.
3. ID.; ID.; ID.; ID.; DOCTRINE OF PRIMARY JURISDICTION; APPLIES
WHERE ADMINISTRATIVE AGENCY EXERCISES ITS QUASI-JUDICIAL OR
ADJUDICATORY FUNCTION. — In like manner, the doctrine of primary
jurisdiction applies only where the administrative agency exercises its quasi-
judicial or adjudicatory function. Thus, in cases involving specialized disputes,
the practice has been to refer the same to an administrative agency of special
competence pursuant to the doctrine of primary jurisdiction. The courts will not
determine a controversy involving a question which is within the jurisdiction of the
administrative tribunal prior to the resolution of that question by the administrative
tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and services of the
administrative tribunal to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the premises of the regulatory
statute administered.
4. ID.; JUDICIAL POWER; POWER OF JUDICIAL REVIEW; JURISDICTION OF
REGULAR COURTS TO PASS UPON VALIDITY OR CONSTITUTIONALITY OF
ADMINISTRATIVE RULES OR REGULATIONS. — Where what is assailed is
the validity or constitutionality of a rule or regulation issued by the administrative
agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the same. The determination of whether a specific
rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the Constitution
vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts. This is
within the scope of judicial power, which includes the authority of the courts to
determine in an appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
5. ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, the issuance by the
NTC of Memorandum Circular No. 13-6-2000 and its Memorandum dated
October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As
such, petitioners were justified in invoking the judicial power of the Regional Trial
Court to assail the constitutionality and validity of the said issuances. . . In their
complaint before the Regional Trial Court, petitioners averred that the Circular
contravened Civil Code provisions on sales and violated the constitutional
prohibition against the deprivation of property without due process of law. These
are within the competence of the trial judge. Contrary to the finding of the Court
of Appeals, the issues raised in the complaint do not entail highly technical
matters. Rather, what is required of the judge who will resolve this issue is a
basic familiarity with the workings of the cellular telephone service, including
prepaid SIM and call cards — and this is judicially known to be within the
knowledge of a good percentage of our population — and expertise in
fundamental principles of civil law and the Constitution. Hence, the Regional Trial
Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court
of Appeals erred in setting aside the orders of the trial court and in dismissing the
case.

DECISION

YNARES-SANTIAGO, J : p

Pursuant to its rule-making and regulatory powers, the National


Telecommunications Commission (NTC) issued on June 16, 2000 Memorandum
Circular No. 13-6-2000, promulgating rules and regulations on the billing of
telecommunications services. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the


telephone service not later than 30 days from the end of each billing
cycle. In case the statement is received beyond this period, the
subscriber shall have a specified grace period within which to pay the bill
and the public telecommunications entity (PTEs) shall not be allowed to
disconnect the service within the grace period.
(2) There shall be no charge for calls that are diverted to a voice
mailbox, voice prompt, recorded message or similar facility excluding the
customer's own equipment.
(3) PTEs shall verify the identification and address of each purchaser of
prepaid SIM cards. Prepaid call cards and SIM cards shall be valid for at
least 2 years from the date of first use. Holders of prepaid SIM cards
shall be given 45 days from the date the prepaid SIM card is fully
consumed but not beyond 2 years and 45 days from date of first use to
replenish the SIM card, otherwise the SIM card shall be rendered invalid.
The validity of an invalid SIM card, however, shall be installed upon
request of the customer at no additional charge except the presentation
of a valid prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards
before the start of every call using the cards.
(5) The unit of billing for the cellular mobile telephone service whether
postpaid or prepaid shall be reduced from 1 minute per pulse to 6
seconds per pulse. The authorized rates per minute shall thus be divided
by 10. 1
The Memorandum Circular provided that it shall take effect 15 days after its
publication in a newspaper of general circulation and three certified true copies
thereof furnished the UP Law Center. It was published in the newspaper, The
Philippine Star, on June 22, 2000. 2 Meanwhile, the provisions of the
Memorandum Circular pertaining to the sale and use of prepaid cards and the
unit of billing for cellular mobile telephone service took effect 90 days from the
effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile
telephone service (CMTS) operators which contained measures to minimize if
not totally eliminate the incidence of stealing of cellular phone units. The
Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the
presentation and verification of the identity and addresses of
prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with
Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid
customers using stolen cellphone units or cellphone units
registered to somebody other than the applicant when properly
informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other
CMTS operators in order to prevent the use of stolen cellphone
units; and
e. require all your existing prepaid SIM card customers to register and
present valid identification cards. 3
This was followed by another Memorandum dated October 6, 2000 addressed to
all public telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07
October 2000 and beyond shall be valid for at least two (2) years from
date of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by
subscribers of prepaid cards sold on 07 October 2000 and beyond shall
be valid for at least two (2) years from date of first use. Also, the billing
unit shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance. 4
On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino
Telephone Corporation filed against the National Telecommunications
Commission, Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio
M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for declaration
of nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular) and
the NTC Memorandum dated October 6, 2000, with prayer for the issuance of a
writ of preliminary injunction and temporary restraining order. The complaint was
docketed as Civil Case No. Q-00-42221 at the Regional Trial Court of Quezon
City, Branch 77. 5
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction
to regulate the sale of consumer goods such as the prepaid call cards since such
jurisdiction belongs to the Department of Trade and Industry under the Consumer
Act of the Philippines; that the Billing Circular is oppressive, confiscatory and
violative of the constitutional prohibition against deprivation of property without
due process of law; that the Circular will result in the impairment of the viability of
the prepaid cellular service by unduly prolonging the validity and expiration of the
prepaid SIM and call cards; and that the requirements of identification of prepaid
card buyers and call balance announcement are unreasonable. Hence, they
prayed that the Billing Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc. and Smart Communications,
Inc. filed a joint Motion for Leave to Intervene and to Admit Complaint-in-
Intervention. 6 This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order
enjoining the NTC from implementing Memorandum Circular No. 13-6-2000 and
the Memorandum dated October 6, 2000. 7
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss
the case on the ground of petitioners' failure to exhaust administrative remedies.
Subsequently, after hearing petitioners' application for preliminary injunction as
well as respondent's motion to dismiss, the trial court issued on November 20,
2000 an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the defendants' motion to dismiss
is hereby denied for lack of merit. The plaintiffs' application for the
issuance of a writ of preliminary injunction is hereby granted.
Accordingly, the defendants are hereby enjoined from implementing
NTC Memorandum Circular 13-6-2000 and the NTC Memorandum,
dated October 6, 2000, pending the issuance and finality of the decision
in this case. The plaintiffs and intervenors are, however, required to file a
bond in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00), Philippine currency.
SO ORDERED. 8
Defendants filed a motion for reconsideration, which was denied in an Order
dated February 1, 2001. 9
Respondent NTC thus filed a special civil action for certiorari and prohibition with
the Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On
October 9, 2001, a decision was rendered, the decretal portion of which reads:
WHEREFORE, premises considered, the instant petition
for certiorari and prohibition is GRANTED, in that, the order of the
court a quo denying the petitioner's motion to dismiss as well as the
order of the court a quo granting the private respondents' prayer for a
writ of preliminary injunction, and the writ of preliminary injunction issued
thereby, are hereby ANNULLED and SET ASIDE. The private
respondents' complaint and complaint-in-intervention below are hereby
DISMISSED, without prejudice to the referral of the private respondents'
grievances and disputes on the assailed issuances of the NTC with the
said agency. TSDHCc

SO ORDERED. 10
Petitioners' motions for reconsideration were denied in a Resolution dated
January 10, 2002 for lack of merit. 11
Hence, the instant petition for review filed by Smart and Piltel, which was
docketed as G.R. No. 151908, anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT THE NATIONAL TELECOMMUNICATIONS
COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS
JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN
HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO
EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC
IS UNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC
POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE PRIVATE RESPONDENTS FAILED TO SHOW THEIR CLEAR
POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF
PRELIMINARY INJUNCTION. 12
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No.
152063, assigning the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINES OF PRIMARY JURISDICTION
AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT
APPLY SINCE THE INSTANT CASE IS FOR LEGAL
NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND
VIOLATIONS OF LAW) OF A PURELY ADMINISTRATIVE
REGULATION PROMULGATED BY AN AGENCY IN THE
EXERCISE OF ITS RULE MAKING POWERS AND INVOLVES
ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE ON EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE
QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE
ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE,
WHEN THERE IS NO OTHER REMEDY, AND THE
PETITIONER STANDS TO SUFFER GRAVE AND
IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE PETITIONERS IN FACT EXHAUSTED ALL
ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN
ISSUING ITS QUESTIONED RULINGS IN THIS CASE
BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT TO AN
INJUNCTION. 13
The two petitions were consolidated in a Resolution dated February 17, 2003. 14
On March 24, 2003, the petitions were given due course and the parties were
required to submit their respective memoranda. 15
We find merit in the petitions.

Administrative agencies possess quasi-legislative or rule-making powers and


quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule-
making power is the power to make rules and regulations which results in
delegated legislation that is within the confines of the granting statute and the
doctrine of non-delegability and separability of powers. 16
The rules and regulations that administrative agencies promulgate, which are the
product of a delegated legislative power to create new and additional legal
provisions that have the effect of law, should be within the scope of the statutory
authority granted by the legislature to the administrative agency. It is required
that the regulation be germane to the objects and purposes of the law, and be
not in contradiction to, but in conformity with, the standards prescribed by
law. 17 They must conform to and be consistent with the provisions of the
enabling statute in order for such rule or regulation to be valid. Constitutional and
statutory provisions control with respect to what rules and regulations may be
promulgated by an administrative body, as well as with respect to what fields are
subject to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute, particularly the
statute it is administering or which created it, or which are in derogation of, or
defeat, the purpose of a statute. In case of conflict between a statute and an
administrative order, the former must prevail. 18
Not to be confused with the quasi-legislative or rule-making power of an
administrative agency is its quasi-judicial or administrative adjudicatory power.
This is the power to hear and determine questions of fact to which the legislative
policy is to apply and to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law. The administrative
body exercises its quasi-judicial power when it performs in a judicial manner an
act which is essentially of an executive or administrative nature, where the power
to act in such manner is incidental to or reasonably necessary for the
performance of the executive or administrative duty entrusted to it. In carrying out
their quasi-judicial functions, the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh
evidence, and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature. 19
In questioning the validity or constitutionality of a rule or regulation issued by an
administrative agency, a party need not exhaust administrative remedies before
going to court. This principle applies only where the act of the administrative
agency concerned was performed pursuant to its quasi-judicial function, and not
when the assailed act pertained to its rule-making or quasi-legislative power.
In Association of Philippine Coconut Desiccators v. Philippine Coconut
Authority, 20 it was held:
The rule of requiring exhaustion of administrative remedies before a
party may seek judicial review, so strenuously urged by the Solicitor
General on behalf of respondent, has obviously no application here. The
resolution in question was issued by the PCA in the exercise of its rule-
making or legislative power. However, only judicial review of decisions of
administrative agencies made in the exercise of their quasi-judicial
function is subject to the exhaustion doctrine.
Even assuming arguendo that the principle of exhaustion of administrative
remedies apply in this case, the records reveal that petitioners sufficiently
complied with this requirement. Even during the drafting and deliberation stages
leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were
able to register their protests to the proposed billing guidelines. They submitted
their respective position papers setting forth their objections and submitting
proposed schemes for the billing circular. 21After the same was issued, petitioners
wrote successive letters dated July 3, 2000 22 and July 5, 2000, 23 asking for the
suspension and reconsideration of the so-called Billing Circular. These letters
were not acted upon until October 6, 2000, when respondent NTC issued the
second assailed Memorandum implementing certain provisions of the Billing
Circular. This was taken by petitioners as a clear denial of the requests contained
in their previous letters, thus prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the
administrative agency exercises its quasi-judicial or adjudicatory function. Thus,
in cases involving specialized disputes, the practice has been to refer the same
to an administrative agency of special competence pursuant to the doctrine of
primary jurisdiction. The courts will not determine a controversy involving a
question which is within the jurisdiction of the administrative tribunal prior to the
resolution of that question by the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the special
knowledge, experience and services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of ruling is essential to
comply with the premises of the regulatory statute administered. The objective of
the doctrine of primary jurisdiction is to guide a court in determining whether it
should refrain from exercising its jurisdiction until after an administrative agency
has determined some question or some aspect of some question arising in the
proceeding before the court. It applies where the claim is originally cognizable in
the courts and comes into play whenever enforcement of the claim requires the
resolution of issues which, under a regulatory scheme, has been placed within
the special competence of an administrative body; in such case, the judicial
process is suspended pending referral of such issues to the administrative body
for its view. 24
However, where what is assailed is the validity or constitutionality of a rule or
regulation issued by the administrative agency in the performance of its quasi-
legislative function, the regular courts have jurisdiction to pass upon the same.
The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. 25 This is within the scope of judicial
power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. 26 Judicial power
includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. 27
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-
2000 and its Memorandum dated October 6, 2000 was pursuant to its quasi-
legislative or rule-making power. As such, petitioners were justified in invoking
the judicial power of the Regional Trial Court to assail the constitutionality and
validity of the said issuances. InDrilon v. Lim, 28 it was held:
We stress at the outset that the lower court had jurisdiction to consider
the constitutionality of Section 187, this authority being embraced in the
general definition of the judicial power to determine what are the valid
and binding laws by the criterion of their conformity to the fundamental
law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction
over all civil cases in which the subject of the litigation is incapable of
pecuniary estimation, even as the accused in a criminal action has the
right to question in his defense the constitutionality of a law he is
charged with violating and of the proceedings taken against him,
particularly as they contravene the Bill of Rights. Moreover, Article X,
Section 5(2), of the Constitution vests in the Supreme Court appellate
jurisdiction over final judgments and orders of lower courts in all cases in
which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order,
instruction, ordinance, or regulation is in question. 29
In their complaint before the Regional Trial Court, petitioners averred that the
Circular contravened Civil Code provisions on sales and violated the
constitutional prohibition against the deprivation of property without due process
of law. These are within the competence of the trial judge. Contrary to the finding
of the Court of Appeals, the issues raised in the complaint do not entail highly
technical matters. Rather, what is required of the judge who will resolve this issue
is a basic familiarity with the workings of the cellular telephone service, including
prepaid SIM and call cards — and this is judicially known to be within the
knowledge of a good percentage of our population — and expertise in
fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case
No. Q-00-42221. The Court of Appeals erred in setting aside the orders of the
trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions are
GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 64274
dated October 9, 2001 and its Resolution dated January 10, 2002 are
REVERSED and SET ASIDE. The Order dated November 20, 2000 of the
Regional Trial Court of Quezon City, Branch 77, in Civil Case No. Q-00-42221 is
REINSTATED. This case is REMANDED to the court a quo for continuation of
the proceedings. HcSCED

SO ORDERED
(Smart Communications, Inc. v. National Telecommunications Commission,
|||

G.R. No. 151908, 152063, [August 12, 2003], 456 PHIL 145-160)

EN BANC

[G.R. No. 164171. February 20, 2006.]

HON. EXECUTIVE SECRETARY, HON. SECRETARY OF THE


DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS (DOTC),COMMISSIONER OF CUSTOMS,
ASSISTANT SECRETARY, LAND TRANSPORTATION OFFICE
(LTO),COLLECTOR OF CUSTOMS, SUBIC BAY FREE PORT
ZONE, AND CHIEF OF LTO, SUBIC BAY FREE PORT
ZONE, petitioners,vs.SOUTHWING HEAVY INDUSTRIES,
INC.,represented by its President JOSE T. DIZON, UNITED
AUCTIONEERS, INC.,represented by its President DOMINIC
SYTIN, and MICROVAN, INC.,represented by its President
MARIANO C. SONON, respondents.

[G.R. No. 164172. February 20, 2006.]

HON. EXECUTIVE SECRETARY, SECRETARY OF THE


DEPARTMENT OF TRANSPORTATION AND COMMUNICATION
(DOTC),COMMISSIONER OF CUSTOMS, ASSISTANT
SECRETARY, LAND TRANSPORTATION OFFICE
(LTO),COLLECTOR OF CUSTOMS, SUBIC BAY FREE PORT
ZONE AND CHIEF OF LTO, SUBIC BAY FREE PORT
ZONE, petitioners,vs.SUBIC INTEGRATED MACRO VENTURES
CORP.,represented by its President YOLANDA
AMBAR, respondent.

[G.R. No. 168741. February 20, 2006.]

HON. EXECUTIVE SECRETARY, HON. SECRETARY OF


FINANCE, THE CHIEF OF THE LAND TRANSPORTATION
OFFICE, THE COMMISSIONER OF CUSTOMS, and THE
COLLECTOR OF CUSTOMS, SUBIC SPECIAL ECONOMIC
ZONE, petitioners,vs.MOTOR VEHICLE IMPORTERS
ASSOCIATION OF SUBIC BAY FREEPORT, INC.,represented
by its President ALFREDO S. GALANG,respondent

(Executive Secretary v. Southwing Heavy Industries, Inc., G.R. Nos. 164171,


|||

164172 & 168741, [February 20, 2006], 518 PHIL 103-133)

FIRST DIVISION

[G.R. No. 119761. August 29, 1996.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON.


COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION, respondents.
Estelito P. Mendoza, Pio de Roda & Associates and Sycip, Salazar, Hernandez
& Gatmaitan for private respondent

SYLLABUS

1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES;


RULE MAKING POWERS; LEGISLATIVE RULE AND INTERPRETATIVE RULE;
DISTINGUISHED. — Let us distinguish between two kinds of administrative
issuances — a legislative rule and an interpretative rule. In Misamis Oriental
Association of Coco Traders, Inc., vs. Department of Finance Secretary, (238
SCRA 63) the Court expressed: ". . . a legislative rule is in the nature of
subordinate legislation, designed to implement a primary legislation by providing
the details thereof. In the same way that laws must have the benefit of public
hearing, it is generally required that before a legislative rule is adopted there
must be hearing. In this connection, the Administrative Code of 1987 provides:
"Public Participation. — If not otherwise required by law, an agency shall, as far
as practicable, publish or circulate notices of proposed rules and afford interested
parties the opportunity to submit their views prior to the adoption of any rule. "(2)
In the fixing of rates, no rule or final order shall be valid unless the proposed
rates shall have been published in a newspaper of general circulation at least two
(2) weeks before the first hearing thereon. "(3) In case of opposition, the rules on
contested cases shall be observed. "In addition such rule must be published. On
the other hand, interpretative rules are designed to provide guidelines to the law
which the administrative agency is in charge of enforcing." It should be
understandable that when an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its bare issuance for it gives no
real consequence more than what the law itself has already prescribed. When,
upon the other hand, the administrative rule goes beyond merely providing for
the means that can facilitate or render least cumbersome the implementation of
the law but substantially adds to or increase the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to be
heard, and thereafter to be duly informed, before that new issuance is given the
force and effect of law.
2. ID.; ID.; ID.; ID.; ID.; REVENUE MEMORANDUM CIRCULAR NO. 37-93; A
LEGISLATIVE RULING; DUE OBSERVANCE OF THE REQUIREMENTS OF
NOTICE, OF HEARING AND OF PUBLICATION FOR ITS VALIDITY SHOULD
NOT HAVE BEEN IGNORED. — A reading of RMC 37-93, particularly
considering the circumstances under which it has been issued, convinces us that
the circular cannot be viewed simply as a corrective measure(revoking in the
process the previous holdings of past Commissioners) or merely as construing
Section 142(c)(1) of the NIRC, as amended, but has, in fact and most
importantly, been made in order to place "Hope Luxury," "Premium More" and
"Champion" within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654. Specifically, the
new law would have its amendatory provisions applied to locally manufactured
cigarettes which at the time of its effectivity were not so classified as bearing
foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury,"
"Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad
valorem tax. Hence, without RMC 37-93, the enactment, of RA 7654, would have
had no new tax rate consequence on private respondent's products. Evidently, in
order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within
the scope of the amendatory law and subject them to an increased tax rate, the
now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply
interpreted the law; verily, it legislated under its quasi-legislative authority. The
due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.
3. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNIFORMITY OF
TAXATION RULE; VIOLATED IN CASE AT BAR. — Article VI, Section 28,
paragraph 1, of the 1987 Constitution mandates taxation to be uniform and
equitable. Uniformity requires that all subjects or objects of taxation, similarly
situated, are to be treated alike or put on equal footing both in privileges and
liabilities. Thus, all taxable articles or kinds of property of the same class must be
taxed at the same rate and the tax must operate with the same force and effect in
every place where the subject may be found. Apparently, RMC 37-93 would only
apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless
petitioner would be willing to concede to the submission of private respondent
that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo
so expresses in his separate opinion, be considered adjudicatory in nature and
thus violative of due process following the Ang Tibay doctrine, the measure
suffers from lack of uniformity of taxation.
BELLOSILLO, J.: separate opinion
1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES;
POWERS AND FUNCTIONS. — Administrative agencies posses quasi-
legislative or rule making powers and quasi-judicial or administrative adjudicatory
powers. Quasi-legislative or rule making power is the power to make rules and
regulations which results in delegated legislation that is within the confines of the
granting statute and the doctrine of nondelegability and separability of powers.
2. ID.; ID.; ID.; ID.; RULE MAKING POWERS; INTERPRETATIVE RULE;
CONSTRUED. — Interpretative rule, one of the three (3) types of quasi-
legislative or rule making powers of an administrative agency (the other two
being supplementary or detailed legislation, and contingent legislation), is
promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or
objective of an interpretative rule is merely to construe the statute being
administered. It purports to do no more than interpret the statute. Simply, the rule
tries to say what the statute means. Generally, it refers to no single person or
party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is
a hearing required since it is issued by the administrative body as an incident of
its power to enforce the law and is intended merely to clarify statutory provisions
for proper observance by the people. In Tanada vs. Tuvera, (No. L-63915, 29
December 1986, 146 SCRA 446) this Court expressly said that "[i]nterprative
regulations . . . need not be published."
3. ID.; ID.; ID.; ID.; QUASI-JUDICIAL POWERS; CONSTRUED. — Quasi-judicial
or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power
to hear and determine questions of fact to which the legislative policy is to apply
and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body exercises its
quasi-judicial power when it performs in a judicial manner an act which is
essentially of an executive or administrative nature, where the power to act in
such manner is incidental to or reasonably necessary for the performance of the
executive or administrative duty entrusted to it. In carrying out their quasi-judicial
functions the administrative officers or bodies are required to investigate facts or
ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise of discretion
in a judicial nature. Since rights of specific persons are affected it is elementary
that in the proper exercise of quasi-judicial power due process must be observed
in the conduct of the proceedings.
4. ID.; ID.; ID.; ID.; ID.; WHEN AN ADMINISTRATIVE PROCEEDING IS QUASI-
JUDICIAL IN CHARACTER, NOTICE AND FAIR OPEN HEARING ARE
ESSENTIAL TO THE VALIDITY OF THE PROCEEDING. — The importance of
due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an
administrative proceeding is quasi-judicial in character, notice and fair open
hearing are essential to the validity of the proceeding. The right to reasonable
prior notice and hearing embraces not only the right to present evidence but also
the opportunity to know the claims of the opposing party and to meet them. The
right to submit arguments implies that opportunity otherwise the right may as well
be considered impotent. And those who are brought into contest with government
in a quasi-judicial proceeding aimed at the control of their activities are entitled to
be fairly advised of what the government proposes and to be heard upon its
proposal before it issues its final command.
5. ID.; ID.; ID.; ID.; ID.; CARDINAL PRIMARY RIGHTS WHICH MUST BE
RESPECTED IN ADMINISTRATIVE PROCEEDINGS. — There are cardinal
primary rights which must be respected in administrative proceedings. The
landmark case of Ang Tibay vs. The Court of Industrial Relations (69 Phil. 635
[1940]) enumerated these rights. (1) the right to a hearing, which includes the
right of the party interested or affected to present his own case and submit
evidence in support thereof; (2) the tribunal must consider the evidence
presented; (3) the decision must have something to support itself; (4) the
evidence must be substantial; (5) the decision must be rendered on the evidence
presented at the hearing, or at least contained in the record and disclosed to the
parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply
accept the views of a subordinate in arriving at a decision; and (7) the tribunal
should in all controversial questions render its decision in such manner that the
parties to the proceeding may know the various issues involved and the reasons
for the decision rendered.

6. ID.; ID.; ID.; ID.; ID.; REVENUE MEMORANDUM CIRCULAR 37-93; AN


ADJUDICATORY RULE; PRIOR NOTICE AND HEARING ARE REQUIRED
FOR ITS VALIDITY. — It is evident that in issuing RMC 37-93 petitioner
Commissioner of Internal Revenue was exercising her quasi-judicial or
administrative adjudicatory power. She cited and interpreted the law, made a
factual finding, applied the law to her given set of facts, arrived at a conclusion,
and issued a ruling aimed at a specific individual. Consequently prior notice and
hearing are required. It must be emphasized that even the text alone of RMC 37-
93 implies that reception of evidence during a hearing is appropriate if not
necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which
provides that "in cases where it cannot be established or there is dearth of
evidence as to whether a brand is foreign or not . . ." Indeed, it is difficult to
determine whether a brand is foreign or not if it is not established by, or there is
dearth of, evidence because no hearing has been called and conducted for the
reception of such evidence. In fine, by no stretch of the imagination can RMC 37-
93 be considered purely as an interpretative rule — requiring no previous notice
and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue
operates.
7. ID.; ID.; ID.; ID.; ID.; IN PROPERLY DETERMINING WHETHER A
MEMORANDUM CIRCULAR IS MERELY AN INTERPRETIVE RULE OR AN
ADJUDICATORY RULE, ITS VERY TENOR AND TEXT, AND THE
CIRCUMSTANCES SURROUNDING ITS ISSUANCE WILL HAVE TO BE
CONSIDERED. — It is true that both RMC 47-91 in Misamis Oriental Association
of Coco Traders v. Department of Finance Secretary, and RMC 37-93 in the
instant case reclassify certain products for purposes of taxation. But the similarity
between the two revenue memorandum circulars ends there. For in properly
determining whether a revenue memorandum circular is merely an interpretative
rule or an adjudicatory rule, its very tenor and text, and the circumstances
surrounding its issuance will have to be considered.
HERMOSISIMA, J., dissenting opinion:
1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES;
POWERS AND FUNCTIONS; THE COMMISSIONER OF INTERNAL REVENUE
IS DULY AUTHORIZED BY LAW TO ISSUE REVENUE MEMORANDUM
CIRCULAR 37-93. — Section 245 of the National Internal Revenue Code, as
amended, provides: "Sec. 245. Authority of Secretary of Finance to promulgate
rules and regulations. — The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the effective
enforcement of the provisions of this Code . . . without prejudice to the power of
the Commissioner of Internal Revenue to make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws, including rules
on the classification of articles for sales tax and similar purposes." The subject of
the questioned Circular is the reclassification of cigarettes subject to excise
taxes. It was issued in connection with Section 142 (c) (1) of the National Internal
Revenue Code, as amended, which imposes ad valorem excise taxes on locally
manufactured cigarettes bearing a foreign brand. The same provision prescribes
the ultimate criterion that determines which cigarettes are to be
considered "locally manufactured cigarettes bearing a foreign brand." It provides:
". . . Whenever it has to be determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern." There is only one World Tobacco
Directory for a given current year, and the same is mandated by law to be the
BIR Commissioner's controlling basis for determining whether or not a particular
locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco
Directory for the given current year and shall be held bound by such entries
therein. She is not required to subject the results of her inquiries to feedback
from the concerned cigarette manufacturers, and it is doubtlessly not desirable
nor managerially sound to court dispute thereon when the law does not, in the
first place, require debate or hearing thereon. Petitioner may make such a
determination because she is the Chief Executive Officer of the administrative
agency that is the Bureau of Internal Revenue in which are vested quasi-
legislative powers entrusted to it by the legislature in recognition of its more
encompassing and unequalled expertise in the field of taxation. "The vesture of
quasi-legislative and quasi-judicial powers in administrative bodies is not
unconstitutional, unreasonable and oppressive. It has been necessitated by 'the
growing complexity of the modern society' (Solid Homes, Inc. vs. Payawal, 177
SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. 'Specialized in the particular field
assigned to them, they can deal with the problems thereof with more expertise
and dispatch than can be expected from the legislature or the courts of justice' . .
." Statutorily empowered to issue rulings or opinions embodying the proper
determination in respect to classifying articles, including cigarettes, for purposes
of tax assessment and collection, petitioner was acting well within her
prerogatives when she issued the questioned Circular. And in the exercise of
such prerogatives under the law, she has in her favor the presumption of regular
performance of official duty which must be overcome by clearly persuasive
evidence of stark error and grave abuse of discretion in order to be overturned
and disregarded.
2. ID.; ID.; ID.; ID.; QUASI-LEGISLATIVE POWERS; REVENUE
MEMORANDUM CIRCULAR 37-93; HAVE NOT BEEN PROVEN TO BE
ERRONEOUS OR ILLEGAL AS TO RENDER ITS ISSUANCE AN ACT OF
GRAVE ABUSE OF DISCRETION. — The petitioner was well within her
prerogatives, in the exercise of her rule-making power, to classify articles for
taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles
underlying taxation, i.e., taxes are the lifeblood of Government, and revenue laws
ought to be interpreted in favor of the Government, for Government can not
survive without the funds to underwrite its varied operational expenses in pursuit
of the welfare of the society which it serves and protects. Private respondent
claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims
that under the vested rights theory, it cannot now be made to pay higher taxes
after having been assessed for less in the past. Of course private respondent will
trumpet its losses, its interests, after all, being its sole concern. What private
respondent fails to see is the loss of revenue by the Government which, because
of erroneous determinations made by its past revenue commissioners, collected
lesser taxes than what it was entitled to in the first place. It is every citizen's duty
to pay the correct amount of taxes. Private respondent will not be shielded by
any vested rights, for there are no vested rights to speak of respecting a wrong
construction of the law by administrative officials, and such wrong interpretation
does not place the Government in estoppel to correct or overrule the same.
3. ID.; ID.; ID.; ID.; ID.; MERELY AN INTERPRETATIVE RULING. — Petitioner
made a determination as to the classification of cigarettes as mandated by the
aforecited provisions in the National Internal Revenue Code, as amended. Such
determination was an interpretation by petitioner of the said legal provisions. If in
the course of making that interpretation and embodying the same in the
questioned circular which the petitioner subsequently issued after making such a
determination, private respondent's cigarette products, by their very nature of
being foreign brands as evidenced by their enlistment in the World Tobacco
Directory, which is the controlling basis for the proper classification of cigarettes
as stipulated by the law itself, have come to be classified as locally manufactured
cigarettes bearing foreign brands and as such subject to a tax rate higher than
what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by
petitioner of her duties under the law. No adjudication took place, much less was
there any controversy ripe for adjudication. The natural consequences of making
a classification in accordance with law may not be used by private respondent in
arguing that the questioned circular is in fact adjudicatory in nature. Such an
exercise in driving home a point is illogical as it is fallacious and misplaced.
4. ID.; ID.; ID.; ID.; ID.; NOT VIOLATIVE OF THE EQUAL PROTECTION
CLAUSE OF THE CONSTITUTION. — Private respondent anchors its claim of
violation of its equal protection rights upon the too obvious fact that only its
cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacturer are
enumerated in the questioned circular, private respondent proceeded to attack
the same as being discriminatory against it. On the surface, private respondent
seems to have a point there. A scrutiny of the questioned Circular, however, will
show that it is undisputedly one of general application for all cigarettes that are
similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c)has been well illustrated in its application upon private
respondent's brands, which illustration is properly a subject of the questioned
Circular. Significantly, indicated as the subject of the questioned circular is the
"reclassification of cigarettes subject to excise taxes." The reclassification
resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private
respondent's own action of conveniently changing its brand names to avoid
falling under a reclassification that would subject it to higher ad valorem tax rates.
This caused then Commissioner Bienvenido Tan to depart from his initial
determination that private respondent's cigarette brands are foreign brands. The
consequent specific mention of such brands in the questioned Circular, does not
change the fact that the questioned Circular has always been intended for and
did cover, all cigarettes similarly situated as "Hope," "More" and "Champion."
Petitioner is thus correct in stating that: ". . . RMC 37-93 is not discriminatory. It
lays down the test in determining whether or not a locally manufactured cigarette
bears a foreign brand using the cigarette brands 'Hope,' 'More'
and 'Champion' as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is the true that only 'Hope,'
'More' and 'Champion'cigarettes are actually determined as locally manufactured
cigarettes bearing a foreign brand, RMC 37-93 does not state that ONLY
cigarettes fall under such classification to the exclusion of other cigarettes
similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage
of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not
exclude the coverage of other cigarettes similarly situated as locally
manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is
not discriminatory." Both the respondent Court of Appeals and the Court of Tax
Appeals held that the questioned Circular reclassifying "Hope," "More" and
"Champion" cigarettes, is defective, invalid and unenforceable and has rendered
the assessment against private respondent of deficiency ad valorem excise taxes
to be without legal basis. The majority agrees with private respondent and
respondent Courts. As the foregoing opinion chronicles the fatal flaws in private
respondent's arguments, it becomes more apparent that the questioned Circular
is in fact a valid and substituting interpretative ruling that the petitioner had power
to promulgate and enforce
(Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 119761,
|||

[August 29, 1996], 329 PHIL 987-1043)