NPC v. Cabanatuan City

Action:

A petition for review of the Decision and the Resolution of the CA finding NPC liable to pay franchise tax to City of Cabanatuan.

Fact:

NAPOCOR, the petitioner, is a government-owned and controlled corporation created under Commonwealth Act 120. It is tasked to undertake the “development of hydroelectric generations of power and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a nationwide basis.”

For many years now, NAPOCOR sells electric power to the resident Cabanatuan City. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax representing 75% of 1% of the former’s gross receipts for the preceding year.

Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended.

Issue:

(1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a ‘non-profit organization’?

(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)?

Held:

(1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code.

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business.

(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or

privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.

Facts: City of Cabanatuan filed a collection suit against NAPOCOR, a government-owned and controlled corporation demanding that the latter pay the assessed franchise tax due, plus surcharge and interest. It alleged that NAPOCOR’s exemption from local taxes has already been withdrawn by the Local Government Code. NAPOCOR submitted that it is not liable to pay an annual franchise because the city’s taxing power is limited to private entities that are engaged in trade or occupation for profit, and that the NAPOCOR Charter, being a valid exercise of police power, should prevail over the LGC.

Issue: Whether NAPOCOR is liable to pay annual franchise tax to the City of Cabanatuan

Held: Yes. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. Nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.

A franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. It may be construed in two senses: the right vested in the individuals composing the corporation and the right and privileges conferred upon the corporation. A franchise tax is understood in the second sense; it is not levied on the corporation simply for existing as a corporation but on its exercise of the rights or privileges granted to it by the government. NAPOCOR is covered by the franchise tax because it exercises a franchise in the second sense and it is exercising its rights or privileges under this franchise within the territory of the City. 

DAVAO GULF LUMBER CORPORATION V CIR July 23, 1998Monday, January 26, 2009 Posted by Coffeeholic Writes Labels: Case Digests, Taxation

Facts: Davao Gulf Lumber Corp. is a licensed forest concessionaire possessing a Timber License Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed under 153 and 156 of the NIRC, on the sale of said products. Being included in thepurchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the user, the petitioner in this case.

On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a claimed for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the abovementioned fuels and oils that were used by petitioner in its operations as forest concessionaire.

Petitioner complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils in its forest concession as required by the above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the affidavits of its general manager, the president of the Philippine Wood ProductsAssociation, and 3 disinterested persons, all attesting that the manufactured diesel and fuel oils were actually used in the exploitation and operation of its forest.

On January 20, 1983, petitioner filed at the CTA a petition for review. On June 21, 1994, the CTA rendered decision finding

petitioner entitled to a partial refund of specific taxes the latter had paid in the reduced amount of P2,923.15.

Insisting that the basis for computing the refund should be the increased rates prescribed by Secs. 153 and 156 of the NIRC, petitioner elevated the matter to the CA. CA affirmed the decision of the CTA. Hence, this petition.

Issue: Whether or not the petitioner is entitled to the tax refundunder the increased rates prescribed by Secs. 153 and 156 of the NIRC.

Held: At the outset, it must be stressed that the petitioner is entitled to a partial refund under Sec. 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund. The gasoline and fuel purchased by mining and lumber concessionaires are used within their compounds and roads, and their vehicles seldom used the National Highways, they do not directly benefit from the Fund and its use. The Highway Special Fund was abolished in 1985, but since petitioner purchased the subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982, it is entitled to claim the refund under Sec. 5 of RA 1435.

A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, “a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.” Since the partial refund authorized under Sec. 5 RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence,

petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.

Davao Gulf Lumber vs. CIRDAVAO GULF LUMBER CORP v. CIRGR No. 117359, July 23, 1998293 SCRA 77

FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.

ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies?

HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax

refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

PNOC vs. CA G.R. No. 109976 April 26, 2005BIR requested PNOC to settle its liability for taxes onthe interest earned by its money placements withPNB and which PNB did not withhold. PNOC wrote BIRand made an offer to compromise its tax liability,estimated at P304M against NAPOCOR’s pendingclaim for tax refund. CIR accepted the compromise.Private respondent Savellanowas paid the informer'sreward in the total amount of  P 14M, representing15% of tax collected by the BIR from PNOC and PNB.Butprivate respondent Savellano, demanded from BIR thepayment of the balance of his informer's rewarda n d   s o u g h treconsideration of CIR’sdecis ion  tocompromise   the  tax  l iab i l i ty  of  PNOC.Whi le   theaforesaid  Mot ion  for  Reconsiderat ion  was st i l lpending with the BIR, private respondent Savellanofiled a Petition for Review with the CTA,allegingthatCIR actedwith grave abuse of discretion in enteringinto a compromise agreement that resulted in "agross and unconscionable diminution" of

his reward.P r i v a t e   r e s p o n d e n t   S a v e l l a n o   p r a y e d   f o r  t h e e n f o r c e m e n t   a n d   c o l l e c t i o n   o f   t h e   t o t a l   t a x a s s e ss m e n t   a g a i n s t   t a x p a y e r   P N O C   a n d / o r withholding agent PNB; and the payment to him byCIR of the 15% informer's reward on the total taxc o l l e c t e d . T h e   C T A   r u l e d   t h a t   t h e  c o m p r o m i s e a g r e e m e n t   b e t w e e n   B I R   a n d   P N B   a n d   P N O C  i s without force, and ruled that Private respondent bepaid the balance of the informer’s reward.PNB assailed the decision of CTA on ground that theBIR demand letter should be considered as a newassessment against PNB. As a new assessment, itgave rise to a new dispute and controversy solelyb e t w e e n   t h e   B I R   a n d   P N B   t h a t   s h o u l d  b e administratively settled or adjudicatedDoes CTA have jurisdiction over the case?The demand letter did not constitute a newassessment against PNB. The issuance by the BIRof the demand letter was merely a development inthe continuing effort of the BIR to collect the taxassessed against PNOC and PNB way back in 1986.  T h e d e m a n d   l e t t e r   a c t u a l l y   r e f e r r e d   t o  t h e withholding tax assessment first issued in 1986 andi ts  eventual  set t lement   through a compromiseagreement. In addition, the computation of thedeficiency withholding tax was based on the figuresfrom the 1986 assessments against PNOC and PNB.The CTA correctly retained jurisdiction overt h e   c a s e   b y   v i r t u e   o f   R e p u b l i c   A c t  N o . 1125.Having established that the BIR demand letterdid not constitute a new assessment, then, therecould be no basis for PNB's claim that any disputearising from the new assessment should only bebetween BIR and PNB. The CTA, however, correctlys u s t a i n e d   i t s   j u r i s d i c t i o n   a n d   c o n t i n u e d  t h e proceedings; and, in effect, rejected DOJ's claim of  jurisdiction to administratively settle or adjudicateBIR's assessment against PNB.In his Petition before the CTA, private respondentSavellano requested a review of the decisions of CIRto enter into a compromise

agreement with PNOCand  to   re ject  h is  c la im  for  addi t ional  in former 's reward. Thus,he submitted questions of lawi n v o l v i n g  i n t e r p r e t a t i o n   o f   E O   4 4   w h i c h a u t h o r i z e d  t h e   B I R   C o m m i s s i o n e r   t o compromise delinquent accounts and Sec 316of NIRC which granted to the informer a rewarde q u i v a l e n t   t o   1 5 %   o f   t h e   a c t u a l  a m o u n t recovered  or   co l lec ted  by   the  B IR .  Theseshould undoubtedly be considered as mattersarising from the NIRC and other laws beingadministered by the BIR, thus, appealable tothe CTA under Section 7(1) of Rep. Act No.1125.PNB, however, insists on the jurisdiction of the DOJover its appeal of the deficiency withholding taxassessment by virtue of P.D. No. 242. However, it isan established rule of statutory construction thatbetween a general law and a special law, the speciallaw prevails. P.D. No. 242 is a general law that dealswith administrative settlement or adjudication of d isputes,  c la ims and controvers ies  between ora m o n g   g o v e r n m e n t  o f f i c e s ,   a g e n c i e s   a n d instrumentalities, including government-owned orcontrolled corporations. On the other hand, Rep. ActNo.  1125  is a  specia l law dealing with a specificsubject matter – the creation of the CTA, which shallexercise exclusive appellate jurisdiction over the taxdisputes and controversies enumerated therein.

 CIR vs Santos G.R. No. 119252 August 18, 1997

Guild of Phil. Jewellers questions the constitutionality of certain provisions of theNIRC and Tariff and Customs Code of the Philippines. It is their contention that presentTariff and tax structure increases manufacturing costs and render local jewelrymanufacturers uncompetitive against other

countries., in support of their position, theysubmitted what they purported to be an exhaustive study of the tax rates on jewelryprevailing in other Asian countries, in comparison to tax rates levied in the country.Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory andoppressive and declared them INOPERATIVE and WITHOUR FORCE AND EFFECTinsofar as petitioners are concerned.Petitioner CIR assailed decision rendered by respondent judge contending thatthe latter has no authority to pass judgment upon the taxation policy of the government.Petitioners also impugn the decision by asserting that there was no showing that the taxlaws on jewelry are confiscatory.ISSUE:Whether or not the Regional Trial Court has authority to pass judgment upontaxation policy of the government.RULING:The policy of the courts is to avoid ruling on constitutional questions and topresume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary.This is not to say that RTC has no power whatsoever to declare a lawunconstitutional. But this authority does not extend to deciding questions which pertainto legislative policy.RTC have the power to declare the law unconstitutional but this authority doesnot extend to deciding questions which pertain to legislative policy. RTC can only lookinto the validity of a provision, that is whether or not it has been passed according to theprovisions laid down by law, and thus cannot inquire as to the reasons for its existence.RULING ON THE EXTENT OF LEGISLATIVE POWER TO TAX SC held that it is within the power f the legislature whether to tax jewelry or not.With the legislature primarily lies the discretion to determine the nature (kind), object(purpose), extent (rate), coverage (subject) and situs (place) of taxation.

 FUNDAMENTALS OF TAXATIONBRITISH AMERICAN TOBACCO, vs. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Departmentof Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenues.PHILIP MORRIS PHILIPPINES MANUFACTURING, INC., FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and JT INTERNATIONAL [G.R. No. 163583. April 15, 2009.]

(Motion for Reconsideration of the 2008 case)Facts: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 whichclassified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands,or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that theappropriate survey to determine their current net retail price is conducted. In June 2001 British American Tobaccointroduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with asuggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof forthe purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail pricesof new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky StrikeLights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack,respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Thus filed before theRegional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition soughtto enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 andRevenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. The trial court rendered a decisionupholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 andRevenue Memorandum Order No. 6-2003Issue/ Held: W/N the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.- NORatio: 

In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for reasons already advertedto in our August 20, 2008 Decision, the four-fold test has been met in the present case. As held in the assailed Decision,the instant case neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rationalbasis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protectionchallenge. It has been held that "in the areas of social and economic policy, a statutory classification that neitherproceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if thereis any reasonably conceivable state of facts that could provide a rational basis for the classification." Under the rationalbasis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from itscoverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply tofuture conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarettebrands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brandfrom its operation nor single out a brand for the purpose of imposition of excise taxes.

Systra Phils vs. CIRSeptember 21, 2007               G.R. 176290Corona, J.:FACTS:              This is a case where a second motion for reconsideration was filed by petitioner. Systra likewise questioned the substantive aspect of CTA decisions. The facts on the tax case.              Petitioner had creditable taxes which they opted to carry over to the succeeding year 2001. In 2001 ITR, it indicated that creditable withholding taxes will also be carried over to next year’s tax as credit. However, on August 9, 2001, petitioner instituted a claim for refund of its unutilized creditable withholding taxes. Due to BIR’s inaction, petitioner filed a petition for review. CTA partially granted the petition but denied claim for refund because petitioner was precluded from claiming a refund. Once it was made for a particular taxable period, the option to carry over become irrevocable.ISSUE:

              Whether or not the exercise of the option to carry-over excess income tax credits bars a taxpayer from claiming the excess tax credits for refund.RULING:              It was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years.”              Section 76 of the present tax c ode formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits “may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years until fully utilized.              Nevertheless, the amount will not be forfeited in favor of the government but will remain in the taxpayer’s account.”

PPI v. Fertphil Corporation, 548 SCRA 485 (2008)Post under case digests, Political Law at Wednesday, February 08, 2012 Posted by Schizophrenic Mind

Facts: Petitioner and private respondent are private corporations incorporated under Philippine laws. They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals. President Marcos issued LOI 1465 which provided, among others, for the imposition of a capital recovery component on the domestic sale of all grades of fertilizers in the Philippines. Pursuant to the LOI, private respondent paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Private respondent then demanded from petitioner a refund of the amounts it paid under LOI 1465

Issue: Whether or not the issuance of LOI 1465 is a valid exerciseof police power of the State

Held: Petition denied. The RTC and the CA did not err in ruling against the constitutionality of the LOI.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The “lawful subjects” and “lawful means” tests are used to determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons.

The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose.

Facts: Congress, with the approval of the President, passed into law RA 7227 entitled "An Act Accelerating the Conversion of MilitaryReservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes." Section 12 thereof created the Subic Special Economic Zone and granted there to special privileges. President Ramos issued Executive Order No. 97, clarifying the application of the tax and duty incentives. The President issued Executive Order No. 97-A, specifying the area within which the tax-and-duty-free privilege was operative. The petitioners challenged before

this Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. This Court referred the matter to the Court of Appeals.Proclamation No. 532 was issued by President Ramos. It delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone, pursuant to Section 12 of RA 7227. Respondent Court held that "there is no substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the 'Secured Area' is precise and well-defined as '. . . the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and defined by the 1947 Military BasesAgreement between the Philippines and the United States of America, as amended . . .'" 

Issue: Whether or not Executive Order No. 97-A violates the equal protection clause of the Constitution 

Held: No. The Court found real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonableclassification. The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to

existing conditions only, and (4) apply equally to all members of the same class. The Supreme Court believed it was reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base. It is this specific area which the government intends to transform and develop from its status quo ante as an abandoned naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign and local investors to use as operational bases for their businesses and industries.