Sections 204 to 218

Sec. 204 Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes

1. BIR v. Office of the Ombudsman, G.R. No. 115103, [April 11, 2002
2. Chavez v. PCGG, G.R. No. 130716, [December 9, 1998]

Sec. 204(B) Abate or cancel a tax liability

3. Asiatrust Development Bank, Inc. v. CIR, G.R. Nos. 201530 & 201680-81, [April 19, 2017]

Sec. 204(C) Credit or refund of taxes erroneously or illegally received or penalties imposed without
authority
4. Silkair (Singapore) Pte. Ltd. v. CIR, G.R. No. 184398, [February 25, 2010]
5. CIR v. Petron Corp., G.R. No. 185568, [March 21, 2012]

Sec. 205 Remedies for the Collection of Delinquent Taxes

6. Ungab v. Cusi, Jr., G.R. Nos. L-41919-24, [May 30, 1980]

Sec. 206 Constructive Distraint of the Property of a Taxpayer

7. Azarcon v. Sandiganbayan, G.R. No. 116033, [February 26, 1997]

Sec. 207 (A) & (B) Distraint and Levy

8. David v. Ramos, G.R. No. L-4300, [October 31, 1951]

Sec. 209 Sale of Property Distrained and Disposition of Proceeds

9. Azarcon v. Sandiganbayan, G.R. No. 116033, [February 26, 1997]

Sec. 218 Injunction not available to restrain collecton of tax

10. Churchill v. Rafferty, G.R. No. 10572, [December 21, 1915]
11. David v. Ramos, G.R. No. L-4300, [October 31, 1951]
12. CIR v. Cebu Portland Cement Co., G.R. No. L-29059, [December 15, 1987]
13. Spouses Pacquiao v. Court of Tax Appeals, G.R. No. 213394, [April 6, 2016]

Sec. 204

1. BIR v. Office of the Ombudsman, G.R. No. 115103, [April 11, 2002

SECOND DIVISION

[G.R. No. 115103. April 11, 2002.]

BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF INTERNAL

REVENUE, petitioner,vs.OFFICE OF THE OMBUDSMAN, respondent.

The Solicitor General for petitioner.

SYNOPSIS

The Office of the Ombudsman issued a subpoena duces tecum addressed to BIR
Commissioner Liwayway Vinzons-Chato ordering her to appear before the Ombudsman and
to bring the complete original case dockets of the allegedly anomalous refunds granted to
Disteleria Limtuaco and La Tondeña. The BIR moved to vacate the subpoena duces tecum
arguing inter alia,that the subpoena duces tecum partook of the nature of an omnibus
subpoena because it did not specifically described the particular documents to be produced.
The Ombudsman denied the Motion to Vacate the Subpoena Duces Tecum.It insisted that
the issuance of the subpoena duces tecum was not a "fishing expedition" considering that
the documents required for production were clearly and particularly specified. The BIR
moved to reconsider, but the Office of the Ombudsman found no valid reason to reverse its
Order and denied the motion for reconsideration and reiterated its directive to the BIR to
produce the documents. Hence, the present petition. Petitioner asserted, among others,
that the investigation conducted by the Office of the Ombudsman violated due process,
inasmuch as it commenced its investigation by issuing the subpoena duces tecum without
first furnishing petitioner with a summary of the complaint and requiring it to submit a
written answer. EITcaD

The Supreme Court granted the petition and ordered the Office of the Ombudsman to desist
from proceeding with the case. According to the Court, the Office of the Ombudsman failed
to afford petitioner with the basics of due process in conducting its investigation. The Court
held that the procedure taken by the respondent did not comply with the safeguards
enumerated in Sec. 26, §(2) of RA 6770, or the Ombudsman Act of 1989. The law clearly
provides that if there is a reasonable ground to investigate further, the investigator of the
Office of the Ombudsman shall first furnish the respondent public officer or employee with a
summary of the complaint and require him to submit a written answer within seventy-two
(72) hours from receipt thereof. In the instant case, the BIR officials concerned were never
furnished by the respondent with a summary of the complaint and were not given the
opportunity to submit their counter-affidavits and controverting evidence. Instead, they
were summarily ordered to appear before the Ombudsman and to produce the case dockets
of the tax refunds granted to Limtuaco and La Tondeña. They were aggrieved in that, from
the point of view of the respondent, they were already deemed probably guilty of granting
anomalous tax refunds.

SYLLABUS

1. POLITICAL LAW; ACCOUNTABILITY OF PUBLIC OFFICERS; OFFICE OF THE OMBUDSMAN;

PENDENCY OF AN ACTION IS NOT A PREREQUISITE BEFORE THE OMBUDSMAN CAN START
ITS OWN INVESTIGATION. — No less than the 1987 Constitution enjoins that the
"Ombudsman and his Deputies, as protectors of the people, shall act promptly on
complaints filed in any form or manner against public officials or employees of the
government, or any subdivision, agency or instrumentality thereof, including government-
owned or controlled corporations, and shall, in appropriate case, notify the complainants of
the action taken and the result thereof." Clearly, there is no requirement of a pending action
before the Ombudsman could wield its investigative power. The Ombudsman could resort to
its investigative prerogative on its own or upon a complaint filed in any form or manner.
Even when the complaint is verbal or written, unsigned or unverified, the Ombudsman
could, on its own, initiate the investigation. Thus – There can be no objection to this
procedure in the Office of the Ombudsman where anonymous letters suffice to start an
investigation because it is provided in the Constitution itself. In the second place, it is
apparent that in permitting the filing of complaints "in any form and manner," the framers
of the Constitution took into account the well-known reticence of the people which keep
them from complaining against official wrongdoings. As this Court had occasion to point out,
the Office of the Ombudsman is different from other investigatory and prosecutory agencies
of the government because those subject to its jurisdiction are public officials who, through
official pressure and influence, can quash, delay or dismiss investigations held against them.
On the other hand complainants are more often than not poor and simple folk who cannot
afford to hire lawyers. The term "in an appropriate case" has already been clarified by this
Court in Almonte v. Vasquez,thus – Rather than referring to the form of complaints,
therefore, the phrase "in an appropriate case" in Art. XI, §12 means any case concerning
official act or omission which is alleged to be "illegal, unjust, improper, or inefficient," The
phrase "subject to such limitations as may be provided by law" refers to such limitations as
may be provided by Congress or, in the absence thereof, to such limitations as may be
imposed by courts. Plainly, the pendency of an action is not a prerequisite before the
Ombudsman can start its own investigation.

2. ID.; ID.; ID.; THE POWER TO INVESTIGATE AND PROSECUTE WHICH WAS GRANTED BY
LAW TO THE OMBUDSMAN IS PLENARY AND UNQUALIFIED. — The power to investigate and
to prosecute which was granted by law to the Ombudsman is plenary and unqualified. The
Ombudsman Act makes it perfectly clear that the jurisdiction of the Ombudsman
encompasses "all kinds of malfeasance, misfeasance and nonfeasance that have been
committed by any officer or employee . . . during his tenure of office. Concededly, the
determination of whether to grant a tax refund falls within the exclusive expertise of the
BIR. Nonetheless, when there is a suspicion of even just a tinge of impropriety in the grant
of the same, the Ombudsman could rightfully ascertain whether the determination was done
in accordance with law and identify the persons who may be held responsible thereto. In
that sense, the Ombudsman could not be accused of unlawfully intruding into and
intervening with the BIR's exercise of discretion. The law does not qualify the nature of the
illegal act or omission of the public official or employee that the Ombudsman may
investigate. It does not require that the act or omission be related to or be connected with
or arise from the performance of official duty.

3. ID.; ID.; ID.; PRODUCTION OF THE SUBPOENAED DOCUMENTS WILL NOT CONTRAVENE
SECTION 269 OF THE NATIONAL INTERNAL REVENUE CODE ON UNLAWFUL DIVULGENCE
OF TRADE SECRETS AND SECTION 277 OF THE SAME CODE ON PROCURING UNLAWFUL
DIVULGENCE OF TRADE SECRETS. — We agree with the view taken by the Solicitor General
that the assailed subpoena duces tecum indeed particularly and sufficiently described the
records to be produced. There is every indication that petitioner knew precisely what
records were being referred to as it even suggested that the tax dockets sought to be
produced may not contain evidence material to the inquiry and that it has already submitted
the same to Baldrias. The records do not show how the production of the subpoenaed
documents would necessarily contravene Sec. 269 of the National Internal Revenue Code
(NIRC) on unlawful divulgence of trade secrets and Sec. 277 of the same Code on procuring
unlawful divulgence of trade secrets. The documents sought to be produced were only the
case dockets of the tax refunds granted to Limtuaco and La Tondeña which are public
records, and the subpoena duces tecum were directed to the public officials who have the
official custody of the said records. We find no valid reason why the trade secrets of
Limtuaco and La Tondeña would be unnecessarily disclosed if such official records, subject
of the subpoena duces tecum,were to be produced by the petitioner BIR to respondent
Office of the Ombudsman. aTcSID

4. ID.; ID.; ID.; RESPONDENT OFFICE OF THE OMBUDSMAN DID NOT COMPLY WITH THE
SAFEGUARDS ENUMERATED IN SECTION 26, (2) OF RA 6770 OR THE OMBUDSMAN ACT OF
1989; RESPONDENT ALSO FAILED TO AFFORD PETITIONER BUREAU OF INTERNAL
REVENUE WITH THE BASICS OF DUE PROCESS IN CONDUCTING THE INVESTIGATION. — It
is our view and we hold that the procedure taken by the respondent did not comply with the
safeguards enumerated in Sec. 26, §(2) of RA 6770 or the Ombudsman Act of 1989. It is
clear from the initial comments of Soquilon in his Memorandum to Ombudsman Vasquez
that he undoubtedly found reasonable grounds to investigate further. In fact, he
recommended that the "case" be docketed immediately and assigned to him for a "full-
blown fact-finding investigation." Even during that initial stage, Soquilon was convinced that
the granting of the tax refunds was so anomalous that he assured Ombudsman Vasquez of
the eventual recovery of the tax refunds and the prosecution and conviction of key BIR
officials for graft and corruption. We commend the graft investigators of the Office of the
Ombudsman in their efforts to cleanse our bureaucracy of scalawags. Sometimes, however,
in their zeal and haste to pin down the culprits they tend to circumvent some procedures. In
this case, Graft Investigation Officer Soquilon forgot that there are always two (2) sides to
an issue and that each party must be given every opportunity to air his grievance or explain
his side as the case may be. This is the essence of due process. The law clearly provides
that if there is a reasonable ground to investigate further, the investigator of the Office of
the Ombudsman shall first furnish the respondent public officer or employee with a
summary of the complaint and require him to submit a written answer within seventy-two
(72) hours from receipt thereof. In the instant case, the BIR officials concerned were never
furnished by the respondent with a summary of the complaint and were not given the
opportunity to submit their counter-affidavits and controverting evidence. Instead, they
were summarily ordered to appear before the Ombudsman and to produce the case dockets
of the tax refunds granted to Limtuaco and La Tondeña. They are aggrieved in that, from
the point of view of the respondent, they were already deemed probably guilty of granting
anomalous tax refunds. Plainly, respondent Office of the Ombudsman failed to afford
petitioner with the basics of due process in conducting its investigation.

DECISION

DE LEON, JR.,J p:

Graft Investigation Officer II Christopher S. Soquilon of the Office of the Ombudsman

(OMBUDSMAN, for brevity) received information from an "informer-for-reward" regarding
allegedly anomalous grant of tax refunds to Distilleria Limtuaco & Co.,Inc. (Limtuaco, for
brevity) and La Tondeña Distilleries, Inc. Upon receipt of the information, Soquilon
recommended 1 to then Ombudsman Conrado M. Vasquez that the "case" be docketed and
subsequently assigned to him for investigation. 2

On November 29, 1993, the Ombudsman issued a subpoena duces tecum 3 addressed to
Atty. Millard Mansequiao of the Legal Department of the Bureau of Internal Revenue (BIR)
ordering him to appear before the Ombudsman and to bring the complete original case
dockets of the refunds granted to Limtuaco and La Tondeña.

The BIR, through Assistant Commissioner for Legal Service Jaime M. Maza, asked that it be
excused from complying with the subpoena duces tecum because (a) the Limtuaco case was
pending investigation by Graft Investigation Officer II Napoleon S. Baldrias; and (b) the
investigation thereof and that of La Tondeña was mooted when the Sandiganbayan ruled in
People v. Larin 4 that "the legal issue was no longer in question since the BIR had ruled that
the ad valorem taxes were erroneously paid and could therefore be the proper subject of a
claim for tax credit." 5

Without resolving the issues raised by the BIR, the Ombudsman issued another subpoena
duces tecum,dated December 9, 1993, addressed to BIR Commissioner Liwayway Vinzons-
Chato ordering her to appear before the Ombudsman and to bring the complete original
case dockets of the refunds granted to Limtuaco and La Tondeña. 6

The BIR moved to vacate the subpoena duces tecum arguing that (a) the second subpoena
duces tecum was issued without first resolving the issues raised in its Manifestation and
Motion dated December 8, 1993; (b) the documents required to be produced were already
submitted to Graft Investigation Officer II Baldrias; (c) the issue of the tax credit of ad
valorem taxes has already been resolved as proper by the Sandiganbayan; (d) the
subpoena duces tecum partook of the nature of an omnibus subpoena because it did not
specifically described the particular documents to be produced; (e) there was no clear
showing that the tax case dockets sought to be produced contained evidence material to the
inquiry; (f) compliance with the subpoena duces tecum would violate Sec. 269 7 of the
National Internal Revenue Code (NIRC) on unlawful divulgence of trade secrets and Sec.
277 8 on procuring unlawful divulgence of trade secrets; and (g) Limtuaco and La Tondeña
had the right to rely on the correctness and conclusiveness of the decisions of the
Commissioner of Internal Revenue. 9

The Ombudsman denied 10 the Motion to Vacate the Subpoena Duces Tecum, pointing out
that the Limtuaco tax refund case then assigned to Baldrias was already referred to the
Fact-Finding and Investigation Bureau of the Ombudsman for consolidation with Case No.
OMB-0-93-3248. The Ombudsman also claimed that the documents submitted by the BIR to
Baldrias were incomplete and not certified. It insisted that the issuance of the subpoena
duces tecum was not a "fishing expedition" considering that the documents required for
production were clearly and particularly specified.

The BIR moved to reconsider 11 the respondent's Order dated February 15, 1994 alleging
that (a) the matter subject of the investigation was beyond the scope of the jurisdiction of
the Ombudsman; (b) the subpoena duces tecum was not properly issued in accordance with
law; and (c) non-compliance thereto was justifiable. The BIR averred it had the exclusive
authority whether to grant a tax credit and that the jurisdiction to review the same was
lodged with the Court of Tax Appeals and not with the Ombudsman.

According to the BIR, for a subpoena duces tecum to be properly issued in accordance with
law, there must first be a pending action because the power to issue a subpoena duces
tecum is not an independent proceeding. The BIR noted that the Ombudsman issued the
assailed subpoena duces tecum based only on the information obtained from an "informer-
for-reward" and the report of Asst. Comm. Imelda L. Reyes. The BIR added that the
subpoena duces tecum suffered from a legal infirmity for not specifically describing the
documents sought to be produced.

Finding no valid reason to reverse its Order dated February 15, 1994, the Ombudsman
denied the motion for reconsideration and reiterated its directive to the BIR to produce the
documents. 12 Instead of complying, the BIR manifested its intention to elevate the case on
certiorari to this Court. 13 The Ombudsman thus ordered Asst. Comm. Maza to show cause
why he should not be cited for contempt for contumacious refusal to comply with the
subpoena duces tecum.14

However, before the expiration of the period within which Asst. Comm. Maza was required
to file a reply to the show cause order of the Ombudsman, the BIR filed before this Court
the instant Petition for Certiorari,Prohibition and Preliminary Injunction and Temporary
Restraining Order. 15

Petitioner BIR insists that the investigative power of the Ombudsman is not unbridled.
Particularly on the issue of tax refunds, the BIR maintains that the Ombudsman could
validly exercise its power to investigate only when there exists an appropriate case and
subject to the limitations provided by law. 16 Petitioner opines that the fact-finding
investigation by the Ombudsman is not the proper case as it is only a step preliminary to
the filing of recovery actions on the tax refunds granted to Limtuaco and La Tondeña.

This Court is not persuaded. No less than the 1987 Constitution enjoins that the
"Ombudsman and his Deputies, as protectors of the people, shall act promptly on
complaints filed in any form or manner against public officials or employees of the
government, or any subdivision, agency or instrumentality thereof, including government-
owned or controlled corporations, and shall, in appropriate case, notify the complainants of
the action taken and the result thereof." 17
Clearly, there is no requirement of a pending action before the Ombudsman could wield its
investigative power. The Ombudsman could resort to its investigative prerogative on its own
18 or upon a complaint filed in any form or manner. Even when the complaint is verbal or
written, unsigned or unverified, the Ombudsman could, on its own, initiate the investigation.
19 Thus —

There can be no objection to this procedure in the Office of the Ombudsman where
anonymous letters suffice to start an investigation because it is provided in the Constitution
itself. In the second place, it is apparent that in permitting the filing of complaints "in any
form and manner," the framers of the Constitution took into account the well-known
reticence of the people which keep them from complaining against official wrongdoings. As
this Court had occasion to point out, the Office of the Ombudsman is different from other
investigatory and prosecutory agencies of the government because those subject to its
jurisdiction are public officials who, through official pressure and influence, can quash, delay
or dismiss investigations held against them. On the other hand complainants are more often
than not poor and simple folk who cannot afford to hire lawyers. 20

The term "in an appropriate case" has already been clarified by this Court in Almonte v.
Vasquez,21 thus —

Rather than referring to the form of complaints, therefore, the phrase "in an appropriate
case" in Art. XI, § 12 means any case concerning official act or omission which is alleged to
be "illegal, unjust, improper, or inefficient," The phrase "subject to such limitations as may
be provided by law" refers to such limitations as may be provided by Congress or, in the
absence thereof, to such limitations as may be imposed by courts.

Plainly, the pendency of an action is not a prerequisite before the Ombudsman can start its
own investigation.

Petitioner next avers that the determination of granting tax refunds falls within its exclusive
expertise and jurisdiction and that its findings could no longer be disturbed by the
Ombudsman purportedly through its investigative power as it was a valid exercise of
discretion. Petitioner suggests that what respondent should have done was to appeal its
decision of granting tax credits to Limtuaco and La Tondeña to the Court of Tax Appeals
since it is the proper forum to review the decisions of the Commissioner of Internal
Revenue.

This contention of the BIR is baseless. The power to investigate and to prosecute which was
granted by law to the Ombudsman is plenary and unqualified. 22 The Ombudsman Act
makes it perfectly clear that the jurisdiction of the Ombudsman encompasses "all kinds of
malfeasance, misfeasance and nonfeasance that have been committed by any officer or
employee . . . during his tenure of office. 23

Concededly, the determination of whether to grant a tax refund falls within the exclusive
expertise of the BIR. Nonetheless, when there is a suspicion of even just a tinge of
impropriety in the grant of the same, the Ombudsman could rightfully ascertain whether the
determination was done in accordance with law and identify the persons who may be held
responsible thereto. In that sense, the Ombudsman could not be accused of unlawfully
intruding into and intervening with the BIR's exercise of discretion.

As correctly posited by the Office of the Solicitor General —

...(T)he Ombudsman undertook the investigation "not as an appellate body exercising the
power to review decisions or rulings rendered by a subordinate body, with the end view of
affirming or reversing the same, but as an investigative agency tasked to discharge the role
as 'protector of the people' 24 pursuant to his authority 'to investigate ...any act or omission
of any public official, employee, office or agency, when such act or omission appears to be
illegal, unjust, improper or inefficient." 25 The OSG insists that the "mere finality of
petitioner's ruling on the subject of tax refund cases is not a legal impediment to the
exercise of respondent's investigative authority under the Constitution and its Charter (RA
6770) which . . . is so encompassing as to include 'all kinds of malfeasance, misfeasance
and nonfeasance that have been committed by any officer or employee during his tenure of
office.'" 26

Indeed, the clause "any [illegal] act or omission of any public official" is broad enough to
embrace any crime committed by a public official. The law does not qualify the nature of the
illegal act or omission of the public official or employee that the Ombudsman may
investigate. It does not require that the act or omission be related to or be connected with
or arise from the performance of official duty. 27

Petitioner fears that the fact-finding investigation being conducted by respondent would only
amount to "a general inquisitorial examination on the 'case dockets' with a view to search
through them to gather evidence" 28 considering that the subpoena duces tecum did not
describe with particularity the documents sought to be produced.

This Court is unimpressed. We agree with the view taken by the Solicitor General that the
assailed subpoena duces tecum indeed particularly and sufficiently described the records to
be produced. There is every indication that petitioner knew precisely what records were
being referred to as it even suggested that the tax dockets sought to be produced may not
contain evidence material to the inquiry and that it has already submitted the same to
Baldrias.

The records do not show how the production of the subpoenaed documents would
necessarily contravene Sec. 269 29 of the National Internal Revenue Code (NIRC) on
unlawful divulgence of trade secrets and Sec. 277 30 of the same Code on procuring
unlawful divulgence of trade secrets. The documents sought to be produced were only the
case dockets of the tax refunds granted to Limtuaco and La Tondeña which are public
records, and the subpoena duces tecum were directed to the public officials who have the
official custody of the said records. We find no valid reason why the trade secrets of
Limtuaco and La Tondeña would be unnecessarily disclosed if such official records, subject
of the subpoena duces tecum,were to be produced by the petitioner BIR to respondent
Office of the Ombudsman.

Assuming, for the sake of argument, that the case dockets of the tax refunds which were
granted to Limtuaco and La Tondeña contain trade secrets, that fact, however, would not
justify their non-production before the Ombudsman. As this Court has underscored in
Almonte v. Vasquez 31 —

At common law a governmental privilege against disclosure is recognized with respect to

state secrets bearing on military, diplomatic and similar matters. This privilege is based
upon public interest of such paramount importance as in and of itself transcending the
individual interests of a private citizen, even though, as a consequence thereof, the plaintiff
cannot enforce his legal rights ...
In the case at bar, there is no claim that military or diplomatic secrets will be disclosed by
the production of records pertaining to the personnel of EIB. Indeed, EIIB's function is the
gathering and evaluation of intelligence reports and information regarding "illegal activities
affecting the national economy, such as, but not limited to economic sabotage, smuggling,
tax evasion, dollar salting. Consequently, while in cases which involve state secrets it may
be sufficient to determine from the circumstances of the case that there is reasonable
danger that compulsion of the evidence will expose military matters without compelling
production, no similar excuse can be made for a privilege resting on other consideration.

Above all, even if the subpoenaed documents are treated as presumptively privileged, this
decision would only justify ordering their inspection in camera but not their nonproduction
...

Besides, under the facts of this case, petitioner should not have concerned itself with
possibly violating the pertinent provisions of the NLRC on unlawful divulgence or unlawful
procurement of trade secrets considering Rule V of the Rules of Procedure of the Office of
the Ombudsman 32 which provides that —

(a) Any person whose testimony or production of documents or other evidence is necessary
to determine the truth in any inquiry, hearing, or proceeding being conducted by the Office
of the Ombudsman or under its authority in the performance or furtherance or its
constitutional functions and statutory objectives, including preliminary investigation, may be
granted immunity from criminal prosecution by the Ombudsman, upon such terms and
conditions as the Ombudsman may determine, taking into account the pertinent provisions
of the Rules of Court ...

With regard to the manner in which the investigation was conducted, petitioner asserts that
the investigation conducted by the Office of the Ombudsman violated due process,
inasmuch as it commenced its investigation by issuing the subpoena duces tecum without
first furnishing petitioner with a summary of the complaint and requiring it to submit a
written answer. 33 The Ombudsman labels this assertion of the BIR as premature
maintaining that it is only when the Ombudsman finds reasonable ground to investigate
further that it is required to furnish respondent with the summary of the complaint. The
Ombudsman insists that in the instant case, it has yet to make that determination.

On this score, we rule in favor of petitioner BIR. Records show that immediately upon
receipt of the information from an "informer-for-reward," Graft Investigator Soquilon, in a
Memorandum dated November 26, 1993 addressed to then Ombudsman Conrado M.
Vasquez, requested that the "case" be docketed and assigned to him for a "full-blown fact-
finding investigation." 34 In his Memorandum, Soquilon averred that he is "certain that
these refunds can be recovered by reason of the Tanduay precedent ...and using the power
of this Office, we will not only bring back to the government multi-million illegal refunds but,
like the Tanduay case, we will be establishing graft and corruption against key BIR officials."
35 In a marginal note dated November 26, 1993, 36 Ombudsman Vasquez approved the
docketing of the case and its assignment to Soquilon. Likewise, in the Preliminary
Evaluation Sheet 37 of the Office of the Ombudsman, the Fact Finding Investigation Bureau
of the Ombudsman was named as complainant against Concerned High Ranking and Key
Officials of the Bureau of Internal Revenue who granted multi-million tax refunds to
Limtuaco and La Tondeña Distilleries for alleged violation of RA 3019. On November 29,
1993 and December 9, 1993 Soquilon issued the assailed subpoena duces tecum requiring
the concerned BIR officials to appear before the Ombudsman and to bring with them the
complete case dockets of the tax refunds granted to Limtuaco and La Tondeña.
It is our view and we hold that the procedure taken by the respondent did not comply with
the safeguards enumerated in Sec. 26, §(2) of RA 6770 or the Ombudsman Act of 1989,
which clearly provides that —

(2) The Office of the Ombudsman shall receive complaints from any source in whatever
form concerning, an official act or omission. It shall act on the complaint immediately and if
it finds the same entirely baseless, it shall dismiss the same and inform the complainant of
such dismissal citing the reasons therefore. If it finds a reasonable, ground to investigate
further, it shall first furnish the respondent public officer or employee with a summary of the
complaint and require him to submit a written answer within seventy-two hours from receipt
hereof. If the answer is found satisfactory, it shall dismiss the case.

The procedure which was followed by the respondent likewise contravened the Rules of
Procedure of the Office of the Ombudsman,38 Sec. 4, Rule 11 of which provides that –

(a) If the complaint is not under oath or is based only on official reports, the investigating
officer shall require the complaint or supporting witnesses to execute affidavits to
substantiate the complaints.

(b) After such affidavits have been secured, the investigating officer shall issue an order,
attaching thereto a copy of the affidavits and other supporting documents, directing the
respondent to submit, within ten (10) days from receipt thereof, his counter-affidavits and
controverting evidence with proof of service thereof on the complainant. The complainant
may file reply affidavits within ten (10) days after service of the counter-affidavits ...

It is clear from the initial comments of Soquilon in his Memorandum to Ombudsman

Vasquez that he undoubtedly found reasonable grounds to investigate further. In fact, he
recommended that the "case" be docketed immediately and assigned to him for a "full-
blown fact-finding investigation." Even during that initial stage, Soquilon was convinced that
the granting of the tax refunds was so anomalous that he assured Ombudsman Vasquez of
the eventual recovery of the tax refunds and the prosecution and conviction of key BIR
officials for graft and corruption.

We commend the graft investigators of the Office of the Ombudsman in their efforts to
cleanse our bureaucracy of scalawags. Sometimes, however, in their zeal and haste to pin
down the culprits they tend to circumvent some procedures. In this case, Graft Investigation
Officer Soquilon forgot that there are always two (2) sides to an issue and that each party
must be given every opportunity to air his grievance or explain his side as the case may be.
This is the essence of due process.

The law clearly provides that if there is a reasonable ground to investigate further, the
investigator of the Office of the Ombudsman shall first furnish the respondent public officer
or employee with a summary of the complaint and require him to submit a written answer
within seventy-two (72) hours from receipt thereof. In the instant case, the BIR officials
concerned were never furnished by the respondent with a summary of the complaint and
were not given the opportunity to submit their counter-affidavits and controverting
evidence. Instead, they were summarily ordered to appear before the Ombudsman and to
produce the case dockets of the tax refunds granted to Limtuaco and La Tondeña. They are
aggrieved in that, from the point of view of the respondent, they were already deemed
probably guilty of granting anomalous tax refunds. Plainly, respondent Office of the
Ombudsman failed to afford petitioner with the basics of due process in conducting its
investigation. SAHIaD
WHEREFORE, the petition is GRANTED. The respondent Office of the Ombudsman is
prohibited and ordered to desist from proceeding with Case No. OMB-0-93-3248; and its
Orders dated November 29, 1993, December 9, 1993 and February 15, 1994 are hereby
ANNULLED and SET ASIDE.

SO ORDERED.

Bellosillo, Mendoza and Quisumbing, JJ.,concur.

2. Chavez v. PCGG, G.R. No. 130716, [December 9, 1998]

FIRST DIVISION

[G.R. No. 130716. December 9, 1998.]

FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO (in his capacity as chairman of the
PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and
TERESA A. JOPSON, petitioners-in-intervention.

SYLLABUS

1. CONSTITUTIONAL LAW; BILL OF RIGHTS; RIGHT TO INFORMATION ON MATTERS OF

PUBLIC CONCERN AND ACCESS TO OFFICIAL DOCUMENTS AND RECORDS; SUFFICIENT
BASIS TO UPHOLD PETITIONER'S LOCUS STANDI IN CASE AT BAR. — The instant petition is
anchored on the right of the people to information and access to official records, documents
and papers — a right guaranteed under Section 7, Article III of the 1987 Constitution.
Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the
two basic requisites laid down by decisional law to sustain petitioner's legal standing, i.e. (1)
the enforcement of a public right (2) espoused by a Filipino citizen, we rule that the petition
at bar should be allowed. In any event, the question on the standing of Petitioner Chavez is
rendered moot by the intervention of the Jopsons, who are among the legitimate claimants
to the Marcos wealth. The standing of the Jopsons is not seriously contested by the solicitor
general. Indeed, said petitioners-intervenors have a legal interest in the subject matter of
the instant case, since a distribution or disposition of the Marcoses' ill-gotten properties may
adversely affect the satisfaction of their claims.

2. ID.; ID.; ID.; RIGHT TO FULL PUBLIC DISCLOSURE OF ALL TRANSACTIONS INVOLVING
PUBLIC INTEREST; LIMITATIONS IN THE EXERCISE THEREOF, ENUMERATED. — The
"information" and the "transactions" referred to in Sec. 7 (Article III) and Sec. 28 (Article II)
of the Constitution have as yet no defined scope and extent. There are no specific laws
prescribing the exact limitations within which the right may be exercised or the correlative
state duty may be obliged. However, the following are some of the recognized restrictions:
(1) national security matters and intelligence information, (2) trade secrets and banking
transactions, (3) criminal matters, and (4) other confidential information.

3. ID.; ID.; ID.; ID.; SCOPE THEREOF; TERM "PUBLIC INTEREST" AND "PUBLIC CONCERN,"
CONSTRUED. — In Valmonte v. Belmonte, Jr., the Court emphasized that the information
sought must be "matters of public concern," access to which may be limited by law.
Similarly, the state policy of full public disclosure extends only to "transactions involving
public interest" and may also be "subject to reasonable conditions prescribed by law." As to
the meanings of the terms "public interest" and "public concern," the Court, in Legaspi v.
Civil Service Commission, elucidated: "In determining whether or not a particular
information is of public concern there is no rigid test which can be applied. 'Public concern'
like 'public interest' is a term that eludes exact definition. Both terms embrace a broad
spectrum of subjects which the public may want to know, either because these directly
affect their lives, or simply because such matters naturally arouse the interest of an
ordinary citizen. In the final analysis, it is for the courts to determine on a case by case
basis whether the matter at issue is of interest or importance, as it relates to or affects the
public " In Aquino-Sarmiento v. Morato, the Court also held that official acts of public
officers done in pursuit of their official functions are public in character; hence, the records
pertaining to such official acts and decisions are within the ambit of the constitutional right
of access to public records. DACcIH

4. ID.; ID.; ID.; ID ; RATIONALE. — Under Republic Act No. 6713, public officials and
employees are mandated to "provide information on their policies and procedures in clear
and understandable language, [and] ensure openness of information, public consultations
and hearings whenever appropriate . . .," except when "otherwise provided by law or when
required by the public interest." In particular, the law mandates free public access, at
reasonable hours, to the annual performance reports of offices and agencies of government
and government-owned or controlled corporations; and the statements of assets, liabilities
and financial disclosures of all public officials and employees. In general, writings coming
into the hands of public officers in connection with their official functions must be accessible
to the public, consistent with the policy of transparency of governmental affairs. This
principle is aimed at affording the people an opportunity to determine whether those to
whom they have entrusted the affairs of the government are honestly, faithfully and
competently performing their functions as public servants. Undeniably, the essence of
democracy lies in the free flow of thought; but thoughts and ideas must be well-informed so
that the public would gain a better perspective of vital issues confronting them and, thus, be
able to criticize as well as participate in the affairs of the government in a responsible,
reasonable and effective manner. Certainly, it is by ensuring an unfettered and uninhibited
exchange of ideas among a well informed public that a government remains responsive to
the changes desired by the people.

5. ID.; ID.; ID.; ID.; ILL-GOTTEN WEALTH, CONSTRUED; RECOVERY OF ILL-GOTTEN

WEALTH, CONSIDERED A MATTER OF PUBLIC CONCERN AND IMBUED WITH PUBLIC
INTEREST. — With such pronouncements of our government, whose authority emanates
from the people, there is no doubt that the recovery of the Marcoses' alleged ill-gotten
wealth is a matter of public concern and imbued with public interest We may also add that
"ill-gotten wealth," by its very nature, assumes a public character. Based on the
aforementioned Executive Orders, "ill-gotten wealth" refers to assets and properties
purportedly acquired, directly or indirectly, by former President Marcos, his immediate
family, relatives and close associates through or as a result of their improper or illegal use
of government funds or properties; or their having taken undue advantage of their public
office; or their use of powers, influences or relationships, "resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic
of the Philippines." Clearly, the assets and properties referred to supposedly originated from
the government itself. To all intents and purposes, therefore, they belong to the people. As
such, upon reconveyance they will be returned to the public treasury, subject only to the
satisfaction of positive claims of certain persons as may be adjudged by competent courts.
Another declared overriding consideration for the expeditious recovery of ill-gotten wealth is
that it may be used for national economic recovery. We believe the foregoing disquisition
settles the question of whether petitioner has a right to respondents' disclosure of any
agreement that may be arrived at concerning the Marcoses' purported ill-gotten wealth.
6. ID.; ID.; ID.; ID.; INCLUDES DISCLOSURE ON ANY PROPOSED SETTLEMENT BETWEEN
THE PCGG AND OSTENSIBLE OWNERS AND HOLDERS OF ILL-GOTTEN WEALTH SUBJECT TO
RESTRICTIONS. — Considering the intent of the framers of the Constitution, we believe that
it is incumbent upon the PCGG and its officers, as well as other government representatives,
to disclose sufficient public information on any proposed settlement they have decided to
take up with the ostensible owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the government, not necessarily to intra-
agency or inter-agency recommendations or communications during the stage when
common assertions are still in the process of being formulated or are in the "exploratory"
stage. There is a need, of course, to observe the same restrictions on disclosure of
information in general, as discussed earlier — such as on matters involving national
security, diplomatic or foreign relations, intelligence and other classified information.
HCISED

7. CONSTITUTIONAL LAW; PCCG; E.O. NO. 14, SECTION 5 THEREOF, AS AMENDED BY E.O.
NO. 14-A; CONDITIONS UNDER WHICH THE PCGG MAY EXERCISE THE POWER TO GRANT
CRIMINAL IMMUNITY, ENUMERATED. — In the present case, the power to grant criminal
immunity was conferred on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A.
The said provision specifies that the PCGG may exercise such authority under these
conditions: (1) the person to whom criminal immunity is granted provides information or
testifies in an investigation conducted by the Commission; (2) the information or testimony
pertains to the unlawful manner in which the respondent, defendant or accused acquired or
accumulated ill-gotten property; and (3) such information or testimony is necessary to
ascertain or prove guilt or civil liability of such individual. From the wording of the law, it
can be easily deduced that the person referred to is a witness in the proceeding, not the
principal respondent, defendant or accused.

8. ID.; ID., ID.; COMPROMISE AGREEMENT BETWEEN PCGG AND MARCOS IN CASE AT BAR,
NOT IN CONFORMITY THERETO; GRANT OF CRIMINAL IMMUNITY TO PRINCIPAL
DEFENDANTS IN THE ILL-GOTTEN WEALTH CASE, UNWARRANTED. — Going now to the
subject General and Supplemental Agreements between the PCGG and the Marcos heirs, a
cursory perusal thereof reveals serious legal flaws. First, the Agreements do not conform to
the above requirements of EO Nos. 14 and 14-A. We believe that criminal immunity under
Section 5 cannot be granted to the Marcoses, who are the principal defendants in the spate
of ill-gotten wealth cases now pending before the Sandiganbayan. As stated earlier, the
provision is applicable mainly to witnesses who provide information or testify against a
respondent, defendant or accused in an ill-gotten wealth case. While the General Agreement
states that the Marcoses "shall provide the [government] assistance by way of testimony or
deposition on any information [they] may have that could shed light on the cases being
pursued by the [government] against other parties," the clause does not fully comply with
the law. Its inclusion in the Agreement may have been only an afterthought, conceived in
pro forma compliance with Section 5 of EO No. 14, as amended. There is no indication
whatsoever that any of the Marcos heirs has indeed provided vital information against any
respondent or defendant as to the manner in which the latter may have unlawfully acquired
public property. HSaIDc

9. ID.; ID.; NO POWER TO GRANT TAX EXEMPTION EVEN UNDER THE COVER OF ITS
AUTHORITY TO COMPROMISE ILL-GOTTEN WEALTH CASES; PCGG'S COMMITMENT TO
EXEMPT FROM TAX THE PROPERTIES TO BE RETAINED BY MARCOS HEIRS, CONSIDERED A
VIOLATION OF THE CONSTITUTION. — Under Item No. 2 of the General Agreement, the
PCGG commits to exempt from all forms of taxes the properties to be retained by the
Marcos heirs. This is a clear violation of the Constitution. The power to tax and to grant tax
exemptions is vested in the Congress and, to a certain extent, in the local legislative bodies.
Section 28 (4), Article VI of the Constitution, specifically provides: "No law granting any tax
exemption shall be passed without the concurrence of a majority of all the Members of the
Congress." The PCGG has absolutely no power to grant tax exemption, even under the
cover of its authority to compromise ill-gotten wealth cases. Even granting that Congress
enacts a law exempting the Marcoses from paying taxes on their properties, such law will
definitely not pass the test of the equal protection clause under the Bill of Rights. Any
special grant of tax exemption in favor only of the Marcos heirs will constitute class
legislation. It will also violate the constitutional rule that "taxation shall be uniform and
equitable."

10. ID.; ID.; GRANT OF TAX EXEMPTION TO MARCOSES DOES NOT FALL WITHIN THE
POWER OF COMMISSIONER OF INTERNAL REVENUE TO COMPROMISE TAXES OR ABATE
TAX LIABILITY; REQUISITES FOR A VALID EXERCISE OF THE POWER TO COMPROMISE
TAXES OR TO ABATE TAX LIABILITY, ENUMERATED. — Neither can the stipulation be
construed to fall within the power of the commissioner of internal revenue to compromise
taxes. Such authority may be exercised only when (1) there is reasonable doubt as to the
validity of the claim against the taxpayer, and (2) the taxpayer's financial position
demonstrates a clear inability to pay. Definitely, neither requisite is present in the case of
the Marcoses, because under the Agreement they are effectively conceding the validity of
the claims against their properties, part of which they will be allowed to retain. Nor can the
PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a
tax liability. This power can be exercised only when (1) the tax appears to be unjustly or
excessively assessed, or (2) the administration and collection costs involved do not justify
the collection of the tax due. In this instance, the cancellation of tax liability is done even
before the determination of the amount due. In any event, criminal violations of the Tax
Code, for which legal actions have been filed in court or in which fraud is involved, cannot
be compromised.

11. ID.; ID.; CANNOT GUARANTEE THE DISMISSAL OF ALL PENDING CRIMINAL CASES
AGAINST THE MARCOSES. — The government binds itself to cause the dismissal of all cases
against the Marcos heirs, pending before the Sandiganbayan and other courts. This is a
direct encroachment on judicial powers, particularly in regard to criminal jurisdiction. Well-
settled is the doctrine that once a case has been filed before a court of competent
jurisdiction, the matter of its dismissal or pursuance lies within the full discretion and
control of the judge. In a criminal case, the manner in which the prosecution is handled,
including the matter of whom to present as witnesses, may lie within the sound discretion of
the government prosecutor; but the court decides, based on the evidence proffered, in what
manner it will dispose of the case. Jurisdiction, once acquired by the trial court, is not lost
despite a resolution, even by the justice secretary, to withdraw the information or to dismiss
the complaint. The prosecution's motion to withdraw or to dismiss is not the least binding
upon the court. On the contrary, decisional rules require the trial court to make its own
evaluation of the merits of the case, because granting such motion is equivalent to effecting
a disposition of the case itself. Thus, the PCGG, as the government prosecutor of ill-gotten
wealth cases, cannot guarantee the dismissal of all such criminal cases against the Marcoses
pending in the courts, for said dismissal is not within its sole power and discretion. IEHScT

12. ID.; ID.; STIPULATION IN COMPROMISE AGREEMENTS BETWEEN THE PCGG AND
MARCOSES WAIVING ALL GOVERNMENT CLAIMS AGAINST THE LATTER, CONSIDERED
CONTRARY TO LAW AND A VIOLATION OF THE DUE PROCESS AND EQUAL PROTECTION
CLAUSE. — The government also waives all claims and counterclaims, "whether past,
present, or future, matured or inchoate," against the Marcoses. Again, this all-
encompassing stipulation is contrary to law. Under the Civil Code, an action for future fraud
may not be waived. The stipulation in the Agreement does not specify the exact scope of
future claims against the Marcoses that the government thereby relinquishes. Such vague
and broad statement may well be interpreted to include all future illegal acts of any of the
Marcos heirs, practically giving them a license to perpetrate fraud against the government
without any liability at all. This is a palpable violation of the due process and equal
protection guarantees of the Constitution. It effectively ensconces the Marcoses beyond the
reach of the law. It also sets a dangerous precedent for public accountability. It is a virtual
warrant for public officials to amass public funds illegally, since there is an open option to
compromise their liability in exchange for only a portion of their ill-gotten wealth.

13. ID.; ID.; COMPROMISE AGREEMENTS BETWEEN THE PCGG AND MARCOSES IN CASE AT
BAR DO NOT PROVIDE FOR DEFINITE PERIOD FOR FULFILLMENT OF THE PRESTATION. —
The Agreements do not provide for a definite or determinable period within which the
parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses
submit an inventory of their total assets.

14. ID.; ID.; ID.; DO NOT STATE WITH SPECIFICITY THE STANDARDS FOR DETERMINING
WHICH ASSETS TO BE FORFEITED AND WHICH SHALL BE RETAINED BY THE MARCOSES. —
The Agreements do not state with specificity the standards for determining which assets
shall be forfeited by the government and which shall be retained by the Marcoses. While the
Supplemental Agreement provides that the Marcoses shall be entitled to 25 percent of the
$356 million Swiss deposits (less government recovery expenses), such sharing
arrangement pertains only to the said deposits. No similar splitting scheme is defined with
respect to the other properties. Neither is there, anywhere in the Agreements, a statement
of the basis for the 25-75 percent sharing ratio. Public officers entering into an arrangement
appearing to be manifestly and grossly disadvantageous to the government, in violation of
the Anti-Graft and Corrupt Practices Act, invite their indictment for corruption under the said
law.

15. ID.; ID.; ID.; CONSIDERED INVALID; CASE AT BAR. — The absence of then President
Ramos' approval of the principal Agreement, an express condition therein, renders the
compromise incomplete and unforceable. Nevertheless, as detailed above, even if such
approval were obtained the Agreements would still not be valid. From the foregoing
disquisition, it is crystal clear to the Court that the General and Supplemental Agreements,
both dated December 28, 1993, which the PCGG entered into with the Marcos heirs, are
violative of the Constitution and the laws aforementioned.

16. REMEDIAL LAW; COMPROMISE; PROHIBITED COMPROMISE, ENUMERATED. — In

general, the law encourages compromises in civil cases, except with regard to the following
matters: the civil status of persons, (2) the validity of a marriage or a legal separation, (3)
any ground for legal separation, (4) future support, (5) the jurisdiction of courts, and (6)
future legitime. And like any other contract, the terms and conditions of a compromise must
not be contrary to laws, morals, good customs, public policy or public order. A compromise
is binding and has the force of law between the parties, unless the consent of a party is
vitiated — such as by mistake, fraud, violence, intimidation or undue influence — or when
there is forgery, or if the terms of the settlement are so palpably unconscionable. In the
latter instances, the agreement may be invalidated by the courts.

17. ID.; ID.; EFFECT THEREOF IN CIVIL ACTION. — One of the consequences of a
compromise, and usually its primary object, is to avoid or to end a litigation. In fact, the law
urges courts to persuade the parties in a civil case to agree to a fair settlement. As an
incentive, a court may mitigate damages to be paid by a losing party who shows a sincere
desire to compromise.
18. ID.; ID.; RELATING TO CIVIL LIABILITY ARISING FROM AN OFFENSE DOES NOT
AUTOMATICALLY EXTINGUISH CRIMINAL LIABILITY; POWER TO GRANT CRIMINAL
IMMUNITY MUST BE SPECIFICALLY CONFERRED. — Any compromise relating to the civil
liability arising from an offense does not automatically terminate the criminal proceeding
against or extinguish the criminal liability of the malefactor. While a compromise in civil
suits is expressly authorized by law, there is no similar general sanction as regards criminal
liability. The authority must be specifically conferred. CSDcTA

19. ID.; COURTS; SUPREME COURT HAS JURISDICTION OVER ISSUE INVOLVING THE
PRECISE INTERPRETATION IN TERMS OF SCOPE OF THE TWIN CONSTITUTIONAL
PROVISIONS ON PUBLIC TRANSACTIONS — In Tañada and Legaspi, we upheld therein
petitioners' resort to a mandamus proceeding, seeking to enforce a public right as well as to
compel performance of a public duty mandated by no less than the fundamental law.
Further, Section 5, Article VIII of the Constitution, expressly confers upon the Supreme
Court original jurisdiction over petitions for certiorari, prohibition, mandamus, quo warranto
and habeas corpus. Respondents argue that petitioner should have properly sought relief
before the Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of
the compromise Agreements is pending resolution. There may seem to be some merit in
such argument; if petitioner is merely seeking to enjoin the enforcement of the compromise
and/or to compel the PCGG to disclose to the public the terms contained in said
Agreements. However, petitioner is here seeking the public disclosure of "all negotiations
and agreement, be they ongoing or perfected, and documents related to or relating to such
negotiations and Agreement between the PCGG and the Marcos heirs." In other words, this
petition is not confined to the Agreements that have already been drawn, but likewise to
any ongoing or future undertaking towards settlement on the alleged Marcos loot.
Ineluctably, the core issue boils down to the precise interpretation, in terms of scope, of the
twin constitutional provisions on "public transactions." This broad and prospective relief
sought by the instant petition brings it out of the realm of Civil Case No. 0141.

DECISION

PANGANIBAN, J p:

Petitioner asks this Court to define the nature and the extent of the people's constitutional
right to information on matters of public concern. Does this right include access to the terms
of government negotiations, prior to their consummation or conclusion? May the
government, through the Presidential Commission on Good Government (PCGG), be
required to reveal the proposed terms of a compromise agreement with the Marcos heirs as
regards their alleged ill-gotten wealth? More specifically, are the "General Agreement" and
"Supplemental Agreement," both dated December 28, 1993 and executed between the
PCGG and the Marcos heirs, valid and binding?

The Case

These are the main questions raised in this original action seeking (1) to prohibit and
"[e]njoin respondents [PCGG and its chairman] from privately entering into, perfecting
and/or executing any agreement with the heirs of the late President Ferdinand E. Marcos . .
. relating to and concerning the properties and assets of Ferdinand Marcos located in the
Philippines and/or abroad — including the so-called Marcos gold hoard"; and (2) to
"[c]ompel respondent[s] to make public all negotiations and agreement, be they ongoing or
perfected, and all documents related to or relating to such negotiations and agreement
between the PCGG and the Marcos heirs." 1
The Facts

Petitioner Francisco I. Chavez, as "taxpayer, citizen and former government official who
initiated the prosecution of the Marcoses and their cronies who committed unmitigated
plunder of the public treasury and the systematic subjugation of the country's economy,"
alleges that what impelled him to bring this action were several news reports 2 bannered in
a number of broadsheets sometime in September 1997. These news items referred to (1)
the alleged discovery of billions of dollars of Marcos assets deposited in various coded
accounts in Swiss banks; and (2) the reported execution of a compromise, between the
government (through PCGG) and the Marcos heirs, on how to split or share these assets.
Cdpr

Petitioner, invoking his constitutional right to information 3 and the correlative duty of the
state to disclose publicly all its transactions involving the national interest, 4 demands that
respondents make public any and all negotiations and agreements pertaining to PCGG's task
of recovering the Marcoses' ill-gotten wealth. He claims that any compromise on the alleged
billions of ill-gotten wealth involves an issue of "paramount public interest," since it has a
"debilitating effect on the country's economy" that would be greatly prejudicial to the
national interest of the Filipino people. Hence, the people in general have a right to know
the transactions or deals being contrived and effected by the government.

Respondents, on the other hand, do not deny forging a compromise agreement with the
Marcos heirs. They claim, though, that petitioner's action is premature, because there is no
showing that he has asked the PCGG to disclose the negotiations and the Agreements. And
even if he has, PCGG may not yet be compelled to make any disclosure, since the proposed
terms and conditions of the Agreements have not become effective and binding.

Respondents further aver that the Marcos heirs have submitted the subject Agreements to
the Sandiganbayan for its approval in Civil Case No. 141, entitled Republic v. Heirs of
Ferdinand E. Marcos, and that the Republic opposed such move on the principal grounds
that (1) said Agreements have not been ratified by or even submitted to the President for
approval, pursuant to Item No. 8 of the General Agreement; and (2) the Marcos heirs have
failed to comply with their undertakings therein, particularly the collation and submission of
an inventory of their assets. The Republic also cited an April 11, 1995 Resolution in Civil
Case No. 0165, in which the Sandiganbayan dismissed a similar petition filed by the
Marcoses' attorney-in-fact.

Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum 5 to then
PCGG Chairman Magtanggol Gunigundo, categorically stated:

"This is to reiterate my previous position embodied in the Palace Press Release of 6 April
1995 that I have not authorized you to approve the Compromise Agreements of December
28, 1993 or any agreement at all with the Marcoses, and would have disapproved them had
they been submitted to me.

"The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you to
approve said Agreements, which I reserve for myself as President of the Republic of the
Philippines."

The assailed principal Agreement 6 reads:

"GENERAL AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

This Agreement entered into this 28th day of December, 1993, by and between —

The Republic of the Philippines, through the Presidential Commission on Good Government
(PCGG), a governmental agency vested with authority defined under Executive Orders Nos.
1, 2 and 14, with offices at the Philcomcen Building, Pasig, Metro Manila, represented by its
Chairman referred to as the FIRST PARTY,

— and —

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R.

Marcos, Jr., all of legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong,
Metro Manila, and Imelda Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos,
Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE PARTY.

WITNESSETH:

WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism and love of
country and of the entire Filipino people, and their desire to set up a foundation and finance
impact projects like installation of power plants in selected rural areas and initiation of other
community projects for the empowerment of the people;

WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal Tribunal of
December 21, 1990, that the $356 million belongs in principle to the Republic of the
Philippines provided certain conditionalities are met, but even after 7 years, the FIRST
PARTY has not been able to procure a final judgment of conviction against the PRIVATE
PARTY;

WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation which, as
proven by the past 7 years, is consuming money, time and effort, and is counter-productive
and ties up assets which the FIRST PARTY could otherwise utilize for its Comprehensive
Agrarian Reform Program, and other urgent needs;

WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity and
reconciliation in order to bind the nation's wounds and start the process of rebuilding this
nation as it goes on to the twenty-first century;

WHEREAS, this Agreement settles all claims and counterclaims which the parties may have
against one another, whether past, present, or future, matured or inchoate.

NOW, THEREFORE, for and in consideration of the mutual covenants set forth herein, the
parties agree as follows:

1. The parties will collate all assets presumed to be owned by, or held by other parties for
the benefit of, the PRIVATE PARTY for purposes of determining the totality of the assets
covered by the settlement. The subject assets shall be classified by the nature thereof,
namely: (a) real estate; (b) jewelry; (c) paintings and other works of art; (d) securities; (e)
funds on deposit; (f) precious metals, if any, and (g) miscellaneous assets or assets which
could not appropriately fall under any of the preceding classification. The list shall be based
on the full disclosure of the PRIVATE PARTY to insure its accuracy.
2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the
FIRST PARTY, and which shall be assigned to/retained by the PRIVATE PARTY. The assets of
the PRIVATE PARTY shall be net of and exempt from, any form of taxes due the Republic of
the Philippines. However, considering the unavailability of all pertinent and relevant
documents and information as to balances and ownership, the actual specification of assets
to be retained by the PRIVATE PARTY shall be covered by supplemental agreements which
shall form part of this Agreement.

3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by
trustees, nominees, agents or foundations are hereby waived over by the PRIVATE-PARTY in
favor of the FIRST PARTY. For this purpose, the parties shall cooperate in taking the
appropriate action judicial and/or extrajudicial, to recover the same for the FIRST PARTY.

4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by
the FIRST PARTY in any criminal, civil, tax or administrative case, but shall be valid and
binding against said PARTY for use by the FIRST PARTY in withdrawing any account and/or
recovering any asset. The PRIVATE PARTY withdraws any objection to the withdrawal by
and/or release to the FIRST PARTY by the Swiss banks and/or Swiss authorities of the $356
million, its accrued interests, and/or any other account; over which the PRIVATE PARTY
waives any right, interest or participation in favor of the FIRST PARTY. However, any
withdrawal or release of any account aforementioned by the FIRST PARTY shall be made in
the presence of any authorized representative of the PRIVATE PARTY.

5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators,

lawyers, or any other party acting in similar capacity in behalf of the PRIVATE PARTY are
hereby informed through this General Agreement to insure that it is fully implemented and
this shall serve as absolute authority from both parties for full disclosure to the FIRST
PARTY of said assets and for the FIRST PARTY to withdraw said account and/or assets and
any other assets which the FIRST PARTY on its own or through the help of the PRIVATE
PARTY/their trustees, etc., may discover.

6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is
being held by another for the benefit of the PRIVATE PARTY and which is not included in the
list per No. 1 for whatever reason shall automatically belong to the FIRST PARTY, and the
PRIVATE PARTY in accordance with No. 4 above, waives any right thereto.

7. This Agreement shall be binding on, and inure to the benefit of, the parties and their
respective legal representatives, successors and assigns and shall supersede any other prior
agreement.

8. The PARTIES shall submit this and any other implementing Agreements to the President
of the Philippines for approval. In the same manner, the PRIVATE PARTY shall provide the
FIRST PARTY assistance by way of testimony or deposition on any information it may have
that could shed light on the cases being pursued by the FIRST PARTY against other parties.
The FIRST PARTY shall desist from instituting new suits already subject of this Agreement
against the PRIVATE PARTY and cause the dismissal of all other cases pending in the
Sandiganbayan and in other courts.

9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the
PARTIES shall be restored automatically to the status quo ante the signing of this
Agreement.
For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty. Simeon
M. Mesina, Jr., as their only Attorney-in-Fact.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December,
1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON

GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R. MARCOS, MA. IMELDA MARCOS-MANOTOC,

FERDINAND R. MARCOS, JR., & IRENE MARCOS ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR. 7

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact"

Petitioner also denounces this supplement to the above Agreement: 8

"SUPPLEMENTAL AGREEMENT

This Agreement entered into this 28th day of December, 1993, by and between —

The Republic of the Philippines, through the Presidential Commission on Good Government
(PCGG), a governmental agency vested with authority defined under Executive Orders Nos.
1, 2 and 14, with offices at the Philcomcen Building, Pasig, Metro Manila, represented by its
Chairman Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY,

— and —

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R.

Marcos, Jr., all of legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong,
Metro Manila, and Imelda Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos,
Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE PARTY.
WITNESSETH:

The parties in this case entered into a General Agreement dated Dec. 28, 1993;

The PRIVATE PARTY expressly reserve their right to pursue their interest and/or sue over
local assets located in the Philippines against parties other than the FIRST PARTY.

The parties hereby agree that all expenses related to the recovery and/or withdrawal of all
assets including lawyers' fees, agents' fees, nominees' service fees, bank charges, traveling
expenses and all other expenses related thereto shall be for the account of the PRIVATE
PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY shall be
entitled to the equivalent of 25% of the amount that may be eventually withdrawn from
said $356 million Swiss deposits.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December,
1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON

GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL G. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R. MARCOS, MA. IMELDA MARCOS-MANOTOC,

FERDINAND R. MARCOS, JR., & IRENE MARCOS-ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR. 9

[Sgd] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact"

Acting on a motion of petitioner, the Court issued a Temporary Restraining Order 10 dated
March 23, 1998, enjoining respondents, their agents and/or representatives from "entering
into, or perfecting and/or executing any agreement with the heirs of the late President
Ferdinand E. Marcos relating to and concerning their ill-gotten wealth."
Issues

The Oral Argument, held on March 16, 1998, focused on the following issues: Cdpr

"(a) Procedural:

(1) Whether or not the petitioner has the personality or legal standing to file the instant
petition; and

(2) Whether or not this Court is the proper court before which this action may be filed.

(b) Substantive:

(1) Whether or not this Court could require the PCGG to disclose to the public the details of
any agreement, perfected or not, with the Marcoses; and

(2) Whether or not there exist any legal restraints against a compromise agreement
between the Marcoses and the PCGG relative to the Marcoses' ill-gotten wealth." 11

After their oral presentations, the parties filed their respective memoranda.

On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before
the Court a Motion for Intervention, attaching thereto their Petition in Intervention. They
aver that they are "among the 10,000 claimants whose right to claim from the Marcos
Family and/or the Marcos Estate is recognized by the decision in In re Estate of Ferdinand
Marcos, Human Rights Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U .S.
Court of Appeals for the 9th Circuit US App. Lexis 14796, June 16, 1994 and the Decision of
the Swiss Supreme Court of December 10, 1997." As such, they claim to have personal and
direct interest in the subject matter of the instant case, since a distribution or disposition of
the Marcos properties may adversely affect their legitimate claims. In a minute Resolution
issued on August 24, 1998, the Court granted their motion to intervene and required the
respondents to comment thereon. The September 25, 1998 Comment 12 of the solicitor
general on said motion merely reiterated his aforecited arguments against the main
petition. 13

The Court's Ruling

The petition is imbued with merit.

First Procedural Issue:

Petitioner's Standing

Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal
personality to file the instant petition. He submits that since ill-gotten wealth "belongs to
the Filipino people and [is], in truth and in fact, part of the public treasury," any
compromise in relation to it would constitute a diminution of the public funds, which can be
enjoined by a taxpayer whose interest is for a full, if not substantial, recovery of such
assets.

Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the
Marcoses is an issue "of transcendental importance to the public." He asserts that ordinary
taxpayers have a right to initiate and prosecute actions questioning the validity of acts or
orders of government agencies or instrumentalities, if the issues raised are "of paramount
public interest;" and if they "immeasurably affect the social, economic, and moral well-being
of the people."

Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest,
when the proceeding involves the assertion of a public right, 14 such as in this case. He
invokes several decisions in 15 of this Court which have set aside the procedural matter of
locus standi, when the subject of the case involved public interest.

On the other hand, the solicitor general, on behalf of respondents, contends that petitioner
has no standing to institute the present action, because no expenditure of public funds is
involved and said petitioner has no actual interest in the alleged agreement. Respondents
further insist that the instant petition is premature, since there is no showing that petitioner
has requested PCGG to disclose any such negotiations and agreements; or that, if he has,
the Commission has refused to do so.

Indeed, the arguments cited by petitioner constitute the controlling decisional rule as
regards his legal standing to institute the instant petition. Access to public documents and
records is a public right, and the real parties in interest are the people themselves. 16

In Tañada v. Tuvera, 17 the Court asserted that when the issue concerns a public right and
the object of mandamus is to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that he has
any legal or special interest in the result of the action. 18 In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right
then recognized in Section 6, Article IV of the 1973 Constitution, 19 in connection with the
rule that laws in order to be valid and enforceable must be published in the Official Gazette
or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the Court
declared that the right they sought to be enforced "is a public right recognized by no less
than the fundamental law of the land."

Legaspi v. Civil Service Commission, 20 while reiterating Tañada, further declared that
"when a mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part
of the general 'public' which possesses the right." 21

Further, in Albano v. Reyes, 22 we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, the management and the
operation of the Manila International Container Terminal, "public interest [was] definitely
involved considering the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial consideration involved." We
concluded that, as a consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to information and
access to official records, documents and papers — a right guaranteed under Section 7,
Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen.
Because of the satisfaction of the two basic requisites laid down by decisional law to sustain
petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a
Filipino citizen, we rule that the petition at bar should be allowed.
In any event, the question on the standing of Petitioner Chavez is rendered moot by the
intervention of the Jopsons, who are among the legitimate claimants to the Marcos wealth.
The standing of the Jopsons is not seriously contested by the solicitor general. Indeed, said
petitioners-intervenors have a legal interest in the subject matter of the instant case, since
a distribution or disposition of the Marcoses' ill-gotten properties may adversely affect the
satisfaction of their claims.

Second Procedural Issue:

The Court's Jurisdiction

Petitioner asserts that because this petition is an original action for mandamus and one that
is not intended to delay any proceeding in the Sandiganbayan, its having been filed before
this Court was proper. He invokes Section 5, Article VIII of the Constitution, which confers
upon the Supreme Court original jurisdiction over petitions for prohibition and mandamus.

The solicitor general, on the other hand, argues that the petition has been erroneously
brought before this Court, since there is neither a justiciable controversy nor a violation of
petitioner's rights by the PCGG. He alleges that the assailed agreements are already the
very lis mota in Sandiganbayan Civil Case No. 0141, which has yet to dispose of the issue;
thus, this petition is premature. Furthermore, respondents themselves have opposed the
Marcos heirs' motion, filed in the graft court, for the approval of the subject Agreements.
Such opposition belies petitioner's claim that the government, through respondents, has
concluded a settlement with the Marcoses as regards their alleged ill-gotten assets.

In Tañada and Legaspi, we upheld therein petitioners' resort to a mandamus proceeding,

seeking to enforce a public right as well as to compel performance of a public duty
mandated by no less than the fundamental law. 23 Further, Section 5, Article VIII of the
Constitution, expressly confers upon the Supreme Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas corpus.

Respondents argue that petitioner should have properly sought relief before the
Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of the
compromise Agreements is pending resolution. There may seem to be some merit in such
argument; if petitioner is merely seeking to enjoin the enforcement of the compromise
and/or to compel the PCGG to disclose to the public the terms contained in said
Agreements. However, petitioner is here seeking the public disclosure of "all negotiations
and agreement, be they ongoing or perfected, and documents related to or relating to such
negotiations and agreement between the PCGG and the Marcos heirs."

In other words, this petition is not confined to the Agreements that have already been
drawn, but likewise to any other ongoing or future undertaking towards any settlement on
the alleged Marcos loot. Ineluctably, the core issue boils down to the precise interpretation,
in terms of scope, of the twin constitutional provisions on "public transactions." This broad
and prospective relief sought by the instant petition brings it out of the realm of Civil Case
No. 0141.

First Substantive Issue:

Public Disclosure of Terms of Any Agreement, Perfected or Not

In seeking the public disclosure of negotiations and agreements pertaining to a compromise
settlement with the Marcoses as regards their alleged ill-gotten wealth, petitioner invokes
the following provisions of the Constitution:

"Sec. 7 [Article III]. — The right of the people to information on matters of public concern
shall be recognized. Access to official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to government research data used as
basis for policy development, shall be afforded the citizen, subject to such limitations as
may be provided by law."

"Sec. 28 [Article II]. — Subject to reasonable conditions prescribed by law, the State adopts
and implements a policy of full public disclosure of all its transactions involving public
interest."

Respondents' opposite view is that the above constitutional provisions refer to completed
and operative official acts, not to those still being considered. As regards the assailed
Agreements entered into by the PCGG with the Marcoses, there is yet no right of action that
has accrued, because said Agreements have not been approved by the President, and the
Marcos heirs have failed to fulfill their express undertaking therein. Thus, the Agreements
have not become effective. Respondents add that they are not aware of any ongoing
negotiation for another compromise with the Marcoses regarding their alleged ill-gotten
assets.

The "information" and the "transactions" referred to in the subject provisions of the
Constitution have as yet no defined scope and extent. There are no specific laws prescribing
the exact limitations within which the right may be exercised or the correlative state duty
may be obliged. However, the following are some of the recognized restrictions: (1) national
security matters and intelligence information, (7) trade secrets and banking transactions,
(3) criminal matters, and (4) other confidential information.

Limitations to the Right:

(1) National Security Matters

At the very least, this jurisdiction recognizes the common law holding that there is a
governmental privilege against public disclosure with respect to state secrets regarding
military, diplomatic and other national security matters. 24 But where there is no need to
protect such state secrets, the privilege may not be invoked to withhold documents and
other information, 25 provided that they are examined "in strict confidence" and given
"scrupulous protection."

Likewise, information on inter-government exchanges prior to the conclusion of treaties and

executive agreements may be subject to reasonable safeguards for the sake of national
interest. 26

(2) Trade Secrets and Banking Transactions

The drafters of the Constitution also unequivocally affirmed that, aside from national
security matters and intelligence information, trade or industrial secrets (pursuant to the
Intellectual Property Code 27 and other related laws) as well as banking transactions
(pursuant to the Secrecy of Bank Deposits Act 28 ) are also exempted from compulsory
disclosure. 29
(3) Criminal Matters

Also excluded are classified law enforcement matters, such as those relating to the
apprehension, the prosecution and the detention of criminals, 30 which courts may not
inquire into prior to such arrest, detention and prosecution. Efforts at effective law
enforcement would be seriously jeopardized by free public access to, for example, police
information regarding rescue operations, the whereabouts of fugitives, or leads on covert
criminal activities. cdrep

(4) Other Confidential Information

The Ethical Standards Act 31 further prohibits public officials and employees from using or
divulging "confidential or classified information officially known to them by reason of their
office and not made available to the public." 32

Other acknowledged limitations to information access include diplomatic correspondence,

closed door Cabinet meetings and executive sessions of either house of Congress, as well as
the internal deliberations of the Supreme Court. 33

Scope: Matters of Public Concern and

Transactions Involving Public Interest

In Valmonte v. Belmonte Jr., 34 the Court emphasized that the information sought must be
"matters of public concern," access to which may be limited by law. Similarly, the state
policy of full public disclosure extends only to "transactions involving public interest" and
may also be "subject to reasonable conditions prescribed by law." As to the meanings of the
terms "public interest" and "public concern," the Court, in Legaspi v. Civil Service
Commission, 35 elucidated:

"In determining whether or not a particular information is of public concern there is no rigid
test which can be applied. 'Public concern' like 'public interest' is a term that eludes exact
definition. Both terms embrace a broad spectrum of subjects which the public may want to
know, either because these directly affect their lives, or simply because such matters
naturally arouse the interest of an ordinary citizen. In the final analysis, it is for the courts
to determine on a case by case basis whether the matter at issue is of interest or
importance, as it relates to or affects the public."

Considered a public concern in the above-mentioned case was the "legitimate concern of
citizens to ensure that government positions requiring civil service eligibility are occupied
only by persons who are eligibles." So was the need to give the general public adequate
notification of various laws that regulate and affect the actions and conduct of citizens, as
held in Tañada. Likewise did the "public nature of the loanable funds of the GSIS and the
public office held by the alleged borrowers (members of the defunct Batasang Pambansa)"
qualify the information sought in Valmonte as matters of public interest and concern. In
Aquino-Sarmiento v. Morato, 36 the Court also held that official acts of public officers done
in pursuit of their official functions are public in character; hence, the records pertaining to
such official acts and decisions are within the ambit of the constitutional right of access to
public records.

Under Republic Act No. 6713, public officials and employees are mandated to "provide
information on their policies and procedures in clear and understandable language, [and]
ensure openness of information, public consultations and hearings whenever appropriate . .
.," except when "otherwise provided by law or when required by the public interest." In
particular, the law mandates free public access, at reasonable hours, to the annual
performance reports of offices and agencies of government and government-owned or
controlled corporations; and the statements of assets, liabilities and financial disclosures of
all public officials and employees. 37

In general, writings coming into the hands of public officers in connection with their official
functions must be accessible to the public, consistent with the policy of transparency of
governmental affairs. This principle is aimed at affording the people an opportunity to
determine whether those to whom they have entrusted the affairs of the government are
honestly, faithfully and competently performing their functions as public servants. 38
Undeniably, the essence of democracy lies in the free flow of thought; 39 but thoughts and
ideas must be well-informed so that the public would gain a better perspective of vital
issues confronting them and, thus, be able to criticize as well as participate in the affairs of
the government in a responsible, reasonable and effective manner. Certainly, it is by
ensuring an unfettered and uninhibited exchange of ideas among a well-informed public that
a government remains responsive to the changes desired by the people. 40

The Nature of the Marcoses'

Alleged Ill-Gotten Wealth

We now come to the immediate matter under consideration.

Upon the departure from the country of the Marcos family and their cronies in February
1986, the new government headed by President Corazon C. Aquino was specifically
mandated to "[r]ecover ill-gotten properties amassed by the leaders and supporters of the
previous regime and [to] protect the interest of the people through orders of sequestration
or freezing of assets or accounts." 41 Thus, President Aquino's very first executive orders
(which partook of the nature of legislative enactments) dealt with the recovery of these
alleged ill-gotten properties.

Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the
Marcoses fled the country, created the PCGG which was primarily tasked to assist the
President in the recovery of vast government resources allegedly amassed by former
President Marcos, his immediate family, relatives and close associates both here and
abroad.

Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who
had knowledge or possession of ill-gotten assets and properties were warned and, under
pain of penalties prescribed by law, prohibited from concealing, transferring or dissipating
them or from otherwise frustrating or obstructing the recovery efforts of the government.

On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the
PCGG which, taking into account the overriding considerations of national interest and
national survival, required it to achieve expeditiously and effectively its vital task of
recovering ill-gotten wealth.

With such pronouncements of our government, whose authority emanates from the people,
there is no doubt that the recovery of the Marcoses' alleged ill-gotten wealth is a matter of
public concern and imbued with public interest. 42 We may also add that "ill-gotten wealth,"
by its very nature, assumes a public character. Based on the aforementioned Executive
Orders, "ill-gotten wealth" refers to assets and properties purportedly acquired, directly or
indirectly, by former President Marcos, his immediate family, relatives and close associates
through or as a result of their improper or illegal use of government funds or properties; or
their having taken undue advantage of their public office; or their use of powers, influences
or relationships, "resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines." Clearly, the assets and
properties referred to supposedly originated from the government itself. To all intents and
purposes, therefore, they belong to the people. As such, upon reconveyance they will be
returned to the public treasury, subject only to the satisfaction of positive claims of certain
persons as may be adjudged by competent courts. Another declared overriding
consideration for the expeditious recovery of ill-gotten wealth is that it may be used for
national economic recovery.

We believe the foregoing disquisition settles the question of whether petitioner has a right
to respondents' disclosure of any agreement that may be arrived at concerning the
Marcoses' purported ill-gotten wealth.

Access to Information on Negotiating Terms

But does the constitutional provision likewise guarantee access to information regarding
ongoing negotiations or proposals prior to the final agreement? This same clarification was
sought and clearly addressed by the constitutional commissioners during their deliberations,
which we quote hereunder: 43

"MR. SUAREZ.

And when we say 'transactions' which should be distinguished from contracts, agreements,
or treaties or whatever, does the Gentleman refer to the steps leading to the consummation
of the contract, or does he refer to the contract itself?

"MR. OPLE.

The 'transactions' used here, I suppose, is generic and, therefore, it can cover both steps
leading to a contract, and already a consummated contract, Mr. Presiding. Officer.

"MR. SUAREZ.

This contemplates inclusion of negotiations leading to the consummation of the transaction?

"MR. OPLE.

Yes, subject to reasonable safeguards on the national interest."

Considering the intent of the framers of the Constitution, we believe that it is incumbent
upon the PCGG and its officers, as well as other government representatives, to disclose
sufficient public information on any proposed settlement they have decided to take up with
the ostensible owners and holders of ill-gotten wealth. Such information, though, must
pertain to definite propositions of the government, not necessarily to intra-agency or inter-
agency recommendations or communications 44 during the stage when common assertions
are still in the process of being formulated or are in the "exploratory" stage. There is a
need, of course, to observe the same restrictions on disclosure of information in general, as
discussed earlier — such as on matters involving national security, diplomatic or foreign
relations, intelligence and other classified information.
Second Substantive Issue:

Legal Restraints on a Marcos-PCGG Compromise

Petitioner lastly contends that any compromise agreement between the government and the
Marcoses will be a virtual condonation of all the alleged wrongs done by them, as well as an
unwarranted permission to commit graft and corruption.

Respondents, for their part, assert that there is no legal restraint on entering into a
compromise with the Marcos heirs, provided the agreement does not violate any law. cda

Prohibited Compromises

In general, the law encourages compromises in civil cases, except with regard to the
following matters: (1) the civil status of persons, (2) the validity of a marriage or a legal
separation, (3) any ground for legal separation, (4) future support, (5) the jurisdiction of
courts, and (6) future legitime. 45 And like any other contract, the terms and conditions of
a compromise must not be contrary to law, morals, good customs, public policy or public
order. 46 A compromise is binding and has the force of law between the parties, 47 unless
the consent of a party is vitiated — such as by mistake, fraud, violence, intimidation or
undue influence — or when there is forgery, or if the terms of the settlement are so
palpably unconscionable. In the latter instances, the agreement may be invalidated by the
courts. 48

Effect of Compromise

on Civil Actions

One of the consequences of a compromise, and usually its primary object, is to avoid or to
end a litigation. 49 In fact, the law urges courts to persuade the parties in a civil case to
agree to a fair settlement. 50 As an incentive, a court may mitigate damages to be paid by
a losing party who shows a sincere desire to compromise. 51

In Republic & Campos Jr. v. Sandiganbayan, 52 which affirmed the grant by the PCGG of
civil and criminal immunity to Jose Y. Campos and family, the Court held that in the absence
of an express prohibition, the rule on compromises in civil actions under the Civil Code is
applicable to PCGG cases. Such principle is pursuant to the objectives of EO No. 14,
particularly the just and expeditious recovery of ill-gotten wealth, so that it may be used to
hasten economic recovery. The same principle was upheld in Benedicto v. Board of
Administrators of Television Stations RPN, BBC and IBC 53 and Republic v. Benedicto, 54
which ruled in favor of the validity of the PCGG compromise agreement with Roberto S.
Benedicto.

Immunity from

Criminal Prosecution

However, any compromise relating to the civil liability arising from an offense does not
automatically terminate the criminal proceeding against or extinguish the criminal liability of
the malefactor. 55 While a compromise in civil suits is expressly authorized by law, there is
no similar general sanction as regards criminal liability. The authority must be specifically
conferred. In the present case, the power to grant criminal immunity was conferred on
PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, which provides:
"SEC. 5.The Presidential Commission on Good Government is authorized to grant immunity
from criminal prosecution to any person who provides information or testifies in any
investigation conducted by such Commission to establish the unlawful manner in which any
respondent, defendant or accused has acquired or accumulated the property or properties in
question in any case where such information or testimony is necessary to ascertain or prove
the latter's guilt or his civil liability. The immunity thereby granted shall be continued to
protect the witness who repeats such testimony before the Sandiganbayan when required to
do so by the latter or by the Commission."

The above provision specifies that the PCGG may exercise such authority under these
conditions: (1) the person to whom criminal immunity is granted provides information or
testifies in an investigation conducted by the Commission; (2) the information or testimony
pertains to the unlawful manner in which the respondent, defendant or accused acquired or
accumulated ill-gotten property; and (3) such information or testimony is necessary to
ascertain or prove guilt or civil liability of such individual. From the wording of the law, it
can be easily deduced that the person referred to is a witness in the proceeding, not the
principal respondent, defendant or accused.

Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him
and his family was "[i]n consideration of the full cooperation of Mr. Jose Y. Campos [with]
this Commission, his voluntary surrender of the properties and assets [—] disclosed and
declared by him to belong to deposed President Ferdinand E. Marcos [—] to the Government
of the Republic of the Philippines[;] his full, complete and truthful disclosures[;] and his
commitment to pay a sum of money as determined by the Philippine Government." 56
Moreover, the grant of criminal immunity to the Camposes and the Benedictos was limited
to acts and omissions prior to February 25, 1996. At the time such immunity was granted,
no criminal eases have yet been filed against them before the competent courts.

Validity of the PCGG-Marcos

Compromise Agreements

Going now to the subject General and Supplemental Agreements between the PCGG and the
Marcos heirs, a cursory perusal thereof reveals serious legal flaws. First, the Agreements do
not conform to the above requirements of EO Nos. 14 and 14-A. We believe that criminal
immunity under Section 5 cannot be granted to the Marcoses, who are the principal
defendants in the spate of ill-gotten wealth cases now pending before the Sandiganbayan.
As stated earlier, the provision is applicable mainly to witnesses who provide information or
testify against a respondent, defendant or accused in an ill-gotten wealth case.

While the General Agreement states that the Marcoses "shall provide the [government]
assistance by way of testimony or deposition on any information [they] may have that could
shed light on the cases being pursued by the [government] against other parties," 57 the
clause does not fully comply with the law. Its inclusion in the Agreement may have been
only an afterthought, conceived in pro forma compliance with Section 5 of EO No. 14, as
amended. There is no indication whatsoever that any of the Marcos heirs has indeed
provided vital information against any respondent or defendant as to the manner in which
the latter may have unlawfully acquired public property.

Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all
forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of
the Constitution. The power to tax and to grant tax exemptions is vested in the Congress
and, to a certain extent, in the local legislative bodies. 58 Section 28 (4), Article VI of the
Constitution, specifically provides: "No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of the Congress." The PCGG has
absolutely no power to grant tax exemptions, even under the cover of its authority to
compromise ill-gotten wealth cases.

Even granting that Congress enacts a law exempting the Marcoses from paying taxes on
their properties, such law will definitely not pass the test of the equal protection clause
under the Bill of Rights. Any special grant of tax exemption in favor only of the Marcos heirs
will constitute class legislation. It will also violate the constitutional rule that "taxation shall
be uniform and equitable." 59

Neither can the stipulation be construed to fall within the power of the commissioner of
internal revenue to compromise taxes. Such authority may be exercised only when (1) there
is reasonable doubt as to the validity of the claim against the taxpayer, and (2) the
taxpayer's financial position demonstrates a clear inalibity to pay. 60 Definitely, neither
requisite is present in the case of the Marcoses, because under the Agreement they are
effectively conceding the validity of the claims against their properties, part of which they
will be allowed to retain. Nor can the PCGG grant of tax exemption fall within the power of
the commissioner to abate or cancel a tax liability. This power can be exercised only when
(1) the tax appears to be unjustly or excessively assessed, or (2) the administration and
collection costs involved do not justify the collection of the tax due. 61 In this instance, the
cancellation of tax liability is done even before the determination of the amount due. In any
event, criminal violations of the Tax Code, for which legal actions have been filed in court or
in which fraud is involved, cannot be compromised. 62

Third, the government binds itself to cause the dismissal of all cases against the Marcos
heirs, pending before the Sandiganbayan and other courts. 63 This is a direct encroachment
on judicial powers, particularly in regard to criminal jurisdiction. Well-settled is the doctrine
that once a case has been filed before a court of competent jurisdiction, the matter of its
dismissal or pursuance lies within the full discretion and control of the judge. In a criminal
case, the manner in which the prosecution is handled, including the matter of whom to
present as witnesses, may lie within the sound discretion of the government prosecutor; 64
but the court decides, based on the evidence proffered, in what manner it will dispose of the
case. Jurisdiction, once acquired by the trial court, is not lost despite a resolution, even by
the justice secretary, to withdraw the information or to dismiss the complaint. 65 The
prosecution's motion to withdraw or to dismiss is not the least binding upon the court. On
the contrary, decisional rules require the trial court to make its own evaluation of the merits
of the case, because granting such motion is equivalent to effecting a disposition of the case
itself. 66

Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot guarantee
the dismissal of all such criminal cases against the Marcoses pending in the courts, for said
dismissal is not within its sole power and discretion.

Fourth, the government also waives all claims and counterclaims, "whether past, present, or
future, matured or inchoate," against the Marcoses. 67 Again, this all-encompassing
stipulation is contrary to law. Under the Civil Code, an action for future fraud may not be
waived. 68 The stipulation in the Agreement does not specify the exact scope of future
claims against the Marcoses that the government thereby relinquishes. Such vague and
broad statement may well be interpreted to include all future illegal acts of any of the
Marcos heirs, practically giving them a license to perpetrate fraud against the government
without any liability at all. This is a palpable violation of the due process and equal
protection guarantees of the Constitution. It effectively ensconces the Marcoses beyond the
reach of the law. It also sets a dangerous precedent for public accountability. It is a virtual
warrant for public officials to amass public funds illegally, since there is an open option to
compromise their liability in exchange for only a portion of their ill-gotten wealth.

Fifth, the Agreements do not provide for a definite or determinable period within which the
parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses
submit an inventory of their total assets.

Sixth, the Agreements do not state with specificity the standards for determining which
assets shall be forfeited by the government and which shall be retained by the Marcoses.
While the Supplemental Agreement provides that the Marcoses shall be entitled to 25 per
cent of the $356 million Swiss deposits (less government recovery expenses), such sharing
arrangement pertains only to the said deposits. No similar splitting scheme is defined with
respect to the other properties. Neither is there, anywhere in the Agreements, a statement
of the basis for the 25-75 percent sharing ratio. Public officers entering into an arrangement
appearing to be manifestly and grossly disadvantageous to the government, in violation of
the Anti-Graft and Corrupt Practices Act, 69 invite their indictment of corruption under the
said law.

Finally, the absence of then President Ramos' approval of the principal Agreement, and
express condition therein, renders the compromise incomplete and unenforceable.
Nevertheless, as detailed above, even if such approval were obtained, the Agreements
would still not be valid. cdasia

From the foregoing disquisition, it is crystal clear to the Court that the General and
Supplemental Agreements, both dated December 28, 1993, which the PCGG entered into
with the Marcos heirs, are violative of the Constitution and the laws aforementioned.

WHEREFORE, the petition is GRANTED. The General and Supplemental Agreements dated
December 28, 1993, which PCGG and the Marcos heirs entered into are hereby declared
NULL AND VOID for being contrary to law and the Constitution. Respondent PCGG, its
officers and all government functionaries and officials who are or may be directly or
indirectly involved in the recovery of the alleged ill-gotten wealth of the Marcoses and their
associates are DIRECTED to disclose to the public the terms of any proposed compromise
settlement, as well as the final agreement, relating to such alleged ill-gotten wealth, in
accordance with the discussions embodied in this Decision. No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C .J ., Melo and Quisumbing, JJ ., concur.

Separate Opinions

VITUG, J .:

In concur in the results, pro hac vice, for it is paramount that matters of national interest
deserve a proper place in any forum. The procedural rules in the courts of law, like the locus
standi of petitioner Francisco I. Chavez, the propriety of the special legal action of
mandamus used as a vehicle to reach this Court on the issues involved and considered by
the Court, as well as kindred legal technicalities and nicety raised by respondents to thwart
the petition are no trickle matters, to be sure, but I do not see them to be cogent reasons
to deny to the Court its taking cognizance of the case.

It is a cardinal principle in constitutional adjudication that anyone who invokes it has a

personal and substantial interest on the dispute. 1 Jurisprudentially there is either the
lenient or the strict approach in the appreciation of legal standing. The liberal approach
recognizes legal standing to raise constitutional issues of nontraditional plaintiffs, such as
taxpayers and citizens, directly affecting them. 2 A developing trend appears to be towards
a narrow and exacting approach, requiring that a logical nexus must be shown between the
status asserted and the claim sought to be adjudicated in order to ensure that one is the
proper and appropriate party to invoke judicial power. 3

With respect to the right to information, it being a public right where the real parties in
interest are the people themselves in general 4 and where the only recognized limitation is
"public concern," it would seem that the framers of the Constitution have favored the liberal
approach. Rev. Fr. Joaquin Bernas, S.J., a member of the Constitutional Commission,
observes: LLphil

The real problem, however, lies in determining what matters are of public concern and what
are not. Unwittingly perhaps, by this provision the Constitution might have opened a
Pandora's box. For certainly every act of a public officer in the conduct of the governmental
process is a matter of public concern. Jurisprudence in fact has said that "public concern,"
like "public interest," eludes exact definition and embraces a broad spectrum of subjects
which the public may want to know, either because these directly affect their lives or simply
because such matters arouse the interest of an ordinary citizen. 5

Corollarily, there is need of preserving a certain degree of confidentiality in matters

involving national security and public relations, to cite a few, 6 and until a balance is struck,
the Court may be constrained on occasions to accept an eclectic notion that frees itself from
the shackles of the trenchant requisites of locus standi.

The Presidential Commission on Good Government (PCGG) has a limited life in carrying out
its tasks and time is running short. It is thus imperative that the Court must hold even now,
and remind PCGG, that it has indeed exceeded its bounds in entering into the General and
Supplemental Agreements. The agreements clearly suffer from Constitutional and statutory
infirmities, 7 to wit: (1) The agreements contravene the statute in granting criminal
immunity to the Marcos heirs; 8 (2) PCGG's commitment to exempt from all forms of taxes
the property to be retained the Marcos' heirs controverts the Constitution; 9 and (3) the
government's undertaking to cause the dismissal of all cases filed against the Marcoses
pending before the Sandiganbayan and other courts encroaches upon judicial powers. I also
see, like my other colleagues, too much vagueness on such items as the period within which
the parties shall fulfill their respective prestations and the lack of appropriate standards for
determining the assets to be forfeited by the government and those to be retained by the
Marcoses.

In this respect, while there is legal possibility when the terms of a contract are not totally
invalidated and only those opposed to law, morals, good customs, public order and public
policy are rendered inefficacious, when, however, the assailed provisions can be seen to be
of essence, like here, the agreement in its entirety can be adversely affected. True, the
validity or invalidity of a contract is a matter that generally may not be passed upon in a
mandamus petition, for it is as if petitioner were seeking declaratory relief or an advisory
opinion from this Court over which it has no original jurisdiction, 10 the immediacy and
significance of the issues, nevertheless, has impelled the Court rightly assume jurisdiction
and to resolve the incidental, albeit major, issues that evidently and continually vex the
parties.

WHEREFORE, I vote to grant the petition. LLphil

Sec. 204(B)

3. Asiatrust Devt Bank, Inc. v. CIR, G.R. Nos. 201530 & 201680-81, [April 19, 2017]

FIRST DIVISION

[G.R. No. 201530. April 19, 2017.]

ASIATRUST DEVELOPMENT BANK, INC., petitioner, vs. COMMISSIONER OF INTERNAL

REVENUE, respondent.

[G.R. Nos. 201680-81. April 19, 2017.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ASIATRUST DEVELOPMENT BANK,

INC., respondent.

DECISION

DEL CASTILLO, J p:

An application for tax abatement is deemed approved only upon the issuance of a
termination letter by the Bureau of Internal Revenue (BIR).

These consolidated Petitions for Review on Certiorari 1 under Rule 45 of the Rules of Court
assail the November 16, 2011 Decision 2 and the April 16, 2012 Resolution 3 of the Court of
Tax Appeals (CTA) En Banc in CTA EB Case Nos. 614 and 677.

Factual Antecedents

On separate dates in February 2000, Asiatrust Development Bank, Inc. (Asiatrust) received
from the Commissioner of Internal Revenue (CIR) three Formal Letters of Demand (FLD)
with Assessment Notices 4 for deficiency internal revenue taxes in the amounts of
P131,909,161.85, P83,012,265.78, and P144,012,918.42 for fiscal years ending June 30,
1996, 1997, and 1998, respectively. 5

On March 17, 2000, Asiatrust timely protested the assessment notices. 6

Due to the inaction of the CIR on the protest, Asiatrust filed before the CTA a Petition for
Review 7 docketed as CTA Case No. 6209 praying for the cancellation of the tax
assessments for deficiency income tax, documentary stamp tax (DST) — regular, DST —
industry issue, final withholding tax, expanded withholding tax, and fringe benefits tax
issued against it by the CIR. HTcADC

On December 28, 2001, the CIR issued against Asiatrust new Assessment Notices for
deficiency taxes in the amounts of P112,816,258.73, P53,314,512.72, and
P133,013,458.73, covering the fiscal years ending June 30, 1996, 1997, and 1998,
respectively. 8
On the same day, Asiatrust partially paid said deficiency tax assessments thus leaving the
following balances:

Fiscal Year 1996

Documentary Stamp Tax

P13,497,227.80

Final Withholding Tax — Trust

8,770,265.07

Documentary Stamp Tax — Industry Issue

88,584,931.39

TOTAL

P110,852,424.26

Fiscal Year 1997

Documentary Stamp Tax

P10,156,408.63

Documentary Stamp Tax — Industry Issue

39,163,539.57

TOTAL

P49,319,948.20

Fiscal year 1998

Documentary Stamp Tax

P20,425,770.07

Final Withholding Tax — Trust

10,183,367.80

Documentary Stamp Tax — Industry Issue

93,430,878.54

TOTAL

P124,040,016.41 9

On April 19, 2005, the CIR approved Asiatrust's Offer of Compromise of DST — regular
assessments for the fiscal years ending June 30, 1996, 1997, and 1998. 10

During the trial, Asiatrust manifested that it availed of the Tax Abatement Program for its
deficiency final withholding tax — trust assessments for fiscal years ending June 30, 1996
and 1998; and that on June 29, 2007, it paid the basic taxes in the amounts of
P4,187,683.27 and P6,097,825.03 for the said fiscal years, respectively. 11 Asiatrust also
claimed that on March 6, 2008, it availed of the provisions of Republic Act (RA) No. 9480,
otherwise known as the Tax Amnesty Law of 2007. 12

Ruling of the Court of Tax Appeals Division

On January 20, 2009, the CTA Division rendered a Decision 13 partially granting the
Petition. The CTA Division declared void the tax assessments for fiscal year ending June 30,
1996 for having been issued beyond the three-year prescriptive period. 14 However, due to
the failure of Asiatrust to present documentary and testimonial evidence to prove its
availment of the Tax Abatement Program and the Tax Amnesty Law, the CTA Division
affirmed the deficiency DST-Special Savings Account (SSA) assessments for the fiscal years
ending June 30, 1997 and 1998 and the deficiency DST-Interbank Call Loans (IBCL) and
deficiency final withholding tax — trust assessments for fiscal year ending June 30, 1998, in
the total amount of P142,777,785.91. 15 Thus:

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, Assessment Notices issued against [Asiatrust] for deficiency
documentary stamp, final withholding, expanded withholding, and fringe benefits tax
assessments for the fiscal year ended June 30, 1996 are VOID for being [issued] beyond the
prescriptive period allowed by law. CAIHTE

The Assessment Notices issued by [CIR] against [Asiatrust] for deficiency income,
documentary stamp — regular, documentary stamp — trust, and fringe benefits tax
assessments for the fiscal years ended June 30, 1997 & 1998 are hereby ordered
CANCELLED and WITHDRAWN. Moreover, [Asiatrust's] deficiency documentary stamp tax —
IBCL assessment for the fiscal year ended June 30, 1997 is ordered CANCELLED and
WITHDRAWN.

However, [Asiatrust's] deficiency documentary stamp tax — Special Savings Account

assessments for the fiscal years ended June 30, 1997 & 1998, and deficiency documentary
stamp tax — IBCL and deficiency final withholding tax — trust assessments for the fiscal
year ended June 30, 1998, in the aggregate amount of P142,777,785.91 are hereby
AFFIRMED. The said amount is broken down as follows:

Fiscal Year 1997

Documentary Stamp Tax — Industry Issue

P39,163,539.57

Fiscal Year 1998

Final Withholding Tax — Trust

10,183,367.80

Documentary Stamp Tax — Industry Issue

93,430,878.54

Total Deficiency Tax

P142,777,785.91

SO ORDERED. 16

Asiatrust filed a Motion for Reconsideration 17 attaching photocopies of its Application for
Abatement Program, BIR Payment Form, BIR Tax Payment Deposit Slip, Improved
Voluntary Assessment Program Application Forms, Tax Amnesty Return, Tax Amnesty
Payment Form, Notice of Availment of Tax Amnesty and Statement of Assets and Liabilities
and Networth (SALN) as of June 30, 2005. aScITE

The CIR, on the other hand, filed a Motion for Partial Reconsideration of the assessments
assailing the CTA Division's finding of prescription and cancellation of assessment notices for
deficiency income, DST — regular, DST — trust, and fringe benefit tax for fiscal years
ending June 30, 1997 and 1998. 18

On July 6, 2009, the CTA Division issued a Resolution 19 denying the motion of the CIR
while partially granting the motion of Asiatrust. The CTA Division refused to consider
Asiatrust's availment of the Tax Abatement Program due to its failure to submit a
termination letter from the BIR. 20 However, as to Asiatrust's availment of the Tax Amnesty
Law, the CTA Division resolved to set the case for hearing for the presentation of the
originals of the documents attached to Asiatrust's motion for reconsideration. 21

Meanwhile, the CIR appealed the January 20, 2009 Decision and the July 6, 2009 Resolution
before the CTA En Banc via a Petition for Review 22 docketed as CTA EB No. 508. The CTA
En Banc however dismissed the Petition for being premature considering that the
proceedings before the CTA Division was still pending. 23

On December 7, 2009, Asiatrust filed a Manifestation 24 informing the CTA Division that the
BIR issued a Certification 25 dated August 20, 2009 certifying that Asiatrust paid the
amounts of P4,187,683.27 and P6,097,825.03 at the Development Bank of the Philippines
in connection with the One-Time Administrative Abatement under Revenue Regulations (RR)
No. 15-2006. 26
On March 16, 2010, the CTA Division rendered an Amended Decision 27 finding that
Asiatrust is entitled to the immunities and privileges granted in the Tax Amnesty Law. 28
However, it reiterated its ruling that in the absence of a termination letter from the BIR, it
cannot consider Asiatrust's availment of the Tax Abatement Program. 29 Thus, the CTA
Division disposed of the case in this wise:

WHEREFORE, premises considered, [Asiatrust's] Motion for Reconsideration is hereby

PARTIALLY GRANTED and this Court's Decision dated January 20, 2009 is hereby MODIFIED.
Accordingly, the above-captioned case as regards [Asiatrust's] liability for deficiency
documentary stamp tax is CLOSED and TERMINATED, subject to the provisions of R.A. No.
9480. However, [Asiatrust's] liability for deficiency final withholding tax assessment for
fiscal year ended June 30, 1998, subject of this litigation, in the amount of P10,183,367.80,
is hereby REAFFIRMED. DETACa

SO ORDERED. 30

Still unsatisfied, Asiatrust moved for partial reconsideration 31 insisting that the
Certification issued by the BIR is sufficient proof of its availment of the Tax Abatement
Program considering that the CIR, despite Asiatrust's request, has not yet issued a
termination letter. Asiatrust attached to the motion photocopies of its letter 32 dated March
17, 2009 requesting the BIR to issue a termination letter, Payment Form 33 BIR Tax
Payment Deposit Slips, 34 Improved Voluntary Assessment Program (IVAP) Payment Form,
35 and a letter 36 dated October 17, 2007 issued by Revenue District Officer (RDO) Ms.
Clavelina S. Nacar.

On July 28, 2010, the CTA Division issued a Resolution 37 denying Asiatrust's motion. The
CTA Division maintained that it cannot consider Asiatrust's availment of the Tax Abatement
Program in the absence of a termination letter from the BIR. 38 As to the Certification
issued by BIR, the CTA Division noted that it pertains to fiscal period July 1, 1995 to June
30, 1996. 39

Both parties appealed to CTA En Banc.

Ruling of the Court of Tax Appeals En Banc

On November 16, 2011, the CTA En Banc denied both appeals. It denied the CIR's appeal
for failure to file a prior motion for reconsideration of the Amended Decision, 40 while it
denied Asiatrust's appeal for lack of merit. 41 The CTA En Banc sustained the ruling of the
CTA Division that in the absence of a termination letter, it cannot be established that
Asiatrust validly availed of the Tax Abatement Program. 42 As to the Certification issued by
the BIR, the CTA En Banc noted that it only covers the fiscal year ending June 30, 1996. 43
As to the letter issued by RDO Nacar and the various BIR Tax Payment Deposit Slips, the
CTA En Banc pointed out that these have no probative value because these were not
authenticated nor formally offered in evidence and are mere photocopies of the purported
documents. 44

On April 16, 2012, the CTA En Banc denied the motions for partial reconsideration of the
CIR and Asiatrust. 45

Issues

Hence, the instant consolidated Petitions under Rule 45 of the Rules of Court, with the
following issues:
G.R. No. 201530

I.

WHETHER X X X THE [CTA] EN BANC ERRED IN FINDING THAT [ASIATRUST] IS LIABLE FOR
DEFICIENCY FINAL WITHHOLDING TAX FOR FISCAL YEAR ENDING JUNE 30, 1998.

II.

WHETHER X X X THE ORDER OF THE [CTA] EN BANC FOR PETITIONER TO PAY AGAIN THE
FINAL WITHHOLDING TAX FOR FISCAL YEAR ENDING JUNE 30, 1998 WOULD AMOUNT TO
DOUBLE TAXATION.

III.

WHETHER X X X THE [CTA] EN BANC ERRED IN RESOLVING THE ISSUE OF ALLEGED

DEFICIENCY FINAL WITHHOLDING TAX FOR FISCAL YEAR ENDING JUNE 30, 1998 BASED
ON MERE TECHNICALITIES. 46

G.R. Nos. 201680-81

I.

WHETHER X X X THE [CTA] EN BANC COMMITTED REVERSIBLE ERROR WHEN IT

DISMISSED [THE CIR'S] PETITION FOR REVIEW ON THE GROUND THAT THE LATTER
ALLEGEDLY FAILED TO COMPLY WITH SECTION 1, RULE 8 OF THE REVISED RULES OF THE
[CTA]. HEITAD

II.

WHETHER X X X THE [CTA] EN BANC COMMITTED REVERSIBLE ERROR WHEN IT

SUSTAINED THE AMENDED DECISION DATED 16 MARCH 2010 OF THE FIRST DIVISION
DECLARING CLOSED AND TERMINATED RESPONDENT'S LIABILITY FOR DEFICIENCY
DOCUMENTARY STAMP TAX FOR TAXABLE YEARS 1997 AND 1998. 47

G.R. No. 201530

Asiatrust's Arguments

Asiatrust contends that the CTA En Banc erred in affirming the assessment for deficiency
final withholding tax for fiscal year ending June 30, 1998 considering that it already availed
of the Tax Abatement Program as evidenced by the Certification issued by the BIR, the
letter issued by RDO Nacar, and the BIR Tax Payment Deposit Slips. 48 Asiatrust maintains
that the BIR Certification is sufficient proof of its availment of the Tax Abatement Program
considering the CIR's unjustifiable refusal to issue a termination letter. 49 And although the
letter and the BIR Tax Payment Deposit Slips were not formally offered in evidence,
Asiatrust insists that the CTA En Banc should have relaxed the rules as the Supreme Court
in several cases has relaxed procedural rules in the interest of substantial justice. 50
Moreover, Asiatrust posits that since it already paid the basic taxes, the affirmance of the
deficiency final withholding tax assessment for fiscal year ending June 30, 1998 would
constitute double taxation as Asiatrust would be made to pay the basic tax twice. 51
The CIR's Arguments

The CIR, however, points out that the BIR Certification relied upon by Asiatrust does not
cover fiscal year ending June 30, 1998. 52 And even if the letter issued by RDO Nacar and
the BIR Tax Payment Deposit Slips were admitted in evidence, the result would still be the
same as these are not sufficient to prove that Asiatrust validly availed of the Tax Abatement
Program. 53

G.R. Nos. 201680-81

The CIR's Arguments

The CIR contends that the CTA En Banc erred in dismissing his appeal for failing to file a
motion for reconsideration on the Amended Decision as a perusal of the Amended Decision
shows that it is a mere resolution, modifying the original Decision. 54

Furthermore, the CIR claims that Asiatrust is not entitled to a tax amnesty because it failed
to submit its income tax returns (ITRs). 55 The CIR likewise imputes bad faith on the part of
Asiatrust in belatedly submitting the documents before the CTA Division. 56

Asiatrust's Arguments

Asiatrust on the other hand argues that the CTA En Banc correctly dismissed the CIR's
appeal for failure to file a motion for reconsideration on the Amended Decision. 57 It asserts
that an amended decision is not a mere resolution but a new decision. 58

Asiatrust insists that the CIR can no longer assail the Amended Decision of the CTA Division
before the Court considering the dismissal of his appeal for failing to file a motion for
reconsideration on the Amended Decision. 59 In any case, Asiatrust claims that the
submission of its ITRs is not required as the Tax Amnesty Law only requires the submission
of a SALN as of December 31, 2005. 60 As to its belated submission of the documents,
Asiatrust contends that recent jurisprudence allows the presentation of evidence before the
CTA En Banc even after trial. 61 Thus, it follows that the presentation of evidence before the
CTA Division should likewise be allowed. 62

Our Ruling

The Petitions lack merit.

G.R. No. 201530

An application for tax abatement is

considered approved only upon the
issuance of a termination letter.

Section 204 (B) 63 of the 1997 National Internal Revenue Code (NIRC) empowers the CIR
to abate or cancel a tax liability.

On September 27, 2006, the BIR issued RR No. 15-06 prescribing the guidelines on the
implementation of the one-time administrative abatement of all penalties/surcharges and
interest on delinquent accounts and assessments (preliminary or final, disputed or not) as of
June 30, 2006. Section 4 of RR No. 15-06 provides:
SECTION 4. Who May Avail. — Any person/taxpayer, natural or juridical, may settle thru
this abatement program any delinquent account or assessment which has been released as
of June 30, 2006, by paying an amount equal to One Hundred Percent (100%) of the Basic
Tax assessed with the Accredited Agent Bank (AAB) of the Revenue District Office
(RDO)/Large Taxpayers Service (LTS)/Large Taxpayers District Office (LTDO) that has
jurisdiction over the taxpayer. In the absence of an AAB, payment may be made with the
Revenue Collection Officer/Deputized Treasurer of the RDO that has jurisdiction over the
taxpayer. After payment of the basic tax, the assessment for penalties/surcharge and
interest shall be cancelled by the concerned BIR Office following existing rules and
procedures. Thereafter, the docket of the case shall be forwarded to the Office of the
Commissioner, thru the Deputy Commissioner for Operations Group, for issuance of
Termination Letter. aDSIHc

Based on the guidelines, the last step in the tax abatement process is the issuance of the
termination letter. The presentation of the termination letter is essential as it proves that
the taxpayer's application for tax abatement has been approved. Thus, without a
termination letter, a tax assessment cannot be considered closed and terminated.

In this case, Asiatrust failed to present a termination letter from the BIR. Instead, it
presented a Certification issued by the BIR to prove that it availed of the Tax Abatement
Program and paid the basic tax. It also attached copies of its BIR Tax Payment Deposit Slips
and a letter issued by RDO Nacar. These documents, however, do not prove that Asiatrust's
application for tax abatement has been approved. If at all, these documents only prove
Asiatrust's payment of basic taxes, which is not a ground to consider its deficiency tax
assessment closed and terminated. ATICcS

Since no termination letter has been issued by the BIR, there is no reason for the Court to
consider as closed and terminated the tax assessment on Asiatrust's final withholding tax
for fiscal year ending June 30, 1998. Asiatrust's application for tax abatement will be
deemed approved only upon the issuance of a termination letter, and only then will the
deficiency tax assessment be considered closed and terminated. However, in case
Asiatrust's application for tax abatement is denied, any payment made by it would be
applied to its outstanding tax liability. For this reason, Asiatrust's allegation of double
taxation must also fail.

Thus, the Court finds no error on the part of the CTA En Banc in affirming the said tax
assessment.

G.R. Nos. 201680-81

An appeal to the CTA En Banc

must be preceded by the filing of a
timely motion for reconsideration or
new trial with the CTA Division.

Section 1, Rule 8 of the Revised Rules of the CTA states:

SECTION 1. Review of cases in the Court en banc. — In cases falling under the exclusive
appellate jurisdiction of the Court en banc, the petition for review of a decision or resolution
of the Court in Division must be preceded by the filing of a timely motion for reconsideration
or new trial with the Division.
Thus, in order for the CTA En Banc to take cognizance of an appeal via a petition for review,
a timely motion for reconsideration or new trial must first be filed with the CTA Division that
issued the assailed decision or resolution. Failure to do so is a ground for the dismissal of
the appeal as the word "must" indicates that the filing of a prior motion is mandatory, and
not merely directory. 64

The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules
defines an amended decision as "[a]ny action modifying or reversing a decision of the Court
en banc or in Division." As explained in CE Luzon Geothermal Power Company, Inc. v.
Commissioner of Internal Revenue, 65 an amended decision is a different decision, and
thus, is a proper subject of a motion for reconsideration. ETHIDa

In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the
CTA Division is a ground for the dismissal of its Petition for Review before the CTA En Banc.
Thus, the CTA En Banc did not err in denying the CIR's appeal on procedural grounds.

Due to this procedural lapse, the Amended Decision has attained finality insofar as the CIR
is concerned. The CIR, therefore, may no longer question the merits of the case before this
Court. Accordingly, there is no reason for the Court to discuss the other issues raised by the
CIR.

As the Court has often held, procedural rules exist to be followed, not to be trifled with, and
thus, may be relaxed only for the most persuasive reasons. 66

WHEREFORE, the Petitions are hereby DENIED. The assailed November 16, 2011 Decision
and the April 16, 2012 Resolution of the Court of Tax Appeals En Banc in CTA EB Case Nos.
614 and 677 are hereby AFFIRMED, without prejudice to the action of the Bureau of Internal
Revenue on Asiatrust Development Bank, Inc.'s application for abatement. The Bureau of
Internal Revenue is DIRECTED to act on Asiatrust Development Bank, Inc.'s application for
abatement in view of Section 5, Revenue Regulations No. 13-2001.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

Sec. 204(C)

4. Silkair (Singapore) Pte. Ltd. v. CIR, G.R. No. 184398, [February 25, 2010]

FIRST DIVISION

[G.R. No. 184398. February 25, 2010.]

SILKAIR (SINGAPORE) PTE. LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,

respondent.

DECISION

LEONARDO-DE CASTRO, J p:

Before the Court is a Petition for Review on Certiorari, assailing the May 27, 2008 Decision 1
and the subsequent September 5, 2008 Resolution 2 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. No. 267. The decision dated May 27, 2008 denied the petition for review
filed by petitioner Silkair (Singapore) Pte. Ltd., on the ground, among others, of failure to
prove that it was authorized to operate in the Philippines for the period June to December
2000, while the Resolution dated September 5, 2008 denied petitioner's motion for
reconsideration for lack of merit.

The antecedent facts are as follows:

Petitioner, a foreign corporation organized under the laws of Singapore with a Philippine
representative office in Cebu City, is an online international carrier plying the Singapore-
Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes.

Respondent Commissioner of Internal Revenue is impleaded herein in his official capacity as

head of the Bureau of Internal Revenue (BIR), an attached agency of the Department of
Finance which is duly authorized to decide, approve, and grant refunds and/or tax credits of
erroneously paid or illegally collected internal revenue taxes. 3

On June 24, 2002, petitioner filed with the BIR an administrative claim for the refund of
Three Million Nine Hundred Eighty-Three Thousand Five Hundred Ninety Pesos and Forty-
Nine Centavos (P3,983,590.49) in excise taxes which it allegedly erroneously paid on its
purchases of aviation jet fuel from Petron Corporation (Petron) from June to December
2000. Petitioner used as basis therefor BIR Ruling No. 339-92 dated December 1, 1992,
which declared that the petitioner's Singapore-Cebu-Singapore route is an international
flight by an international carrier and that the petroleum products purchased by the
petitioner should not be subject to excise taxes under Section 135 of Republic Act No. 8424
or the 1997 National Internal Revenue Code (NIRC). TEDaAc

Since the BIR took no action on petitioner's claim for refund, petitioner sought judicial
recourse and filed on June 27, 2002, a petition for review with the CTA (docketed as CTA
Case No. 6491), to prevent the lapse of the two-year prescriptive period within which to
judicially claim a refund under Section 229 4 of the NIRC. Petitioner invoked its exemption
from payment of excise taxes in accordance with the provisions of Section 135 (b) of the
NIRC, which exempts from excise taxes the entities covered by tax treaties, conventions
and other international agreements; provided that the country of said carrier or exempt
entity likewise exempts from similar taxes the petroleum products sold to Philippine carriers
or entities. In this regard, petitioner relied on the reciprocity clause under Article 4 (2) of
the Air Transport Agreement entered between the Republic of the Philippines and the
Republic of Singapore.

Section 135 (b) of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. — Petroleum products sold to the following are exempt from excise tax:

xxx xxx xxx

(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use or consumption: Provided, however, That the country of said
foreign international carrier or exempt entities or agencies exempts from similar taxes
petroleum products sold to Philippine carriers, entities or agencies; . . . .

Article 4 (2) of the Air Transport Agreement between the Philippines and Singapore, in turn,
provides:
ART. 4. . . . .

xxx xxx xxx

(2) Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or
taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a
designated airline of the other Contracting Party and intended solely for use in the operation
of the agreed services shall, with the exception of charges corresponding to the service
performed, be exempt from the same customs duties, inspection fees and other duties or
taxes imposed in the territory of the first Contracting Party, even when these supplies are to
be used on the parts of the journey performed over the territory of the Contracting Party in
which they are introduced into or taken on board. The materials referred to above may be
required to be kept under customs supervision and control. CIAacS

In a Decision 5 dated July 27, 2006, the CTA First Division found that petitioner was
qualified for tax exemption under Section 135 (b) of the NIRC, as long as the Republic of
Singapore exempts from similar taxes petroleum products sold to Philippine carriers, entities
or agencies under Article 4 (2) of the Air Transport Agreement quoted above. However, it
ruled that petitioner was not entitled to the excise tax exemption for failure to present proof
that it was authorized to operate in the Philippines during the period material to the case
due to the non-admission of some of its exhibits, which were merely photocopies, including
Exhibit "A" which was petitioner's Certificate of Registration with the Securities and
Exchange Commission (SEC) and Exhibits "P," "Q" and "R" which were its operating permits
issued by the Civil Aeronautics Board (CAB) to fly the Singapore-Cebu-Singapore and
Singapore-Cebu-Davao-Singapore routes for the period October 1999 to October 2000.

Petitioner filed a motion for reconsideration but the CTA First Division denied the same in a
Resolution 6 dated January 17, 2007.

Thereafter, petitioner elevated the case before the CTA En Banc via a petition for review,
which was initially denied in a Resolution 7 dated May 17, 2007 for failure of petitioner to
establish its legal authority to appeal the Decision dated July 27, 2006 and the Resolution
dated January 17, 2007 of the CTA First Division.

Undaunted, petitioner moved for reconsideration. In the Resolution 8 dated September 19,
2007, the CTA En Banc set aside its earlier resolution dismissing the petition for review and
reinstated the same. It also required respondent to file his comment thereon.

On May 27, 2008, the CTA En Banc promulgated the assailed Decision and denied the
petition for review, thus:

WHEREFORE, premises considered, the instant petition is hereby DENIED for lack of merit.
The assailed Decision dated July 27, 2006 dismissing the instant petition on ground of
failure of petitioner to prove that it was authorized to operate in the Philippines for the
period from June to December 2000, is hereby AFFIRMED WITH MODIFICATION that
petitioner is further not found to be the proper party to file the instant claim for refund. 9

In a separate Concurring and Dissenting Opinion, 10 CTA Presiding Justice Ernesto D.

Acosta opined that petitioner was exempt from the payment of excise taxes based on
Section 135 of the NIRC and Article 4 of the Air Transport Agreement between the
Philippines and Singapore. However, despite said exemption, petitioner's claim for refund
cannot be granted since it failed to establish its authority to operate in the Philippines
during the period subject of the claim. In other words, Presiding Justice Acosta voted to
uphold in toto the Decision of the CTA First Division. ACIEaH

Petitioner again filed a motion for reconsideration which was denied in the Resolution dated
September 5, 2008. Hence, the instant petition for review on certiorari, which raises the
following issues:

Whether or not petitioner has substantially proven its authority to operate in the Philippines.

II

Whether or not petitioner is the proper party to claim for the refund/tax credit of excise
taxes paid on aviation fuel.

Petitioner maintains that it has proven its authority to operate in the Philippines with the
admission of its Foreign Air Carrier's Permit (FACP) as Exhibit "B" before the CTA, which, in
part, reads:

[T]his Board RESOLVED, as it hereby resolves to APPROVE the petition of SILKAIR

(SINGAPORE) PTE LTD., for issuance of a regular operating permit (Foreign Air Carrier's
Permit), subject to the approval of the President, pursuant to Sec. 10 of R.A. 776, as
amended by P.D. 1462. 11

Moreover, petitioner argues that Exhibits "P," "Q" and "R," which it previously filed with the
CTA, were merely flight schedules submitted to the CAB, and were not its operating permits.
Petitioner adds that it was through inadvertence that only photocopies of these exhibits
were introduced during the hearing.

Petitioner also asserts that despite its failure to present the original copy of its SEC
Registration during the hearings, the CTA should take judicial notice of its SEC Registration
since the same was already offered and admitted in evidence in similar cases pending
before the CTA.

Petitioner further claims that the instant case involves a clear grant of tax exemption to it
by law and by virtue of an international agreement between two governments.
Consequently, being the entity which was granted the tax exemption and which made the
erroneous tax payment of the excise tax, it is the proper party to file the claim for refund.

In his Comment 12 dated March 26, 2009, respondent states that the admission in evidence
of petitioner's FACP does not change the fact that petitioner failed to formally offer in
evidence the original copies or certified true copies of Exhibit "A," its SEC Registration; and
Exhibits "P," "Q" and "R," its operating permits issued by the CAB to fly its Singapore-Cebu-
Singapore and Singapore-Cebu-Davao-Singapore routes for the period October 1999 to
October 2000. Respondent emphasizes that petitioner's failure to present these pieces of
evidence amounts to its failure to prove its authority to operate in the Philippines. DHEACI

Likewise, respondent maintains that an excise tax, being an indirect tax, is the direct
liability of the manufacturer or producer. Respondent reiterates that when an excise tax on
petroleum products is added to the cost of goods sold to the buyer, it is no longer a tax but
becomes part of the price which the buyer has to pay to obtain the article. According to
respondent, petitioner cannot seek reimbursement for its alleged erroneous payment of the
excise tax since it is neither the entity required by law nor the entity statutorily liable to pay
the said tax.

After careful examination of the records, we resolve to deny the petition.

Petitioner's assertion that the CTA may take judicial notice of its SEC Registration,
previously offered and admitted in evidence in similar cases before the CTA, is untenable.

We quote with approval the disquisition of the CTA En Banc in its Decision dated May 27,
2008 on the non-admission of petitioner's Exhibits "A," "P," "Q" and "R," to wit:

Anent petitioner's argument that the Court in Division should have taken judicial notice of
the existence of Exhibit "A" (petitioner's SEC Certificate of Registration), although not
properly identified during trial as this has previously been offered and admitted in evidence
in similar cases involving the subject matter between the same parties before this Court,
We are in agreement with the ruling of the Court in Division, as discussed in its Resolution
dated April 12, 2005 resolving petitioner's Motion for Reconsideration on the court's non-
admission of Exhibits "A", "P", "Q" and "R", wherein it said that:

"Each and every case is distinct and separate in character and matter although similar
parties may have been involved. Thus, in a pending case, it is not mandatory upon the
courts to take judicial notice of pieces of evidence which have been offered in other cases
even when such cases have been tried or pending in the same court. Evidence already
presented and admitted by the court in a previous case cannot be adopted in a separate
case pending before the same court without the same being offered and identified anew.

The cases cited by petitioner concerned similar parties before the same court but do not
cover the same claim. A court is not compelled to take judicial notice of pieces of evidence
offered and admitted in a previous case unless the same are properly offered or have
accordingly complied with the requirements on the rules of evidence. In other words, the
evidence presented in the previous cases cannot be considered in this instant case without
being offered in evidence. ASHaDT

Moreover, Section 3 of Rule 129 of the Revised Rules of Court provides that hearing is
necessary before judicial notice may be taken by the courts. To quote said section:

Sec. 3. Judicial notice, when hearing necessary. — During the trial, the court, on its own
initiative, or on request of a party, may announce its intention to take judicial notice of any
matter and allow the parties to be heard thereon.

After the trial, and before judgment or on appeal, the proper court, on its own initiative or
on request of a party, may take judicial notice of any matter and allow the parties to be
heard thereon if such matter is decisive of a material issue in the case.

Furthermore, petitioner admitted that Exhibit 'A' have (sic) been offered and admitted in
evidence in similar cases involving the same subject matter filed before this Court. Thus,
petitioner is and should have been aware of the rules regarding the offering of any
documentary evidence before the same can be admitted in court.

As regards Exhibit[s] 'P', 'Q' and 'R', the original copies of these documents were not
presented for comparison and verification in violation of Section 3 of Rule 130 of the 1997
Revised Rules of Court. The said section specifically provides that 'when the subject of
inquiry is the contents of a document, no evidence shall be admissible other than the
original document itself . . .'. It is an elementary rule in law that documents shall not be
admissible in evidence unless and until the original copies itself are offered or presented for
verification in cases where mere copies are offered, save for the exceptions provided for by
law. Petitioner thus cannot hide behind the veil of judicial notice so as to evade its
responsibility of properly complying with the rules of evidence. For failure of herein
petitioner to compare the subject documents with its originals, the same may not be
admitted." (Emphasis Ours)

Likewise, in the Resolution dated July 15, 2005 of the Court in Division denying petitioner's
Omnibus Motion seeking allowance to compare the denied exhibits with their certified true
copies, the court a quo explained that: CAcIES

"Petitioner was already given enough time and opportunity to present the originals or
certified true copies of the denied documents for comparison. When petitioner received the
resolution denying admission of the provisionally marked exhibits, it should have submitted
the originals or certified true copies for comparison, considering that these documents were
accordingly available. But instead of presenting these documents, petitioner, in its Motion
for Reconsideration, tried to hide behind the veil of judicial notice so as to evade its
responsibility of properly applying the rules on evidence. It was even submitted by
petitioner that these documents should be admitted for they were previously offered and
admitted in similar cases involving the same subject matter and parties. If this was the
case, then, there should have been no reason for petitioner to seasonably present the
originals or certified true copies for comparison, or even, marking. . . . ."

In view of the foregoing discussion, the Court en banc finds that indeed, petitioner
indubitably failed to establish its authority to operate in the Philippines for the period
beginning June to December 2000. 13

This Court finds no reason to depart from the foregoing findings of the CTA En Banc as
petitioner itself admitted on page 9 14 of its petition for review that "[i]t was through
inadvertence that only photocopies of Exhibits 'P', 'Q' and 'R' were introduced during the
hearing" and that it was "rather unfortunate that petitioner failed to produce the original
copy of its SEC Registration (Exhibit 'A') for purposes of comparison with the photocopy that
was originally presented."

Evidently, said documents cannot be admitted in evidence by the court as the original
copies were neither offered nor presented for comparison and verification during the trial.
Mere identification of the documents and the markings thereof as exhibits do not confer any
evidentiary weight on them as said documents have not been formally offered by petitioner
and have been denied admission in evidence by the CTA.

Furthermore, the documents are not among the matters which the law mandatorily requires
the Court to take judicial notice of, without any introduction of evidence, as petitioner would
have the CTA do. Section 1, Rule 129 of the Rules of Court reads: CITSAc

SECTION 1. Judicial notice, when mandatory. — A court shall take judicial notice, without
the introduction of evidence, of the existence and territorial extent of states, their political
history, forms of government and symbols of nationality, the law of nations, the admiralty
and maritime courts of the world and their seals, the political constitution and history of the
Philippines, the official acts of the legislative, executive and judicial departments of the
Philippines, the laws of nature, the measure of time, and the geographical divisions.
Neither could it be said that petitioner's SEC Registration and operating permits from the
CAB are documents which are of public knowledge, capable of unquestionable
demonstration, or ought to be known to the judges because of their judicial functions, in
order to allow the CTA to take discretionary judicial notice of the said documents. 15

Moreover, Section 3 of the same Rule 16 provides that a hearing is necessary before judicial
notice of any matter may be taken by the court. This requirement of a hearing is needed so
that the parties can be heard thereon if such matter is decisive of a material issue in the
case.

Given the above rules, it is clear that the CTA En Banc correctly did not admit petitioner's
SEC Registration and operating permits from the CAB which were merely photocopies,
without the presentation of the original copies for comparison and verification. As aptly held
by the CTA En Banc, petitioner cannot rely on the principle of judicial notice so as to evade
its responsibility of properly complying with the rules of evidence. Indeed, petitioner's
contention that the said documents were previously marked in other cases before the CTA
tended to confirm that the originals of these documents were readily available and their
non-presentation in these proceedings was unjustified. Consequently, petitioner's failure to
compare the photocopied documents with their original renders the subject exhibits
inadmissible in evidence.

Going to the second issue, petitioner maintains that it is the proper party to claim for refund
or tax credit of excise taxes since it is the entity which was granted the tax exemption and
which made the erroneous tax payment. Petitioner anchors its claim on Section 135 (b) of
the NIRC and Article 4 (2) of the Air Transport Agreement between the Philippines and
Singapore. Petitioner also asserts that the tax exemption, granted to it as a buyer of a
certain product, is a personal privilege which may not be claimed or availed of by the seller.
Petitioner submits that since it is the entity which actually paid the excise taxes, then it
should be allowed to claim for refund or tax credit.

At the outset, it is important to note that on two separate occasions, this Court has already
put to rest the issue of whether or not petitioner is the proper party to claim for the refund
or tax credit of excise taxes it allegedly paid on its aviation fuel purchases. 17 In the earlier
case of Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, 18 involving the
same parties and the same cause of action but pertaining to different periods of taxation,
we have categorically held that Petron, not petitioner, is the proper party to question, or
seek a refund of, an indirect tax, to wit: AHEDaI

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law and who paid the same even if he shifts the
burden thereof to another. Section 130 (A) (2) of the NIRC provides that "[u]nless
otherwise specifically allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place of production."
Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a
refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport
Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount
billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser.

In the second Silkair 19 case, the Court explained that an excise tax is an indirect tax where
the burden can be shifted or passed on to the consumer but the tax liability remains with
the manufacturer or seller. Thus, the manufacturer or seller has the option of shifting or
passing on the burden of the tax to the buyer. However, where the burden of the tax is
shifted, the amount passed on to the buyer is no longer a tax but a part of the purchase
price of the goods sold.

Petitioner contends that the clear intent of the provisions of the NIRC and the Air Transport
Agreement is to exempt aviation fuel purchased by petitioner as an exempt entity from the
payment of excise tax, whether such is a direct or an indirect tax. According to petitioner,
the excise tax on aviation fuel, though initially payable by the manufacturer or producer,
attaches to the goods and becomes the liability of the person having possession thereof.

We do not agree. The distinction between a direct tax and an indirect tax is relevant to this
issue. In Commissioner of Internal Revenue v. Philippine Long Distance Telephone
Company, 20 this Court explained:

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the
burden of taxation, taxes may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended
or desired, should pay them; they are impositions for which a taxpayer is directly liable on
the transaction or business he is engaged in. ISHCcT

On the other hand, indirect taxes are those that are demanded, in the first instance, from,
or are paid by, one person in the expectation and intention that he can shift the burden to
someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment
of the tax falls on one person but the burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the
tax burden, not the liability to pay it, to the purchaser as part of the purchase price of goods
sold or services rendered.

Title VI of the NIRC deals with excise taxes on certain goods. Section 129 reads as follows:

SEC. 129. Goods Subject to Excise Taxes. — Excise taxes apply to goods manufactured or
produced in the Philippines for domestic sale or consumption or for any other disposition
and to things imported. . . . .

As used in the NIRC, therefore, excise taxes refer to taxes applicable to certain specified or
selected goods or articles manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported into the Philippines. These
excise taxes may be considered taxes on production as they are collected only from
manufacturers and producers. Basically an indirect tax, excise taxes are directly levied upon
the manufacturer or importer upon removal of the taxable goods from its place of
production or from the customs custody. These taxes, however, may be actually passed on
to the end consumer as part of the transfer value or selling price of the goods sold, bartered
or exchanged. 21

In Maceda v. Macaraig, Jr., 22 this Court declared:

"[I]ndirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else." For example, the excise and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be
shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."
And as noted by us in the second Silkair 23 case mentioned above:

When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the
excise tax due on the petroleum products thus removed. Petron, as manufacturer or
producer, is the person liable for the payment of the excise tax as shown in the Excise Tax
Returns filed with the BIR. Stated otherwise, Petron is the taxpayer that is primarily,
directly and legally liable for the payment of the excise taxes. However, since an excise tax
is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by
treating it as part of the cost of the goods and tacking it on the selling price.

As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue: SCDaET

"It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes part of the price which the purchaser must pay."

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the
taxpayers. The fact that Petron, on whom the excise tax is imposed, can shift the tax
burden to its purchasers does not make the latter the taxpayers and the former the
withholding agent.

Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this
does not transform petitioner's status into a statutory taxpayer.

Thus, under Section 130 (A) (2) of the NIRC, it is Petron, the taxpayer, which has the legal
personality to claim the refund or tax credit of any erroneous payment of excise taxes.
Section 130 (A) (2) states:

SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. —

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. —

(1) Persons Liable to File a Return. — . . .

(2) Time for Filing of Return and Payment of the Tax. — Unless otherwise specifically
allowed, the return shall be filed and the excise tax paid by the manufacturer or producer
before removal of domestic products from place of production: . . . . (Emphasis supplied.)

Furthermore, Section 204 (C) of the NIRC provides a two-year prescriptive period within
which a taxpayer may file an administrative claim for refund or tax credit, to wit:

SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit
Taxes. — The Commissioner may —

xxx xxx xxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund. (Emphasis supplied.) IEHScT

From the foregoing discussion, it is clear that the proper party to question, or claim a refund
or tax credit of an indirect tax is the statutory taxpayer, which is Petron in this case, as it is
the company on which the tax is imposed by law and which paid the same even if the
burden thereof was shifted or passed on to another. It bears stressing that even if Petron
shifted or passed on to petitioner the burden of the tax, the additional amount which
petitioner paid is not a tax but a part of the purchase price which it had to pay to obtain the
goods.

Time and again, we have held that tax refunds are in the nature of tax exemptions which
represent a loss of revenue to the government. These exemptions, therefore, must not rest
on vague, uncertain or indefinite inference, but should be granted only by a clear and
unequivocal provision of law on the basis of language too plain to be mistaken. 24 Such
exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the
government.

In fine, we quote from our ruling in the earlier Silkair 25 case:

The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the
Air Transport Agreement between RP and Singapore cannot, without a clear showing of
legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority, and if an exemption is found to exist, it must not be enlarged by
construction.

This calls for the application of the doctrine, stare decisis et non quieta movere. Follow past
precedents and do not disturb what has been settled. Once a case has been decided one
way, any other case involving exactly the same point at issue, as in the case at bar, should
be decided in the same manner. 26

WHEREFORE, the instant petition for review is DENIED. We AFFIRM the assailed Decision
dated May 27, 2008 and the Resolution dated September 5, 2008 of the Court of Tax
Appeals En Banc in C.T.A. E.B. No. 267. No pronouncement as to costs.

SO ORDERED.

Puno, C.J., Carpio Morales, Bersamin and Villarama, Jr., JJ., concur.

5. CIR v. Petron Corp., G.R. No. 185568, [March 21, 2012]

SECOND DIVISION

[G.R. No. 185568. March 21, 2012.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

PETRON CORPORATION, respondent.
 DECISION

SERENO, J : p

This is a Petition for Review on Certiorari under Rule 45 of the 1997

Rules of Civil Procedure filed by the Commissioner of Internal Revenue (CIR)
assailing the Decision 1 dated 03 December 2008 of the Court of Tax Appeals
En Banc (CTA En Banc) in CTA EB No. 311. The assailed Decision reversed
and set aside the Decision 2 dated 04 May 2007 of the Court of Tax Appeals
Second Division (CTA Second Division) in CTA Case No. 6423, which
ordered respondent Petron Corporation (Petron) to pay deficiency excise
taxes for the taxable years 1995 to 1998, together with surcharges and
delinquency interests imposed thereon.
Respondent Petron is a corporation engaged in the production of
petroleum products and is a Board of Investment (BOI) — registered
enterprise in accordance with the provisions of the Omnibus Investments
Code of 1987 (E.O. 226) under Certificate of Registration Nos. 89-1037 and
D95-136. 3
The Facts
The CTA En Banc in CTA EB Case No. 311 adopted the findings of fact
by the CTA Second Division in CTA Case No. 6423. Considering that there
are no factual issues in this case, we likewise adopt the findings of fact by the
CTA En Banc, as follows:
As culled from the records and as agreed upon by the parties in
their Joint Stipulation of Facts and Issues, these are the facts of the
case.
During the period covering the taxable years 1995 to 1998,
petitioner (herein respondent Petron) had been an assignee of several
Tax Credit Certificates (TCCs) from various BOI-registered entities for
which petitioner utilized in the payment of its excise tax liabilities for the
taxable years 1995 to 1998. The transfers and assignments of the said
TCCs were approved by the Department of Finance's One Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center (DOF Center),
composed of representatives from the appropriate government agencies,
namely, the Department of Finance (DOF), the Board of Investments
(BOI), the Bureau of Customs (BOC) and the Bureau of Internal
Revenue (BIR). cDIaAS

Taking ground on a BOI letter issued on 15 May 1998 which

states that 'hydraulic oil, penetrating oil, diesel fuels and industrial gases
are classified as supplies and considered the suppliers thereof as
qualified transferees of tax credit,' petitioner acknowledged and
accepted the transfers of the TCCs from the various BOI-registered
entities.
Petitioner's acceptance and use of the TCCs as payment of its
excise tax liabilities for the taxable years 1995 to 1998, had been
continuously approved by the DOF as well as the BIR's Collection
Program Division through its surrender and subsequent issuance by the
Assistant Commissioner of the Collection Service of the BIR of the Tax
Debit Memos (TDMs).
On January 30, 2002, respondent [herein petitioner CIR] issued
the assailed Assessment against petitioner for deficiency excise taxes
for the taxable years 1995 to 1998, in the total amount of
P739,003,036.32, inclusive of surcharges and interests, based on the
ground that the TCCs utilized by petitioner in its payment of excise taxes
have been cancelled by the DOF for having been fraudulently issued
and transferred, pursuant to its EXCOM Resolution No. 03-05-99. Thus,
petitioner, through letters dated August 31, 1999 and September 1,
1999, was required by the DOF Center to submit copies of its sales
invoices and delivery receipts showing the consummation of the sale
transaction to certain TCC transferors.
Instead of submitting the documents required by the respondent,
on February 27, 2002, petitioner filed its protest letter to the
'Assessment' on the grounds, among others, that:
a. The BIR did not comply with the requirements of
Revenue Regulations 12-99 in issuing the "assessment" letter
dated January 30, 2002, hence, the assessment made against it
is void;
b. The assignment/transfer of the TCCs to petitioner by the
TCC holders was submitted to, examined and approved by the
concerned government agencies which processed the
assignment in accordance with law and revenue regulations;
c.There is no basis for the imposition of the 50% surcharge
in the amount of P159,460,900.00 and interest penalties in the
amount of P260,620,335.32 against it;
d. Some of the items included in the 'assessment' are
already pending litigation and are subject of the case
entitled 'Commissioner of Internal Revenue vs. Petron
Corporation,' C.A. G.R. SP No. 55330 (CTA Case No. 5657) and
hence, should no longer be included in the 'assessment'; and
e. The assessment and collection of alleged excise tax
deficiencies sought to be collected by the BIR against petitioner
through the January 30, 2002 letter are already barred by
prescription under Section 203 of theNational Internal Revenue
Code.
 On 27 March 2002, respondent, through Assistant Commissioner
Edwin R. Abella served a Warrant of Distraint and/or Levy on petitioner
to enforce payment of the P739,003,036.32 tax deficiencies.
Respondent allegedly served the Warrant of Distraint and/or Levy
against petitioner without first acting on its letter-protest. Thus,
construing the Warrant of Distraint and/or Levy as the final adverse
decision of the BIR on its protest of the assessment, petitioner filed the
instant petition before this Honorable Court [referring to the CTA Second
Division] on April 2, 2002.
On April 30, 2002, respondent filed his Answer, raising the
following as his Special Affirmative Defenses: ITSCED

6. In a post-audit conducted by the One-Stop Inter-Agency

Tax Credit and Duty Drawback Center (Center) of the Department
of Finance (DOF), pursuant to the Center's Excom Resolution No.
03-05-99, it was found that TCCs issued to Alliance Thread Co.,
Inc., Allstar Spinning, Inc., Diamond Knitting Corp., Fiber
Technology Corp., Filstar Textile Industrial Corp., FLB
International Fiber Corp., Jantex Philippines, Inc., Jibtex Industrial
Corp., Master Colour System Corp. and Spintex International, Inc.
were fraudulently obtained and were fraudulently transferred to
petitioner. As a result of said findings, the TCCs and the Tax
Debit Memos (TDMs) issued by the Center to petitioner against
said TCCs were cancelled by the DOF;
7. Prior to the cancellation of the aforesaid TCCs and
TDMs, petitioner had utilized the same in the payment of its
excise tax liabilities. With such cancellation, the TCCs and TDMs
have no value in money or money's worth and, therefore, the
excise taxes for which they were used as payment are now
deemed unpaid;
8. The cancellation by the DOF of the aforesaid TCCs and
TDMs has the presumption of regularity upon which respondent
may validly rely;
9. Petitioner was informed by the DOF of the post-audit
conducted on the TCCs and was given the opportunity to submit
documents showing that the TCCs were transferred to it in
payment of petroleum products allegedly delivered by it to the
TCC transferors upon which the TCC transfers were approved,
with the admonition that failure to submit the required documents
would result in the cancellation of the transfers. Petitioner was
also informed of the cancellation of the TCCs and TDMs and the
reason for their cancellation;
 10. Since petitioner is deemed not to have paid its excise
tax liabilities, a pre-assessment notice is not required under
Section 228 of the Tax Code;
11. The letter dated January 20, 2002 (should be January
30, 2002), demanding payment of petitioner's excise tax liabilities
explicitly states the basis for said demand, i.e., the cancellation of
the TCCs and TDMs;
12. The government is never estopped from collecting
legitimate taxes due to the error committed by its agents (Visayas
Cebu Terminal, Inc. vs. Commissioner of Internal Revenue, 13
SCRA 257; Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue, 102 SCRA
246). The acceptance by the Bureau of Internal Revenue of the
TCCs fraudulently obtained and fraudulently transferred to
petitioner as payment of its excise tax liabilities turned out to be a
mistake after the post-audit was conducted. Hence, said
payments were void and the excise taxes may be validly collected
from petitioner.
13. As found in the post-audit, petitioner and the TCC
transferors committed fraud in the transfer of the TCCs when they
made appear (sic) that the transfers were in consideration for the
delivery of petroleum products by petitioner to the TCCs
transferors, for which reason said transfers were approved by the
Center, when in fact there were no such deliveries;
14. Petitioner used the TCCs fraudulently obtained and
fraudulently transferred in the payment of excise taxes declared in
its excise tax returns with intent to evade tax to the extent of the
value represented by the TCCs, thereby rendering the returns
fraudulent; HSEcTC

15. Since petitioner wilfully filed fraudulent returns, it is

liable for the 50% surcharge and 20% annual interest imposed
under Sections 248 and 249 of the Tax Code;
16. Since petitioner wilfully filed fraudulent returns with
intent to evade tax, the prescriptive period to collect the tax is ten
(10) years from the discovery of the fraud pursuant to Section 222
of the Tax Code; and
17. The case pending in the Court of Appeals (CA-G.R. Sp.
No. 55330 [CTA Case No. 5657]), and the case at bar have
distinct causes of action. The former involves the invalid transfers
of the TCCs to petitioner on the theory that it is not a qualified
transferee thereof, while the latter involves the fraudulent
procurement of said TCCs and the fraudulent transfers thereof to
petitioner.
 However, on November 12, 2002, respondent filed a
Manifestation informing this Court that on May 29, 2002, it had reduced
the amount of deficiency excise taxes to P720,923,224.74 as a result of
its verification that some of the TCCs which formed part of the original
"Assessment" were already included in a case previously filed with this
Court. In effect, the amount of deficiency excise taxes is recomputed as
follows:
Transferor Basic Tax Surcharge Interest Total

Alliance
Thread Co., P12,078,823.00 P6,039,411.50 P16,147,293.21 P34,265,527.21
Inc.
Allstar
37,265,310.00 18,632,655.00 49,781,486.95 105,679,451.95
Spinning, Inc.
Diamond
Knitting 36,764,587.00 18,382,293.50 49,264,758.35 104,411,638.85
Corporation
Fiber
Technology 25,300,911.00 12,650,455.50 34,295,655.90 72,247,022.40
Corp.
Filstar Textile
40,767,783.00 20,383,891.50 54,802,550.16 115,954,224.66
Corp.
FLB
International 25,934,695.00 12,967,347.50 34,977,257.14 73,879,299.64
Fiber Corp.
Jantex
Philippines, 12,036,192.00 6,018,096.00 15,812,547.24 33,866,835.24
Inc.
Jibtex
Industrial 15,506,302.00 7,753,151.00 20,610,319.52 43,869,772.52
Corp.
Master
Colour 33,333,536.00 16,666,768.00 44,822,167.06 94,822,471.06
System Corp.
Spintex
International, 14,912,408.00 7,456,204.00 19,558,368.71 41,926,980.71
Inc.
–––––––––––––– –––––––––––––– –––––––––––––– ––––––––––––––
Total P253,900,547.00 P126,950,273.50 P340,072,404.24 P720,923,224.74
============== ============== ============== ==============

During the pendency of the case, but after respondent had

already submitted his Formal Offer of Evidence for this Court's
consideration, he filed an 'Urgent Motion to Reopen Case' on August 24,
2004 on the ground that additional evidence consisting of documents
presented to the Center in support of the TCC transferor's claims for tax
credit as well as document supporting the applications for approval of
the transfer of the TCCs to petitioner, must be presented to prove the
fraudulent issuance and transfer of the subject TCCs. Respondent
submits that it is imperative on his part to do so considering that, without
necessarily admitting that the evidence presented in the case of Pilipinas
Shell Petroleum Corporation vs. Commissioner of Internal Revenue, to
prove fraud is not clear and convincing, he may suffer the same fate that
had befallen upon therein respondent when this Court held, among
others, that 'there is no clear and convincing evidence that the Tax
Credit Certificates (TCCs) transferred to Shell (for brevity) and used by it
in the payment of excise taxes, were fraudulently issued to the TCC
transferors and were fraudulently transferred to Shell.'CcTIDH

An 'Opposition to Urgent Motion to Reopen Case' was filed by

petitioner on September 3, 2004 contending that to sustain respondent's
motion would 'smack of procedural disorder and spawn a reversion of
the proceedings. While litigation is not a game of technicalities, it is a
truism that every case must be presented in accordance with the
prescribed procedure to insure an orderly administration of justice.'
On October 4, 2004, this Court resolved to grant respondent's
Motion and allowed respondent to present additional evidence in support
of his arguments, but deferred the resolution of respondent's original
Formal Offer of Evidence until after the respondent has terminated his
presentation of evidence. Subsequent to this Court's Resolution,
respondent then filed on October 20, 2004, a Request for the Issuance
of Subpoena Duces Tecum to the Executive Director of the Center or his
duly authorized representative, and on October 21, 2004, a
Subpoena Ad Testificandum to Ms. Elizabeth R. Cruz, also of the
Center.
Petitioner filed a 'Motion for Reconsideration (Re: Resolution
dated October 4, 2004)' on October 27, 2004, with respondent filing his
'Opposition' on November 4, 2004, and petitioner subsequently filing its
'Reply to Opposition' on December 20, 2004. Petitioner's motion was
denied by this Court in a Resolution dated February 28, 2005 for lack of
merit.
On March 18, 2005, petitioner filed an 'Urgent Motion to Revert
Case to the First Division' with respondent's 'Manifestation' filed on April
6, 2005 stating that 'the question of which Division of this Honorable
Court shall hear the instant case is an internal matter which is better left
to the sound discretion of this Honorable Court without interference by a
party litigant'. On April 28, 2005, this Court denied the Motion of
petitioner for lack of merit.
On November 7, 2005, the Court finally resolved respondent's
'Formal Offer of Evidence' filed on May 7, 2004 and 'Supplemental
 Formal Offer of Evidence' filed on August 25, 2005. On November 22,
2005, respondent filed a 'Motion for Partial Reconsideration' of the
Court's Resolution to admit Exhibits 31 and 31-A on the ground that he
already submitted and offered certified true copies of said exhibits, which
the Court granted in its Resolution on January 19, 2006.
However, on February 10, 2006, respondent filed a 'Motion to
Amend Formal Offer of Evidence' praying that he be allowed to amend
his formal offer since some exhibits although attached thereto were
inadvertently not mentioned in the Formal Offer of Evidence. Petitioner's
'Opposition' was filed on March 14, 2006. This Court granted
respondent's motion in the Resolution dated April 24, 2006 and
considering that the parties already filed their respective Memoranda,
this case was then considered submitted for decision.
On May 16, 2006, however, respondent filed an 'Omnibus Motion'
praying that this Court take judicial notice of the fact that the TCCs
issued by the Center, including the TCCs in this instant case, contained
the standard 'Liability Clause' and that the case be consolidated with
CTA Case No. 6136, on the ground that both cases involve the same
parties and common questions of law or fact. An 'Opposition/Comment
on Omnibus Motion' was filed by petitioner on June 26, 2006, and 'Reply
to Opposition/Comment' was filed by respondent on July 17, 2006.
In a Resolution promulgated on September 1, 2006, this Court
granted respondent's motion only insofar as taking judicial notice of the
fact that each of the dorsal side of the TCCs contains the subject 'liability
clause', but denied respondent's motion to consolidate considering that
C.T.A. Case No. 6136 was already submitted for decision on April 24,
2006. 4 AEIHaS

The Ruling of the Court of Tax Appeals — Second Division

(CTA Case No. 6423)
On 04 May 2007, the CTA Second Division promulgated a Decision in CTA
Case No. 6423, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant Petition for
Review is hereby DENIED for lack of merit. Accordingly, petitioner
is ORDERED TO PAY the respondent the reduced amount of SIX
HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND
THREE HUNDRED FIFTY THREE AND 95/100 PESOS
(P600,769,353.95), representing petitioner's deficiency excise taxes for
the taxable years 1995 to 1998, recomputed as follows:
Transferor Basic Tax 25% Surcharge 20% Interest Total

Alliance Thread Co., Inc. P12,078,823.00 P3,019,705.75 P13,456,077.68 P28,554,606.43

Allstar Spinning, Inc. 37,265,310.00 9,316,327.50 41,484,572.46 88,066,209.96
Diamond Knitting Corporation 36,764,587.00 9,191,146.75 41,053,965.29 87,009,699.04
Fiber Technology Corp. 25,300,911.00 6,325,227.75 28,579,713.25 60,205,852.00
Filstar Textile Corp. 40,767,783.00 10,191,945.75 45,668,791.80 96,628,520.55
FLB International Fiber Corp. 25,934,695.00 6,483,673.75 29,147,714.28 61,566,083.03
Jantex Philippines, Inc. 12,036,192.00 3,009,048.00 13,177,122.70 28,222,362.70
Jibtex Industrial Corp. 15,506,302.00 3,876,575.50 17,175,266.27 36,558,143.77
Master Colour System Corp. 33,333,536.00 8,333,384.00 37,351,805.88 79,018,725.88
Spintex International, Inc. 14,912,408.00 3,728,102.00 16,298,640.59 34,939,150.59
–––––––––––––– ––––––––––––– –––––––––––––– ––––––––––––––
Total P253,900,547.00 P63,475,136.75 P283,393,670.20 P600,769,353.95
============== ============= ============== ==============

In addition, petitioner is ORDERED TO PAY the

respondent TWENTY FIVE PERCENT (25%) LATE PAYMENT
SURCHARGE AND TWENTY PERCENT (20%) DELINQUENCY
INTEREST per annum on the amount of SIX HUNDRED MILLION
SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED
FIFTY THREE & 95/100 PESOS (P600,769,353.95), computed from
June 27, 2002 until the amount is fully paid.
SO ORDERED. 5 SECcIH

The CTA Second Division held Petron liable for deficiency excise taxes
on the ground that the cancellation by the DOF of the TCCs previously issued
to and utilized by respondent to settle its tax liabilities had the effect of
nonpayment of the latter's excise taxes. These taxes corresponded to the
value of the TCCs Petron used for payment. The CTA Second Division ruled
that payment can only occur if the instrument used to discharge an obligation
represents its stated value. 6 It further ruled that Petron's acceptance of the
TCCs was considered a contract entered into by respondent with the CIR and
subject to post-audit, 7 which was considered a suspensive condition
governed by Article 1181 of the Civil Code.8
Further, the CTA Second Division found that the circumstances
pertaining to the issuance of the subject TCCs and their transfer to Petron
"brim with fraud." 9 Hence, the said court concluded that since the TCCs used
by Petron were found to be spurious, respondent was deemed to have not
paid its excise taxes and ought to be liable to the CIR in the amount of
P600,769,353.95 plus 25% interests and 20% surcharges. 10
Petron filed a Motion for Reconsideration 11 of the Decision of the CTA
Second Division, which denied the motion in a Resolution dated 14 August
2007. 12 The court reiterated its conclusion that the TCCs utilized by Petron to
pay the latter's excise tax liabilities did not result in payment after these TCCs
were found to be fraudulent in the post-audit by the DOF. The CTA Second
Division also affirmed its ruling that Petron was liable for a 25% late payment
surcharge and 20% surcharges under Section 248 13 of the National Internal
Revenue Code (NIRC) of 1997. 14
Aggrieved, Petron appealed the Decision to the CTA En Banc through a
Petition for Review, which was docketed as CTA EB No. 311. In its Petition,
Petron alleged that the Second Division erred in holding respondent liable to
pay the amount of P600,769,353.95 in deficiency excise taxes with penalties
and interests covering the taxable years 1995-1998. Petron prayed that the
said Decision be reversed and set aside, and that CIR be enjoined from
collecting the contested excise tax deficiency assessment. 15
The CTA En Banc summed up into one issue the grounds relied upon
by Petron in its Petition for Review, as follows:
Whether or not the Second Division erred in holding petitioner
liable for the amount of P600,769,353.95 as deficiency excise taxes for
the years 1995-1998, including surcharges and interest, plus 25%
surcharge and 20% delinquency interest per annum from June 27, 2002
until the amount is fully paid. 16
The Ruling of the Court of Tax Appeals En Banc
(CTA EB Case No. 311)
On 03 December 2008, the CTA En Banc promulgated a Decision,
which reversed and set aside the CTA Second Division on 04 May 2007. The
former absolved Petron from any deficiency excise tax liability for taxable
years 1995 to 1998. Its ruling in favor of Petron was anchored on this Court's
pronouncements in Pilipinas Shell Petroleum Corp. v. Commissioner of
Internal Revenue (Shell), 17 which found that the factual background and legal
issues therein were similar to those in the present case.
In resolving the issues, the CTA En Banc adopted the main points
in Shell, which it quoted at length as basis for deciding the appeal in favor of
Petron. The gist of the main points of Shell cited by the said court is as
follows:IDcAHT

a) The issued TCCs are immediately valid and effective and are
not subject to a post-audit as a suspensive condition 18
b) A TCC is subject only to the following conditions:
i) Post-audit in the event of a computational discrepancy
ii) A reduction for any outstanding account with the BIR
and/or BOC
iii) A revalidation of the TCC if not utilized within one year
from issuance or date of utilization 19
 c) A transferee of a TCC should only be a BOI-registered firm
under the Implementing Rules and Regulations of Executive
Order (E.O.) No. 226. 20
d) The liability clause in the TCCs provides only for the solidary
liability of the transferee relative to its transfer in the event it
is a party to the fraud. 21
e) A transferee can rely on the Center's approval of the TCCs'
transfer and subsequent acceptance as payment of the
transferee's excise tax liability. 22
f) A TCC cannot be cancelled by the Center, as it was already
cancelled after the transferee had applied it as payment for
the latter's excise tax liabilities. 23
The CTA En Banc also found that Petron had no participation in or
knowledge of the fraudulent issuance and transfer of the subject TCCs. In
fact, the parties made a joint stipulation on this matter in CTA Case No. 6423
before the CTA Second Division. 24 aHCSTD

In resolving the issue of whether the government is estopped from

collecting taxes due to the fault of its agents, the CTA En Banc
quoted Shell as follows:
While we agree with respondent that the State in the performance
of government function is not estopped by the neglect or omission of its
agents, and nowhere is this truer than in the field of taxation, yet this
principle cannot be applied to work injustice against an innocent
party. 25 (Emphasis supplied.)
Finally, the CTA En Banc ruled that Petron was considered an innocent
transferee of the subject TCCs and may not be prejudiced by a re-
assessment of excise tax liabilities that respondent has already settled, when
due, with the use of the TCCs. 26 Petron is thus considered to have not
fraudulently filed its excise tax returns. Consequently, the assessment issued
by the CIR against it had no legal basis. 27 The dispositive portion of the
assailed 03 December 2008 Decision of the CTA En Banc reads:
WHEREFORE, the instant petition for Review is
hereby GRANTED. Accordingly, the May 4, 2007 Decision and August
14, 2007 Resolution of the CTA Second Division in CTA Case No. 6423
entitled, "Petron Corporation, petitioner vs. Commissioner of Internal
Revenue, respondent", are hereby REVERSED and SET ASIDE. In
addition, the demand and collection of the deficiency excise taxes
of PETRON in the amount of P600,769,353.95 excluding penalties and
interest covering the taxable years 1995 to 1998 are
hereby CANCELLED and SET ASIDE, and respondent-Commissioner
 of Internal Revenue is hereby ENJOINED from collecting the said
amount from PETRON.
SO ORDERED. 28
The CIR moved for the reconsideration of the CTA En Banc Decision, but
the motion was denied in a Resolution dated 14 August 2007. 29
The Issues
The CIR appealed the Decision of the CTA En Banc by filing a Petition
for Review on Certiorari under Rule 45 of theRules of Court. 30 Petitioner
assails the Decision by raising the following issues:
THE COURT OF TAX APPEALS COMMITTED REVERSIBLE ERROR
IN HOLDING THAT RESPONDENT PETRON IS NOT LIABLE FOR ITS
EXCISE TAX LIABILITIES FROM 1995 TO 1998.
ARGUMENTS
I
THE CTA EN BANC ERRED IN FINDING THAT RESPONDENT
PETRON WAS NOT SHOWN TO HAVE PARTICIPATED IN THE
FRAUDULENT ACTS. THE FINDING OF THE CTA SECOND DIVISION
THAT THE TAX CREDIT CERTIFICATES WERE FRAUDULENTLY
TRANSFERRED BY THE TRANSFEROR-COMPANIES TO
RESPONDENT IS SUPPORTED BY SUBSTANTIAL EVIDENCE.
RESPONDENT WAS INVOLVED IN THE PERPETRATION OF FRAUD
IN THE TCCS' TRANSFER AND UTILIZATION.
II
RESPONDENT CANNOT VALIDLY CLAIM THE RIGHT OF INNOCENT
TRANSFEREE FOR VALUE. AS ASSIGNEE/TRANSFEREE OF THE
TCCS, RESPONDENT MERELY SUCCEEDED TO THE RIGHTS OF
THE TCC ASSIGNORS/TRANSFERORS. ACCORDINGLY, IF THE
TCCS ASSIGNED TO RESPONDENT WERE VOID, IT DID NOT
ACQUIRE ANY VALID TITLE OVER THE TCCS.
III
THE GOVERNMENT IS NOT ESTOPPED FROM COLLECTING TAXES
DUE TO THE MISTAKES OF ITS AGENTS.
IV
RESPONDENT IS LIABLE FOR 25% SURCHARGE AND 20%
INTEREST PER ANNUM PURSUANT TO THE PROVISIONS OF
SECTIONS 248 AND 249 OF THE NIRC. MOREOVER, SINCE
RESPONDENT'S RETURNS WERE FALSE, THE ASSESSMENT
PRESCRIBES IN TEN (10) YEARS FROM THE DISCOVERY OF THE
 FALSITY THEREOF PURSUANT TO SECTION 22 OF THE SAME
CODE. 31
The Court's Ruling
We DENY the CIR's Petition for lack of merit.
Article 21 of E.O. 226 defines a tax credit as follows: TcSaHC

ARTICLE 21. "Tax credit" shall mean any of the credits against
taxes and/or duties equal to those actually paid or would have been paid
to evidence which a tax credit certificate shall be issued by the Secretary
of Finance or his representative, or the Board, if so delegated by the
Secretary of Finance. The tax credit certificates including those issued
by the Board pursuant to laws repealed by this Code but without in any
way diminishing the scope of negotiability under their laws of issue are
transferable under such conditions as may be determined by the Board
after consultation with the Department of Finance. The tax credit
certificate shall be used to pay taxes, duties, charges and fees due to
the National Government; Provided, That the tax credits issued under
this Code shall not form part of the gross income of the
grantee/transferee for income tax purposes under Section 29 of
the National Internal Revenue Code and are therefore not taxable:
Provided, further, That such tax credits shall be valid only for a period of
ten (10) years from date of issuance.
Under Article 39 (j) of the Omnibus Investment Code of 1987, 32 tax
credits are granted to entities registered with the Bureau of Investment (BOI)
and are given for taxes and duties paid on raw materials used for the
manufacture of their export products.
A TCC is defined under Section 1 of Revenue Regulation (RR) No. 5-
2000, issued by the BIR on 15 August 2000, as follows:
B. Tax Credit Certificate — means a certification, duly issued to
the taxpayer named therein, by the Commissioner or his duly authorized
representative, reduced in a BIR Accountable Form in accordance with
the prescribed formalities, acknowledging that the grantee-taxpayer
named therein is legally entitled a tax credit, the money value of which
may be used in payment or in satisfaction of any of his internal revenue
tax liability (except those excluded), or may be converted as a cash
refund, or may otherwise be disposed of in the manner and in
accordance with the limitations, if any, as may be prescribed by the
provisions of these Regulations.
RR 5-2000 prescribes the regulations governing the manner of
issuance of TCCs and the conditions for their use, revalidation and transfer.
Under the said regulation, a TCC may be used by the grantee or its assignee
in the payment of its direct internal revenue tax liability. 33 It may be
transferred in favor of an assignee subject to the following conditions: 1) the
TCC transfer must be with prior approval of the Commissioner or the duly
authorized representative; 2) the transfer of a TCC should be limited to one
transfer only; and 3) the transferee shall strictly use the TCC for the payment
of the assignee's direct internal revenue tax liability and shall not be
convertible to cash. 34 A TCC is valid only for 10 years subject to the following
rules: (1) it must be utilized within five (5) years from the date of issue; and (2)
it must be revalidated thereafter or be otherwise considered invalid. 35
The processing of a TCC is entrusted to a specialized agency called the
"One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center"
("Center"), created on 07 February 1992 under Administrative Order (A.O.)
No. 226. Its purpose is to expedite the processing and approval of tax credits
and duty drawbacks. 36 The Center is composed of a representative from the
DOF as its chairperson; and the members thereof are representatives of the
Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal
Revenue (BIR), who are tasked to process the TCC and approve its
application as payment of an assignee's tax liability. 37 SIHCDA

A TCC may be assigned through a Deed of Assignment, which the

assignee submits to the Center for its approval. Upon approval of the deed,
the Center will issue a DOF Tax Debit Memo (DOF-TDM), 38 which will be
utilized by the assignee to pay the latter's tax liabilities for a specified period.
Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to
Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR
Collection Program Division and will be submitted to the issuing office of the
BIR for acceptance by the Assistant Commissioner of Collection Service. This
act of the BIR signifies its acceptance of the TCC as payment of the
assignee's excise taxes.
Thus, it is apparent that a TCC undergoes a stringent process of
verification by various specialized government agencies before it is accepted
as payment of an assignee's tax liability.
In the case at bar, the CIR disputes the ruling of the CTA En Banc,
which found Petron to have had no participation in the fraudulent procurement
and transfer of the TCCs. Petitioner believes that there was substantial
evidence to support its allegation of a fraudulent transfer of the TCCs to
Petron. 39 The CIR further contends that respondent was not a qualified
transferee of the TCCs, because the latter did not supply petroleum products
to the companies that were the assignors of the subject TCCs. 40
The CIR bases its contentions on the DOF's post-audit findings stating
that, for the periods covering 1995 to 1998, Petron did not deliver fuel and
other petroleum products to the companies (the transferor companies) that
had assigned the subject TCCs to respondent. Petitioner further alleges that
the findings indicate that the transferor companies could not have had such a
high volume of export sales declared to the Center and made the basis for the
issuance of the TCCs assigned to Petron. 41 Thus, the CIR impugns the CTA
En Banc ruling that respondent was a transferee in good faith and for value of
the subject TCCs. 42
Not finding merit in the CIR's contention, we affirm the ruling of the CTA
En Banc finding that Petron is a transferee in good faith and for value of the
subject TCCs.
From the records, we observe that the CIR had no allegation that there
was a deviation from the process for the approval of the TCCs, which Petron
used as payment to settle its excise tax liabilities for the years 1995 to 1998.
The CIR quotes the CTA Second Division and urges us to affirm the
latter's Decision, which found Petron to have participated in the fraudulent
issuance and transfer of the TCCs. However, any merit in the position of
petitioner on this issue is negated by the Joint Stipulation it entered into with
Petron in the proceedings before the said Division. As correctly noted by the
CTA En Banc, herein parties jointly stipulated before the Second Division in
CTA Case No. 6423 as follows:
13. That petitioner (Petron) did not participate in the procurement
and issuance of the TCCs, which TCCs were transferred to Petron and
later utilized by Petron in payment of its excise taxes. 43
This stipulation of fact by the CIR amounts to an admission and, having
been made by the parties in a stipulation of facts at pretrial, is treated as a
judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial
admission requires no proof. 44 The Court cannot lightly set it aside, especially
when the opposing party relies upon it and accordingly dispenses with further
proof of the fact already admitted. The exception provided in Rule 129,
Section 4 is that an admission may be contradicted only by a showing that it
was made through a palpable mistake, or that no such admission was made.
In this case, however, exception to the rule does not exist.
We agree with the pronouncement of the CTA En Banc that Petron has
not been shown or proven to have participated in the alleged fraudulent acts
involved in the transfer and utilization of the subject TCCs. Petron had the
right to rely on the joint stipulation that absolved it from any participation in the
alleged fraud pertaining to the issuance and procurement of the subject
TCCs. The joint stipulation made by the parties consequently obviated the
opportunity of the CIR to present evidence on this matter, as no proof is
required for an admission made by a party in the course of the
proceedings. 45 Thus, the CIR cannot now be allowed to change its stand and
renege on that admission. STDEcA
 Moreover, a close examination of the arguments proffered by the CIR in
their Petition calls for a reevaluation of the sufficiency of evidence in the case.
The CIR seeks to persuade this Court to believe that there is substantial
evidence to prove that Petron committed a misrepresentation, because the
petroleum products were delivered not to the transferor but to other
companies. 46 Thus, the TCCs assigned by the transferor companies to
Petron were fraudulent. Clearly, a recalibration of the sufficiency of evidence
presented by the CIR is needed for a different conclusion to be reached.
The fundamental rule is that the scope of our judicial review under Rule
45 of the Rules of Court is confined only to errors of law and does not extend
to questions of fact. 47 It is basic that where it is the sufficiency of evidence
that is being questioned, there is a question of fact. 48 Evidently, the CIR does
not point out any specific provision of law that was wrongly interpreted by the
CTA En Banc in the latter's assailed Decision. Petitioner anchors it contention
on the alleged existence of the sufficiency of evidence it had proffered to
prove that Petron was involved in the perpetration of fraud in the transfer and
utilization of the subject TCCs, an allegation that the CTA En Banc failed to
consider. We have consistently held that it is not the function of this Court to
analyze or weigh the evidence all over again, unless there is a showing that
the findings of the lower court are totally devoid of support or are glaringly
erroneous as to constitute palpable error or grave abuse of discretion. 49 Such
an exception does not obtain in the circumstances of this case.
The CIR claims that Petron was not an innocent transferee for value,
because the TCCs assigned to respondent were void. Petitioner based its
allegations on the post-audit report of the DOF, which declared that the
subject TCCs were obtained through fraud and, thus, had no monetary
value. 50 The CIR adds that the TCCs were subject to a post-audit by the
Center to complete the payment of the excise tax liability to which they were
applied. Petitioner further contends that the Liability Clause of the TCCs
makes the transferee or assignee solidarily liable with the original grantee for
any fraudulent act pertinent to their procurement and transfer. The CIR assails
the contrary ruling of the CTA En Banc, which confined the solidary liability
only to the original grantee of the TCCs. Thus, petitioner believes that the
correct interpretation of the Liability Clause in the TCCs makes Petron and the
transferor companies or the original grantee solidarily liable for any fraudulent
act or violation of the pertinent laws relating to the transfers of the TCCs. 51 CcTIDH

We are not persuaded by the CIR's position on this matter.

The Liability Clause of the TCCs reads:
Both the TRANSFEROR and the TRANSFEREE shall be jointly
and severally liable for any fraudulent act or violation of the pertinent
 laws, rules and regulations relating to the transfer of this TAX CREDIT
CERTIFICATE.
The scope of this solidary liability, as stated in the TCCs, was clarified
by this Court in Shell, as follows:
The above clause to our mind clearly provides only for the
solidary liability relative to the transfer of the TCCs from the original
grantee to a transferee. There is nothing in the above clause that
provides for the liability of the transferee in the event that the validity of
the TCC issued to the original grantee by the Center is impugned or
where the TCC is declared to have been fraudulently procured by the
said original grantee. Thus, the solidary liability, if any, applies only
to the sale of the TCC to the transferee by the original grantee. Any
fraud or breach of law or rule relating to the issuance of the TCC by the
Center to the transferor or the original grantee is the latter's
responsibility and liability. The transferee in good faith and for value may
not be unjustly prejudiced by the fraud committed by the claimant or
transferor in the procurement or issuance of the TCC from the Center. It
is not only unjust but well-nigh violative of the constitutional right not to
be deprived of one's property without due process of law. Thus, a re-
assessment of tax liabilities previously paid through TCCs by a
transferee in good faith and for value is utterly confiscatory, more so
when surcharges and interests are likewise assessed.
A transferee in good faith and for value of a TCC who has relied
on the Center's representation of the genuineness and validity of the
TCC transferred to it may not be legally required to pay again the tax
covered by the TCC which has been belatedly declared null and void,
that is, after the TCCs have been fully utilized through settlement of
internal revenue tax liabilities. Conversely, when the transferee is party
to the fraud as when it did not obtain the TCC for value or was a party to
or has knowledge of its fraudulent issuance, said transferee is liable for
the taxes and for the fraud committed as provided for by
law. 52 (Emphasis supplied.)
We also find that the post-audit report, on which the CIR based its
allegations, does not have the effect of a suspensive condition that would
determine the validity of the TCCs.
We held in Petron v. CIR (Petron), 53 which is on all fours with the
instant case, that TCCs are valid and effective from their issuance and are not
subject to a post-audit as a suspensive condition for their validity. Our ruling
in Petron finds guidance from our earlier ruling in Shell, which categorically
states that a TCC is valid and effective upon its issuance and is not subject to
a post-audit. The implication on the instant case of the said earlier ruling is
that Petron has the right to rely on the validity and effectivity of the TCCs that
were assigned to it. In finally determining their effectivity in the settlement of
respondent's excise tax liabilities, the validity of those TCCs should not
depend on the results of the DOF's post-audit findings. We held thus
in Petron:
As correctly pointed out by Petron, however, the issue about the
immediate validity of TCCs and the use thereof in payment of tax
liabilities and duties are not matters of first impression for this Court.
Taking into consideration the definition and nature of tax credits and
TCCs, this Court's Second Division definitively ruled in the
aforesaid Pilipinas Shell case that the post audit is not a suspensive
condition for the validity of TCCs, thus:
TaEIAS

Art. 1181 tells us that the condition is suspensive when the

acquisition of rights or demandability of the obligation must await
the occurrence of the condition. However, Art. 1181 does not
apply to the present case since the parties did NOT agree to a
suspensive condition. Rather, specific laws, rules, and regulations
govern the subject TCCs, not the general provisions of the Civil
Code.Among the applicable laws that cover the TCCs are EO
226 or the Omnibus Investments Code, Letter of Instructions No.
1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the
Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue
Regulations (RRs), and others. Nowhere in the aforementioned
laws does the post-audit become necessary for the validity or
effectivity of the TCCs. Nowhere in the aforementioned laws is it
provided that a TCC is issued subject to a suspensive condition.
xxx xxx xxx
. . . (T)he TCCs are immediately valid and effective after
their issuance. As aptly pointed out in the dissent of Justice Lovell
Bautista in CTA EB No. 64, this is clear from the Guidelines and
instructions found at the back of each TCC, which provide:
1. This Tax Credit Certificate (TCC) shall entitle the
grantee to apply the tax credit against taxes and duties until the
amount is fully utilized, in accordance with the pertinent tax and
customs laws, rules and regulations.
xxx xxx xxx
4. To acknowledge application of payment, the One-Stop-
Shop Tax Credit Center shall issue the corresponding Tax Debit
Memo (TDM) to the grantee.
The authorized Revenue Officer/Customs Collector to
which payment/utilization was made shall accomplish the
Application of Tax Credit at the back of the certificate and affix his
signature on the column provided."
 The foregoing guidelines cannot be clearer on the validity and
effectivity of the TCC to pay or settle tax liabilities of the grantee or
transferee, as they do not make the effectivity and validity of the TCC
dependent on the outcome of a post-audit. In fact, if we are to sustain
the appellate tax court, it would be absurd to make the effectivity of the
payment of a TCC dependent on a post-audit since there is no
contemplation of the situation wherein there is no post-audit. Does the
payment made become effective if no post-audit is conducted? Or does
the so-called suspensive condition still apply as no law, rule, or
regulation specifies a period when a post-audit should or could be
conducted with a prescriptive period? Clearly, a tax payment through a
TCC cannot be both effective when made and dependent on a future
event for its effectivity. Our system of laws and procedures abhors
ambiguity. IDTSEH

Moreover, if the TCCs are considered to be subject to post-audit

as a suspensive condition, the very purpose of the TCC would be
defeated as there would be no guarantee that the TCC would be
honored by the government as payment for taxes. No investor would
take the risk of utilizing TCCs if these were subject to a post-audit that
may invalidate them, without prescribed grounds or limits as to the
exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to
post-audit as a suspensive condition, and are thus valid and effective
from their issuance. 54
In addition, Shell and Petron recognized an exception that holds the
transferee/assignee liable if proven to have been a party to the fraud or to
have had knowledge of the fraudulent issuance of the subject TCCs. As
earlier mentioned, the parties entered into a joint stipulation of facts stating
that Petron did not participate in the procurement or issuance of those TCCs.
Thus, we affirm the CTA En Banc's ruling that respondent was an innocent
transferee for value thereof.
On the issue of estoppel, petitioner contends that the TCCs, which the
Center had continually approved as payment for respondent's excise tax
liabilities, were subsequently found to be void. Thus, the CIR insists that the
government is not estopped from collecting from Petron the excise tax
liabilities that had accrued to the latter as a result of the voidance of these
TCCs. Petitioner argues that the State should not be prejudiced by the neglect
or omission of government employees entrusted with the collection of taxes. 55
We are not persuaded by the CIR's argument.
We recognize the well-entrenched principle that estoppel does not
apply to the government, especially on matters of taxation. Taxes are the
nation's lifeblood through which government agencies continue to operate and
 with which the State discharges its functions for the welfare of its
constituents. 56 As an exception, however, this general rule cannot be applied
if it would work injustice against an innocent party. 57
Petron, in this case, was not proven to have had any participation in or
knowledge of the CIR's allegation of the fraudulent transfer and utilization of
the subject TCCs. Respondent's status as a transferee in good faith and for
value of these TCCs has been established and even stipulated upon by
petitioner. 58 Respondent was thereby provided ample protection from the
adverse findings subsequently made by the Center. 59 Given the
circumstances, the CIR's invocation of the non-applicability of estoppel in this
case is misplaced.
On the final issue it raised, the CIR contends that a 25% surcharge and
a 20% interest per annum must be imposed upon Petron for respondent's
excise tax liabilities as mandated under Sections 248 and 249 of the National
Internal Revenue Code (NIRC). 60 Petitioner considers the tax returns filed by
respondent for the years 1995 to 1998 as fraudulent on the basis of the post-
audit finding that the TCCs were void. It argues that the prescriptive period
within which to lawfully assess Petron for its tax liabilities has not prescribed
under Section 222 (a) 61 of the Tax Code. The CIR explains that respondent's
assessment on 30 January 2002 of respondent's deficiency excise tax for the
years 1995 to 1998 was well within the ten-year prescription period. 62
In the light of the main ruling in this case, we affirm the CTA En Banc
Decision finding Petron to be an innocent transferee for value of the subject
TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are
not considered fraudulent. Hence, the CIR had no legal basis to assess the
excise taxes or any penalty surcharge or interest thereon, as respondent had
already paid the appropriate excise taxes using the subject TCCs.
WHEREFORE, the CIR's Petition is DENIED for lack of merit. The CTA
En Banc Decision dated 03 December 2008 in CTA EB No. 311 is
hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED. DIHETS

Carpio, Brion, Perez and Reyes, JJ., concur.

Sec. 205

6. Ungab v. Cusi, Jr., G.R. Nos. L-41919-24, [May 30, 1980]

SECOND DIVISION

[G.R. Nos. L-41919-24. May 30, 1980.]

QUIRICO P. UNGAB, petitioner, vs. HON. VICENTE N. CUSI, JR., in his capacity as Judge of
the Court of First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State
Prosecutor, respondents.

DECISION

CONCEPCION, JR., J p:

Petition for certiorari and prohibition with preliminary injunction and restraining order to
annul and set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963,
1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the
Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent Judge
from further proceeding with the hearing and trial of the said cases. cdasia

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the
income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year
ending December 31, 1973. In the course of his examination, he discovered that the
petitioner failed to report his income derived from sales of banana saplings. As a result, the
BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner
informing him that there is due from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and inviting
petitioner to an informal conference where the petitioner, duly assisted by counsel, may
present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the
petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that
he was only a dealer or agent on commission basis in the banana sapling business and that
his income, as reported in his income tax returns for the said year, was accurately stated.
BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a
fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax
Fraud Unit of the Bureau of Internal Revenue. After examining the records of the case, the
Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that
the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution:

(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his
just taxes due the government under Section 45 in relation to Section 72 of the National
Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of
unpaid fixed taxes of P100.00 plus penalties of P75.00 or a total of P175.00, in accordance
with Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on
the total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the
government of its due revenue in the amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974,
the Commissioner of Internal Revenue approved the prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes, who had been designated to assist all Provincial
and City Fiscals throughout the Philippines in the investigation and prosecution, if the
evidence warrants, of all violations of the National Internal Revenue Code, as amended, and
other related laws, in Administrative Order No. 116 dated December 5, 1974, and to whom
the case was assigned, conducted a preliminary investigation of the case, and finding
probable cause, filed six (6) informations against the petitioner with the Court of First
Instance of Davao City, to wit:

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National
Internal Revenue Code, for filing a fraudulent income tax return for the calendar year
ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and
208 of the National Internal Revenue Code, for engaging in business as producer of
saplings, from January, 1973 to December, 1973, without first paying the annual fixed or
privilege tax thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of
the National Internal Revenue Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as producer of banana saplings
and to pay the percentage tax due thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of
the National Internal Revenue Code, for failure to render a true and complete return on the
gross quarterly sales receipts and earnings in his business as producer of saplings, and to
pay the percentage tax due thereon, for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of
the National Internal Revenue Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as producer of banana saplings
for the quarter ending on June 30, 1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of
the National Internal Revenue Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings as producer of banana saplings, for the quarter
ending on September 30, 1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the
grounds that: (1) the informations are null and void for want of authority on the part of the
State Prosecutor to initiate and prosecute the said cages; and (2) the trial court has no
jurisdiction to take cognizance of the above-entitled cases in view of his pending protest
against the assessment made by the BIR Examiner. 10 However, the trial court denied the
motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As
prayed for, a temporary restraining order was issued by the Court, ordering the respondent
Judge from further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961,
1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of
the Philippines, plaintiff, versus Quirico Ungab, accused.

The petitioner seeks the annulment of the informations filed against him on the ground that
the respondent State Prosecutor is allegedly without authority to do so. The petitioner
argues that while the respondent State Prosecutor may initiate the investigation of and
prosecute crimes and violations of penal laws when duly authorized, certain requisites,
enumerated by this Court in its decision in the case of Estrella vs. Orendain, 12 should be
observed before such authority may be exercised; otherwise, the provisions of the Charter
of Davao City on the functions and powers of the City Fiscal will be meaningless because
according to said charter he has charge of the prosecution of all crimes committed within his
jurisdiction; and since "appropriate circumstances are not extant to warrant the intervention
of the State Prosecution to initiate the investigation, sign the informations and prosecute
these cases, said informations are null and void." The ruling adverted to by the petitioner
reads, as follows: cdphil

"In view of all the foregoing considerations, it is the ruling of this Court that under Sections
1679 and 1686 of the Revised Administrative Code, in any instance where a provincial or
city fiscal fails, refuses or is unable, for any reason, to investigate or prosecute a case and,
in the opinion of the Secretary of Justice it is advisable in the public interest to take a
different course of action, the Secretary of Justice may either appoint as acting provincial or
city fiscal, to handle the investigation or prosecution exclusively and only of such case, any
practicing attorney or some competent officer of the Department of Justice or office of any
city or provincial fiscal, with complete authority to act therein in all respects as if he were
the provincial or city fiscal himself, or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the discharge of his duties, with the
same complete authority to act in dependently of and for such city or provincial fiscal,
provided that no such appointment may be made without first hearing the fiscal concerned
and never after the corresponding information has already been filed with the court by the
corresponding city or provincial fiscal without the conformity of the latter, except when it
can be patently shown to the court having cognizance of the case that said fiscal is intent on
prejudicing the interests of justice. The same sphere of authority is true with the prosecutor
directed and authorized under Section 3 of Republic Act 3783, as amended and/or inserted
by Republic Act 5184. The observation in Salcedo vs. Liwag, supra, regarding the nature of
the power of the Secretary of Justice over fiscals as being purely over administrative
matters only was not really necessary, as indicated in the above relation of the facts and
discussion of the legal issues of said case, for the resolution thereof. In any event, to any
extent that the opinion therein may be inconsistent herewith, the same is hereby modified."

The contention is without merit. Contrary to the petitioner's claim, the rule therein
established had not been violated. The respondent State Prosecutor, although believing that
he can proceed independently of the City Fiscal in the investigation and prosecution of these
cases, first sought permission from the City Fiscal of Davao City before he started the
preliminary investigation of these cases, and the City Fiscal, after being shown
Administrative Order No. 116, dated December 5, 1974, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the
investigation and prosecution of all violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the respondent State Prosecutor to
conduct the investigation of said cases, and in fact, said investigation was conducted in the
office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate and premature
since the Commissioner of Internal Revenue has not yet resolved his protests against the
assessment of the Revenue District Officer; and that he was denied recourse to the Court of
Tax Appeals.

The contention is without merit. What is involved here is not the collection of taxes where
the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of
Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code
which is within the cognizance of courts of first instance. While there can be no civil action
to enforce collection before the assessment procedures provided in the Code have been
followed, there is no requirement for the precise computation and assessment of the tax
before there can be a criminal prosecution under the Code.

"The contention is made, and is here rejected, that an assessment of the deficiency tax due
is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The
crime is complete when the violator has, as in this case, knowingly and willfully filed
fraudulent returns with intent to evade and defeat a part or all of the tax." 14

"An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt
to defeat and evade the income tax. A crime is complete when the violator has knowingly
and willfully filed a fraudulent return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the government's failure to discover the error and
promptly to assess has no connections with the commission of the crime." 15

Besides, it has been ruled that a petition for reconsideration of an assessment may affect
the suspension of the prescriptive period for the collection of taxes, but not the prescriptive
period of a criminal action for violation of law. 16 Obviously, the protest of the petitioner
against the assessment of the District Revenue Officer cannot stop his prosecution for
violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not
abuse his discretion in denying the motion to quash filed by the petitioner. LLjur

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining
order heretofore issued is hereby set aside. With costs against the petitioner.

SO ORDERED.

Barredo, Aquino, Abad Santos and De Castro, JJ ., concur.

Sec. 206
7. Azarcon v. Sandiganbayan, G.R. No. 116033, [February 26, 1997]

THIRD DIVISION

[G.R. No. 116033. February 26, 1997.]

ALFREDO L. AZARCON, petitioner, vs. SANDIGANBAYAN, PEOPLE OF THE PHILIPPINES and

JOSE C. BATAUSA, respondents.

Ongkiko Kalaw Manhit Acorda Panga & Velasco Law Offices.

The Solicitor General for respondents.

SYLLABUS

1. REMEDIAL LAW; JURISDICTION; CANNOT BE PRESUMED OR IMPLIED. — It is hornbook

doctrine that in order (to) ascertain whether a court has jurisdiction or not, the provisions of
the law should be inquired into." Furthermore, "the jurisdiction of the court must appear
clearly from the statute law or it will not be held to exist. It cannot be presumed or implied.
And for this purpose in criminal cases, "the jurisdiction of a court is determined by the law
at the time of commencement of the action."

2. ID.; ID.; SANDIGANBAYAN; SEC. 4, P.D. NO. 1606 SPECIFY THE ONLY INSTANCES
WHEN THE SANDIGANBAYAN WILL HAVE JURISDICTION OVER PRIVATE INDIVIDUAL. —
The provisions of Sec. 4 of P.D. No. 1606 unequivocally specify the only instances when the
Sandiganbayan will have jurisdiction over a private individual, i.e. when the complaint
charges the private individual either as a co-principal, accomplice or accessory of a public
officer or employee who has been charged with a crime within its jurisdiction.
3. CRIMINAL LAW; PUBLIC OFFICER, DEFINED. — Article 203 of the Revised Penal Code
determines who are public officers: "Who are public officers. — For the purpose of applying
the provisions of this and the preceding titles of the book, any person who, by direct
provision of the law, popular election, or appointment by competent authority, shall take
part in the performance of public functions in the Government of the Philippine Islands, or
shall perform in said Government or in any of its branches public duties as an employee,
agent, or subordinate official, of any rank or classes, shall be deemed to be a public officer."
Thus, "(to) be a public officer, one must be — (1) Taking part in the performance of public
functions in the government, or Performing in said Government or any of its branches public
duties as an employee, agent, or subordinate official, of any rank or class; and (2) That his
authority to take part in the performance of public functions or to perform public duties
must be — a. by direct provision of the law, or b. by popular election, or c. by appointment
by competent authority."

4. CONSTITUTIONAL LAW; DELEGATED POWERS; ADMINISTRATIVE AGENCIES MAY

EXERCISE ONLY THOSE PROVIDED BY ITS ENABLING ACT. — It is axiomatic in our
constitutional framework, which mandates a limited government, that its branches and
administrative agencies exercise only that power delegated to them as "defined either in the
Constitution or in legislation or in both." Thus, although the "appointing power is the
exclusive prerogative of the President, . . ." the quantum of powers possessed by an
administrative agency forming part of the executive branch will still be limited to that
"conferred expressly or by necessary or fair implication" in its enabling act. Hence, "(a)n
administrative officer, it has been held, has only such powers as are expressly granted to
him and those necessarily implied in the exercise thereof." Corollarily, implied powers "are
those which are necessarily included in, and are therefore of lesser degree than the power
granted. It cannot extend to other matters not embraced therein, nor are not incidental
thereto." For to so extend the statutory grant of power "would be an encroachment on
powers expressly lodged in Congress by our Constitution."

5. ID.; ID.; ID.; NATIONAL INTERNAL REVENUE CODE; DOES NOT STRETCH THE BIR'S
POWER AUTHORIZING A PRIVATE INDIVIDUAL TO ACT AS A DEPOSITARY AS TO INCLUDE
THE POWER TO APPOINT HIM AS PUBLIC OFFICER. — It is true that Sec. 206 of the NIRC,
as pointed out by the prosecution, authorizes the BIR to effect a constructive distraint by
requiring "any person" to preserve a distrained property, thus: ". . . The constructive
distraint of personal property shall be effected by requiring the taxpayer or any person
having possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not to dispose
of the same in any manner whatever without the express authority of the Commissioner. . .
However, we find no provision in the NIRC constituting such person a public officer by
reason of such requirement. The BIR's power authorizing a private individual to act as a
DEPOSITARY cannot be stretched to include the power to appoint him as a public officer.

6. STATUTORY CONSTRUCTION; LEGISLATIVE INTENT; DETERMINED PRINCIPALLY FROM

THE LANGUAGE OF THE STATUTE; APPLICATION IN CASE AT BAR. — Legislative intent is
determined principally from the language of a statute. Where the language of a statute is
clear and unambiguous, the law is applied according to its express terms, and interpretation
would be resorted to only where a literal interpretation would be either impossible or absurd
or would lead to an injustice. This is particularly observed in the interpretation of penal
statutes which "must be construed with such strictness as to carefully safeguard the rights
of the defendant . . ." The language of the foregoing provision is clear. A private individual
who has in his charge any of the public funds or property enumerated therein and commits
any of the acts defined in any of the provisions of Chapter Four, Title Seven of the RPC,
should likewise be penalized with the same penalty meted to erring public officers. Nowhere
in this provision is it expressed or implied that a private individual falling under said Article
222 is to be deemed a public officer.

DECISION

PANGANIBAN, J p:

Does the Sandiganbayan have jurisdiction over a private individual who is charged with
malversation of public funds as a principal after the said individual had been designated by
the Bureau of Internal Revenue as a custodian of distrained property? Did such accused
become a public officer and therefore subject to the graft court's jurisdiction as a
consequence of such designation by the BIR?

These are the main questions in the instant petition for review of Respondent
Sandiganbayan's Decision 1in Criminal Case No. 14260 promulgated on March 8, 1994,
convicting petitioner of malversation of public funds and property, and Resolution 2 dated
June 20, 1994, denying his motion for new trial or reconsideration thereof.

The Facts

Petitioner Alfredo Azarcon owned and operated an earth-moving business, hauling "dirt and
ore." 3 His services were contracted by the Paper Industries Corporation of the Philippines
(PICOP) at its concession in Mangagoy, Surigao del Sur. Occasionally, he engaged the
services of sub-contractors like Jaime Ancla whose trucks were left at the former's
premises. 4 From this set of circumstances arose the present controversy.

". . . It appears that on May 25, 1983, a Warrant of Distraint of Personal Property was
issued by the Main office of the Bureau of Internal Revenue (BIR) addressed to the Regional
Director (Jose Batausa) or his authorized representative of Revenue Region 10, Butuan City
commanding the latter to distraint the goods, chattels or effects and other personal
property of Jaime Ancla, a sub-contractor of accused Azarcon and, a delinquent taxpayer.
The Warrant of Garnishment was issued to accused Alfredo Azarcon ordering him to
transfer, surrender, transmit and/or remit to BIR the property in his possession owned by
taxpayer Ancla. The Warrant of Garnishment was received by accused Azarcon on June 17,
1985." 5

Petitioner Azarcon, in signing the "Receipt for Goods, Articles, and Things Seized Under
Authority of the National Internal Revenue," assumed the undertakings specified in the
receipt the contents of which are reproduced as follows:

"(I), the undersigned, hereby acknowledge to have received from Amadeo V. San Diego, an
Internal Revenue Officer, Bureau of Internal Revenue of the Philippines, the following
described goods, articles, and things:

Kind of property — Isuzu dump truck

Motor number — E120-229598
Chassis No. — SPZU50-1772440
Number of CXL — 6
Color — Blue
Owned By — Mr. Jaime Ancla
the same having been this day seized and left in (my) possession pending investigation by
the Commissioner of Internal Revenue or his duly authorized representative. (I) further
promise that (I) will faithfully keep, preserve, and, to the best of (my) ability, protect said
goods, articles, and things seized from defacement, demarcation, leakage, loss, or
destruction in any manner; that (I) will neither alter nor remove, nor permit others to alter
or remove or dispose of the same in any manner without the express authority of the
Commissioner of Internal Revenue; and that (I) will produce and deliver all of said goods,
articles, and things upon the order of any court of the Philippines, or upon demand of the
Commissioner of Internal Revenue or any authorized officer or agent of the Bureau of
Internal Revenue." 6

Subsequently, Alfredo Azarcon wrote a letter dated November 21, 1985 to the BIR's
Regional Director for Revenue Region 10 B, Butuan City stating that

". . . while I have made representations to retain possession of the property and signed a
receipt of the same, it appears now that Mr. Jaime Ancla intends to cease his operations
with us. This is evidenced by the fact that sometime in August, 1985 he surreptitiously
withdrew his equipment from my custody. . . In this connection, may I therefore formally
inform you that it is my desire to immediately relinquish whatever responsibilities I have
over the above-mentioned property by virtue of the receipt I have signed. This cancellation
shall take effect immediately. . ." 7

Incidentally, the petitioner reported the taking of the truck to the security manager of
PICOP, Mr. Delfin Panelo, and requested him to prevent this truck from being taken out of
the PICOP concession. By the time the order to bar the truck's exit was given, however, it
was too late. 8

Regional Director Batausa responded in a letter dated May 27, 1986, to wit:

"An analysis of the documents executed by you reveals that while you are (sic) in
possession of the dump truck owned by JAIME ANCLA, you voluntarily assumed the
liabilities of safekeeping and preserving the unit in behalf of the Bureau of Internal Revenue.
This is clearly indicated in the provisions of the Warrant of Garnishment which you have
signed, obliged and committed to surrender and transfer to this office. Your failure
therefore, to observe said provisions does not relieve you of your responsibility." 9

Thereafter, the Sandiganbayan found that

"On 11 June 1986, Mrs. Marilyn T. Calo, Revenue Document Processor of Revenue Region
10 B, Butuan City, sent a progress report to the Chief of the Collection Branch of the
surreptitious taking of the dump truck and that Ancla was renting out the truck to a certain
contractor by the name of Oscar Cueva at PICOP (Paper Industries Corporation of the
Philippines, the same company which engaged petitioner's earth moving services),
Mangagoy, Surigao del Sur. She also suggested that if the report were true, a warrant of
garnishment be reissued against Mr. Cueva for whatever amount of rental is due from Ancla
until such time as the latter's tax liabilities shall be deemed satisfied. . . However, instead of
doing so, Director Batausa filed a letter-complaint against the (herein Petitioner) and Ancla
on 22 January 1988, or after more than one year had elapsed from the time of Mrs. Calo's
report." 10

Provincial Fiscal Pretextato Montenegro "forwarded the records of the complaint . . . to the
office of the Tanodbayan" on May 18, 1988. He was deputized Tanodbayan prosecutor and
granted authority to conduct preliminary investigation on August 22, 1988, in a letter by
Special Prosecutor Raul Gonzales approved by Ombudsman (Tanodbayan) Conrado
Vasquez. 11

Along with his co-accused Jaime Ancla, Petitioner Azarcon was charged before the
Sandiganbayan with the crime of malversation of public funds or property under Article 217
in relation to Article 222 of the Revised Penal Code (RPC) in the following Information 12
filed on January 12, 1990, by Special Prosecution Officer Victor Pascual:

"That on or about June 17, 1985, in the Municipality of Bislig, Province of Surigao del Sur,
Philippines, and within the jurisdiction of this Honorable Court, accused Alfredo L. Azarcon, a
private individual but who, in his capacity as depository/administrator of property seized or
deposited by the Bureau of Internal Revenue, having voluntarily offered himself to act as
custodian of one Isuzu Dumptruck (sic) with Motor No. E120-22958, Chassis No. SPZU 50-
1772440, and number CXL-6 and was authorized to be such under the authority of the
Bureau of Internal Revenue, has become a responsible and accountable officer and said
motor vehicle having been seized from Jaime C. Ancla in satisfaction of his tax liability in the
total sum of EIGHTY THOUSAND EIGHT HUNDRED THIRTY ONE PESOS and 59/100
(P80,831.59) became a public property and the value thereof as public fund, with grave
abuse of confidence and conspiring and confederating with said Jaime C. Ancla, likewise, a
private individual, did then and there willfully, (sic) unlawfully and feloniously
misappropriate, misapply and convert to his personal use and benefit the aforementioned
motor vehicle or the value thereof in the aforestated amount, by then and there allowing
accused Jaime C. Ancla to remove, retrieve, withdraw and tow away the said Isuzu
Dumptruck (sic) with the authority, consent and knowledge of the Bureau of Internal
Revenue, Butuan City, to the damage and prejudice of the government in the amount of
P80,831.59 in a form of unsatisfied tax liability.

CONTRARY TO LAW."

The petitioner filed a motion for reinvestigation before the Sandiganbayan on May 14, 1991,
alleging that: (1) the petitioner never appeared in the preliminary investigation; and (2) the
petitioner was not a public officer, hence a doubt exists as to why he was being charged
with malversation under Article 217 of the Revised Penal Code. 13 The Sandiganbayan
granted the motion for reinvestigation on May 22, 1991. 14 After the reinvestigation,
Special Prosecution Officer Roger Berbano, Sr., recommended the "withdrawal of the
information" 15 but was "overruled by the Ombudsman." 16

A motion to dismiss was filed by petitioner on March 25, 1992 on the ground that the
Sandiganbayan did not have jurisdiction over the person of the petitioner since he was not a
public officer. 17 on May 18, 1992, the Sandiganbayan denied the motion. 18

When the prosecution finished presenting its evidence, the petitioner then filed a motion for
leave to file demurrer to evidence which was denied on November 16, 1992, "for being
without merit." 19 The petitioner then commenced and finished presenting his evidence on
February 15, 1993.

The Respondent Court's Decision

On March 8, 1994, Respondent Sandiganbayan 20 rendered a Decision, 21 the dispositive

portion of which reads:

"WHEREFORE, the Court finds accused Alfredo Azarcon y Leva GUILTY beyond reasonable
doubt as principal of Malversation of Public Funds defined and penalized under Article 217 in
relation to Article 222 of the Revised Penal Code and, applying the Indeterminate Sentence
Law, and in view of the mitigating circumstance of voluntary surrender, the Court hereby
sentences the accused to suffer the penalty of imprisonment ranging from TEN (10) YEARS
and ONE (1) DAY of prision mayor in its maximum period to SEVENTEEN (17) YEARS, FOUR
(4) MONTHS and ONE (1) DAY of Reclusion Temporal. To indemnify the Bureau of Internal
Revenue the amount of P80,831.59; to pay a fine in the same amount without subsidiary
imprisonment in case of insolvency; to suffer special perpetual disqualification; and, to pay
the costs. LexLib

Considering that accused Jaime Ancla has not yet been brought within the jurisdiction of this
Court up to this date, let this case be archived as against him without prejudice to its revival
in the event of his arrest or voluntary submission to the jurisdiction of this Court.

SO ORDERED."

Petitioner, through new counsel, 22 filed a motion for new trial or reconsideration on March
23, 1994, which was denied by the Sandiganbayan in its Resolution 23 dated December 2,
1994.

Hence, this petition.

The Issues

The petitioner submits the following reasons for the reversal of the Sandiganbayan's
assailed Decision and Resolution:

"I. The Sandiganbayan does not have jurisdiction over crimes committed solely by private
individuals.

II. In any event, even assuming arguendo that the appointment of a private individual as a
custodian or a depositary of distrained property is sufficient to convert such individual into a
public officer, the petitioner cannot still be considered a public officer because:

[A]

There is no provision in the National Internal Revenue Code which authorizes the Bureau of
Internal Revenue to constitute private individuals as depositaries of distrained properties.

[B]

His appointment as a depositary was not by virtue of a direct provision of law, or by election
or by appointment by a competent authority.

III. No proof was presented during trial to prove that the distrained vehicle was actually
owned by the accused Jaime Ancla; consequently, the government's right to the subject
property has not been established.

IV. The procedure provided for in the National Internal Revenue Code concerning the
disposition of distrained property was not followed by the B.I.R., hence the distraint of
personal property belonging to Jaime C. Ancla and found allegedly to be in the possession of
the petitioner is therefore invalid.
V. The B.I.R. has only itself to blame for not promptly selling the distrained property of
accused Jaime C. Ancla in order to realize the amount of back taxes owed by Jaime C. Ancla
to the Bureau." 24

In fine, the fundamental issue is whether the Sandiganbayan had jurisdiction over the
subject matter of the controversy. Corollary to this is the question of whether petitioner can
be considered a public officer by reason of his being designated by the Bureau of Internal
Revenue as a depositary of distrained property.

The Court's Ruling

The petition is meritorious.

Jurisdiction of the Sandiganbayan

It is hornbook doctrine that in order "(to) ascertain whether a court has jurisdiction or not,
the provisions of the law should be inquired into." 25 Furthermore, "the jurisdiction of the
court must appear clearly from the statute law or it will not be held to exist. It cannot be
presumed or implied." 26 And for this purpose in criminal cases, "the jurisdiction of a court
is determined by the law at the time of commencement of the action." 27

In this case, the action was instituted with the filing of this information on January 12,
1990; hence, the applicable statutory provisions are those of P.D. No. 1606, as amended by
P.D. No. 1861 on March 23, 1983, but prior to their amendment by R.A. No. 7975 on May
16, 1995. At that time, Section 4 of P.D. No. 1606 provided that:

"SEC. 4. Jurisdiction. — The Sandiganbayan shall exercise:

(a) Exclusive original jurisdiction in all cases involving:

(1) Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and
Corrupt Practices Act, Republic Act No. 1379, and Chapter II, Section 2, Title VII of the
Revised Penal Code;

(2) Other offenses or felonies committed by public officers and employees in relation to
their office, including those employed in government-owned or controlled corporations,
whether simple or complexed with other crimes, where the penalty prescribed by law is
higher than; prision correccional or imprisonment for six (6) years, or a fine of P6,000.00:
PROVIDED, HOWEVER, that offenses or felonies mentioned in this paragraph where the
penalty prescribed by law does not exceed prision correccional or imprisonment for six (6)
years or a fine of P6,000.00 shall be tried by the proper Regional Trial Court, Metropolitan
Trial Court, Municipal Trial Court and Municipal Circuit Trial Court.

xxx xxx xxx

In case private individuals are charged as co-principals, accomplices or accessories with the
public officers or employees, including those employed in government-owned or controlled
corporations, they shall be tried jointly with said public officers and employees.

xxx xxx xxx

The foregoing provisions unequivocally specify the only instances when the Sandiganbayan
will have jurisdiction over a private individual, i.e. when the complaint charges the private
individual either as a co-principal, accomplice or accessory of a public officer or employee
who has been charged with a crime within its jurisdiction.

Azarcon: A Public Officer or A Private Individual

The Information does not charge petitioner Azarcon of being a co-principal, accomplice or
accessory to a public officer committing an offense under the Sandiganbayan's jurisdiction.
Thus, unless petitioner be proven a public officer, the Sandiganbayan will have no
jurisdiction over the crime charged. Article 203 of the RPC determines who are public
officers:

"Who are public officers. — For the purpose of applying the provisions of this and the
preceding titles of the book, any person who, by direct provision of the law, popular
election, popular election or appointment by competent authority, shall take part in the
performance of public functions in the Government of the Philippine Islands, or shall
perform in said Government or in any of its branches public duties as an employee, agent,
or subordinate official, of any rank or classes, shall be deemed to be a public officer."

Thus,

"(to) be a public officer, one must be —

(1) Taking part in the performance of public functions in the government, or Performing in
said Government or any of its branches public duties as an employee, agent, or subordinate
official, of any rank or class; and

(2) That his authority to take part in the performance of public functions or to perform
public duties must be —

a. by direct provision of the law, or

b. by popular election, or

c. by appointment by competent authority." 28

Granting arguendo that the petitioner, in signing the receipt for the truck constructively
distrained by the BIR, commenced to take part in an activity constituting public functions,
he obviously may not be deemed authorized by popular election. The next logical query is
whether petitioner's designation by the BIR as a custodian of distrained property qualifies as
appointment by direct provision of law, or by competent authority. 29 We answer in the
negative.

The Solicitor General contends that the BIR, in effecting constructive distraint over the truck
allegedly owned by Jaime Ancla, and in requiring Petitioner Alfredo Azarcon who was in
possession thereof to sign a pro forma receipt for it, effectively "designated" petitioner a
depositary and, hence, citing U.S. vs. Rastrollo, 30 a public officer. 31 This is based on the
theory that

"(t)he power to designate a private person who has actual possession of a distrained
property as a depository of distrained property is necessarily implied in the BIR's power to
place the property of a delinquent tax payer (sic) in distraint as provided for under Sections
206, 207 and 208 (formerly Sections 303, 304 and 305) of the National Internal Revenue
Code, (NIRC) . . ." 32
We disagree. The case of U.S. vs. Rastrollo is not applicable to the case before us simply
because the facts therein are not identical, similar or analogous to those obtaining here.
While the cited case involved a judicial deposit of the proceeds of the sale of attached
property in the hands of the debtor, the case at bench dealt with the BIR's administrative
act of effecting constructive distraint over alleged property of taxpayer Ancla in relation to
his back taxes, property which was received by Petitioner Azarcon. In the cited case, it was
clearly within the scope of that court's jurisdiction and judicial power to constitute the
judicial deposit and give "the depositary a character equivalent to that of a public official."
33 However, in the instant case, while the BIR had authority to require Petitioner Azarcon to
sign a receipt for the distrained truck, the NIRC did not grant it power to appoint Azarcon a
public officer.

It is axiomatic in our constitutional framework, which mandates a limited government, that

its branches and administrative agencies exercise only that power delegated to them as
"defined either in the Constitution or in legislation or in both." 34 Thus, although the
"appointing power is the exclusive prerogative of the President, . . ." 35 the quantum of
powers possessed by an administrative agency forming part of the executive branch will still
be limited to that "conferred expressly or by necessary or fair implication in its enabling act.
Hence, "(a)n administrative officer, it has been held, has only such powers as are expressly
granted to him and those necessarily implied in the exercise thereof." 36 Corollarily, implied
powers "are those which are necessarily included in, and are therefore of lesser degree than
the power granted. It cannot extend to other matters not embraced therein, nor are not
incidental thereto." 37 For to so extend the statutory grant of power "would be an
encroachment on powers expressly lodged in Congress by our Constitution." 38 It is true
that Sec. 206 of the NIRC, as pointed out by the prosecution, authorizes the BIR to effect a
constructive distraint by requiring "any person to preserve a distrained property, thus:

xxx xxx xxx"

The constructive distraint of personal property shall be effected by requiring the taxpayer or
any person having possession or control of such property to sign a receipt covering the
property distrained and obligate himself to preserve the same intact and unaltered and not
to dispose of the same in any manner whatever without the express authority of the
Commissioner.

xxx xxx xxx

However, we find no provision in the NIRC constituting such person a public officer by
reason of such requirement. The BIR's power authorizing a private individual to act as a
depositary cannot be stretched to include the power to appoint him as a public officer. The
prosecution argues that "Article 222 of the Revised Penal Code . . . defines the individuals
covered by the term 'officers' under Article 217 39 . . ." of the same Code. 40 And
accordingly, since Azarcon became a "depository of the truck seized by the BIR" he also
became a public officer who can be prosecuted under Article 217 . . ." 41

The Court is not persuaded. Article 222 of the RPC reads:

"Officers included in the preceding provisions. — The provisions of this chapter shall apply to
private individuals who, in any capacity whatever, have charge of any insular, provincial or
municipal funds, revenues, or property and to any administrator or depository of funds or
property attached, seized or deposited by public authority, even if such property belongs to
a private individual."
"Legislative intent is determined principally from the language of a statute. Where the
language of a statute is clear and unambiguous, the law is applied according to its express
terms, and interpretation would be resorted to only where a literal interpretation would be
either impossible or absurd or would lead to an injustice." 42 This is particularly observed in
the interpretation of penal statutes which "must be construed with such strictness as to
carefully safeguard the rights of the defendant . . ." 43 The language of the foregoing
provision is clear. A private individual who has in his charge any of the public funds or
property enumerated therein and commits any of the acts defined in any of the provisions of
Chapter Four, Title Seven of the RPC, should likewise be penalized with the same penalty
meted to erring public officers. Nowhere in this provision is it expressed or implied that a
private individual falling under said Article 222 is to be deemed a public officer.

After a thorough review of the case at bench, the Court thus finds Petitioner Alfredo Azarcon
and his co-accused Jaime Ancla to be both private individuals erroneously charged before
and convicted by Respondent Sandiganbayan which had no jurisdiction over them. The
Sandiganbayan's taking cognizance of this case is of no moment since "(j)urisdiction cannot
be conferred by . . . erroneous belief of the court that it had jurisdiction." 44 As aptly and
correctly stated by the petitioner in his memorandum:

"From the foregoing discussion, it is evident that the petitioner did not cease to be a private
individual when he agreed to act as depositary of the garnished dump truck. Therefore,
when the information charged him and Jaime Ancla before the Sandiganbayan for
malversation of public funds or property, the prosecution was in fact charging two private
individuals without any public officer being similarly charged as a co-conspirator.
Consequently, the Sandiganbayan had no jurisdiction over the controversy and therefore all
the proceedings taken below as well as the Decision rendered by Respondent
Sandiganbayan, are null and void for lack of jurisdiction." 45

WHEREFORE, the questioned Resolution and Decision of the Sandiganbayan are hereby SET
ASIDE and declared NULL and VOID for lack of jurisdiction. No costs. llcd

SO ORDERED.

Narvasa, C .J ., Davide, Jr., Melo and Francisco, JJ., concur.

Sec. 207 (A) & (B)

8. David v. Ramos, G.R. No. L-4300, [October 31, 1951]

EN BANC

[G.R. No. L-4300. October 31, 1951.]

SATURNINO DAVID, in his capacity as Collector of Internal Revenue, petitioner, vs. THE
HONORABLE SIMEON RAMOS, in his capacity as Judge of the Court of First Instance of
Manila and MARIA B. CASTRO, respondents.

Solicitor General Pompeyo Diaz and Assistant Solicitor General Francisco Carreon, for
petitioners.

Antonio Quirino and Rosendo Tansinsin, for respondents.

SYLLABUS
1. TAXATION; INTERNAL REVENUE CODE, SECTION 305. — The word "tax," as used in
section 305 of the Internal Revenue Code, means a tax even if it is disputed by the tax-
payer, for otherwise it would be sufficient to dispute a tax in order to take it out from the
provisions of said section, rendering them practically nugatory.

2. ID.; ACTION ENJOINING COLLECTION, NOT ALLOWED; REMEDY OF TAXPAYER. — No suit

to enjoin collection of a tax, disputed or undisputed, can be brought, the remedy being to
pay the tax first, formerly under protest and now without need of protest file the claim with
the Collector, and if he denies it bring an action for recovery against him.

3. PLEADING AND PRACTICE; TAXATIONS; ALLEGATIONS DISPUTING TAX, ETC., NOT

PROPER IN ACTION FOR PROHIBITION OR INJUNCTION. — All the allegations of the
taxpayer to the effect that the dismissal of a criminal case brought against him is res
judicata or a bar to the collection by distraint and levy; and that Republic Act No. 55, known
as the War Profits Tax Law, is unconstitutional, should be set forth as part of the cause of
action in the complaint that may be filed against the Collector of Internal Revenue for
recovery of the tax after its payment, but not in an action for prohibition or injunction.

DECISION

JUGO, J p:

This is a petition for certiorari, prohibition, and injunction.

The facts of this case may be briefly stated as follows:

The respondent Maria B. Castro filed in the Court of First Instance of Manila, a complaint
dated October 18, 1950, against Saturnino David, petitioner herein, in his capacity as
Collector of Internal Revenue, alleging among other things, that she had been acquitted in a
criminal case for non-payment of the war profits tax for insufficiency of evidence; that
notwithstanding said acquittal, the Collector of Internal Revenue announced on October 18,
1950, that the properties of Maria B. Castro would be sold at public auction on November 22
and 27, 1950, to satisfy the war profits tax assessed against her; that this sale is an abuse
of authority on the part of the Collector and would cause irreparable injury to her; that
Republic Act No. 55, known as the War Profits Tax Law is unconstitutional. She prayed that
a preliminary injunction be issued enjoining the Collector of Internal Revenue from
proceeding with the sale and that afterward the injunction be made permanent.

The Collector of Internal Revenue filed his answer in the Court of First Instance of Manila
specifically admitting some of the allegations in the complaint and denying others, and
alleged as special defenses that the Court of First Instance had no jurisdiction to entertain
the complaint nor to issue a temporary or permanent writ of injunction to restrain the
collection of the war profits tax; that the plaintiff Maria B. Castro had an adequate remedy
by first paying the tax and suing for its recovery; that the criminal case, No. 4976, was
dismissed with the consent of the defendant; that the witness Felipe Aquino testified that a
larger amount than that stated in the information in the criminal case was due from Maria
B. Castro; and that there had been no res judicata.

When the trial began, the Collector of Internal Revenue through his counsel, objected to the
reception of the evidence on the ground that the court had no jurisdiction to try the case.
The lower court entered an order dated November 8, 1950, declaring that the court had
authority to proceed with the case, but denied the petition of Maria B. Castro for a
preliminary injunction.

Inasmuch as no preliminary injunction was issued by the respondent court, the Collector of
Internal Revenue, through his agents, proceeded with the distraint and levy and sale at
public auction of the properties of Maria B. Castro, which has not been stopped up to the
present.

Saturnino David, the Collector of Internal Revenue, now comes to this Court with the
petition for certiorari, prohibition, and injunction, alleging substantially the above facts,
maintaining that the Court of First Instance has no jurisdiction to restrain the collection of
taxes, the remedy being to pay and sue for recovery. The Collector prays for a preliminary
injunction, pending the decision of this case, to restrain the respondent Judge from
proceeding with the hearing of Civil Case No. L-12356 of the Court of First Instance of
Manila, above mentioned.

This Court issued the writ of preliminary injunction prayed for by the petitioner, and ordered
the respondents to answer.

The respondents filed their answer specifically denying some allegations of the petition and
admitting others, and maintaining in effect that the court below had jurisdiction to entertain
the case. In a separate pleading, the respondent Maria P. Castro prayed that a preliminary
injunction be issued against the Collector of Internal Revenue and his agents restraining
them from proceeding with the distraint and levy and sale of her properties. This petition
was denied by this Court.

The question to be determined in this case is whether the courts can restrain the collection
of taxes on the ground that their validity is disputed by the taxpayer.

Section 9 of Republic Act No. 55, known as the War Profits Tax Law, reads as follows:

"SEC. 9. Administrative remedies. — All Administrative, special and general provisions of

law including the laws in relation to the assessment, remission, collection and refund of
national internal revenue taxes, not inconsistent with the provisions of this Act, are hereby
extended and made applicable to all the provisions of this law, and to the tax herein
imposed."

Section 305 of the National Internal Revenue Code, is as follows:

"SEC. 305. Injunction not available to restrain collection of tax. — No court shall have
authority to grant an injunction to restrain the collection of any national internal-revenue
tax, fee, or charge imposed by this Code."

It is clear that the word "tax," as used in said section 305, means a tax even if it is disputed
by the taxpayer, for otherwise it would be sufficient to dispute a tax in order to take it out
from the provisions of said section, rendering them practically nugatory.

Section 306 of the National Internal Revenue Code provides as follows:

"SEC. 306. 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 Collector of Internal Revenue; 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."

It has been the uniform holding of this Court that no suit for enjoining the collection of a
tax, disputed or undisputed, can be brought, the remedy being to pay the tax first, formerly
under protest and now without need of protest, file the claim with the Collector, and if he
denies it, bring an action for recovery against him.

In the case of Churchill vs. Rafferty (32 Phil., 580, 583-584) it was held:

"In the first place, it has been suggested that section 139 does not apply to the tax in
question because the section, in speaking of a "tax," means only legal taxes; and that an
illegal tax (the one complained of) is not a tax, and, therefore, does not fall within the
inhibition of the section, and may be restrained by injunction. There is no force in this
suggestion. The inhibition applies to all internal revenue taxes imposed, or authorized to be
imposed, by Act No. 2339. (Snyder vs. Marks, 109 U. S. 189.) And, furthermore, the mere
fact that a tax is illegal, or that the law, by virtue of which it is imposed, is unconstitutional,
does not authorize a court of equity to restrain its collection by injunction. There must be a
further showing that there are special circumstances which bring the case under some well
recognized head of equity jurisprudence, such as that irreparable injury, multiplicity of suits,
or a cloud upon title to real estate will result, and also that there is, as we have indicated,
no adequate remedy at law. This is the settled law in the United States, even in the absence
of statutory enactments such as sections 139 and 140. (Nannewinkle vs. Mayor, etc., of
Georgetown, 82 U. S. 547: Indiana Mfg. Co. vs. Koehne, 188 U. S. 681; Ohio Tax Cases,
232 U. S., 576, 587; Pittsburgh C. C. & St. L. R. Co. vs. Board of Public Works, 172 U. S.,
32; Shelton vs. Platt, 139 U. S., 591; State Railroad Tax Cases, 92 U. S. 575.) Therefore,
this branch of the case must be controlled by sections 139 and 140, unless the same be
held unconstitutional, and consequently, null and void."

In the case of Sarasola vs. Trinidad (40 Phil., 252, 256-257) this Court said:

". . . Thus, the Legislature of the State of Tennessee enacted a statute not greatly different
from the Philippine statute, with the exception that the words, 'without interest,' were not
included, and the United States Supreme Court in discussing the law said: 'This remedy is
simple and effective, . . . It is a wise and reasonable precaution for the security of the
government. No government could exist that permitted its collection to be delayed by every
litigious man or every embarrassed man, to whom delay was more important than the
payment of costs.' (State of Tennessee vs. Sneed [1877], 6 Otto, 69. See also 37 Cyc.,
1267, 1268.) Again in the case of Snyder vs. Marks [1883], 109 U. S., 185) the sole object
of the suit was to restrain the collection of a tax which was assessed under the United
States Internal Revenue Laws. The court said: 'The remedy of a suit to recover back the tax
after it is paid, is provided by statute, and a suit to restrain its collection is forbidden. The
remedy so given is exclusive, and no other remedy can be substituted for it."

It is said that the remedy by distraint and levy will cause irreparable injury to the
respondent for it may paralyze her business. The best answer to this contention is the
remark of the Supreme Court in the case of Sarasola vs. Trinidad, supra, quoting Judge
Cooley, a recognized authority on the law of taxation:

"'The force of the third contention must rest in the fact that enforcing the tax may in some
cases compel the suspension of business, because it is more than the person taxed can
afford to pay. But if this consideration is sufficient to justify the transfer of a controversy
from a court of law to a court of equity, then every controversy where money is demanded
may be made the subject of equitable cognizance. To enforce against a dealer a promissory
note may in some cases as effectually break up his business as to collect from him a tax of
equal amount. This is not what is known to the law as irreparable injury. The courts have
never recognized the consequences of the mere enforcement of a money demand as falling
within that category.' Youngblood vs. Sexton [1875], 32 Mich., 406." (p. 258)

In the case of Lorenzo vs. Posadas (64 Phil, 353, 371) this Court said:

"That taxes must be collected promptly is a policy deeply entrenched in our tax system.
Thus, no court is allowed to grant injunction to restrain the collection of any internal
revenue tax (sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252).
In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occasion to
demonstrate trenchant adherence to this policy of the law. It held that 'the fact that on
account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were
prevented from paying their internal revenue taxes on time and by mutual agreement
closed their homes and stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment of the taxes or to accept
them without the additional penalty of twenty five per cent.' (Syllabus, No. 3.) . . . It is of
the utmost importance,' said the Supreme Court of the United States, '. . . that the modes
adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes,
may derange the operations of government, and thereby cause serious detriment to the
public.' (Dows vs. Chicago, 11 Wall., 108, 20 Law. ed., 65, 66; Churchill and Taft vs.
Rafferty, 32 Phil., 580.)"

It has been said that to prohibit the courts from issuing injunctions against the collection of
taxes deprives them of part of their organic or constitutional jurisdiction. In the case of
Churchill vs. Rafferty, supra, it was held:

"3. ID.; ID.; ID.; JURISDICTION OF COURTS. — Nor is such a provision of law invalid as
curtailing the jurisdiction of the courts of the Philippine Islands as fixed by section 9 of the
Organic Act: (a) because jurisdiction was never conferred upon Philippine courts to enjoin
the collection of taxes imposed by the Philippine Commission; and (b) because, in the
present case, another adequate remedy has been provided by payment and protest."
(Syllabus, p. 580)

All the allegations of the respondents to the effect that the dismissal of the criminal case is
res judicata or a bar to the collection by distraint and levy; and that Republic Act No. 55,
known as the War Profits Tax Law, is unconstitutional, should be set forth as part of the
cause of action in the complaint that may be filed against the Collector of Internal Revenue
for recovery of the tax after its payment, but not in an action for prohibition or injunction.

The respondents cite some cases in the United States in which the principle that the
collection of taxes should not be restrained by injunction has been found subject to certain
exceptions. It would be too long to analyze those cases, but as an example, we may take
the typical case found on pages 10 and 11 of the memorandum of the respondent. There it
has been declared that:

"It has never held the rule to be absolute, but has repeatedly indicated that extraordinary
and exceptional circumstances render its provisions inapplicable."

It has not been shown in the present case that extra-ordinary and exceptional
circumstances exist so as to take this case out of the rule. It should be borne in mind that
under the New Deal established by President Franklin D. Roosevelt in the United States,
numerous cases have arisen regarding the validity of taxes in which extraordinary and
exceptional circumstances have been found to exist. In the Philippines no extraordinary and
exceptional circumstances of the magnitude of those occurring in the United States have
existed. On the whole it is believed that we should not disrupt the regular procedure
prescribed by our laws, as uniformly construed by our courts.

In view of the foregoing, the respondent Court of First Instance of Manila is declared without
jurisdiction to proceed with the trial of Civil Case No. 12356 entitled "Maria B. Castro vs.
Saturnino David," and its order dated November 8, 1950, in so far as it orders the
continuation of the proceedings, is set aside. With costs against the respondents. It is so
ordered.

Paras, C.J., Feria, Pablo, Bengzon, Padilla, Tuason, Reyes and Bautista Angelo, JJ., concur.

Sec. 209
9. Azarcon v. Sandiganbayan, G.R. No. 116033, [February 26, 1997]
supra

Sec. 218 Injunction not available to restrain collecton of tax

10. Churchill v. Rafferty, G.R. No. 10572, [December 21, 1915]

EN BANC

[G.R. No. 10572. December 21, 1915.]

FRANCIS A. CHURCHILL and STEWART TAIT, plaintiffs-appellees, vs. JAMES J. RAFFERTY,

Collector of Internal Revenue, defendant-appellant.

Attorney-General Avancena for appellant.

Aitken & DeSelms for appellees.

SYLLABUS

1. CONSTITUTIONAL LAW; SCOPE OF INQUIRY IN TESTING VALIDITY OF A LAW. — Unless

a law be so repugnant to the supreme law that it appears clearly that constitutional
limitations have been overstepped by the legislature, courts should not declare a legislative
enactment invalid. Merely to doubt its validity is to resolve the doubt in favor of its validity.

2. ID.; INTERNAL REVENUE; INJUNCTION TO RESTRAIN COLLECTION OF A TAX. — A

provision in an internal revenue law prohibiting the courts from enjoining the collection of
an internal revenue tax is not invalid as opposed to the "due process" and "equal protection
of the law" clauses of the bill of rights of the Organic Act. Such legislation, both Federal and
State, has been upheld by the United States Supreme Court.
3. ID.; ID.; ID.; JURISDICTION OF COURTS. — Nor is such a provision of law invalid as
curtailing the jurisdiction of the courts of the Philippine Islands as fixed by section 9 of the
Organic Act: (a) because jurisdiction was never conferred upon Philippine courts to enjoin
the collection of taxes imposed by the Philippine Commission; and (b) because, in the
present case, another adequate remedy has been provided by payment and protest.

4. ID.; POLICE POWER; NATURE AND SCOPE IN GENERAL. — If a law relates to the public
health, safety, morals, comfort, or general welfare of the community, it is within the scope
of the police power of the State. Within such bounds the wisdom, expediency, or necessity
of the law does not concern the courts.

5. ID.; ID.; NOT LIMITED TO ANY PARTICULAR SUBJECT. — From whatever direction the
social, economic, or general welfare of the people is menaced, there is legal justification for
the exercise of the police power; and the use of private property may be regulated or
restricted to whatever extent may be necessary to preserve inviolate these declared
essentials to the well being of the public.

6. ID.; ID.; THINGS OFFENSIVE TO THE SENSES OF SMELL OR HEARING. — It has long
been recognized that uses of private property which are offensive to the senses of smell of
hearing may be so regulated or segregated as to disturb as little as possible the pursuits of
other persons.

7. ID., ID.; SIGHT. — It is not the adoption of a new principle but simply the extension of a
well established principle to hold that the police power may also regulate and restrict uses
of private property when devoted to advertising which is offensive to the sight.

8. ID.; ID.; ID.; BILLBOARDS.— The indiscriminate use of outdoor advertising tends to mar
not only natural outdoor landscapes but whatever of civic beauty has been attained by the
expenditure of public moneys for parks, boulevards, and buildings. The widespread agitation
in many European countries, as well as in the United States, against the so-called billboards
— the most common form of this kind of advertising — shows that they are a source of
annoyance and irritation to the public and interfere with the proper enjoyment of outdoor
life by the general public. This justifies their suppression or regulation to the extent that
they interfere with the right of the public.

DECISION

TRENT, J p:

The judgment appealed from in this case perpetually restrains and prohibits the defendant
and his deputies from collecting and enforcing against the plaintiffs and their property the
annual tax mentioned and described in subsection (b) of section 100 of Act No. 2339,
effective July 1, 19]4, and from destroying or removing any sign, signboard, or billboard,
the property of the plaintiffs, for the sole reason that such sign, signboard, or billboard is, or
may be offensive to the sight; and decrees the cancellation of the bond given by the
plaintiffs to secure the issuance of the preliminary injunction granted soon after the
commencement of this action.

This case divides itself into two parts and gives rise to two main questions; (1) that relating
to the power of the court to restrain by injunction the collection of the tax complained of,
and (2) that relating to the validity of those provisions of subsection (b) of section 100 of
Act No. 2339, conferring power upon the Collector of Internal Revenue to remove any sign,
signboard, or billboard upon the ground that the same is offensive to the sight or is
otherwise nuisance.

The first question is one of jurisdiction and is of vital importance to the Government. The
sections of Act No. 2339, which bear directly upon the subject, are 139 and 140. The first
expressly forbids the use of an injunction to stay the collection of any internal revenue tax;
the second provides a remedy for any wrong in connection with such taxes, and this remedy
was intended to be exclusive, thereby precluding the remedy by injunction, which remedy is
claimed to be constitutional. The two sections, then, involve the right of a dissatisfied
taxpayer to use an exceptional remedy to test the validity of any tax or to determine any
other question connected therewith, and the question whether the remedy by injunction is
exceptional.

Preventive remedies of the courts are extraordinary and are not the usual remedies. The
origin and history of the writ of injunction show that it has always been regarded as an
extraordinary, preventive remedy, as distinguished from the common course of the law to
redress evils after they have been consummated. No injunction issues as of course, but is
granted only upon the oath of a party and when there is no adequate remedy at law. The
Government does, by sections 139 and 140, take away the preventive remedy of injunction,
if it ever existed, and leaves the taxpayer, in a contest with it, to the same ordinary
remedial actions which prevail between citizen and citizen. The Attorney-General, on behalf
of the defendant, contends that there is no provisions of the paramount law which prohibits
such a course. While, on the other hand, counsel for plaintiffs urge that the two sections are
unconstitutional because (a) they attempt to deprive aggrieved taxpayers of all substantial
remedy for the protection of their property, thereby, in effect, depriving them of their
property without due process of law; and (b) they attempt to diminish the jurisdiction of the
courts, as conferred upon them by Acts Nos. 136 and 190, which jurisdiction was ratified
and confirmed by the Act of Congress of July 1, 1902.

In the first place, it has been suggested that section 139 does not apply to the tax in
question because the section, in speaking of a "tax," means only legal taxes; and that an
illegal tax (the one complained of) is not a tax, and, therefore, does not fall within the
inhibition of the section, and may be restrained by injunction. There is no force in this
suggestion. The inhibition applies to all internal revenue taxes imposed, or authorized to be
imposed, by Act No. 2339. (Snyder vs. Marks, 109 U. S., 189.) And, furthermore, the mere
fact that a tax is illegal, or that the law, by virtue of which it is imposed, is unconstitutional,
does not authorize a court of equity to restrain its collection by injunction. There must be a
further showing that there are special circumstances which bring the case under some well
recognized head of equity jurisprudence, such as that irreparable injury, multiplicity of suits,
or a cloud upon title to real estate will result, and also that there is, as we have indicated,
no adequate remedy at law. This is the settled law in the United States, even in the absence
of statutory enactments such as sections 139 and 140. (Hannewinkle vs. Mayor, etc., of
Georgetown, 82 U. S., 547; Indiana Mfg. Co. vs. Koehne 188 U. S., 681; Ohio Tax Cases,
232 U. S., 576, 587; Pittsburgh C. C. & St. L. R. Co. vs. Board of Public Works, 172 U. S.,
32; Shelton vs. Platt, 139 U. S., 591; State Railroad Tax Cases, 92 U. S., 575.) Therefore,
this branch of the case must be controlled by sections 139 and 140, unless the same be
held unconstitutional, and consequently, null and void.

"The right and power of judicial tribunals to declare whether enactments of the legislature
exceed the constitutional limitations and are invalid has always been considered a grave
responsibility, as well as a solemn duty. The courts invariably give the most careful
consideration to questions involving the interpretation and application of the Constitution,
and approach constitutional questions with great deliberation, exercising their power in this
respect with the greatest possible caution and even reluctance; and they should never
declare a statute void, unless its invalidity is, in their judgment, beyond reasonable doubt.
To justify a court in pronouncing a legislative act unconstitutional, or a provision of a state
constitution to be in contravention of the Constitution of the United States, the case must
be so clear as to be free from doubt, and the conflict of the statute with the constitution
must be irreconcilable, because it is but a decent respect to the wisdom, the integrity, and
the patriotism of the legislative body by which any law is passed to presume in favor of its
validity until the contrary is shown beyond reasonable doubt. Therefore, in no doubtful case
will the judiciary pronounce a legislative act to be contrary to the constitution. To doubt the
constitutionality of a law is to resolve the doubt in favor of its validity." (6 Ruling Case Law,
secs. 71, 72, and 73, and cases cited therein.)

It is also the settled law in the United States that "due process of law" does not always
require, in respect to the Government, the same process that is required between citizens,
though it generally implies and includes regular allegations, opportunity to answer, and a
trial according to some well settled course of judicial proceedings. The case with which we
are dealing is in point. A citizen's property, both real and personal, may be taken, and
usually is taken, by the government in payment of its taxes without any judicial proceedings
whatever. In this country, as well as in the United States, the officer charged with the
collection of taxes is authorized to seize and sell the property of delinquent taxpayers
without applying to the courts for assist- ance, and the constitutionality of the law
authorizing this procedure never has been seriously questioned. (City of Philadelphia vs.
[Diehl] The Collector, 5 Wall., 720; Nicholl vs. U. S., 7 Wall., 122, and cases cited.) This
must necessarily be the course, because it is upon taxation that the Government chiefly
relies to obtain the means to carry on its operations, and it is of the utmost importance that
the modes adopted to enforce the collection of the taxes levied should be summary and
interfered with as little as possible. No government could exist if every litigious man were
permitted to delay the collection of its taxes. This principle of public policy must be
constantly borne in mind in determining cases such as the one under consideration.

With these principles to guide us, we will proceed to inquire whether there is any merit in
the two propositions insisted upon by counsel for the plaintiffs. Section 5 of the Philippine
Bill provides: "That no law shall be enacted in said Islands which shall deprive any person of
life, liberty, or property without due process of law, or deny to any person therein the equal
protection of the law."

The origin and history of these provisions are well-known. They are found in substance in
the Constitution of the United States and in that of every state in the Union.

Section 3224 of the Revised Statutes of the United States, effective since 1867, provides
that: "No suit for the purpose of restraining the assessment or collection of any tax shall be
maintained in any court."

Section 139, with which we have been dealing, reads: "No court shall have authority to
grant an injunction to restrain the collection of any internal-revenue tax."

A comparison of these two sections show that they are essentially the same. Both expressly
prohibit the restraining of taxes by injunction. If the Supreme Court of the United States
has clearly and definitely held that the pro- visions of section 3224 do not violate the "due
process of law" and "equal protection of the law" clauses in the Constitution, we would be
going too far to hold that section 139 violates those same provisions in the Philippine Bill.
That the Supreme Court of the United States has so held, cannot be doubted.
In Cheatham vs. United States (92 U. S., 85, 89) which involved the validity of an income
tax levied by an act of Congress prior to the one in issue in the case of Pollock vs. Farmers'
Loan & Trust Co. (157 U. S., 429) the court, through Mr. Justice Miller, said: "If there
existed in the courts, state or National, any general power of impeding or controlling the
collection of taxes, or relieving the hardship incident to taxation, the very existence of the
government might be placed in the power of a hostile judiciary. (Dows vs. The City of
Chicago, 11 Wall., 108.) While a free course of remonstrance and appeal is allowed within
the departments before the money is finally exacted, the General Government has wisely
made the payment of the tax claimed, whether of customs or of internal revenue, a
condition precedent to a resort to the courts by the parts against whom the tax is assessed.
In the internal revenue branch it has further prescribed that no such suit shall be brought
until the remedy by appeal has been tried; and, if brought after this, it must be within six
months after the decision on the appeal. We regard this as a condition on which alone the
government consents to litigate the lawfulness of the original tax. It is not a hard condition.
Few governments have conceded such a right on any condition. If the compliance with this
condition requires the party aggrieved to pay the money, he must do it."

Again, in State Railroad Tax Cases (92 U. S., 575, 613), the court said: "That there might
be no misunderstanding of the universality of this principle, it was expressly enacted, in
1867, that 'no suit for the purpose of restraining the assessment or collection of any tax
shall be maintained in any court.' (Rev. Stat., sec. 3224.) And though this was intended to
apply alone to taxes levied by the United States, it shows the sense of Congress of the evils
to be feared if courts of justice could, in any case, interfere with the process of collecting
taxes on which the government depends for its continued existence. It is a wise policy. It is
founded in the simple philosophy derived from the experience of ages, that the payment of
taxes has to be enforced by summary and stringent means against a reluctant and often
adverse sentiment; and to do this successfully, other instrumentalities and other modes of
procedure are necessary, than those which belong to courts of justice."

And again, in Snyder vs. Marks (109 U. S., 189), the court said: "The remedy of a suit to
recover back the tax after it is paid is provided by statute, and a suit to restrain its
collection i,. forbidden. The remedy so given is exclusive, and no other remedy can be
substituted for it. Such has been the current of decisions in the Circuit Courts of the United
States, and we are satisfied it is a correct view of the law."

In the consideration of the plaintiffs' second proposition, we will attempt to show (1) that
the Philippine courts never have had, since the American occupation, the power to restrain
by injunction the collection of any tax imposed by the Insular Government for its own
purpose and benefit, and (2) that assuming that our courts had or have such power, this
power has not been diminished or curtailed by sections 139 and 140.

We will first review briefly the former and present systems of taxation. Upon the American
occupation of the Philippines, there was found a fairly complete system of taxation. This
system was continued in force by the mili- tary authorities, with but few changes, until the
Civil Government assumed charge of the subject. The principal sources of revenue under
the Spanish regime were derived from customs receipts, the so-called industrial taxes, the
urbana taxes, the stamp tax, the personal cedula tax, and the sale of the public domain.
The industrial and urbana taxes constituted practically an income tax of some 5 per cent on
the net income of persons engaged in industrial and commercial pursuits and on the income
of owners of improved city property. The sale of stamped paper and adhesive stamps, which
the law required to be used, constituted the stamp tax. The cedula tax was a graduated tax,
ranging from nothing up to P37.50. The revenue derived from the sale of the public domain
was not considered a tax. The American authorities at once abolished the cedula tax, but
later restored it in a modified form, charging for each cedula twenty centavos, an amount
which was supposed to be just sufficient to cover the cost of issuance. The urbana tax was
abolished by Act No. 223, effective September 6, 1901.

The "Municipal Code" (Act No. 82) and the Provincial Government Act (No. 83), both
enacted in 1901, authorize municipal councils and provincial boards to impose an ad
valorem tax on real estate. The Municipal Code did not apply to the city of Manila. This city
was given a special charter (Act No. 183), effective August 30, 1901. Under this charter the
Municipal Board of Manila is authorized and empowered to impose taxes upon real estate
and, like municipal councils, to license and regulate certain occupations. Customs matters
were completely reorganized by Act No. 355, effective at the port of Manila on February 7,
1902, and at other ports in the Philippine Islands the day after the receipt of a certified copy
of the Act. The Internal Revenue Law of 1904 (Act No. 1189), repealed all existing laws,
ordinances, etc., imposing taxes upon the persons, objects, or occupations taxed under that
act, and all industrial taxes and stamp taxes imposed under the Spanish regime were
eliminated, but the industrial tax was continued in force until January 1, 1905. This Internal
Revenue Law did not take away from municipal councils, provincial boards, and the
Municipal Board of the city of Manila the power to impose taxes upon real estate. This Act
(No. 1189), with its amendments, was repealed by Act No. 2339, an act "revising and
consolidating the laws relative to internal revenue."

Section 84 of Act No. 82 provides that "No court shall entertain any suit assailing the
validity of a tax assessed under this act until the taxpayer shall have paid, under protest,
the taxes assessed against him, . . . ."

This inhibition was inserted in section 17 of Act No. 83 and applies to taxes imposed by
provincial boards. The inhibition was not inserted in the Manila Charter until the passage of
Act No. 1793, effective October 12, 1907. Act No. 355 expressly makes the payment of the
exactions claimed a condition precedent to a resort to the courts by dissatisfied importers.
Section 52 of Act No. 1189 provides "That no courts shall have authority to grant an
injunction restraining the collection of any taxes imposed by virtue of the provisions of this
Act, but the remedy of the taxpayer who claims that he is unjustly assessed or taxed shall
be by payment under protest of the sum claimed from him by the Collector of Internal
Revenue and by action to recover back the sum claimed to have been illegally collected."

Sections 139 and 140 of Act No. 2339 contain, as we have indicated, the same prohibition
and remedy. The result is that the courts have been expressly forbidden, in every act
creating or imposing taxes or imposts enacted by the legislative body of the Philippines
since the American occupation, to entertain any suit assailing the validity of any tax or
impost thus imposed until the tax shall have been paid under protest. The only taxes which
have not been brought within the express inhibition were those included in that part of the
old Spanish system which completely disappeared on or before January 1, 1905, and
possibly the old customs duties which disappeared in February, 1902.

Section 56 of the Organic Act (No. 136), effective June 16, 19019 provides that "Courts of
First Instance shall have original jurisdiction:

xxx xxx xxx

"2. In all civil actions which involve the . . . legality of any tax, impost, or assessment, . . .
"7. Said courts and their judges, or any of them, shall have power to issue writs of
injunction, mandamus, certiorary, prohibition, quo warranto, and habeas corpus in their
respective provinces and districts, in the manner provided in the Code of Civil Procedure."

The provisions of the Code of Civil Procedure (Act No. 190), effective October 1, 1901,
which deals with the subject of injunctions, are sections 162 to 172, inclusive. Injunctions,
as here defined, are of two kinds; preliminary and final. The former may be granted at any
time after the commencement of the action and before final judgment, and the latter at the
termination of the trial as the relief or part of the relief prayed for (sec. 162). Any judge of
the Supreme Court may grant a preliminary injunction in any action pending in that court or
in any Court of First Instance. A preliminary injunction may also be granted by a judge of
the Court of First Instance in actions pending in his district in which he has original
jurisdiction (sec. 163). But such injunctions may be granted only when the complaint shows
facts entitling the plaintiff to the relief demanded (sec. 166), and before a final or
permanent injunction can be granted, it must appear upon the trial of the action that the
plaintiff is entitled to have commission or continuance of the acts complained of perpetually
restrained (sec. 171). These provisions authorize the institution in Courts of First Instance
of what are known as "injunction suits," the sole object of which is to obtain the issuance of
final injunction. They alos authorize the granting of injunctions as aiders in ordinary civil
actions. We have defined in Devesa vs. Arbes (13 Phil Rep., 273), an injunction to be "A
'special remedy' adopted in that code (Act 190) from American practice, and originally
borrowed from English legal procedure, which was there issued by the authority and under
the seal of a court of equity, and limited, as in other cases where equitable relief is sought,
to those cases where there is no 'plain, adequate, and complete remedy at law,' which will
not be granted while the rights between the parties are undetermined, except in
extraordinary cases where material and irreparable in- jury will be done,' which cannot be
compensated in damages . . . "

By paragraph 2 of section 56 of Act No. 136, supra, and the provisions of the various
subsequent Acts heretofore mentioned, the Insular Government has consented to litigate
with aggrieved persons the validity of any original tax or impost imposed by it on condition
that this be done in ordinary civil actions after the taxes or exactions shall have been paid.
But it is said that paragraph 2 confers original jurisdiction upon Courts of First Instance to
hear and determine "all civil actions" which involve the validity of any tax, impost or
assessment, and that if the all-inclusive words "all" and "any" be given their natural and
unrestricted meaning, no action wherein that question is involved can arise over which such
courts do not have jurisdiction. (Barrameda vs. Moir, 25 Phil. Rep., 44.) This is true. But the
term "civil actions" had its well defined meaning at the time the paragraph was enacted.
The same legislative body which enacted paragraph 2 on June 16, 1901, had, just a few
months prior to that time, defined the only kind of action in which the legality of any tax
imposed by it might be assailed. (Sec. 84, Act 82, enacted January 31, 1901, and sec. 17,
Act No. 83, enacted February 6, 1901.) That kind of action being payment of the tax under
protest and an ordinary suit to recover and no other, there can be no doubt that Courts of
First Instance have jurisdiction over all such actions. The subsequent legislation on the
same subject shows clearly that the Commission, in enacting paragraph 2, supra, did not
intend to change or modify in any way section 84 of Act No. 82 and section 17 of Act No.
83, but, on the contrary, it was intended that "civil actions," mentioned in said paragraph,
should be understood to mean, in so far as testing the legality of taxes were concerned,
only those of the kind and character provided for in two sections above mentioned. It is also
urged that the power to restrain by injunction the collection of taxes of imposts is conferred
upon Courts of First Instance by paragraph 7 of section 56, supra. This paragraph does
empower those courts to grant injunctions, both preliminary and final, in any civil action
pending in their districts, provided always, that the complaint shows facts entitling the
plaintiff to the relief demanded. injunction suits, such as the one at bar, are "civil actions,"
but of a special or extraordinary character. It cannot be said that the Commission intended
to give a broader or different meaning to the word "action," used in Chapter 9 of the Code
of Civil Procedure in connection with injunctions, than it gave to the same word found in
paragraph 2 of section 56 of the Organic Act. The Insular Government, in exercising the
power conferred upon it by the Congress of the United States, has declared that the citizens
and residents of this country shall pay certain specified taxes and imposts. The power to tax
necessarily carries with it the power to collect the taxes. This being true, the weight of
authority supports the proposition that the Government may fix the conditions upon which it
will consent to litigate the validity of its original taxes. (Tenessee vs. Sneed, 96 U.S., 69.)

We must, therefore, conclude that paragraphs 2 and 7 of section 56 of Act No. 136,
construed in the light of the prior and subsequent legislation to which we have referred, and
the legislative and judicial history of the same subject in the United States with which the
Commission was familiar, do not empower Courts of First Instance to interfere by injunction
with the collection of the taxes in question in this case.

If we are in error as to the scope of paragraphs 2 and 7, supra, and the Commission did
intend to confer the power upon the courts to restrain the collection of taxes, it does not
necessarily follow that this power or jurisdiction has been taken away by section 139 of Act
No. 2339, for the reason that all agree that an injunction will not issue in any case if there is
an adequate remedy at law. The very nature of the writ itself prevents its issuance under
such circumstances. Legislation forbidding the issuing of injunctions in such cases is
unnecessary. So the only to be here determined is whether the remedy provided for in
section 140 of Act 2339 is adequate. If it is, the writs which form the basis of this appeal
should not have been issued. If this is the correct view, the authority to issue injunctions
will not have been taken away by section 139, but rendered inoperative only by reason of
an adequate remedy having been made available.

The legislative body of the Philippine Islands has declared from the beginning (Act No. 82)
that payment under protest and suit to recover is an adequate remedy to test the legality of
any tax or impost, and that this remedy is exclusive. Can we say that the remedy is not
adequate or that it is not exclusive, or both? The plaintiffs in the case at bar are the first, in
so far as we are, to question either the adequacy or exclusiveness of this remedy. We will
refer to a few cases in the United States where statutes similar to sections 139 and 140
have been construed and applied.

In May, 1874, one Bloomstein presented a petition to the circuit court, sitting in Nashville,
Tennessee, stating that his real and personal property had been assessed for state taxes in
the year 1872 to the amount of $132.60; that he tendered to the collector this amount in
"funds receivable by law for such purposes; and that the collector refused to receive the
same. He prayed for an alternative writ of mandamus to compel the collector to receive the
bills in payment for such taxes, or to show cause to the contrary. To this petition the
collector, in his answer, set up the defense that the petitioner's suit was expressly
prohibited by the Act of the General Assembly of the State of Tennessee, passed in 1873.
The petition was dismissed and the relief prayed for refused. An appeal to the supreme
court of the State resulted in the affirmance of the judgment of the lower court. The case
was then carried to the Supreme Court of the United States (Tennessee vs. Sneed, 96 U. S.,
69), where the judgment was again affirmed.

The two sections of the Act of [March 21,] 1873, drawn in question in that case, read as
follows:
"1. That in all cases in which an officer, charged by law with the collection of revenue due
the State, shall institute any proceeding, or take any steps for the collection of the same,
alleged or claimed to be due by said officer from any citizen, the party against whom the
proceeding or step is taken shall, if he conceives the same to be unjust or illegal, or against
any statute or clause of the Constitution of the State, pay the same under protest; and,
upon his making said payment, the officer or collector shall pay such revenue into the State
Treasury, giving notice at the time of payment to the Comptroller that the same was paid
under protest; and the party paying said revenue may, at any time within thirty days after
making said payment, and not longer thereafter, sue the said officer having collected said
sum, for the recovery thereof. And the same may be tried in any court having the
jurisdiction of the amount and parties; and, if it be determined that the same was
wrongfully collected, as not being due from said party to the State, for any reason going to
the merits of the same, then the court trying the case may certify of record that the same
was wrongfully paid and ought to be refunded; and thereupon the Comptroller shall issue
his warrant for the same, which shall be paid in preference to other claims on the Treasury.

"2. That there shall be no other remedy, in any case of the collection of revenue, or attempt
to collect revenue illegally, or attempt to collect revenue in funds only receivable by said
officer under the law, the same being other or different funds than such as the tax payer
may tender, or claim the right to pay, than that above provided; and no writ for the
prevention of the collection of any revenue claimed, or to hinder or delay the collection of
the game, shall in anywise issue, either injunction, supersedeas, prohibition, or any other
writ or process whatever; but in all cases in which, for any reason, any person shall claim
that the tax so collected was wrongfully or illegally collected, the remedy for said party shall
be as above provided, and in no other manner."

In discussing the adequacy of the remedy provided by the Tennessee Legislature, as above
set forth, the Supreme Court of the United States, in the case just cited, said: "This remedy
is simple and effective. A suit at law to recover money unlawfully exacted is as speedy, as
easily tried, and less complicated than a proceeding by mandamus. . . . In revenue cases,
whether arising upon its (United States) Internal Revenue Laws or those providing for the
collection of duties upon foreign imports, it (United States) adopts the rule prescribed by
the State of Tennes- see. It requires the contestant to pay the amount as fixed by the
Government, and gives him power to sue the collector, and in such suit to test the legality
of' the tax. There is nothing illegal or even harsh in this. It is a wise and reasonable
precaution for the security of the Government."

Thomas C. Platt commenced an action in the Circuit Court of the United States for the
Eastern District of Tennessee to restrain the collection of a license tax from the company
which he represented. The defense was that sections 1 and 2 of the Act of 1873, supra,
prohibited the bringing of that suit. This case also reached the Supreme Court of the United
States. (Shelton vs. Platt, 159 U. S., 591.) In speaking of the inhibitory provisions of
sections 1 and 2 of the Act of 1873, the court said: "This Act has been sanctioned and
applied by the Courts of Tennessee. (Nashville vs. Smith, 86 Tenn., 213; Louisville & N. R.
Co. vs. State, 8 Heisk., 663, 804.) It is, as counsel observe, similar to the Act of Congress
forbidding suit for the purpose of restraining the assessment or collection of taxes under the
Internal Revenue Laws, in respect to which this court held that the remedy by suit to
recover back the tax after payment, provided for by the Statute, was exclusive, (Snyder vs.
Marks, 109 U. S., 189 [27:901]; 14 Stat., 152, 475.) Legislation of this character has been
called for by the embarrassments resulting from the improvident employment of the writ of
injunction in arresting the collection of the public revenue; and, even in its absence, the
strong arm of the court of chancery ought not to be interposed in that direction except
where resort to that court is grounded upon the settled principles which govern its
jurisdiction."

In Louisville & N. R. R. Co. vs. State (8 Heisk. [64 Tenn.], 663, 804), cited by the Supreme
Court of the United States in Shelton vs. Platt, supra, the court said: "It was urged that this
statute (sections 1 and 2 of the Act of 1873, supra) is unconstitutional and void, as it
deprives the citizen of the remedy by certiorari, guaranteed by the organic law."

By the 10th section of the sixth article of the Constitution, [Tennessee] it is provided that:
"The judges or justices of inferior courts of law and equity shall have power in all civil cases
to issue writs of certiorari, to remove any cause, or the transcript of the record thereof,
from any inferior jurisdiction into such court of law, on sufficient cause, supported by oath
or affirmation."

The court held the act valid as not being in conflict with these provisions of the State
constitution.

In Eddy vs. The Township of Lee (73 Mich., 123), the complainants sought to enjoin the
collection of certain taxes for the year 1886. The defendants, in support of their demurrer,
insisted that the remedy by injunction had been taken away by section 107 of the Act of
1885, which section reads as follows: "No injunction shall issue to stay proceedings for the
assessment or collection of taxes under this Act."

It was claimed by the complainants that the above quoted provisions of the Act of 1885
were unconstitutional and void as being in conflict with article 6, sec. 8, of the Constitution.
which provides that: "The circuit courts shall have original jurisdiction in all matters, civil
and criminal, not excepted in this Constitution, and not prohibited by law. . . . They shall
also have power to issue writs of habeas corpus, mandamus, injunction, quo warranto,
certiorari, and other writs necessary to carry into effect their orders, judgments, and
decrees."

Mr. Justice Champlin, speaking for the court, said: "I have no doubt that the Legislature has
the constitutional authority, where it has provided a plain, adequate, and complete remedy
at law to recover back taxes illegally assessed and collected, to take away the remedy by
injunction to restrain their collection."

Section 9 of the Philippine Bill reads in part as follows: "That the Supreme Court and the
Courts of First Instance of the Philippine Islands shall possess and exercise jurisdiction as
heretofore provided and such additional jurisdiction as shall hereafter be prescribed by the
Government of said Islands, subject to the power of said Government to change the practice
and method of procedure."

It will be seen that this section has not taken away from the Philippine Government the
power to change the practice and method of procedure. If sections 139 and 140, considered
together, and this must always be done, are nothing more than a mode of procedure, then
it would seem that he Legislature did not exceed its constitutional authority in enacting
them. Conceding for the moment that the duly authorized procedure for the determination
of the validity of any tax, impost, or assessment was by injunction suits and that this
method was available to aggrieved taxpayers prior to the passage of Act No. 2339, may the
Legislature change this method of procedure ? That the Legislature has the power to do
this, there can be no doubt, provided some other adequate remedy is substituted in lieu
thereof. In speaking of the modes of enforcing rights created by contracts, the Supreme
Court of the United States, in Tennessee vs. Sneed. supra, said: "The rule seems to be that
in modes of proceeding and of forms to enforce the contract the Legislature has the control,
and may enlarge, limit or alter them, provided that it does not deny a remedy, or so
embarrass it with conditions and restrictions as seriously to impair the value of the right."

In that case the petitioner urged that the Acts of 1873 were laws impairing the obligation of
the contract contained in the charter of the Bank of Tennessee, which contract was entered
into with the State in 1838. It was claimed that this was done by placing such impediments
and obstructions in the way of its enforcement, thereby so impairing the remedies as
practically to render the obligation of no value. In disposing of this contention, the court
said: "If we assume that prior to 1873 the relator had authority to prosecute his claim
against the State by mandamus, and that by the statutes of that year the further use of
that form was prohibited to him, the question remains, whether an effectual remedy was
left to him or provided for him. We think the regulation of the statute gave him an abundant
means of enforcing such right as he possessed. It provided that he might pay his claim to
the collector under protest, giving notice thereof to the Comptroller of the Treasury; that at
any time within thirty days thereafter he might sue the officer making the collection; that
the case should be tried by any court having jurisdiction and, if found in favor of the plaintiff
on the merits, the court should certify that the same was wrongfully paid and ought to be
refunded and the Comptroller should thereupon issue his warrant therefor, which should be
paid in preference to other claims on the Treasury."

But great stress is laid upon the fact that the plaintiffs in the case under consideration are
unable to pay the taxes assessed against them and that if the law is enforced, they will be
compelled to suspend business. This point may be best answered by quoting from the case
of Youngblood vs. Sexton (32 Mich., 406), wherein Judge Cooley, speaking for the court,
said: "But if this consideration is sufficient to justify the transfer of a controversy from a
court of law a court of equity, then every controversy where money is demanded may be
made the subject of equitable cognizance. To enforce against a dealer a promissory note
may in some cases as effectually break up his business as to collect from him a tax of equal
amount. This is not what is known to the law as irreparable injury. The courts have never
recognized the consequences of the mere enforcement of a money demand as falling within
that category."

Certain specified sections of Act No. 2339 were amended by Act No. 2432, enacted
December 23, 1914, effective January 1, 1915, by imposing increased and additional taxes.
Act No. 2432 was amended by Act No. 2445. Taxes imposed by Act No. 2432, as amended,
were ratified by the Congress of the United States on March 4, 1915. The opposition
manifested against the taxes imposed by Acts Nos. 2339 and 2432 is a matter of local
history. A great many businessmen thought the taxes thus imposed were too high. If the
collection of the new taxes on signs, signboards, and billboards may be restrained, we see
no well-founded reason why injunctions cannot be granted restraining the collection of all or
at least a number of the other increased taxes. The fact that this may be done, shows the
wisdom of the Legislature in denying the use of the writ of injunction to restrain the
collection of any tax imposed by the Acts. When this was done, an equitable remedy was
made available to all dissatisfied taxpayers.

The question now arises whether, the case being one of which the court below had no
jurisdiction, this court, on appeal, shall proceed to express an opinion upon the validity of
provisions of subsection (b) of section 100 of Act No. 2339, imposing the taxes complained
of. As a general rule, an opinion of the merits of a controversy ought to be declined when
the court is powerless to give the relief demanded. But it is claimed that this case is, in
many particulars, exceptional. It is true that it has been argued on the merits, and there is
no reason for any suggestion or suspicion that it is not a bona fide controversy. The legal
points involved in the merits have been presented with force, clearness, and great ability by
the learned counsel of both sides. If the law assailed were still in force, we would feel that
an opinion on its validity would be justifiable, but, as the amendment became effective on
January 1, 1915, we think it advisable to proceed no further with this branch of the case.

The next question arises in connection with the supplementary complaint, the object of
which is to enjoin the Collector of Internal Revenue from removing certain billboards, the
property of the plaintiffs located upon private lands in the Province of Rizal. The plaintiffs
allege that the bill- boards here in question "in no sense constitute a nuisance and are not
deleterious to the health, morals, or general welfare of the community, or of any persons."
The defendant denies these allegations in his answer and claims that after due investigation
made upon the complaints of the British and German Consuls, he "decided that the billboard
complained of was and still is offensive to the sight, and is otherwise a nuisance." The
plaintiffs proved by Mr. Churchill that the "billboards were quite a distance from the road
and that they were strongly built, not dangerous to the safety of the people, and contained
no advertising matter which is filthy, indecent, or deleterious to the morals of the
community." The defendant presented no testimony upon this point. In the agreed
statement of facts submitted by the parties, the plaintiffs "admit that the billboards
mentioned were and still are offensive to the sight."

The pertinent provisions of subsection (b) of section 100 of Act No. 2339 read: "If after due
investigation the Collector of Internal Revenue shall decide that any sign, signboard, or
billboard displayed or exposed to public view is offensive to the sight or is otherwise a
nuisance, he may by summary order direct the removal of such sign, signboard, or
billboard, and if same is not removed within ten days after he has issued such order he may
himself cause its removal, and the sign, signboard, or billboard shall thereupon be forfeited
to the Government, and the owner thereof charged with the expenses of the removal so
effected. When the sign, signboard, or billboard ordered to be removed as herein provided
shall not comply with the provisions of the general regulations of the Collector of Internal
Revenue, no rebate or refund shall be allowed for any portion of a year for which the taxes
may have been paid. Otherwise, the Collector of Internal Revenue may in his discretion
make a proportionate refund of the tax for the portion of the year remaining for which the
taxes were paid. An appeal may be had from the order of the Collector of Internal Revenue
to the Secretary of Finance and Justice whose decision thereon shall be final."

The Attorney-General, on behalf of the defendant, says: "The question which the case
presents under this head for determination, resolves itself into this inquiry: Is the
suppression of advertising signs displayed or exposed to public view, which are admittedly
offensive to the sight, conducive to the public interest?"

And counsel for the plaintiffs states the question thus: "We contend that portion of section
100 of Act No. 2339, empowering the Collector of Internal Revenue to remove billboards as
nuisances, if objectionable to the sight, is unconstitutional, as constituting a deprivation of
property without due process of law."

From the position taken by counsel for both sides, it is clear that our inquiry is limited to the
question whether the enactment assailed by the plaintiffs was a legitimate exercise of the
police power of the Government; for all property is held subject to that power.

As a consequence of the foregoing, all discussion and authorities cited, which go to the
power of the state to authorize administrative officers to find, as a fact, that legitimate
trades, callings, and businesses are, under certain circumstances, statutory nuisances, and
whether the procedure prescribed for this purpose is due process of law, are foreign to the
issue here presented.

There can be no doubt that the exercise of the police power of the Philippine Government
belongs to the Legislature and that this power is limited only by the Acts of Congress and
those fundamental principles which lie at the foundation of all republican forms of
government. An Act of the Legislature which is obviously and undoubtedly foreign to any of
the purposes of the police power and interferes with the ordinary enjoyment of property
would, without doubt, be held to be invalid. But where the Act is reasonably within a proper
consideration of and care for the public health, safety, or comfort, it should not be disturbed
by the courts. The courts cannot substitute their own views for what is proper in the
premises for those of the Legislature. In Munn vs. Illinois (94 U. S., 113), the United States
Supreme Court states the rule thus: "If no state of circumstances could exist to justify such
statute, then we may declare this one void because in excess of the legislative power of this
state; but if it could, we must presume it did. Of the propriety of legislative interference,
within the scope of the legislative power, a legislature is the exclusive judge."

This rule is very fully discussed and declared in Powell vs. Pennsylvania (127 U. S., 678) —
the "oleo-margarine" case. (See also Crowley vs. Christensen, 137 U. S., 86, 87; Camfield
vs. U. S., 167 U. S., 518.) While the state may interfere wherever the public interests
demand it, and in this particular a large discretion is necessarily vested in the legislature to
determine, not only what the interest of the public require, but what measures are
necessary for the protection of such interests; yet, its determination in these matters is not
final or conclusive, but is subject to the supervision of the courts. (Lawton vs. Steele, 152
U. S., 133.) Can it be said judicially that signs, signboards, and billboards, which are
admittedly offensive to the sight, are not with the category of things which interfere with
the public safety, welfare, and comfort, and therefore beyond the reach of the police power
of the Philippine Government?

The numerous attempts which have been made to limit by definition the scope of the police
power are only interesting as illustrating its rapid extension within comparatively recent
years to points heretofore deemed entirely within the field of private liberty and property
rights. Blackstone's definition of the police power was as follows: "The due regulation and
domestic order of the kingdom, whereby the individuals of the state, like members of a well
governed family, are bound to conform their general behavior to the rules of propriety, good
neighborhood, and good manners, to be decent, industrious, and inoffensive in their
respective stations." (Commentaries, vol. 4, p. 162.)

Chanceller Kent considered the police power the authority of the state "to regulate
unwholesome trades, slaughter houses, operations offensive to the senses." Chief Justice
Shaw of Massachusetts defined it as follows: "The power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws,
statutes, and ordinances, either with penalties or without, not repugnant to the constitution,
as they shall judge to be for the good and welfare of the commonwealth, and of the
subjects of the same." (Com. vs. Alger, 7 Cush., 53.)

In the case of Butchers' Union Slaughter-house, etc. Co. vs. Crescent City Live Stock
Landing, etc. Co. (111 U. S., 746), it was suggested that the public health and public morals
are matters of legislative concern of which the legislature cannot divest itself. (See State vs.
Mountain Timber Co. [1913], 75 Wash., 581, where these definitions are collated.)
In Champer vs. Greencastle (138 Ind., 339), it was said: "The police power of the State, so
far, has not received a full and complete definition. It may be said, however, to be the right
of the State, or state functionary, to prescribe regulations for the good order, peace, health,
protection, comfort, convenience and morals of the community, which do not . . . violate
any of the provisions of the organic law." (Quoted with approval in Hopkins vs. Rich- mond
[Va., 1915], 86 S. E., 139.)

In Com. vs. Plymouth Coal Co. ([1911] 232 Pa., 141), it was said: "The police power of the
state is difficult of definition, but it has been held by the courts to be the right to prescribe
regulations for the good order, peace, health, protection, comfort, convenience and morals
of the community, which does not encroach on a like power vested in congress or state
legislatures by the federal constitution, or does not violate the provisions of the organic law;
and it has been expressly held that the fourteenth amendment to the federal constitution
was not designed to interfere with the exercise of that power by the state."

In People vs. Brazee ([Mich., 1914], 149 N. W., 1053), it was said: "It [the police power]
has for its object the improvement of social and economic conditions affecting the
community at large and collectively with a view to bring about 'the greatest good of the
greatest number.' Courts have consistently and wisely declined to set any fixed limitations
upon subjects calling for the exercise of this power. It is elastic and is exercised from time
to time as varying social conditions demand correction."

In 8 Cyc., 863, it is said: "Police power is the name given to that inherent sovereignty which
it is the right and duty of the government or its agents to exercise whenever public policy,
in a broad sense, demands, for the benefit of society at large, regulations to guard its
morals, safety, health, order or to insure in any respect such economic conditions as an
advancing civilization of a high complex character requires." (As quoted with approval in
Stettler vs. O'Hara [19141, 69 Ore, 519.)

Finally, the Supreme Court of the United States has said in Noble State Bank vs. Haskell
(219 U. S. C1911], 575): "It may be said in a general way that the police power extends to
all the great public needs. It may be put forth in aid of what is sanctioned by usage, or held
by the prevailing morality or strong and preponderart opinion to be greatly and immediately
necessary to the public welfare."

This statement, recent as it is, has been quoted with approval by several courts.
(Cunningham vs. Northwestern Imp. Co. [1911], 44 Mont., 180; State vs. Mountain Timber
Co. [1913], 75 Wash, 581; McDavid vs. Bank of Bas Minette [Ala., 1915], 69 Sou., 452;
Hopkins vs. City of Richmond [Va., 1915], 86 S. E., 139; State vs. Philipps [Miss. 1915], 67
Sou., 651.)

It was said in Com. vs. Alger (7 Cush., 53, 85), per Shaw, C. J., that: "It is much easier to
perceive and realize the existence and sources of this police power than to mark its
boundaries, or to prescribe limits to its exercise." In Stone vs. Mississippi (101 U. S., 814),
it was said: "Many attempts have been made in this court and elsewhere to define the
police power, but never with entire success. It is always easier to determine whether a
particular case comes within the general scope of the power, than to give an abstract
definition of the power itself, which will be in all respects accurate."

Other courts have held the same view of efforts to evolve a satisfactory definition of the
police power. Manifestly, definitions which fail to anticipate cases properly within the scope
of the police power are deficient. It is necessary, therefore, to confine our discussion to the
principle involved and determine whether the cases as they come up are within that
principle. The basic idea of civil polity in the United States is that government should
interfere with individual effort only to the extent necessary to preserve a healthy social and
economic condition of the country. State interference with the use of private property may
be exercised in three ways. First, through the power of taxation, second, through the power
of eminent domain, and third, through the police power. By the first method it is assumed
that the individual receives the equivalent of the tax in the form of protection and benefit he
receives from the government as such. By the second method he receives the market value
of the property taken from him. But under the third method the benefits he derives are only
such as may arise from the maintenance of a healthy economic standard of society and is
often referred to as damnum absgue injuria. (Com. vs. Plymouth Coal Co. 232 Pa., 141,
Bemis vs. Guirl Drainage Co., 182 Ind., 36.) There was a time when state interference with
the use of private property under the guise of the police power was practically confined to
the suppression of common nuisances. At the present day, however, industry is organized
along lines which make it possible for large combinations of capital to profit at the expense
of the socio-economic progress of the nation by controlling prices and dictating to industrial
workers wages and conditions of labor. Not only this but the universal use of mechanical
contrivances by producers and common carriers has enormously increased the toll of human
life and limb in the production and distribution of consumption goods. To the extent that
these businesses affect not only the public health, safety, and morals, but also the general
social and economic life of the nation, it has been and will continue to be necessary for the
state to interfere by regulation. By so doing, it is true that the enjoyment of private
property is interfered with in no small degree and in ways that would have been considered
entirely unnecessary in years gone by. The regulation of rates charged by common carriers,
for instance, or the limitation of hours of work in industrial establishments have only a very
indirect bearing upon the public health, safety, and morals, but do bear directly upon social
and economic conditions. To permit each individual unit of society to feel that his industry
will bring a fair return; to see that his work shall be done under conditions that will not
either immediately or eventually ruin his health; to prevent the artificial inflation of prices of
the things which are necessary for his physical well being are matters which the individual is
no longer capable of attending to himself. It is within the province of the police power to
render assistance to the people to the extent that may be necessary to safeguard these
rights. Hence, laws providing for the regulation of wages and hours of labor of coal miners
(Rail & River Coal Co. vs. Ohio Industrial Commission, 236 U. S., 338); prohibiting the
payment of wages in company store orders (Keokee Coke Co. vs. Taylor, 234 U. S., 224);
requiring payment of employees of railroads and other industrial concerns in legal tender
and requiring salaries to be paid semimonthly (Erie R. R. Co. vs. Williams, 233 U. S., 685);
providing a maximum number of hours of labor for women (Miller vs. Wilson, U. S. Sup. Ct.
[Feb. 23, 1915], Adv. Opns., p. 342); prohibiting child labor (Sturges & Burn vs.
Beauchamp, 231 U. S., 320); restricting the hours of labor in public laundries (In re Wong
Wing, 167 Cal., 109); limiting hours of labor in industrial establishment generally (State vs.
Bunting, 71 Ore., 259); Sunday Closing Laws (State vs. Nicholls [Ore., 1915], 151 Pac.,
473; People vs. C. Klinck Packing Co. [N. Y., 1915], 108 N. E., 278; Hiller vs. State [Md.,
1914], 92 Atl., 842; State vs. Penny, 42 Mont., 118; City of Springfield vs. Richter, 257 Ill.,
578, 580; State vs. Hondros [S. C., 1915], 84 S. E., 781); have all been upheld as a valid
exercise of the police power. Again, workmen's compensation laws have been quite
generally upheld. These statutes discard the common law theory that employers are not
liable for industrial accidents and make them responsible for all accidents resulting from
trade risks, it being considered that such accidents are a legitimate charge against
production and that the employer by controlling the prices of his product may shift the
burden to the community. Laws requiring state banks to join in establishing a depositors'
guarantee fund have also been upheld by the Federal Supreme Court in Noble State Bank
vs. Haskell (219 U. S., 104), and Assaria State Bank vs. Dolley (219 U. S., 121).
Offensive noises and smells have been for a long time considered susceptible of suppression
in thickly populated districts. Barring livery stables from such locations was approved of in
Reinman vs. Little Rock (U. S. Sup. Ct. [Apr. 5, 1915], U. S. Adv. Opns., p. 511). And a
municipal ordinance was recently upheld (People vs. Ericsson, 263 Ill., 368), which
prohibited the location of garages within two hundred feet of any hospital, church, or school,
or in any block used exclusively for residential purposes, unless the consent of the majority
of the property owners be obtained. Such statutes as these are usually upheld on the theory
of safeguarding the public health. But we apprehend that in point of fact they have little
bearing upon the health of the normal person, but a great deal to do with his physical
comfort and convenience and not a little to do with his peace of mind. Without entering into
the realm of psychology, we think it quite demonstrable that sight is as valuable to a human
being as any of his other senses, and that the proper ministration to this sense conduces as
much to his contentment as the care bestowed upon the senses of hearing or smell, and
probably as much as both together. Objects may be offensive to the eye as well as to the
nose or ear. Man's esthetic feelings are constantly being appealed to through his sense of
sight. Large investments have been made in theaters and other forms of amusement, in
paintings and spectacular displays, the success of which depends in great part upon the
appeal made through the sense of sight. Moving picture shows could not be possible without
the sense of sight. Governments have spent millions on parks and boulevards and other
forms of civic beauty, the first aim of which is to appeal to the sense of sight. Why, then,
should the Government not interpose to protect from annoyance this most valuable of
man's senses as readily as to protect him from offensive noises and smells?

The advertising industry is a legitimate one. It is at the same time a cause and an effect of
the great industrial age through which the worid is now passing. Millions are spent each
year in this manner to guide the consumer to the articles which he needs. The sense of
sight is the primary essential to advertising success. Billboard advertising, as it is now
conducted, is a comparatively recent form of advertising. It is conducted out of doors and
along the arteries of travel, and compels attention by the strategic locations of the boards,
which obstruct the range of vision at points where travelers are most likely to direct their
eyes. Beautiful landscapes are marred or may not be seen at all by the traveler because of
the gaudy array of posters announcing a particular kind of breakfast food, or underwear, the
coming of a circus, an incomparable soap, nostrums or medicines for the curing of all the ills
to which the flesh is heir, etc., etc. It is quite natural for people to protest against this
indiscriminate and wholesale use of the landscape by advertisers and the intrusion of
tradesmen upon their hours of leisure and relaxation from work. Outdoor life must lose
much of its charm and pleasure if this form of advertising is permitted to continue
unhampered until it converts the streets and highways into veritable canyons through which
the world must travel in going to work or in search of outdoor pleasure.

The success of billboard advertising depends not so much upon the use of private property
as it does upon the use f the channels of travel used by the general public. Suppose that the
owner of private property, who so vigorously objects to the restriction of this form of
advertising, should require the advertiser to paste his posters upon the billboards so that
they would face the interior of the property instead of the exterior. Billboard advertising
would die a natural death if this were done, and its real dependency not upon the
unrestricted use of private property but upon the unrestricted use of the public highways is
at once apparent. Ostensibly located on private property, the real and sole value of the
billboard is its proximity to the public thoroughfares. Hence, we conceive that the regulation
of billboards and their restriction is not so much a regulation of private property as it is a
regulation of the use of the streets and other public thoroughfares.
We would not be understood as saying that billboard advertising is not a legitimate business
any more than we would say that a livery stable or an automobile garage is not. Even a
billboard is more sightly than piles of rubbish or an open sewer. But all these businesses are
offensive to the senses under certain conditions.

It has been urged against ministering to the sense of sight that tastes are so diversified that
there is no safe standard of legislation in this direction. We answer in the language of the
Supreme Court in Noble State Bank vs. Haskell (219 U. S., 104), and which has already
been adopted by several state courts (see supra), that "the prevailing morality or strong
and preponderating opinions demands such legislation. The agitation against the
unrestrained development of the billboard business has produced results in nearly all the
countries of Europe. (Ency. Britannica, vol. 1, pp. 237-240.) Many drastic ordinances and
state laws have been passed in the United States seeking to make the business amenable to
regulation. But their regulation in the United States is hampered by what we conceive an
unwarranted restriction upon the scope of the police power by the courts. If the police
power may be exercised to encourage a healthy social and economic condition in the
country, and if the comfort and convenience of the people are included within those
subjects, everything which encroaches upon such territory is amenable to the police power.
A source of annoyance and irritation to the public does not minister to the comfort and
convenience of the public. And we are of the opinion that the prevailing sentiment is
manifestly against the erection of billboards which are offensive to the sight.

We do not consider that we are in conflict with the decision in Eubank vs. Richmond (226 U.
S., 137), where a municipal ordinance establishing a building line to which property owners
must conform was held unconstitutional. As we have pointed out, billboard advertising is not
so much a use of private property as it is a use of the public thoroughfares. It derives its
value to the owner solely because the posters are exposed to the public gaze. It may well
be that the state may not require private property owners to conform to a building line, but
may prescribe the conditions under which they shall make use of the adjoining streets and
highways. Nor is the law in question to be held invalid as denying equal protection of the
laws. In Keokee Coke Co. vs. Taylor (234 U. S., 224), it was said: "It is more pressed that
the act discriminates unconstitutionally against certain classes. But while there are
differences of opinion as to the degree and kind of discrimination permitted by the
Fourteenth Amendment, it is established by repeated decisions that a statute aimed at what
is deemed an evil, and hitting it presumably where experience shows it to be most felt, is
not to be upset by thinking up and enumerating other instances to which it might have been
applied equally well, so far as the court can see. That is for the legislature to judge unless
the case is very clear."

But we have not overlooked the fact that we are not in harmony with the highest courts of a
number of the states in the American Union upon this point. Those courts being of the
opinion that statutes which are prompted and inspired by esthetic considerations merely,
having for their sole purpose the promotion and gratification of the esthetic sense, and not
the promotion or protection of the public safety, the public peace and good order of society,
must be held invalid and contrary to constitutional provisions holding inviolate the rights of
private property. Or, in other words, the police power cannot interfere with private property
rights for purely esthetic purposes. The courts, taking this view, rest their decisions upon
the proposition that the esthetic sense is disassociated entirely from any relation to the
public health, morals, comfort, or general welfare and is, therefore, beyond the police power
of the state. But we are of the opinion, as above indicated, that unsightly advertisements or
signs, signboards, or billboards which are offensive to the sight, are not disassociated from
the general welfare of the public. This is not establishing a new principle, but carrying 2 well
recognized principle to further application. (Fruend on Police Power, p. 166.)
For the foregoing reasons the judgment appealed from is hereby reversed and the action
dismissed upon the merits, with costs. So ordered.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur.

DECISION ON THE MOTION FOR A REHEARING, JANUARY 24, 1916.

TRENT, J.:

Counsel for the plaintiffs call our attention to the case of Ex parte Young (209 U. S., 123);
and say that they are of the opinion that this case "is the absolutely determinative of the
question of jurisdiction in injunctions of this kind. We did not refer to this case in our former
opinion because we were satisfied that the reasoning of the case is not applicable to
sections 100(b), 139 and 140 of Act No. 2339. The principles announced in the Young case
are stated as follows: "It may therefore be said that when the penalties for disobedience are
by fines so enormous and imprisonment so severe as to intimidate the company and its
officers from resorting to the courts to test the validity of the legislation, the result is the
same as if the law in terms prohibited the company from seeking judicial construction of
laws which deeply affect its rights.

"It is urged that there is no principle upon which to base the claim that a person is entitled
to disobey a statute at least once, for the purpose of testing its validity without subjecting
himself to the penalties for disobedience provided by the statute in case it is valid. This is
not an accurate statement of the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the jurisdiction of the legislature is
complete in any event. In the case, however, of the establishment of certain rates without
any hearing, the validity of such rates necessarily depends upon whether they are high
enough to permit at least sorne return upon the investment (how much it is not now
necessary to state), and an inquiry as to that fact is a proper subject of judicial
investigation. If it turns out that the rates are too low for that purpose, then they are illegal.
Now, to impose upon a party interested the burden of obtaining a judicial decision of such a
question (no prior hearing having ever been given) only upon the condition that, if
unsuccessful, he must suffer imprisonment and pay fines as provided in these acts, is, in
effect, to close up all approaches to the courts, and thus prevent any hearing upon the
question whether the rates as provided by the acts are not too low, and therefore invalid.
The distinction is obvious between a case where the validity of the act depends upon the
existence of a fact which can be determined only after investigation of a very complicated
and technical character, and the ordinary case of a statute upon a subject requiring no such
investigation and over which the jurisdiction of the legislature is complete in any event."

An examination of the sections of our Internal Revenue Law and of the circumstances under
which and the purposes for which they were enacted, will show that, unlike the statutes
under consideration in the above cited case, their enactment involved no attempt on the
part of the Legislature to prevent dissatisfied taxpayers "from resorting to the courts to test
the validity of the legislation ;" no effort to prevent any inquiry as to their validity. While
section 139 does prevent the testing of the validity of subsection (b) of section 100 in
injunction suits instituted for the purpose of restraining the collection of internal revenue
taxes, section 140 provides a complete remedy for that purpose. And furthermore, the
validity of subsection (b) does not depend upon "the existence of a fact which can be
determined only after investigation of a very complicated and technical character," but the
jurisdiction of the Legislature over the subject with which the subsection deals is complete
in any event." The judgment of the court in the Young case rests upon the proposition that
the aggrieved parties had no adequate remedy at law.

Neither did we overlook the case of General Oil Co. vs. Crain (209 U. S.j 211), decided the
same day and citing Ex parte Young, supra. In that case the plaintiff was a Tennessee
corporation, with its principal place of business in Memphis, Tennessee. It was engaged in
the manufacture and sale of coal- oil, etc. Its wells and plant were located in Pennsylvania
and Ohio. Memphis was not only its place of business, at which place it sold oil to the
residents of Tennessee, but also a distributing point to which oils were shipped from
Pennsylvania and Ohio and unloaded into various tanks for the purpose of being forwarded
to the Arkansas. Louisiana. and Mississippi customers. Notwithstanding the fact that the
company separated its oils,which were designated to meet the requirements of the orders
from those States, from the oils for sale in Tennessee, the defendant insisted that he had a
right, under the Act of the Tennessee Legislature, approved April 21, 1899, to inspect all the
oils unlocated in Memphis, whether for sale in that State or not, and charge and collect for
such inspection a regular fee of twenty-five cents per barrel. The company, being advised
that the defendant had no such right, instituted this action in the inferior State court for the
purpose of enjoining the defendant, upon the grounds stated in the bill, from inspecting or
attempting to inspect its oils. Upon trial, the preliminary injunction which had been granted
at the commencement of the action, was continued in force. Upon appeal, the supreme
court of the State of Tennessee decided that the suit was one against the State and
reversed the judgment of the Chancellor. In the Supreme Court of the United States, where
the case was reviewed upon a writ of error, the contentions of the parties were stated by
the court as follows: "It is contended by defendant in error that this court is without
jurisdiction because no matter sought to be litigated by plaintiff in error was determined by
the Supreme Court of Tennessee. The court simply held, it is said, that, under the laws of
the State, it had no jurisdiction to entertain the suit for any purpose. And it is insisted 'that
this holding involved no Federal question, but only the powers and jurisdiction of the courts
of the State of Tennessee, in respect to which the Supreme Court of Tennessee is the final
arbiter.'

"Opposing these contentions, plaintiff in error urges that whether a suit is one against a
State cannot depend upon the declaration of a statute, but depends upon the essential
nature of the suit, and that the Supreme Court recognized that the statute 'added nothing
to the axiomatic principle that the State, as a sovereign, is not subject to suit save by its
own consent.' And it is hence insisted that the court by dismissing the bill gave effect to the
law which was attacked. It is further insisted that the bill undoubtedly present rights under
the Constitution of the United States and conditions which entitle plaintiff in error to an
injunction for the protection of such rights, and that a statute of the State which operates to
deny such rights, or such relief, 'is itself in conflict with the Constitution of the United
States.' "

That statute of Tennessee, which the supreme court of that State construed and held to be
prohibitory of the suit, was an act passed February 28, 1873, which provides: "That no
court in the State of Tennessee has, nor shall hereafter have, any power, jurisdiction, or
authority to entertain any suit against the State, or any officer acting by the authority of the
State, with a view to reach the State, its treasury, funds or property; and all such suits now
pending, or hereafter brought, shall be dissmissed as to the State, or such officer, on
motion, plea or demurrer of the law officer of the State, or counsel employed by the State."

The Supreme Court of the United States, after reviewing many cases, said: "Necessarily, to
give adequate protection to constitutional rights a distinction must be made between valid
and invalid state laws, as determining the character of the suit against state officers. And
the suit at bar illustrates the necessity. If a suit against state officers is precluded in the
national courts by the Eleventh Amendment to the Constitution, and may be forbidden by a
State to its courts, as it is contended in the case at bar that it may be, without power of
review by this court, it must be evident that an easy way is open to prevent the
enforcement of many provisions of the Constitution; and the Fourteenth Amendment, which
is directed at state action, could be nullified as to much of its operation. . . . It being then
the right of a party to be protected against a law which violates a constitutional right,
whether by its terms or the manner of its enforcement, it is manifest that a decision which
denies such protection gives effect to the law, and the decision is reviewable by this court."

The court then proceeded to consider whether the law of 1899 would, if administered
against the oils in question, violate any constitutional right of the plaintiff and after finding
and adjudging that the oils were not in movement through the States, that they had
reached the destination of their first shipment, and were held there, not in necessary delay
of means of transportation but for the business purposes and profit of the company, and
resting its judgment upon the taxing power of the State, affirmed the decree of the supreme
court of the State of Tennessee.

From the foregoing it will be seen that the Supreme Court of Tennessee dismissed the case
for want of jurisdiction because the suit was one against the State, which was prohibited by
the Tennessee Legislature. The Supreme Court of the United States took jurisdiction of the
controversy for the reasons above quoted and sustained the Act of 1899 as a revenue law.

The case of Tennessee vs. Sneed (96 U. S., 69), and helton vs. Platt (139 U. S., 591), relied
upon in our former opinion, were not cited in General Oil Co. vs. Crain, supra, because the
questions presented and the statutes under consideration were entirely different. The Act
approved March 31, 1873, expressly prohibits the courts from restraining the collection of
any tax, leaving the dissatisfied taxpayer to his exclusive remedy — payment under protest
and suit to recover — while the Act approved February 28, 1873, prohibits suits against the
State.

In upholding the statute which authorizes the removal of signboards or billboards upon the
sole ground that they are offensive to the sight, we recognized the fact that we are not in
harmony with various state courts in the American Union. We have just examined the
decision of the Supreme Court of the State of Illinois in the recent case (October
[December], 1914) of The Thomas Cusack Co. vs. City of Chicago (267 Ill., 344), wherein
the court upheld the validity of a municipal ordinance, which reads as follows: "707.
Frontage consents required. It shall be unlawful for any person, firm or corporation to erect
or construct any bill-board or sign-board in any block on any public street in which one-half
of the buildings on both sides of the street are used exclusively for residence purposes,
without first obtaining the consent, in writing, of the owners or duly authorized agents of
said owners owning a majority of the frontage of the property, on both sides of the street,
in the block in which such bill-board or signboard is to be erected, constructed or located.
Such written consent shall be filed with the commissioner of buildings before a permit shall
be issued for the erection, construction or location of such bill-board or sign-board."

The evidence which the Illinois court relied upon was the danger of fires, the fact that
billboards promote the commission of various immoral and filthy acts by disorderly persons,
and the inadequate police protection furnished to residential districts. The last objection has
no virtue unless one or the other of the other objections are valid. If the billboard industry
does, in fact, promote such municipal evils to a noticeable extent, it seems a curious
inconsistency that a majority of the property owners on a given block may legalize the
business. However, the decision is undoubtedly a considerable advance over the views
taken by other high courts in the United States and distinguishes several Illinois decisions.
It is an advance because it per- mits the supression of billboards where they are
undesirable. The ordinance which the court approved will no doubt cause the virtual
suppression of the business in the residential districts. Hence, it is recognized that under
certain circumstances billboards may be suppressed as an unlawful use of private property.
Logically, it would seem that the premise of fact relied upon is not very solid. Objections to
the billboard upon police, sanitary, and moral grounds have been, as pointed out by counsel
for Churchill and Tait, duly considered by numerous high courts in the United States, and,
with one exception, have been rejected as without foundation. The exception is the
Supreme Court of Missouri, which advances practically the same line of reasoning as has the
Illinois court in Ihis recent case. (St. Louis Gunning Advt. Co. vs. City of St. Louis, 137 S.
W., 929.) In fact, the Illinois court, in Haller Sign Works vs. Physical Culture Training School
(249 Ill., 436), "distinguished" in the recent case, said: "There is nothing inherently
dangerous to the health or safety of the public in structures that are properly erected for
advertising purposes."

If a billboard is so constructed as to offer no room for objections on sanitary or moral

grounds, it would seem that the ordinance above quoted would have to be sustained upon
the very grounds which we have advanced in sustaining our own statute.

It might be well to note that billboard legislation in the United States is attempting to
eradicate a business which has already been firmly established. This business was allowed
to expand unchecked until its very extent called attention to its objectionable features. In
the Philippine Islands such legislation has almost anticipated the business, which is not yet
of such proportions that it can be said to be fairly established. It may be that the courts in
the United States have committed themselves to a course of decisions with respect to
billboard advertising, the full consequences of which were not perceived for the reason that
the development of the business has been so recent that the objectionable features of it did
not present themselves clearly to the courts nor to the people. We, in this country, have the
benefit of the experience of the people of the United States and may make our legislation
preventive rather than corrective. There are in this country, moreover, on every hand in
those districts where Spanish civilization has held sway for so many centuries, examples of
architecture now belonging to a past age, and which are attractive not only to the residents
of the country but to visitors. If the billboard industry is permitted without constraint or
control to hide these historic sites from the passerby, the country will be less attractive to
the tourist and the people will suffer a distinct economic loss.

The motion for a rehearing is therefore denied.

Arellano, C.J., Torres and Carson, JJ., concur.

11. David v. Ramos, G.R. No. L-4300, [October 31, 1951]

supra

12. CIR v. Cebu Portland Cement Co., G.R. No. L-29059, [December 15, 1987]

FIRST DIVISION

[G.R. No. L-29059. December 15, 1987.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CEBU PORTLAND CEMENT

COMPANY and COURT OF TAX APPEALS, respondents.
DECISION

CRUZ, J p:

By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified
on appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal
Revenue was ordered to refund to the Cebu Portland Cement Company the amount of
P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold
by it after October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both the
petitioner and the private respondent, the latter moved for a writ of execution to enforce
the said judgment. 2

The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In
fact, it was stressed, there was still a balance owing on the sales taxes in the amount of
P4,789,279.85 plus 28% surcharge. 3

On April 22, 1968, the Court of Tax Appeals ** granted the motion, holding that the alleged
sales tax liability of the private respondent was still being questioned and therefore could
not be set-off against the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue claims
that the refund should be charged against the tax deficiency of the private respondent on
the sales of cement under Section 186 of the Tax Code. His position is that cement is a
manufactured and not a mineral product and therefore not exempt from sales taxes. He
adds that enforcement of the said tax deficiency was properly effected through his power of
distraint of personal property under Sections 316 and 318 5 of the said Code and,
moreover, the collection of any national internal revenue tax may not be enjoined under
Section 305, 6 subject only to the exception prescribed in Rep. Act No. 1125. 7 This is not
applicable to the instant case. The petitioner also denies that the sales tax assessments
have already prescribed because the prescriptive period should be counted from the filing of
the sales tax returns, which had not yet been done by the private respondent.

For its part, the private respondent disclaims liability for the sales taxes, on the ground that
cement is not a manufactured product but a mineral product. 8 As such, it was exempted
from sales taxes under Section 188 of the Tax Code after the effectivity of Rep. Act No.
1299 on June 16, 1955, in accordance with Cebu Portland Cement Co. v. Collector of
Internal Revenue, 9 decided in 1968. Here Justice Eugenio Angeles declared that "before
the effectivity of Rep. Act No. 1299, amending Section 246 of the National Internal Revenue
Code, cement was taxable as a manufactured product under Section 186, in connection with
Section 194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not as yet be
enforced against it because the tax assessment was not yet final, the same being still under
protest and still to be definitely resolved on the merits. Besides, the assessment had already
prescribed, not having been made within the reglementary five-year period from the filing of
the tax returns. 10

Our ruling is that the sales tax was properly imposed upon the private respondent for the
reason that cement has always been considered a manufactured product and not a mineral
product. This matter was extensively discussed and categorically resolved in Commissioner
of Internal Revenue v. Republic Cement Corporation, 11 decided on August 10, 1983, where
Justice Efren L. Plana, after an exhaustive review of the pertinent cases, declared for a
unanimous Court:

"From all the foregoing cases, it is clear that cement qua cement was never considered as a
mineral product within the meaning of Section 246 of the Tax Code, notwithstanding that at
least 80% of its components are minerals, for the simple reason that cement is the product
of a manufacturing process and is no longer the 'mineral product' contemplated in the Tax
Code (i.e.; minerals subjected to simple treatments) for the purpose of imposing the ad
valorem tax.

"What has apparently encouraged the herein respondents to maintain their present posture
is the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29,
1968 (28 SCRA 789) penned by Justice Eugenio Angeles. For some portions of that decision
give the impression that Republic Act No. 1299, which amended Section 246, reclassified
cement as a mineral product that was not subject to sales tax. . . .

"xxx xxx xxx

"After a careful study of the foregoing, we conclude that reliance on the decision penned by
Justice Angeles is misplaced. The said decision is no authority for the proposition that after
the enactment of Republic Act No. 1299 in 1955 (defining mineral product as things with at
least 80% mineral content), cement became a 'mineral product,' as distinguished from a
'manufactured product,' and therefore ceased to be subject to sales tax. It was not
necessary for the Court to so rule. It was enough for the Court to say in effect that even
assuming Republic Act No. 1299 had re-classified cement was a mineral product, the
reclassification could not be given retrospective application (so as to justify the refund of
sales taxes paid before Republic Act 1299 was adopted) because laws operate prospectively
only, unless the legislative intent to the contrary is manifest, which was not so in the case
of Republic Act 1266. [The situation would have been different if the Court instead had ruled
in favor of refund, in which case it would have been absolutely necessary (1) to make an
unconditional ruling that Republic Act 1299 re-classified cement as a mineral product (not
subject to sales tax), and (2) to declare the law retroactive, as a basis for granting refund of
sales tax paid before Republic Act 1299.]

"In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563)
insofar as its pronouncements or any implication therefrom conflict with the instant
decision."

The above views were reiterated in the resolution 12 denying reconsideration of the said
decision, thus: LLjur

"The nature of cement as a 'manufactured product' (rather than a 'mineral product') is well-
settled. The issue has repeatedly presented itself as a threshold question for determining
the basis for computing the ad valorem mining tax to be paid by cement companies. No
pronouncement was made in these cases that as a 'manufactured product' cement is
subject to sales tax because this was not at issue.

"The decision sought to be reconsidered here referred to the legislative history of Republic
Act No. 1299 which introduced a definition of the terms 'mineral' and 'mineral products' in
Sec. 246 of the Tax Code. Given the legislative intent, the holding in the CEPOC case (G.R.
No. L-20563) that cement was subject to sales tax prior to the effectivity of Republic Act
No. 1299 cannot be construed to mean that, after the law took effect, cement ceased to be
so subject to the tax. To erase any and all misconceptions that may have been spawned by
reliance on the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563,
October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court has
expressly overruled it insofar as it may conflict with the decision of August 10, 1983, now
subject of these motions for reconsideration."

On the question of prescription, the private respondent claims that the five-year
reglementary period for the assessment of its tax liability started from the time it filed its
gross sales returns on June 30, 1962. Hence, the assessment for sales taxes made on
January 16, 1968 and March 4, 1968, were already out of time. We disagree. This
contention must fail for what CEPOC filed was not the sales returns required in Section
183(n) but the ad valorem tax returns required under Section 245 of the Tax Code. As
Justice Irene R. Cortes emphasized in the aforestated resolution:

"In order to avail itself of the benefits of the five-year prescription period under Section 331
of the Tax Code, the taxpayer should have filed the required return for the tax involved,
that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29,
1966, 16 SCRA 277). Thus CEPOC should have filed sales tax returns of its gross sales for
the subject periods. Both parties admit that returns were made for the ad valorem mining
tax. CEPOC argues that said returns contain the information necessary for the assessment
of the sales tax. The Commissioner does not consider such returns as compliance with the
requirement for the filing of tax returns so as to start the running of the five-year
prescriptive period.

"We agree with the Commissioner. It has been held in Butuan Sawmill, Inc. v. CTA, supra,
that the filing of an income tax return cannot be considered as substantial compliance with
the requirement of filing sales tax returns, in the same way that an income tax return
cannot be considered as a return for compensating tax for the purpose of computing the
period of prescription under Sec. 331. (Citing Bisaya Land Transportation Co., Inc. v.
Collector of Internal Revenue, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being
no sales tax returns filed by CEPOC, the statute of limitations in Sec. 331 did not begin to
run against the government. The assessment made by the Commissioner in 1968 on
CEPOC's cement sales during the period from July 1, 1959 to December 31, 1960 is not
barred by the five-year prescriptive period. Absent a return, or when the return is false or
fraudulent, the applicable period is ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's omission to file the return
deemed discovered by the government, so as to start the running of said period?" 13

The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions
would be paralyzed. That is the reason why, save for the exception already noted, the Tax
Code provides: LexLib

"Sec. 291. Injunction not available to restrain collection of tax. — No court shall have
authority to grant an injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by this Code."

It goes without saying that this injunction is available not only when the assessment is
already being questioned in a court of justice but more so if, as in the instant case, the
challenge to the assessment is still — and only — on the administrative level. There is all
the more reason to apply the rule here because it appears that even after crediting of the
refund against the tax deficiency, a balance of more than P4 million is still due from the
private respondent.

To require the petitioner to actually refund to the private respondent the amount of the
judgment debt, which he will later have the right to distrain for payment of its sales tax
liability is in our view an idle ritual. We hold that the respondent Court of Tax Appeals erred
in ordering such a charade.

WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No.
786 is SET ASIDE, without any pronouncement as to costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.

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

SECOND DIVISION

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

SPOUSES EMMANUEL D. PACQUIAO and JINKEE J. PACQUIAO, petitioners, vs. THE COURT
OF TAX APPEALS-FIRST DIVISION and THE COMMISSIONER OF INTERNAL REVENUE,
respondents.

DECISION

MENDOZA, J p:

Before this Court is a petition for review on certiorari 1 under Rule 65 of the Rules of Court
filed by petitioner spouses, now Congressman Emmanuel D. Pacquiao (Pacquiao) and Vice-
Governor Jinkee J. Pacquiao (Jinkee),to set aside and annul the April 22, 2014 Resolution 2
and the July 11, 2014 Resolution 3 of the Court of Tax Appeals (CTA),First Division, in CTA
Case No. 8683.

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

The Antecedents

The genesis of the foregoing controversy began a few years before the petitioners became
elected officials in their own right. Prior to their election as public officers, the petitioners
relied heavily on Pacquiao's claim to fame as a world-class professional boxer. Due to his
success, Pacquiao was able to amass income from both the Philippines and the United
States of America (US).His income from the US came primarily from the purses he received
for the boxing matches he took part under Top Rank, Inc. On the other hand, his income
from the Philippines consisted of talent fees received from various Philippine corporations
for product endorsements, advertising commercials and television appearances.
In compliance with his duty to his home country, Pacquiao filed his 2008 income tax return
on April 15, 2009 reporting his Philippine-sourced income. 5 It was subsequently amended
to include his US-sourced income. 6

The controversy began on March 25, 2010, when Pacquiao received a Letter of Authority 7
(March LA) from the Regional District Office No. 43 (RDO) of the Bureau of Internal Revenue
(BIR) for the examination of his books of accounts and other accounting records for the
period covering January 1, 2008 to December 31, 2008.

On April 15, 2010, Pacquiao filed his 2009 income tax return, 8 which although reflecting his
Philippines-sourced income, failed to include his income derived from his earnings in the US.
9 He also failed to file his Value Added Tax (VAT) returns for the years 2008 and 2009. 10
aScITE

Finding the need to directly conduct the investigation and determine the tax liabilities of the
petitioners, respondent Commissioner on Internal Revenue (CIR) issued another Letter of
Authority, dated July 27, 2010 (July LA),authorizing the BIR's National Investigation Division
(NID) to examine the books of accounts and other accounting records of both Pacquiao and
Jinkee for the last 15 years, from 1995 to 2009. 11 On September 21, 2010 and September
22, 2010, the CIR replaced the July LA by issuing to both Pacquiao 12 and Jinkee 13
separate electronic versions of the July LA pursuant to Revenue Memorandum Circular
(RMC) No. 56-2010. 14

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

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

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

[Emphasis Supplied]

The CIR informed the petitioners that its reinvestigation of years prior to 2007 was justified
because the assessment thereof was pursuant to a "fraud investigation" against the
petitioners under the "Run After Tax Evaders" (RATE) program of the BIR.

On January 5 and 21, 2011, the petitioners submitted various income tax related
documents for the years 2007-2009. 18 As for the years 1995 to 2006, the petitioners
explained that they could not furnish the bureau with the books of accounts and other tax
related documents as they had already been disposed in accordance with Section 235 of the
Tax Code. 19 They added that even if they wanted to, they could no longer find copies of
the documents because during those years, their accounting records were then managed by
previous counsels, who had since passed away. Finally, the petitioners pointed out that their
tax liabilities for the said years had already been fully settled with then CIR Jose Mario
Buñag, who after a review, found no fraud against them. 20

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

After conducting its own investigation, the CIR made its initial assessment finding that the
petitioners were unable to fully settle their tax liabilities. Thus, the CIR issued its Notice of
Initial Assessment-Informal Conference (NIC),22 dated January 31, 2012, directly
addressed to the petitioners,informing them that based on the best evidence obtainable,
they were liable for deficiency income taxes in the amount of P714,061,116.30 for 2008 and
P1,446,245,864.33 for 2009, inclusive of interests and surcharges. After being informed of
this development, the counsel for the petitioners sought to have the conference reset but he
never received a response.

Then, on February 20, 2012, the CIR issued the Preliminary Assessment Notice 23
(PAN),informing the petitioners that based on third-party information allowed under Section
5 (B) 24 and 6 of the National Internal Revenue Code (NIRC),25 they found the petitioners
liable not only for deficiency income taxes in the amount of P714,061,116.30 for 2008 and
P1,446,245,864.33 for 2009, but also for their non-payment of their VAT liabilities in the
amount P4,104,360.01 for 2008 and P24,901,276.77 for 2009.

The petitioners filed their protest against the PAN. 26

After denying the protest, the BIR issued its Formal Letter Demand 27 (FLD),dated May 2,
2012, finding the petitioners liable for deficiency income tax and VAT amounting to
P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for 2009, inclusive of
interests and surcharges. Again, the petitioners questioned the findings of the CIR. 28

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

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

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

Although they no longer questioned the BIR's assessment of their deficiency VAT liability,the
petitioners requested that they be allowed to pay the same in four (4) quarterly
installments. Eventually, through a series of installments, Pacquiao and Jinkee paid a total
P32,196,534.40 in satisfaction of their liability for deficiency VAT. 32

Proceedings at the CTA

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

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

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

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

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

Meanwhile, in a letter, 38 dated October 14, 2013, the BIR-ARMD informed the petitioners
that they were denying their request to defer the collection enforcement action for lack of
legal basis. The same letter also informed the petitioners that despite their initial payment,
the amount to be collected from both of them still amounted to P3,259,643,792.24, for
deficiency income tax for taxable years 2008 and 2009, and P46,920,235.74 for deficiency
VAT for the same period. A warrant of distraint and/or levy 39 against Pacquiao and Jinkee
was included in the letter.

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

On April 22, 2014, the CTA issued the first assailed resolution granting the petitioner's
Urgent Motion, ordering the CIR to desist from collecting on the deficiency tax assessments
against the petitioners. In its resolution, the CTA noted that the amount sought to be
collected was way beyond the petitioners' net worth, which, based on Pacquiao's Statement
of Assets, Liabilities and Net Worth (SALN), only amounted to P1,185,984,697.00.
Considering that the petitioners still needed to cover the costs of their daily subsistence, the
CTA opined that the collection of the total amount of P3,298,514,894.35 from the
petitioners would be highly prejudicial to their interests and should, thus, be suspended
pursuant to Section 11 of R.A. No. 1125, as amended.

The CTA, however, saw no justification that the petitioners should deposit less than the
disputed amount. They were, thus, required to deposit the amount of P3,298,514,894.35 or
post a bond in the amount of P4,947,772,341.53.

The petitioners sought partial reconsideration of the April 22, 2014 CTA resolution, praying
for the reduction of the amount of the bond required or an extension of 30 days to file the
same. On July 11, 2014, the CTA issued the second assailed resolution 40 denying the
petitioner's motion to reduce the required cash deposit or bond, but allowed them an
extension of thirty (30) days within which to file the same.

Hence, this petition, raising the following

GROUNDS

A.

Respondent Court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in presuming the correctness of a fraud assessment without evidentiary support
other than the issuance of the fraud assessments themselves, thereby violating Petitioner's
constitutional right to due process.

B.

Respondent Court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it required the Petitioners to post a bond even if the tax collection
processes employed by Respondent Commissioner against Petitioners was patently in
violation of law thereby blatantly breaching Petitioners' constitutional right to due process,
to wit:

1. Respondent Commissioner commenced tax collection process against Jinkee without

issuing or serving an FDDA against her.

2. Respondent Commissioner failed to comply with the procedural due process requirements
for summary tax collection remedies under Section 207(A) and (B) of the Tax Code when
she commenced summary collection remedies before the expiration of the period for
Petitioners to pay the assessed deficiency taxes.

3. Respondent Commissioner failed to comply with the procedural due process requirements
for summary tax collection remedies under Section 208 of the Tax Code when she failed to
serve Petitioners with warrants of garnishment against their bank accounts. AIDSTE

4. The Chief of the ARMD, without any authority from Respondent Commissioner, increased
the aggregate amount of deficiency income tax and VAT assessed against Petitioners from
P2,261,217,439.92 to P3,298,514,894.35 after the filing of the Petition for Review with the
Court of Tax Appeals.

5. Respondent Commissioner arbitrarily refused to admit that Petitioners had already paid
the deficiency VAT assessments for the years 2008 and 2009.

C.

Respondent Court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in requiring Petitioners to post a cash bond in the amount of P3,298,514,894.35
or a surety bond in the amount of P4,947,772,341.53, which is effectively an impossible
condition given that their undisputed net worth is only P1,185,984,697.00.

D.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it imposed a bond requirement which will effectively prevent Petitioners
from continuing the prosecution of its appeal from the arbitrary and bloated assessments
issued by Respondent Commissioner. 41 SDAaTC

Arguments of the Petitioners

Contending that the CTA En Banc has no certiorari jurisdiction over interlocutory orders
issued by its division, the petitioners come before the Court, asking it to 1] direct the CTA to
dispense with the bond requirement imposed under Section 11 of R.A. No. 1125, as
amended; and 2] direct the CIR to suspend the collection of the deficiency income tax and
VAT for the years 2008 and 2009. The petitioners also pray that a temporary restraining
order (TRO) be issued seeking a similar relief pending the disposition of the subject petition.

In support of their position, the petitioners assert that the CTA acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in requiring them to provide security
required under Section 11 of R.A. No. 1125. Under the circumstances, they claim that they
should not be required to make a cash deposit or post a bond to stay the collection of the
questioned deficiency taxes considering that the assessment and collection efforts of the
BIR was marred by both procedural and substantive errors. They are synthesized as follows:

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

Second. The BIR failed to accord them procedural due process when it initiated summary
collection remedies even before the expiration of the period allowed for them to pay the
assessed deficiency taxes. 43 They also claimed that they were not served with warrants of
garnishment and that the warrants of garnishment served on their banks of account were
made even before they received the FDDA and PCL. 44

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

Fourth. The amount assessed by the BIR as deficiency taxes included the deficiency VAT for
the years 2008 and 2009 which they had already paid, albeit in installments.

Fifth. The posting of the required security is effectively an impossible condition given that
their undisputed net worth is only P1,185,984,697.00.

Considering the issues raised, it is the position of the petitioners that the circumstances of
the case warrant the application of the exception provided under Section 11 of R.A. No.
1125 as affirmed by the ruling of the Court in Collector of Internal Revenue v. Avelino 46
(Avelino) and Collector of Internal Revenue v. Zulueta,47 (Zulueta) and that they should
have been exempted from posting the required security as a prerequisite to suspend the
collection of deficiency taxes from them. acEHCD
On August 18, 2014, the Court resolved to grant the petitioners' prayer for the issuance of a
TRO and to require the CIR to file its comment. 48

Arguments of the CIR

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

As for the Court's rulings in Avelino and Zulueta invoked by the petitioners, the CIR argues
that they are inapplicable considering that in the said cases, it was ruled that the
requirement of posting a bond to suspend the collection of taxes could be dispensed with
only if the methods employed by the CIR in the tax collection were clearly null and void and
prejudicial to the taxpayer.50 The CIR points out that, in this case, the CTA itself made no
finding that its collection by summary methods was void and even ruled that "the alleged
illegality of the methods employed by the respondent (CIR) to effect the collection of tax
[is] not at all patent or evident ..." and could only be determined after a full-blown trial. 51
The CIR even suggests that the Court revisit its ruling in Avelino and Zulueta as Section 11
of R.A. No. 1125, as amended, gives the CTA no discretion to allow the dispensation of the
required bond as a condition to suspend the collection of taxes.

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

The Court's Ruling

Appeal will not suspend

the collection of tax;
Exception

Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, 53 embodies the rule that an
appeal to the CTA from the decision of the CIR will not suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided
by existing law. When, in the view of the CTA, the collection may jeopardize the interest of
the Government and/or the taxpayer, it may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety bond.

The application of the exception to the rule is the crux of the subject controversy.
Specifically, Section 11 provides:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. — Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or
the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional
Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such
decision or ruling or after the expiration of the period fixed by law for action as referred to
in Section 7(a)(2) herein.
xxx xxx xxx

No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or
the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal
treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of
Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as provided by existing
law:

Provided, however, That when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court. HSAcaE

xxx xxx xxx

[Emphasis Supplied]

Essentially, the petitioners ascribe grave abuse of discretion on the part of the CTA when it
issued the subject resolutions requiring them to deposit the amount of P3,298,514,894.35
or post a bond in the amount of P4,947,772,341.53 as a condition for its order enjoining the
CIR from collecting the taxes from them. The petitioners anchor their contention on the
premise that the assessment and collection processes employed by the CIR in exacting their
tax liabilities were in patent violation of their constitutional right to due process of law.
They, thus, posit that pursuant to Avelino and Zulueta,the tax court should have not only
ordered the CIR to suspend the collection efforts it was pursuing in satisfaction of their tax
liability, but also dispensed with the requirement of depositing a cash or filing a surety
bond.

To recall, the Court in Avelino upheld the decision of the CTA to declare the warrants of
garnishment, distraint and levy and the notice of sale of the properties of Jose Avelino null
and void and ordered the CIR to desist from collecting the deficiency income taxes which
were assessed for the years 1946 to 1948 through summary administrative methods. The
Court therein found that the demand of the then CIR was made without authority of law
because it was made five (5) years and thirty-five (35) days after the last two returns of
Jose Avelino were filed — clearly beyond the three (3)-year prescriptive period provided
under what was then Section 51 (d) of the National Internal Revenue Code. Dismissing the
contention of the CIR that the deposit of the amount claimed or the filing of a bond as
required by law was a requisite before relief was granted, the Court therein concurred with
the opinion of the CTA that the courts were clothed with authority to dispense with the
requirement "if the method employed by the Collector of Internal Revenue in the collection
of tax is not sanctioned by law." 54

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

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

[Italics included]

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

"Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the
collection by summary proceedings is by itself in accordance with existing laws; and then
what is suspended is the act of collecting, whereas, in the case at bar what the respondent
Court suspended was the use of the method employed to verify the collection which was
evidently illegal after the lapse of the three-year limitation period. The respondent Court
issued the injunction in question on the basis of its findings that the means intended to be
used by petitioner in the collection of the alleged deficiency taxes were in violation of law. It
would certainly be an absurdity on the part of the Court of Tax Appeals to declare that the
collection by the summary methods of distraint and levy was violative of the law, and then,
on the same breath require the petitioner to deposit or file a bond as a prerequisite of the
issuance of a writ of injunction.Let us suppose, for the sake of argument, that the Court a
quo would have required the petitioner to post the bond in question and that the taxpayer
would refuse or fail to furnish said bond, would the Court a quo be obliged to authorize or
allow the Collector of Internal Revenue to proceed with the collection from the petitioner of
the taxes due by a means it previously declared to be contrary to law?" 57

[Italics included. Emphases and Underlining Supplied]

Thus, despite the amendments to the law, the Court still holds that the CTA has ample
authority to issue injunctive writs to restrain the collection of tax and to even dispense with
the deposit of the amount claimed or the filing of the required bond,whenever the method
employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for being
patently in violation of the law. Such authority emanates from the jurisdiction conferred to it
not only by Section 11 of R.A. No. 1125, but also by Section 7 of the same law, which, as
amended provides:

Sec. 7. Jurisdiction. — The Court of Tax Appeals shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

xxx xxx xxx

[Emphasis Supplied]

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

The determination of whether

the petitioners' case falls within
the exception provided under
Section 11, R.A. No. 1125 cannot be
determined at this point

Applying the foregoing precepts to the subject controversy, the Court finds no sufficient
basis in the records for the Court to determine whether the dispensation of the required
cash deposit or bond provided under Section 11, R.A. No. 1125 is appropriate.

It should first be highlighted that in rendering the assailed resolution, the CTA, without
stating the facts and law, made a determination that the illegality of the methods employed
by the CIR to effect the collection of tax was not patent. To quote the CTA:

In this case, the alleged illegality of the methods employed by respondent to effect the
collection of tax is not at all patent or evident as in the foregoing cases.At this early stage of
the proceedings, it is premature for this Court to rule on the issues of whether or not the
warrants were defectively issued; or whether the service thereof was done in violation of
the rules; or whether or not respondent's assessments were valid. These matters are
evidentiary in nature, the resolution of which can only be made after a full blown trial.

Apropos, the Court finds no legal basis to apply Avelino and Zulueta to the instant case and
exempt petitioners from depositing a cash bond or filing a surety bond before a suspension
order may be effected. 59

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

The Court cannot make a

preliminary determination
on whether the CIR used
methods not sanctioned by law

Absent any evidence and preliminary determination by the CTA, the Court cannot make any
factual finding and settle the issue of whether the petitioners should comply with the
security requirement under Section 11, R.A. No. 1125. The determination of whether the
methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for
being patently in violation of the law is a question of fact that calls for the reception of
evidence which would serve as basis. In this regard, the CTA is in a better position to
initiate this given its time and resources. The remand of the case to the CTA on this
question is, therefore, more sensible and proper.

For the Court to make any finding of fact on this point would be premature. As stated
earlier, there is no evidentiary basis. All the arguments are mere allegations from both
sides. Moreover, any finding by the Court would pre-empt the CTA from properly exercising
its jurisdiction and settle the main issues presented before it, that is, whether the
petitioners were afforded due process; whether the CIR has valid basis for its assessment;
and whether the petitioners should be held liable for the deficiency taxes.

Petition to be remanded to
the CTA; CTA to conduct
preliminary hearing

As the CTA is in a better position to make such a preliminary determination, a remand to

the CTA is in order. To resolve the issue of whether the petitioners should be required to
post the security bond under Section 11 of R.A. No. 1125, and, if so, in what amount, the
CTA must take into account, among others, the following:

First. Whether the requirement of a Notice of Informal Conference was complied with — The
petitioners contend that the BIR issued the PAN without first sending a NIC to petitioners.
One of the first requirements of Section 3 of Revenue Regulations (R.R.) No. 12-99, 60 the
then prevailing regulation on the due process requirement in tax audits and/or
investigation, 61 is that a NIC be first accorded to the taxpayer. The use of the word "shall"
in subsection 3.1.1 describes the mandatory nature of the service of a NIC. As with the
other notices required under the regulation, the purpose of sending a NIC is but part of the
"due process requirement in the issuance of a deficiency tax assessment," the absence of
which renders nugatory any assessment made by the tax authorities. 62 cDHAES

Second. Whether the 15-year period subject of the CIR's investigation is arbitrary and
excessive. — Section 203 63 of the Tax Code provides a 3-year limit for the assessment of
internal revenue taxes. While the prescriptive period to assess deficiency taxes may be
extended to 10 years in cases where there is false, fraudulent, or non-filing of a tax return
— the fraud contemplated by law must be actual. It must be intentional, consisting of
deception willfully and deliberately done or resorted to in order to induce another to give up
some right. 64

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

Fourth. Whether the FLD issued against the petitioners was irregular. — The FLD issued
against the petitioners allegedly stated that the amounts therein were "estimates based on
best possible sources." A taxpayer should be informed in writing of the law and the facts on
which the assessment is made, otherwise, the assessment is void. 66 An assessment, in
order to stand judicial scrutiny, must be based on facts. The presumption of the correctness
of an assessment, being a mere presumption, cannot be made to rest on another
presumption. 67
To stress, the petitioners had asserted that the assessment of the CIR was not based on
actual transactions but on "estimates based on best possible sources." This assertion has
not been satisfactorily addressed by the CIR in detail. Thus, there is a need for the CTA to
conduct a preliminary hearing. TCAScE

Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or Levy
were validly issued. In its hearing, the CTA must also determine if the following allegations
of the petitioners have merit:

a. The FDDA and PCL were issued against petitioner Pacquiao only.The Warrant of Distraint
and/or Levy/Garnishment issued by the CIR, however, were made against the assets of
both petitioners;

b. The warrants of garnishment had been served on the banks of both petitioners even
before the petitioners received the FDDA and PCL;

c. The Warrant of Distraint and/or Levy/Garnishment against the petitioners was allegedly
made prior to the expiration of the period allowed for the petitioners to pay the assessed
deficiency taxes;

d. The Warrant of Distraint and/or Levy/Garnishment against petitioners failed to take into
consideration that the deficiency VAT was already paid in full;and

e. Petitioners were not given a copy of the Warrants. Sections 207 68 and 208 69 of the Tax
Code require the Warrant of Distraint and/or Levy/Garnishment be served upon the
taxpayer.

Additional Factors

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

Moreover, the CTA should also consider the claim of the petitioners that they already paid a
total of P32,196,534.40 deficiency VAT assessed against them. Despite said payment, the
CIR still assessed them the total amount of P3,298,514,894.35, including the amount
assessed as VAT deficiency, plus surcharges, penalties and interest. If so, these should also
be deducted from the amount of the bond to be computed and required.

In the conduct of its preliminary hearing, the CTA must balance the scale between the
inherent power of the State to tax and its right to prosecute perceived transgressors of the
law, on one side; and the constitutional rights of petitioners to due process of law and the
equal protection of the laws, on the other. In case of doubt, the tax court must remember
that as in all tax cases, such scale should favor the taxpayer, for a citizen's right to due
process and equal protection of the law is amply protected by the Bill of Rights under the
Constitution. 70 cTDaEH

In view of all the foregoing, the April 22, 2014 and July 11, 2014 Resolutions of the CTA, in
so far as it required the petitioners to deposit first a cash bond in the amount of
P3,298,514,894.35 or post a bond of P4,947,772,341.53, should be further enjoined until
the issues aforementioned are settled in a preliminary hearing to be conducted by it.
Thereafter, it should make a determination if the posting of a bond would still be required
and, if so, compute it taking into account the CTA En Banc Resolution, which was approved
by the Court in A.M. No. 15-02-01-CTA, and the claimed payment of P32,196,534.40,
among others.

WHEREFORE,the petition is PARTIALLY GRANTED.Let a Writ of Preliminary Injunction be

issued, enjoining the implementation of the April 22, 2014 and July 11, 2014 Resolutions of
the Court of Tax Appeals, First Division, in CTA Case No. 8683, requiring the petitioners to
first deposit a cash bond in the amount of P3,298,514,894.35 or post a bond of
P4,947,772,341.53, as a condition to restrain the collection of the deficiency taxes assessed
against them.

The writ shall remain in effect until the issues aforementioned are settled in a preliminary
hearing to be conducted by the Court of Tax Appeals, First Division.

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

If required, the Court of Tax Appeals, First Division, shall proceed to compute the amount of
the bond in accordance with the guidelines aforestated, particularly the provisions of A.M.
No. 15-02-01-CTA. It should also take into account the amounts already paid by the
petitioners.

After the posting of the required bond, or if the Court of Tax Appeals, First Division,
determines that no bond is necessary, it shall proceed to hear and resolve the petition for
review pending before it.

SO ORDERED.

Carpio, Brion, Reyes * and Leonen, JJ.,concur.