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Victorias Milling vs PPA

(G.R. No. 73705 Aug 27, 1987)

Berthing charges against a vessel are collectible regardless of the fact that mooring or berthing
is made from a private pier or wharf. This is because the government maintains bodies of water
in navigable condition and it is to support its operations in this regard that dues and charges
are imposed for the use of piers and wharves regardless of their ownership.

On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for
short) wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges
undergo harbor formalities and pay entrance/ clearance fees as well as berthing fees effective
May 1, 1981. PPA, likewise, requiring petitioner to secure a permit for cargo handling
operations at its Da-an Banua wharf and remit 10% of its gross income for said operations as
the government's share. To these demands, petitioner sent two (2) letters, both dated June 2,
1981, wherein it maintained that it is exempt from paying PPA any fee or charge because: (1)
the wharf and an its facilities were built and installed in its land; (2) repair and maintenance
thereof were and solely paid by it; (3) even the dredging and maintenance of the Malijao River
Channel from Guimaras Strait up to said private wharf are being done by petitioner's
equipment and personnel; and (4) at no time has the government ever spent a single centavo
for such activities. Petitioner further added that the wharf was being used mainly to handle
sugar purchased from district planters pursuant to existing milling agreements.

Issue: WON Victorias is exempted from the claimed fees and charges due to the fact that the
port is privately owned

Held: No, as correctly stated by the Solicitor General, the fees and charges PPA collects are
not for the use of the wharf that petitioner owns but for the privilege of navigating in public
waters, of entering and leaving public harbors and berthing on public streams or waters. In
Compañia General de Tabacos de Filipinas vs. Actg. Commissioner of Customs (23 SCRA
600), this Court laid down the rule that berthing charges against a vessel are collectible
regardless of the fact that mooring or berthing is made from a private pier or wharf. This is
because the government maintains bodies of water in navigable condition and it is to support
its operations in this regard that dues and charges are imposed for the use of piers and
wharves regardless of their ownership. As to the requirement to remit 10% of the handling
charges, Section 6B-(ix) of the Presidential Decree No. 857 authorized the PPA "To levy dues,
rates, or charges for the use of the premises, works, appliances, facilities, or for services
provided by or belonging to the Authority, or any organization concerned with port operations."
This 10% government share of earnings of arrastre and stevedoring operators is in the nature
of contractual compensation to which a person desiring to operate arrastre service must agree
as a condition to the grant of the permit to operate.

CIR v. Vda. De Prieto


G.R. No. L-13912 Sept. 30, 1960 J. Gutierrez David

Summary:

Respondent donated real property to her children. She paid the assessed donor’s gift tax,
which assessment included interest on account of delinquency. The following year, in her
income tax return, respondent claimed the interest as a deduction. The CIR disallowed the
deduction, but the CTA reversed and allowed it. The SC affirmed the CTA decision.

Interest on tax is interest on indebtedness and is thus deductible.


US Tax Code (which our provisions are based on) contemplates tax as an indebtedness.
Jurisprudence has also held the same; although taxes aren’t conceptually the same as debts, they
may be considered as such.

FACTS

Respondent conveyed as gifts to her four children Antonio, Benito, Carmen, and Mauro (like, so conyonames)
real property with total assessed value of P892,497.50.

The gift tax returns was filed. The CIR appraised respondent’s real property donation for gift
tax purposes at P1,231,268, and assessed P117,706.50 as donor’s gift tax, interest and
compromises due. The assessment was duly paid by respondent. Take note that P55,978.65
of the assessed P117,706.50 represented the tota interest on account of delinquency.

That sum of P55,978.65 (total interest on account of delinquency) was then claimed as a deduction by
respondent in her 1954 income tax return. The CIR, however, disallowed the deduction claim
and assessed respondent for 1954 the sum of P21,410.38 as deficiency income tax on the
aforesaid P55,978.65. It included interest, surcharge, and compromise for the late payment.

The CTA reversed the the CIR decision.

ISSUE:

WON the interest paid by respondent (the P55K++) was paid upon an indebtedness within the
contemplationof Sec 30(B)(1) of the Tax Code.

RULING:

YES. CTA affirmed.

In conclusion, we are of the opinion and so hold that although interest payment for delinquent taxes is not
deductible astax under Section 30(c) of the Tax Code and section 80 of the Income Tax Regulations, the
taxpayer is not precluded thereby fromclaiming said interest payment as deduction under section
30(b) of the same Code.In view of the foregoing, the decision sought to be reviewed is
affirmed, without pronouncement as to costs.

RATIO:

Under the law, for interest to be deductible , it must be shown that :


(1) there be an indebtedness, (2) there should be interest upon it, (3)and that what is claimed as
an interest deduction should have been paid or accrued within the year. In this case, ALL three are presentand
admitted by both parties. It is just the interpretation of the interest paid that is in issue here and WON it falls within
the contemplation of the law.

Interest on tax, such as that paid by respondent for the late payment of donor’s tax, is interest on
indebtedness and is thus deductible.

Meaning of indebtedness in the US Tax Code (which contains similar provisions as ours)
– an unconditional and legally enforceable obligation for the payment of money.

Within that definition, it is apparent that a tax may be considered an indebtedness.

__Sambrano vs CTA&CIR
SEC. 30 Deductions from gross income.

In computing net income there shall be allowed as deductions

x x x x x x x x x(b) Interest:(1) In general.

The amount of interest paid within the taxable year on indebtedness, except on indebtedness
incurred or continued topurchase or carry obligations the interest upon which is exempt from
taxation as income under this Title.

Although taxes already due aren’t the same concept as debts, they are however, obligations
which may be considered as such.

“Debt" is properly used in a comprehensive sense as embracing not merely money due by
contract but whatever one is bound to render to another, either for contract, or the requirement
of the law.

Where statute imposes a personal liability for a tax, the tax becomes, at least in a board sense,
a debt.

A tax is a debt for which a creditor's bill may be brought in a proper case.[Argument of CIR]–
Look at Sec. 80 of Revenue Regulation #2 of the DOF!!
“the word `taxes' means taxes proper and no deductions should be allowed for amounts representing
interest, surcharge, or penalties incident to delinquency."

SC
– Nope. That revenue regulation merely incorporates the established application of the tax
deduction statute in the US, where deduction of "taxes" has always been limited to taxes
proper and has never included interest on delinquent taxes, penalties and surcharges.

In any case, lower court was correct when it held that Sec. 80 is inapplicable to the instant
case. Sec. 80implements sections 30(c) of the Tax Code governing deduction of taxes; here,
respondent seeks to come under section 30(b) providing for deduction of interest on
indebtedness.

To follow the interpretation of the CIR of Sec. 80 would contravene Sec. 30(B) of the Tax Code
and the construction of said law by US Courts. A regulation which operates to create a rule
not in harmony with the statute is a mere nullity.
CIR vs Central Vegetable
(G.R. No. 107135 Feb 23, 1999)

Tax burdens are not to be imposed or presumed to be imposed beyond what the statute
expressly and clearly imports, tax statutes being construed strictissimi juris against the
government.

CENVOCO is a manufacturer of edible and coconut/coprameal cake and such other coconut
related oil subject to the miller's tax of 3%. Petitioner also manufactures lard, detergent and
laundry soap subject to the sales tax of 10%. In 1986, petitioner purchased a specified number
of containers and packaging materials for its edible oil from its suppliers and paid the sales
tax due thereon. After an investigation conducted by respondent's Revenue Examiner,
Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988 was issued
against petitioner for deficiency miller's tax in the total amount of P1,575,514.70. On June 29,
1988, CENVOCO filed with CIR a letter dated June 27, 1988 requesting for reconsideration of
the above deficiency miller's tax assessments, contending that the final provision of Section
168 of the Tax Code does not a apply to sales tax paid on containers and packaging materials,
hence, the amount paid therefor should have been credited against the miller's tax assessed
against it. CIR contends that Sec. 188 of the Tax Code provides that sales, miller's or excise
taxes paid on raw materials or supplies used in the milling process shall not be allowed against
the miller's tax due.

Issue: WoN the sales tax paid by CENVOCO when it purchased containers and packaging
materials for its milled products can be credited against the deficiency miller’s tax due thereon

Held: Yes, it can be credited against the deficiency miller’s tax due thereon. The law relied
upon by the BIR Commissioner as the basis for not allowing Cenvoco's tax credit is just a
proviso of Section 168 of the old Tax Code. The restriction in the said proviso, however, is
limited only to sales, miller's or excise taxes paid "on raw materials used in the milling process".
Under the rules of statutory construction, exceptions, as a general rule, should be strictly but
reasonably construed. They extend only so far as their language fairly warrants, and all doubts
should be resolved in favor of the general provisions rather than the exception. Where a
general rule is established by statute with exceptions, the court will not curtail the former nor
add to the latter by implication. The exception provided for in Section 168 of the old Tax Code
should thus be strictly construed. Conformably, the sales, miller's and excise taxes paid on all
other materials (except on raw materials used in the milling process), such as the sales taxes
paid on containers and packaging materials of the milled products under consideration, may
be credited against the miller's tax due therefor. It is a basic rule of interpretation that words
and phrases used in the statute, in the absence of a clear legislative intent to the contrary
should be given their plain, ordinary and common usage or meaning. From the disquisition
and rationalization aforequoted, containers and packaging materials are certainly not raw
materials. Cans and tetrakpaks are not used in the manufacture of Cenvoco's finished
products which are coconut, edible oil or coprameal cake. Such finished products are packed
in cans and tetrapaks. It bears stressing that tax burdens are not to be imposed or presumed
to be imposed beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.

Luzon Stevedoring vs. CTA


[G.R. No. L-30232. July 29, 1988

When law is clear, application and not interpretation of law is required. Statutes to be
construed in the light of purposes to be achieved and evils sought to be remedied Even if
construction and interpretation of the law is insisted upon, following another fundamental rule
that statutes are to be construed in the light of purposes to be achieved and the evils sought to
be remedied

FACTS:

Luzon Stevedoring Corp., in 1961 and 1962, imported various engine parts and other
equipment for the repair and maintenance of its tugboats for which it paid the assessed
compensating tax under protest. Unable to secure a tax refund from the Commissioner of
Internal Revenue, on 2 January 1964, it filed a Petition for Review with the Court of Tax
Appeals (CTA Case 1484), praying among others, that it be granted the refund of the amount
of P33,442.13. The Court of Tax Appeals, however, in a Decision dated 21 October 1969,
denied the various claims for tax refund (finding said claims without sufficient legal
justification); with costs against the corporation. On 24 January 1969, the Corporation filed a
Motion for Reconsideration, but the same was denied in a Resolution dated 20 February 1969.
Hence, the petition for review. The Supreme Court, in a Resolution dated 13 March 1969,
gave due course to the petition.

ISSUE:

Whether or not petitioner can claim for refund.

RULING:

The Supreme Court dismissed the petition, and affirmed the decision of the Court of Tax
Appeals.

1. Section 190 (Compensating tax) of the National Internal Revenue Code, as amended by
RA 3176 Said law provides: “…and Provided further, That the tax imposed in this section shall
not apply to articles to be used by the importer himself in the manufacture or preparation of
articles subject to specific tax or those for consignment abroad and are to form part thereof or
to articles to be used by the importer himself as passenger and/or cargo vessel, whether
coastwise or ocean-going, including engines and spare parts of said vessel. . .”

2. Power of taxation a high prerogative of sovereignty; Relinquishment or reduction not


presumed; Tax exemption strictly construed against taxpayer “As the power of taxation is a
high prerogative of sovereignty, the relinquishment is never presumed and any reduction or
dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same
must be coached in clear and unmistakable terms in order that it may be applied.” (84 C.J.S.
pp. 659- 800), More specifically stated, any claim for exemption from the tax statute should be
strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric
Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd.,
et al., 65 SCRA 142 [1975]).

3. Requirements of law to be complied with for importations be declared exempt from tax In
order that the importations in question may be declared exempt from the compensating tax, it
is indispensable that the requirements of the amendatory law be complied with, namely: (1)
the engines and spare parts must be used by the importer himself as a passenger and/or
cargo vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or
oceangoing navigation. The amendatory provisions of Republic Act No. 3176 limit tax
exemption from the compensating tax to imported items to be used by the importer himself as
operator of passenger and/or cargo vessel.
4. Tugboat defined “A tugboat is a strongly built, powerful steam or power vessel, used for
towing and, now, also used for attendance on vessel. (Webster New International Dictionary,
2nd Ed.) “A tugboat is a diesel or steam power vessel designed primarily for moving large
ships to and’ from piers for towing barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p.256). “A tug is a steam vessel built for towing,
synonymous with tugboat. (Bouvier’s Law Dictionary.).”

5. When law is clear, application and not interpretation of law is required The corporation’s
tugboats do not fall under the categories of passenger and/or cargo vessels. It is a cardinal
principle of statutory construction that where a provision of law speaks categorically, the need
for interpretation is obviated, no plausible pretense being entertained to justify non-
compliance. All that has to be done is to apply it in every case that falls within its terms (Allied
Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc.
v. DBP, L-26419,35 SCRA 270 [1970]).

6. Statutes to be construed in the light of purposes to be achieved and evils sought to be


remedied Even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and
the evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544
[1978], it will be noted that the legislature in amending Section 190 of the Tax Code by RA
3176 intended to provide incentives and inducements to bolster the shipping industry and not
the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat.

7. Corporation is in stevedoring and lighterage business and not as a common carrier by water
On analysis of the corporation’s transactions, the Court of Tax Appeals found that no evidence
that tugboats are passenger and/or cargo vessels used in the shipping industry as an
independent business. On the contrary, the corporation’s own evidence supports the view that
it is engaged as a stevedore, i.e. the work of unloading and loading of a vessel in port; and
towing of barges containing cargoes is a part of its undertaking as a stevedore. In fact, even
its trade name is indicative that its sole and principal business is stevedoring and lighterage,
taxed under Section 191 of the National Internal Revenue Code as a contractor, and not an
entity which transports passengers or freight for hire which is taxed under Section 192 of the
same Code as a common carrier by water.

8. Court of Tax Appeals has expertise; Court will not set aside decision of agency unless there
is abuse or improvident exercise of authority As a matter of principle, the Supreme Court will
not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which
is, by the very nature of its function, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject unless there has
been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1981]), which is not present in the present case.

CIR vs. Gotamco


[G.R. No. L-31092. February 27, 1987.]

FACTS:

The World Health Organization (WHO) is an international organization which has a regional
office in Manila. As an international organization, it enjoys privileges and immunities which are
defined more specifically in the Host Agreement entered into between the Republic of the
Philippines and the said Organization on 22 July 1951. Section 11 of that Agreement provides,
inter alia, that “the Organization, its assets, income and other properties shall be: (a) exempt
from all direct and indirect taxes. It is understood, however, that the Organization will not claim
exemption from taxes which are, in fact, no more than charges for public utility services; . . .”
When the WHO decided to construct a building to house its own offices, as well as the other
United Nations offices stationed in Manila, it entered into a further agreement with the
Government of the Republic of the Philippines on 26 November 1957. This agreement
contained provides that “the Organization may import into the country materials and fixtures
required for the construction free from all duties and taxes and agrees not to utilize any portion
of the international reserves of the Government (Article III, paragraph 2).” In inviting bids for
the construction of the building, the WHO informed the bidders that the building to be
constructed belonged to an international organization with diplomatic status and thus exempt
from the payment of all fees, licenses, and taxes, and that therefore their bids “must take this
into account and should not include items for such taxes, licenses and other payments to
Government agencies.” The construction contract was awarded to John Gotamco & Sons, Inc.
(Gotamco) on 10 February 1958 for the stipulated price of P370,000.00, but when the building
was completed the price reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the BIR Commissioner stating that
“as the 3% contractor’s tax is an indirect tax on the assets and income of the Organization,
the gross receipts derived by contractors from their contracts with the WHO for the
construction of its new building, are exempt from tax in accordance with the Host Agreement.”
Subsequently, however, on 3 June 1958, the Commissioner reversed his opinion and stated
that “as the 3% contractor’s tax is not a direct nor an indirect tax on the WHO, but a tax that is
primarily due from the contractor, the same is not covered by the Host Agreement.” On 2
January 1960, the WHO issued a certification stating that the bid of John Gotamco & Sons,
made under the condition stated above, should be exempted from any taxes in connection
with the construction of the WHO office building as they were informed that there would be no
taxes or fees levied upon them for their work in connection with the construction of the building.
On 17 January 1961, the Commissioner sent a letter of demand to Gotamco demanding
payment of P16,970.40, representing the 3% contractor’s tax plus surcharges on the gross
receipts it received from the WHO in the construction of the latter’s building.

Gotamco appealed the Commissioner’s decision to the Court of Tax Appeals, which after trial
rendered a decision, in favor of Gotamco and reversed the Commissioner’s decision. The
Commissioner filed the petition for review on certiorari before the Supreme Court.

ISSUE:

Whether or not a reversible error was committed by the CIR.

RULING:

The Supreme Court found no reversible error committed by the Court of Tax Appeals, and
affirmed the appealed decision.

1. Less formal types of international agreements, such as Host Agreements, entered by


President binding even without concurrence of Senate; Privileges and immunities granted
binding on authorities While treaties are required to be ratified by the Senate under the
Constitution, less formal types of international agreements may be entered into by the Chief
Executive and become binding without the concurrence of the legislative body. The Host
Agreement comes within the latter category; it is a valid and binding international agreement
even without the concurrence of the Philippine Senate. The privileges and immunities granted
to the WHO under the Host Agreement have been recognized by the Supreme Court as legally
binding on Philippine authorities.
2. Direct and indirect taxes distinguished; Contractor’s tax levied on Gotamco is an indirect
tax against the WHO In context, direct taxes are those that are demanded from the very person
who, it is intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention that he can
shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429,15 S. Ct. 673,
39 Law. Ed. 759.) The contractor’s tax is of course payable by the contractor but in the last
analysis it is the owner of the building that shoulders the burden of the tax because the same
is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect
tax. And it is an indirect tax on the WHO because, although it is payable by Gotamco, the latter
can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly
through the contractor and it certainly cannot be said that “this tax has no bearing upon the
World Health Organization.” Thus, the 3% contractor’s tax should be viewed as a form of an
“indirect tax” on the Organization, as the payment thereof or its inclusion in the bid price would
have meant an increase in the construction cost of the building.

3. Philippine Acetylene case not controlling The case of Philippine Acetylene Company versus
Commissioner of Internal Revenue is not controlling in the present case, since the Host
Agreement specifically exempts the WHO from “indirect taxes.” The Philippine Acetylene case
involved a tax on sales of goods which under the law had to be paid by the manufacturer or
producer; the fact that the manufacturer or producer might have added the amount of the tax
to the price of the goods did not make the sales tax “a tax on the purchaser.” The Court held
that the sales tax must be paid by the manufacturer or producer even if the sale is made to
tax-exempt entities like the National Power Corporation, an agency of the Philippine
Government, and to the Voice of America, an agency of the United States Government.

4. Rationale of the WHO exemption from indirect taxes The Host Agreement, in specifically
exempting the WHO from “indirect taxes,” contemplates taxes which, although not imposed
upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is
made clear in Section 12 of the Host Agreement which provides “While the Organization will
not, as a general rule, in the case of minor purchases, claim exemption from excise duties,
and from taxes on the sale of movable and immovable property which form part of the price to
be paid, nevertheless, when the Organization is making important purchases for official use
of property on which such duties and taxes have been charged or are chargeable the
Government of the Republic of the Philippines shall make appropriate administrative
arrangements for the remission or return of the amount of duty or tax.” Section 12, although
referring only to purchases made by the WHO, elucidates the clear intention of the Agreement
to exempt the WHO from “indirect” taxation.

CIR vs Ateneo de Manila


(G.R. No. 115349 Apr 18, 1997)

While it is conceded that statutes providing for election contests are to be liberally construed
to the end that the will of the people in the choice of public officers may not be defeated by mere
technical questions, the rule likewise stands, that in an election protest, the protestant must
stand or fall upon the issues he had ragoised in his original or amended pleading filed prior to
the lapse of the statutory period for filing of the protest.

Private respondent is a non-stock, non-profit educational institution with auxiliary units and
branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture
(IPC), which has no legal personality separate and distinct from that of private respondent.
The IPC is a Philippine unit engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities from international
organizations, private foundations and government agencies. On July 8, 1983, private
respondent received from petitioner Commissioner of Internal Revenue a demand letter dated
June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency
contractor's tax, and an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest and subsequently filed with the
latter a memorandum contesting the validity of the assessments.

ISSUE:

WON Ateneo de Manila University, through its auxiliary unit or branch, the Institute of
Philippine Culture, performing the work of an independent contractor and thus subject to the
3% contractor's tax levied by then Section 205 of the National Internal Revenue Code?

RULING:

No, Petitioner Commissioner of Internal Revenue erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict interpretation in the imposition
of taxes. It is obviously both illogical and impractical to determine who are exempted without
first determining who are covered by the aforesaid provision. The Commissioner should have
determined first if private respondent was covered by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other burdens on the populace, before asking
Ateneo to prove its exemption therefrom. The Court takes this occasion to reiterate the
hornbook doctrine in the interpretation of tax laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously . . . (A) tax cannot be
imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax
laws and the provisions of a taxing act are not to be extended by implication." Parenthetically,
in answering the question of who is subject to tax statutes, it is basic that "in case of doubt,
such statutes are to be construed most strongly against the government and in favor of the
subjects or citizens because burdens are not to be imposed nor presumed to be imposed
beyond what statutes expressly and clearly import. To fall under its coverage, Section 205 of
the National Internal Revenue Code requires that the independent contractor be engaged in
the business of selling its services. Hence, to impose the three percent contractor's tax on
Ateneo's Institute of Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an independent business. And
it is only after private respondent has been found clearly to be subject to the provisions of Sec.
205 that the question of exemption therefrom would arise. Only after such coverage is shown
does the rule of construction — that tax exemptions are to be strictly construed against the
taxpayer — come into play, contrary to petitioner's position. There is no evidence to prove that
Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever
engaged in a business apart from and independently of the academic purposes of the
university.

Misamis Oriental vs. Cagayan Electric


[G.R. No. 45355. January 12, 1990.]

Special statutes are exceptions to the general law.

FACTS;
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on 17
June 1961 under RA 3247 to install, operate and maintain an electric light, heat and power
system in the City of Cagayan de Oro and its suburbs. Said franchise was amended on 21
June 1963 by RA 3570 which added the municipalities of Tagoloan and Opol to CEPALCO’s
sphere of operation, and was further amended on 4 August 1969 by RA 6020 which extended
its field of operation to the municipalities of Villanueva and Jasaan. On 28 June 1973, the
Local Tax Code (PD 231) was promulgated. Section 9 of which provides for a Franchise Tax.
Pursuant thereto, the Province of Misamis Oriental enacted Provincial Revenue Ordinance
19, whose Section 12 also provides for a Franchise Tax. The Provincial Treasurer of Misamis
Oriental demanded payment of the provincial franchise tax from CEPALCO. The company
refused to pay, alleging that it is exempt from all taxes except the franchise tax required by
RA 6020. Nevertheless, in view of the opinion rendered by the Provincial Fiscal, upon
CEPALCO’s request, upholding the legality of the Revenue Ordinance, CEPALCO paid under
protest on 27 May 1974 the sum of P4,276.28 and appealed the fiscal’s ruling to the Secretary
of Justice who reversed it and ruled in favor of CEPALCO. On 26 June 1976, the Secretary of
Finance issued Local Tax Regulation 3-75 adopting entirely the opinion of the Secretary of
Justice.

On 16 February 1976, the Province filed in the CFI Misamis Oriental a complaint for
declaratory relief praying, among others, that the Court exercise its power to construe PD 231
in relation to the franchise of CEPALCO (RA 6020), and to declare the franchise as having
been amended by PD 231. The Court dismissed the complaint and ordered the Province to
return to CEPALCO the sum of P4,276.28 paid under protest. The Province appealed to the
Supreme Court.

ISSUE:

Whether or not the decision of the CFI is proper.

RULING:

The Supreme Court denied the petition for review, and affirmed in toto the decision of the
Court of First Instance; wIthout costs.

1. Section 3 of RA 3247, 3570, and 6020 Section 3 of RA 3247, 3570 and 6020 uniformly
provide that “in consideration of the franchise and rights hereby granted, the grantee shall pay
a franchise tax equal to three per centum of the gross earnings for electric current sold under
this franchise, of which two per centum goes into the National Treasury and one per centum
goes into the treasury of the Municipalities of Tagoloan, Opol, Villanueva and Jasaan and
Cagayan de Oro City, as the case may be: Provided, That the said franchise tax of three per
centum of the gross earnings shall be in lieu of all taxes and assessments of whatever
authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee from which taxes and assessments the grantee is hereby expressly
exempted.”

2. Section 9 of PD 231; Franchise Tax Section 9 of PD 231 provides that “any provision of
special laws to the contrary notwithstanding, the province may impose a tax on businesses
enjoying franchise, based on the gross receipts realized within its territorial jurisdiction, at the
rate of not exceeding one-half of one per cent of the gross annual receipts for the preceding
calendar year. In the case of newly started business, the rate shall not exceed three thousand
pesos per year. Sixty per cent of the proceeds of the tax shall accrue to the general fund of
the province and forty per cent to the general fund of the municipalities serviced by the
business on the basis of the gross annual receipts derived therefrom by the franchise holder.
In the case of a newly started business, forty per cent of the proceeds of the tax shall be
divided equally among the municipalities serviced by the business.”

3. Section 12 of Provincial Revenue Ordinance 19; Franchise Tax Section of the Provincial
Revenue Ordinance 19 provides that “there shall be levied, collected and paid on businesses
enjoying franchise tax of one-half of one per cent of their gross annual receipts for the
preceding calendar year realized within the territorial jurisdiction of the province of Misamis
Oriental.”

4. Special and local statute is not repealed by later statute which is general in its terms, etc.
There is no provision in PD 231 expressly or impliedly amending or repealing Section 3 of RA
6020. The perceived repugnancy between the two statutes should be very clear before the
Court may hold that the prior one has been repealed by the later, since there is no express
provision to that effect (Manila Railroad Co. vs. Rafferty, 40 Phil. 224). The rule is that a special
and local statute applicable to a particular case is not repealed by a later statute which is
general in its terms, provisions and application even if the terms of the general act are broad
enough to include the cases in the special law (id.) unless there is manifest intent to repeal or
alter the special law.

5. Special statutes are exceptions to the general law Republic Acts 3247, 3570 and 6020 are
special laws applicable only to CEPALCO, while PD 231 is a general tax law. The presumption
is that the special statutes are exceptions to the general law (PD 231) because they pertain to
a special charter granted to meet a particular set of conditions and circumstances. The
CEPALCO’s franchise expressly exempts it from payment of “all taxes of whatever authority”
except the three per centum (3%) tax on its gross earnings.

6. “Shall be in lieu of all taxes and at any time levied, established by, or collected by any
authority” construed; Visayan Electric Co. case The phrase “shall be in lieu of all taxes and at
any time levied, established by, or collected by any authority” found in the franchise of the
Visayan Electric Company was held to exempt the company from payment of the 5% tax on
corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan Electric
Co. vs. David, 49 O.G. [No. 4] 1385).

7. “Shall be in lieu of all taxes of every name and nature” construed; Manila Railroad and
Philippine Railway cases The provision: “shall be in lieu of all taxes of every name and nature”
in the franchise of the Manila Railroad (Subsection 12, Section 1, Act 1510) exempts the
Manila Railroad from payment of internal revenue tax for its importations of coal and oil under
Act 2432 and the Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty,
40 Phil. 224). The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13,
Act 1497) justified the exemption of the Philippine Railway Company from payment of the tax
on its corporate franchise under Section 259 of the Internal Revenue Code, as amended by
RA 39 (Philippine Railway Co. vs. Collector of Internal Revenue, 91 Phil. 35).

8. “Shall be in lieu of all taxes” construed; Cotabato Light case Those magic words: “shall be
in lieu of all taxes” also excused the Cotabato Light and Ice Plant Company from the payment
of the tax imposed by Ordinance 7 of the City of Cotabato (Cotabato Light and Power Co. vs.
City of Cotabato, 32 SCRA 231).

9. Exemption is part of inducement for the acceptance of franchise and rendition of public
service by the grantee; Carcar Electric & Ice Plant case The Court pointed out in the case of
Carcar Electric & Ice Plant vs. Collector of Internal Revenue (53 O.G. [No. 4] 1068) that such
exemption is part of the inducement for the acceptance of the franchise and the rendition of
public service by the grantee. As a charter is in the nature of a private contract, the imposition
of another franchise tax on the corporation by the local authority would constitute an
impairment of the contract between the government and the corporation. The Court, in that
case, upheld in favor of the Carcar Electric and Ice Plant Company when it was required to
pay the corporate franchise tax under Section 259 of the Internal Revenue Code, as amended
by RA 39.

10. Lingayen Gulf case; Exemption from Franchise Tax The Court ruled that the franchise (RA
3843) of the Lingayen Gulf Electric Power Company which provided that the company shall
pay “tax equal to 2% per annum of the gross receipts . . . and shall be in lieu of any and all
taxes . . . now or in the future . . . from which taxes . . . the grantee is hereby expressly
exempted and . . . no other tax . . . other than the franchise tax of 2% on the gross receipts as
provided for in the original franchise shall be collected” exempts the company from paying the
franchise tax under Section 259 of the National Internal Revenue Code (Commissioner of
Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc., G.R. No. 23771, August 4, 1988).

11. Effect of the absence of the “in-lieu-of-all-taxes” clause The Balanga Power Plant
Company, Imus Electric Company, Inc., Guagua Electric Company, Inc. were subjected to the
5% tax on corporate franchise under Section 259 of the Internal Revenue Code, as amended,
because Act 667 of the Philippine Commission and the ordinance or resolutions granting their
respective franchises did not contain the “in-lieu-of-all-taxes” clause (Balanga Power Plant Co.
vs. Commissioner of Internal Revenue, G.R. No. L-20499, June 30, 1965; Imus Electric Co.
vs. Court of Tax Appeals, G.R. No. L-22421, March 18, 1967; Guagua Electric Light vs.
Collector of Internal Revenue, G.R. No. L-23611, April 24, 1967).

12. Franchise Tax in PD 231 imposed only on companies with franchise not containing the
exempting clause The Local Tax Regulation 3-75 issued by the Secretary of Finance on 26
June 1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (PD
231, Sec. 9) may only be imposed on companies with franchises that do not contain the
exempting clause. It provides that “the franchise tax imposed under local tax ordinance
pursuant to Section 9 of the Local Tax Code, as amended, shall be collected from businesses
holding franchise but not from business establishments whose franchise contain the ‘in-lieu-
of-all-taxes-proviso’.”

13. Meralco vs. Vera does not apply Manila Electric Company vs. Vera, 67 SCRA 351, is not
applicable in the present case because what the Government sought to impose on Meralco in
that case was not a franchise tax but a compensating tax on the poles, wires, transformers
and insulators which it imported for its use.

CIR vs. CA, ROH Auto Products Phils.


[G.R. No. 108358. January 20, 1995.]

FACTS:

On 22 August 1986, during the period when the President of the Republic still wielded
legislative powers, Executive Order 41 was promulgated declaring a one-time tax amnesty on
unpaid income taxes, later amended to include estate and donor’s taxes and taxes on
business, for the taxable years 1981 to 1985. Availing itself of the amnesty, R.O.H. Auto
Products Philippines Inc., filed, in October 1986 and November 1986, its Tax Amnesty Return
34-F-00146-41 and Supplemental Tax Amnesty Return 34-F-00146-64-B, respectively, and
paid the corresponding amnesty taxes due. Prior to this availment, the Commissioner of
Internal Revenue, in a communication received by the company on 13 August 1986, assessed
the latter deficiency income and business taxes for its fiscal years ended 30 September 1981
and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back
to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice
should forthwith be cancelled and withdrawn. The request was denied by the Commissioner,
in his letter of 22 November 1988, on the ground that Revenue Memorandum Order 4-87,
dated 09 February 1987, implementing EO 41, had construed the amnesty coverage to include
only assessments issued by the Bureau of Internal Revenue after the promulgation of the
executive order on 22 August 1986 and not to assessments theretofore made.

The company appealed the Commissioner’s denial to the Court of Tax Appeals. Ruling for the
taxpayer, the tax court held that the Commissioner failed to present any case or law which
proves that an ssessment can withstand or negate the force of a tax amnesty. On appeal by
the Commissioner to the Court of Appeals, the decision of the tax court was affirmed. Hence,
the present petition.

ISSUE:

Whether or not the CTA’s denial to the petition is proper.

RULING:

The Supreme Court affirmed the decision of the Court of Appeals, sustaining that of the Court
of Tax Appeals, in toto; without costs.

1. CTA ruling: Commissioner failed to present case and law which proves assessment can
withstand effects of tax amnesty; Burden of proof The Commissioner failed to present any
case or law which proves that an assessment can withstand or negate the force and effects
of a tax amnesty. This burden of proof on the company was created by the clear and express
terms of the executive order’s intention — qualified availers of the amnesty may pay an
amnesty tax in lieu of said unpaid taxes which are forgiven (Section 2, Section 5, EO 41, as
amended). More specifically, the plain provisions in the statute granting tax amnesty for unpaid
taxes for the period 1 January 1981 to 31 December 1985 shifted the burden of proof on the
Commissioner to show how the issuance of an assessment before the date of the
promulgation of the executive order could have a reasonable relation with the objective periods
of the amnesty, so as to make the company still answerable for a tax liability which, through
the statute, should have been erased with the proper availment of the amnesty.

2. CTA Ruling: Exceptions do not indicate any reference to an assessment or pending


investigation aside from one arising from information furnished by an informer The exceptions
enumerated in Section 4 of EO 41, as amended, do not indicate any reference to an
assessment or pending investigation aside from one arising from information furnished by an
informer. Thus, the rule in Revenue Memorandum Order 4-87 promulgating that only
assessments issued after August 21, 1986 shall be abated by the amnesty is beyond the
contemplation of EO 41, as amended.

3. CA Ruling: Commissioner’s additional exception against company an act of administrative


legislation There is nothing which justifies the Commissioner’s ground for denying the
company’s claim to the benefits of the amnesty law. Section 4 of the subject law enumerates,
in no uncertain terms, taxpayers who may not avail of the amnesty granted. The company
does not fall under any of the exceptions. The added exception urged by the Commissioner
based on Revenue Memorandum Order 4-87, further restricting the scope of the amnesty,
clearly amounts to an act of administrative legislation quite contrary to the mandate of the law
which the regulation ought to implement.

4. CA Ruling: Tax Amnesty By its very nature, a tax amnesty, being a general pardon or
intentional overlooking by the State of its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or
waiver by the Government of its right to collect what otherwise would be due it, and in this
sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing
to reform a chance to do so and thereby become a part of the new society with a clean slate.
(Republic vs. Intermediate Appellate Court. 196 SCRA 335, 340 [1991] citing Commissioner
of Internal Revenue vs. Botelho Shipping Corp., 20 SCRA 487) To follow the restrictive
application of Revenue Memorandum Order 4-87 pressed by the Commissioner would be to
work against the raison d’etre of EO 41, as amended, i.e., to raise government revenues by
encouraging taxpayers to declare their untaxed income and pay the tax due thereon.

5. Administrative agencies power to promulgate needful rules and regulations to carry out the
law The authority of the Minister of Finance (now the Secretary of Finance), in conjunction
with the Commissioner of Internal Revenue, to promulgate all needful rules and regulations
for the effective enforcement of internal revenue laws cannot be controverted. Neither can it
be disputed that such rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. Much more fundamental than
either of the above is that all such issuances must not override, but must remain consistent
and in harmony with, the law they seek to apply and implement. Administrative rules and
regulations are intended to carry out, neither to supplant nor to modify, the law.

6. EO 41 (promulgated 22 August 1986); Sections 1-4, 9 and 11 Section 1 (Scope of Amnesty)


of EO 41 provides that “a one-time tax amnesty covering unpaid income taxes for the years
1981 to 1985 is hereby declared.” Section 2 (Conditions of the Amnesty) provides that “a
taxpayer who wishes to avail himself of the tax amnesty shall, on or before October 31, 1986;
a) file a sworn statement declaring his net worth as of December 31, 1985; b) file a certified
true copy of his statement declaring his net worth as of December 31, 1980 on record with the
Bureau of Internal Revenue, or if no such record exists, file a statement of said net worth
therewith, subject to verification by the Bureau of Internal Revenue; c) file a return and pay a
tax equivalent to ten per cent (10%) of the increase in net worth from December 31, 1980 to
December 31, 1985: Provided, That in no case shall the tax be less than P5,000.00 for
individuals and P10,000.00 for judicial persons.” Section 3 (Computation of Net Worth)
provides that “In computing the net worths referred to in Section 2 hereof, the following rules
shall govern: a) Non-cash assets shall be valued at acquisition cost. b) Foreign currencies
shall be valued at the rates of exchange prevailing as of the date of the net worth statement.”
Section 4 (Exceptions) provides that “the following taxpayers may not avail themselves of the
amnesty herein granted: “a) Those falling under the provisions of Executive Order Nos. 1, 2
and 14; b) Those with income tax cases already filed in Court as of the effectivity hereof; c)
Those with criminal cases involving violations of the income tax already filed in court as of the
effectivity filed in court as of the effectivity hereof; d) Those that have withholding tax liabilities
under the National Internal Revenue Code, as amended, insofar as the said liabilities are
concerned; e) Those with tax cases pending investigation by the Bureau of Internal Revenue
as of the effectivity hereof as a result of information furnished under Section 316 of the National
Internal Revenue Code, as amended; f) Those with pending cases involving unexplained or
unlawfully acquired wealth before the Sandiganbayan; g) Those liable under Title Seven,
Chapter Three (Frauds, Illegal Exactions and Transactions) and Chapter Four (Malversation
of Public Funds and Property) of the Revised Penal Code, as amended.” Section 9 provides
that “the Minister of finance, upon the recommendation of the Commissioner of Internal
Revenue, shall promulgate the necessary rules and regulations to implement this Executive
Order.” Section 11 provides that the “This Executive Order shall take effect immediately.”

7. Amnesty extended by later EO 54 (period) and EO 64 (coverage) The period of the amnesty
was later extended to 05 December 1986 from 31 October 1986 by Executive Order 54, dated
04 November 1986, and, its coverage expanded, under Executive Order 64, dated 17
November 1986, to include estate and honors taxes and taxes on business.
8. Exclusion clause required to exclude tax liabilities already assessed; EO 41 in the nature of
a general grant of tax amnesty If EO 41 had not been intended to include 1981-1985 tax
liabilities already assessed (administratively) prior to 22 August 1986, the law could have
simply so provided in its exclusionary clauses. It did not. Thus, the executive order has been
designed to be in the nature of a general grant of tax amnesty subject only to the cases
specifically excepted by it.

9. Events that lead to the promulgation of the tax amnesty The taxable periods covered by the
amnesty include the years immediately preceding the 1986 revolution during which time there
had been persistent calls for civil disobedience, most particularly in the payment of taxes, to
the martial law regime. It should be understandable then that those who ultimately took over
the reigns of government following the successful revolution would promptly provide for
abroad, and not a confined, tax amnesty.

10. Section 6 of EO 41; Immunities and Privileges Section 6 of EO 41 provides that “upon full
compliance with the conditions of the tax amnesty and the rules and regulations issued
pursuant to this Executive order, the taxpayer shall enjoy the following immunities and
privileges: a) The taxpayer shall be relieved of any income tax liability on any untaxed income
from January 1, 1981 to December 31, 1985, including increments thereto and penalties on
account of the non-payment of the said tax. Civil, criminal or administrative liability arising from
the non-payment of the said tax, which are actionable under the National Internal Revenue
Code, as amended, are likewise deemed extinguished. b) The taxpayer’s tax amnesty
declaration shall not be admissible in evidence in all proceedings before judicial, quasi-judicial
or administrative bodies, in which he is a defendant or respondent, and the same shall not be
examined, inquired or looked into by any person, government official, bureau or office. c) The
books of account and other records of the taxpayer for the period from January 1, 1981 to
December 31, 1985 shall not be examined for income tax purposes: Provided, That the
Commissioner of Internal Revenue may authorize in writing the examination of the said books
of accounts and other records to verify the validity or correctness of a claim for grant of any
tax refund, tax credit (other than refund on credit of withheld taxes on wages), tax incentives,
and/or exemptions under existing laws.” There is no pretension that the tax amnesty returns
and due payments made by the taxpayer did not conform with the conditions expressed in the
amnesty order.

MACEDA VS. MACARAIG


[G.R. No. 88291. June 8, 1993]

FACTS:

A Chronological review of the relevant NPC laws, especially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order. Commonwealth Act 120
created NAPOCOR as a public corporation to undertake the development of hydraulic power
and the production of power from other sources. On June 4, 1949, Republic Act No. 357 was
enacted authorizing the President of the Philippines to guarantee, absolutely and
unconditionally, as primary obligor, the payment of any and all NPC loans. He was also
authorized to contract on behalf of the NPC with the International Bank for Reconstruction and
Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives and
for the reconstruction and development of the economy of the country. It was expressly stated
that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities and
municipalities. On the same date, R.A. No. 358 was enacted expressly authorizing the NPC,
for the first time, to incur other types of indebtedness, aside from indebtedness incurred by
flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt
from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was
enacted specifically to withdraw NPC's tax exemption for real estate taxes. On September 10,
1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended.
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which
declares the non-profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment,
as well as excess revenues from its operation, for expansion. To enable the Corporation to
pay its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt: library

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, and municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities; virtual law library

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power.
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to
fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified that NAPOCOR’s
exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 integrated the
exemptions in favor of GOCCs including their subsidiaries; however, empowering the
President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review
Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The
FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions
privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January
1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again
withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring
NAPOCOR’s exemption, which was approved by the President on 5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products
sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes
on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund
(P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released
by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex
amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting
that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period
of delivery.

ISSUES:
1. Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated
the exemption in general terms
2. Whether or not oil companies have to absorb the taxes they add to the bunker fuel oil
they sell to NPC in view of the indirect tax exemption of the NAPOCOR

RULING:

It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following
items:

13(a) : court or administrative proceedings; chanrobles virtual law library

13(b) : income, franchise, realty taxes; chanrobles virtual law library

13(c) : import of foreign goods required for its operations and projects; chanrobles virtual law
library

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES,
ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified
for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above. President Marcos must have considered all the
NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up with a very simple Section 13, R.A. No. 6395, as amended by
P.D. No. 938. law library

One common theme in all these laws is that the NPC must be enable to pay its indebtedness
which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time,
and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt
from all forms of taxes if this goal is to be achieved. l law library

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395 and further amended
by P.D. No. 380 which provides: The loans, credits and indebtedness contracted this
subsection and the payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials, supplies and services, by the Corporation,
paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also
be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions,
including import restrictions previously and presently imposed, and to be imposed by the
Republic of the Philippines, or any of its agencies and political subdivisions.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8 (b),
R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this
particular Section 8 (b) had to do only with loans and machinery imported, paid for from the
proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT
UP WITH, and so, the tax exemption stood as is - with the express mention of "direct and
indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future - surely, an indication that
the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes - direct and indirect.
library
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct
and indirect taxes under P.D. No. 938.

On the second issue, according to the Court, tax exemptions are undoubtedly to be construed
strictly but not so grudgingly as knowledge that many impositions taxpayers have to pay are
in the nature of indirect taxes. To limit the exemption granted the National Power Corporation
to direct taxes notwithstanding the general and broad language of the statue will be to thwart
the legislative intention in giving exemption from all forms of taxes and impositions without
distinguishing between those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC.
By the very nature of indirect taxation, the economic burden of such taxation is expected to
be passed on through the channels of commerce to the user or consumer of the goods sold.
Because, however, the NPC has been exempted from both direct and indirect taxation, the
NPC must beheld exempted from absorbing the economic burden of indirect taxation. This
means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part
of the economic burden of the taxes previously paid to BIR, which could they shift to NPC if
NPC did not enjoy exemption from indirect taxes. This means also, on the other hand, that the
NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil which
represents all or part of the taxes previously paid by the oil companies to BIR. If NPC
nonetheless purchases such oil from the oil companies - because to do so may be more
convenient and ultimately less costly for NPC than NPC itself importing and hauling and
storing the oil from overseas - NPC is entitled to be reimbursed by the BIR for that part of the
buying price of NPC which verifiably represents the tax already paid by the oil company-vendor
to the BIR.

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