statcon cases week 3

8/12/2019 Statcon Cases Week 3

1/44

MARIA E. MANAHAN, petitioner, vs. EMPLOYEES' COMPENSATION COMMISSION

and GSIS (LAS PI?AS MUNICIPAL HIGH SCHOOL), respondents.

1981-04-22 | G.R. No. L-44899

D E C I S I O N

FERNANDEZ, J.:

This is a petition to review the decision of the Employees' Compensation Commission in ECC Case No.

0070 (Nazario Manahan, Jr., deceased), entitled "Maria Manahan, Appellant, versus Government

Service Insurance System, (Las Pias Municipal High School), Respondent" affirming the decision of the

Government Service Insurance System which denied the claim for death benefit 1

The claimant, petitioner herein, Maria E. Manahan, is the widow of Nazario Manahan, Jr., who died of

"Enteric Fever" while employed as classroom teacher in Las Pias Municipal High School, Las Pias,

Rizal, on May 8, 1975.

The petitioner filed a claim with the Government Service Insurance System for death benefit under

Presidential Decree 626. In a letter dated June 19, 1975, the Government Service Insurance System

denied the claim on a finding that the ailment of Nazario Manahan, Jr., typhoid fever, is not an

occupational disease.

The petitioner filed a motion for reconsideration on the ground that the deceased, Nazario Manahan, Jr.,

was in perfect health when admitted to the service and that the ailment of said deceased was attributable

to his employment.

The Government Service Insurance System affirmed the denial of the claim on the ground that enteric

fever or paratyphoid is similar in effect to typhoid fever, in the sense that both are produced by

Salmonella organisms.

The petitioner appealed to the Employees' Compensation Commission which affirmed the decision of the

Government Service Insurance System on a finding that the ailment of the deceased, enteric fever, was

not induced by or aggravated by the nature of the duties of Nazario Manahan, Jr. as a teacher. 2

To support her theory that the disease of Nazario Manahan, Jr., enteric fever, resulted from his

employment as classroom teacher of the Las Pias Municipal High School, the petitioner cites thefollowing authority:

"EPIDEMOLOGY AND PATHOLOGY OF

ENTERIC FEVER

"THE SOURCE OF INFECTION is feces or urine from patients and carriers. Family contacts may be

transient carriers and 2 to 5% of patients become chronic carriers. In poorly sanitized communities,

water is the most frequent vehicle of transmission; food, especially milk, is the next most important. In

modern urban areas, food, contaminated by healthy carriers who are food handlers, is the principal

vehicle. Flies may spread the organism from feces to food. Direct contact infection is infrequent.

"The organism enters the body through the gastrointestinal tract, invading the bloodstream by way of the

lymphatic channels. There is hyperplasia and often ulceration of Pyeris patches, especially in the ileum

and cecum. When the ulcers heals, no scar results. The kidneys and liver usually show cloudly swelling

and the latter may reveal a patchy necrosis. The spleen is enlarged and soft. Rarely the lungs show

pneumonic changes. (Merck Manuel, 10th Edit., p. 842)"

The factual findings of the respondent Commission indicate that the deceased was in perfect health

when he entered government service on July 20, 1969, and that in the course of his employment in 1974,

he was treated for epigastric pain. He succumbed to enteric fever on May 8, 1975.

Enteric fever is referred to in medical books as typhoid fever (Dorland's Illustrated Medical Dictionary,

24th Ed., p. 548) or paratyphoid fever (Harrison's Principles of Internal Medicine, 6th Ed., p. 817). Its

symptoms include abdominal pain (id., p. 810). In discussing the clinical manifestations of the disease,

Mr. Harrison states that recovery (from enteric or paratyphoid fever) may be followed by continued

excretion of the causative organism in the stools for several months (id., p. 817). This lingering nature of

the species producing enteric fever points out the possibility that the illness which afflicted the deceased

in 1974 was the same as, or at least, related to, his 1975 illness.

The medical record of the deceased shows that he had a history of ulcer-like symptoms (p. 3, ECC rec.).

This buttresses the claimant's claim that her husband had been suffering from ulcer several months

before his death on May 8, 1975. This is likewise sustained by the medical certificate (p. 12, ECC rec.)

issued by Dr. Aquilles Bernabe to the effect that "Nazario Manahan was treated for epigastric pain

probably due to hyperacidity on December 10, 1974. "Epigastric pain is a symptom of ulcer, and ulcer is

a common complication of typhoid fever. There is even such a thing as "typhoidal ulcer" (p. 812, supra).

Because of these circumstances, the illness that claimed the life of the deceased could have had its

onset months before December 10, 1974. Such being the case, his cause of action accrued before

December 10, 1974.

In the case of Corales vs. ECC (L-44063, Feb. 27, 1979), We ruled that:

". . . Article 294, Title III (Transitory and Final Provisions) of the New Labor Code provides that all actions

and claims accruing prior to the effectivity of this Code shall be determined in accordance with the laws

in force at the time of their accrual and under the third paragraph of Article 292, Title II (Prescription of

Offenses and Claims), workmen's compensation claims accruing prior to the effectivity of this Code and

during the period from November 1, 1974 up to December 31, 1974 shall be processed and adjudicated

in accordance with the laws and rules at the time their causes of action accrued Hence, this Court

applied the provisions of the Workmen's Compensation Act, as amended, on passing upon petitioner's

claim."

Pursuant to such doctrine and applying now the provisions of the Workmen's Compensation Act in this

case, the presumption of compensability subsists in favor of the claimant.

In any case, We have always maintained that in case of doubt, the same should be resolved in favor of

the worker, and that social legislations - like the Workmen's Compensation Act and the Labor Code -

should be liberally construed to attain their laudable objective, i.e., to give relief to the workman and/or

his dependents in the event that the former should die or sustain an injury.

Moreover, the constitutional guarantee of social justice and protection to labor make Us take a second

look at the evidence presented by the claimant.

As a teacher of the Las Pias Municipal High School at Las Pias, Rizal, the deceased used to eat his

meals at the school canteen. He also used the toilet and other facilities of the school. Said the


2/44

respondent Commission, ". . . it is not improbable that the deceased might have contracted the illness

during those rare moments that he was away from his family, since it is medically accepted that enteric

fever is caused by 'salmonella' organisms which are acquired by ingestion of contaminated food or

drinks. Contamination of food or water may come from the excretion of animals such as rodents, flies, or

human beings who are sick or who are carriers, or infection in meat of animals as food. Meat, milk and

eggs are the foods most frequently involved in the transmission of this type of species, since the

organism may multiply even before ingestion . . . ." These findings of the respondent Commission lead to

the conclusion that the risk of contracting the fatal illness was increased by the decedent's workingcondition.

In view of the foregoing, the petition for review is meritorious.

WHEREFORE, the decision of the Employees' Compensation Commission sought to be reviewed is

hereby set aside and the Government Service Insurance System is ordered:

1. To pay the petitioner the amount of SIX THOUSAND PESOS (P6,000.00) as death compensation

benefit;

2. To pay the petitioner the amount of SIX HUNDRED PESOS (P600.00) as attorney's fees;

3. To reimburse the petitioner expenses incurred for medical services, hospitalization and medicines of

the deceased Nazario Manahan, Jr., duly supported by proper receipts; and

4. To pay administrative fees.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and De Castro, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., concurring:

Although enteric fever is not an occupational disease, considering the cause of said illness, the risk of

contracting it could have been increased by the working conditions of the deceased, a teacher, who used

to eat his meals at the school canteen and used the comfort room and other facilities of the school.

--------------

Footnotes

1. Rollo, pp. 25-27.

2. Idem.

FRANCISCO S. TANTUICO, JR., petitioner, vs. HON. EUFEMIO DOMINGO, in his

capacity as Chairman of the Commission on Audit, ESTELITO SALVADOR,

MARGARITO SILOT, VALENTINA EUSTAQUIO, ANICIA CHICO and GERMINIANO

PASCO, respondents.

1994-02-28 | G.R. No. 96422

D E C I S I O N

QUIASON, J.:

This is a petition for certiorari, prohibition and mandamus, with prayer for temporary restraining order or

preliminary injunction, under Rule 65 of the Revised Rules of Court.

The petition mainly questions the withholding of one-half of petitioner's retirement benefits.

I

On January 26, 1980, petitioner was appointed Chairman of the Commission on Audit (COA) to serve a

term of seven years expiring on January 26, 1987. Petitioner had discharged the functions of Chairman

of the COA in an acting capacity since 1975.

On December 31, 1985, petitioner applied for clearance from all money, property and other

accountabilities in preparation for his retirement. He obtained the clearance applied for, which covered

the period from 1976 to December 31, 1985. The clearance had all the required signatures and bore a

certification that petitioner was "cleared from money, property and/or other accountabilities by this

Commission." (Rollo, p. 44).

After the EDSA Revolution, petitioner submitted his courtesy resignation to President Corazon C. Aquino.

He relinquished his office to the newly appointed Chairman, now Executive Secretary Teofisto Guingona,

Jr. on March 10, 1986. That same day, he applied for retirement effective immediately.

Petitioner sought a second clearance to cover the period from January 1, 1986 to March 9, 1986. All the

signatures necessary to complete the second clearance, except that of Chairman Guingona, were

obtained. The second clearance embodies a certificate that petitioner was "cleared from money, property

and/or accountability by this Commission" (Rollo, p. 49). Chairman Guingona, however, failed to take

any action thereon.

Chairman Guingona was replaced by respondent Chairman. A year later, respondent Chairman issued

COA Office Order No. 87-10182 (Rollo, p. 50), which created a committee to inventory all equipment

acquired during the tenure of his two predecessors.

On May 7, 1987, respondent Chairman indorsed petitioner's retirement application to the Government

Service Insurance System (GSIS), certifying, among other matters, that petitioner was cleared of money

and property accountability (Rollo, p. 52). The application was returned to the COA pursuant to R.A. No.

1568, which vests in the COA the final approval thereof.

On September 25, 1987, the inventory committee finally submitted its report, recommending petitioner's

clearance from property accountability inasmuch as there was no showing that he personally gained

from the missing property or was primarily liable for the loss thereof (Rollo, pp. 53-58).


3/44

Not satisfied with the report, respondent Chairman issued a Memorandum directing the inventory

committee to explain why no action should be filed against its members for failure to complete a physical

inventory and verification of all equipment; for exceeding their authority in recommending clearances for

petitioner and Chairman Guingona; and for recommending petitioner's clearance in total disregard of

Section 102 of P.D. No. 1445 (Government Auditing Code of the Philippines). The members of the

committee were subsequently administratively charged.

On January 2, 1988, respondent Chairman created a special audit team for the purpose of conducting afinancial and compliance audit of the COA transactions and accounts during the tenure of petitioner from

1976 to 1984 (COA Office Order 88-10677; Rollo, pp. 66-67).

On February 28, 1989, the special audit team submitted its report stating: (i) that the audit consisted of

selective review of post-audit transactions in the head offices and the State Accounting and Auditing

Center; (ii) that the audit disclosed a number of deficiencies which adversely affected the financial

condition and operation of the COA, such as violations of executive orders, presidential decrees and

related rules and regulations; and (iii) that there were some constraints in the audit, such as the

unavailability of records and documents, and personnel movements and turnover. While the report did

not make any recommendation, it instead mentioned several officials and employees, including petitioner,

who may be responsible or accountable for the questioned transactions (Rollo, pp. 73, 147-151).

Respondent Chairman rendered a Decision dated November 20, 1989, in the administrative case filed

against the principal members of the first inventory committee. He found them guilty as charged and

issued them a reprimand. The other members were meted a stern warning, except for one who wasexonerated for not taking part in the preparation of the inventory report.

In a letter dated December 21, 1989, a copy of which was received by petitioner on December 27, 1989,

respondent Chairman informed petitioner of the approval of his application for retirement under R.A. No.

1568, effective as of March 9, 1986 (Rollo, pp. 68-69). However, respondent Chairman added:

". . . In view, however, of the audit findings and inventory report adverted to above, payment of only

one-half (1/2) of the money value of the benefits due you by reason of such retirement will be allowed,

subject to the availability of funds and the usual accounting and auditing rules. Payment of the balance

of said retirement benefits shall be subject to the final results of the audit concerning your fiscal

responsibility and/or accountability as former Chairman of this Commission."

In a letter dated January 22, 1990, petitioner requested full payment of his retirement benefits.

Petitioner was furnished a copy of the report of the special audit team in the letter dated December 21,

1989 of respondent Chairman on January 29, 1990, nearly a year after its completion. Attached to a

copy of the report was a letter dated November 14, 1989 from respondent Chairman, who required

petitioner to submit his comment within 30 days (Rollo, p. 153).

Petitioner submitted a letter-comment, wherein he cited certain defects in the manner the audit was

conducted. He further claimed that the re-audit was not authorized by law since it covered closed and

settled accounts.

Upon petitioner's request, he was furnished a set of documents which he needed to prepare his

comment. He was likewise given another 30-days to submit it.

A series of correspondence between petitioner and respondent Chairman ensued. On September 10,

1990, petitioner requested a copy of the working papers on which the audit report was based. This was

denied by respondent Chairman, who claimed that under the State Audit Manual, access to the working

paper was restricted. Petitioner's reconsideration was likewise denied and he was given a

non-extendible period of five days to submit his comment.

Instead of submitting his comment, petitioner sought several clarifications and specifications, and

requested for 90 days within which to submit his comment, considering that the report covered a

ten-year period of post-audited transactions. Ignoring petitioner's request, respondent Chairman

demanded an accounting of funds and a turn over of the assets of the Fiscal Administration Foundation,Inc. within 30 days.

II

Petitioner then filed the instant petition. As prayed for by petitioner, this Court issued a temporary

restraining order on January 17, 1991.

Petitioner argues that notwithstanding the two clearances previously issued, and respondent Chairman's

certification that petitioner had been cleared of money and property accountability, respondent Chairman

still refuses to release the remaining half of his retirement benefits ---- a purely ministerial act.

Petitioner was already issued an initial clearance during his tenure, effective December 31, 1985 (Rollo,

p. 44). All the required signatures were present. It also bore a certification that petitioner "is cleared from

money, property and/or other accountabilities by this commission" with the following notation:

"No property accountability under the Chairman's name as the person. Final clearance as COAChairman subject to the completion of ongoing reconciliation of Accounting & P(roperty) records and to

complete turnover of COA property assigned to him as agency head.

xxx xxx xxx

The responsibility of the Chairman for the disbursement and collection accounts of this Commission for

CYs Sept. '75 to Aug. '85, w ere completely post-audited, however as of Dec. 31, 1985, the suspensions

and disallowances in the amounts of P36,196,962.11 and P28,762.36 respectively are still in the process

of settlement" (Rollo, pp. 44-45).

Petitioner also applied for a second clearance to cover the period from January 1 to March 9, 1986,

which application had been signed by all the officials, except the Chairman (Rollo, p. 49).

Whatever infirmities or limitations existed in said clearances were cured after respondent Chairman

favorably indorsed petitioner's application for retirement to the Government Service Insurance System

and recommended its approval to take effect on March 10, 1986. In said endorsement, respondent

Chairman made it clear that there were no pending administrative and criminal cases against petitioner

(Rollo, p. 52).

Regardless of petitioner's monetary liability to the government that may be discovered from the audit

concerning his fiscal responsibility or accountability as former COA Chairman, respondent Chairman

cannot withhold the benefits due petitioner under the retirement laws.

In Romana Cruz v. Hon. Francisco Tantuico, 166 SCRA 670 (1988), the National Treasurer withheld the

retirement benefits of an employee because of his finding that she negligently allowed the anomalous

encashment of falsified treasury warrants.

In said case, where petitioner herein was one of the respondents, we found that the employee had been


4/44

cleared by the National Treasurer from all money and property responsibility, and held that the

retirement pay accruing to a public officer may not be withheld and applied to his indebtedness to the

government.

In Tantuico, we cited Justice Laurel's essay on the rationale for the benign ruling in favor of the retired

employees, thus:

". . . Pension in this case is a bounty flowing from the graciousness of the Government intended toreward past services and, at the same time, to provide the pensioner with the means with which to

support himself and his family. Unless otherwise clearly provided, the pension should inure wholly to the

benefit of the pensioner. It is true that the withholding and application of the amount involved was had

under Section 624 of the Administrative Code and not by any judicial process, but if the gratuity could not

attached or levied upon execution in view of the prohibition of Section 3 of Act No. 4051, the

appropriation thereof by administrative action, if allowed, would lead to the same prohibited result and

enable the respondent to do indirectly what they can not do directly under Section 3 of the Act No. 4051.

Act No. 4051 is a later statute having been approved on February 21, 1933, whereas the Administrative

Code of 1917 which embodies Section 624 relied upon by the respondents was approved on March 10

of that year. Considering Section 3 of Act No. 4051 as an exception to the general authority granted in

Section 624 of the Administrative Code, antagonism between the two provisions is avoided (Hunt v.

Hernandez, 64 Phil. 753 [1937]).

Under Section 4 of R.A. N o. 1568 (An Act to Provide Life Pension to the Auditor General and the

Chairman or Any Member of the Commission on Elections), the benefits granted by said law to theAuditor General and the Chairman and Members of the Commission on Elections shall not be subject to

garnishment, levy or execution. Likewise, under Section 33 of P.D. No. 1146, as amended (The R evised

Government Service Insurance Act of 1977), the benefits granted thereunder "shall not be subject,

among others, to attachment, garnishment, levy or other processes."

Well-settled is the rule that retirement laws are liberally interpreted in favor of the retiree because the

intention is to provide for the retiree's sustenance and comfort, when he is no longer capable of earning

his livelihood (Profeta vs. Drilon, 216 SCRA 777 [1992]).

Petitioner also wants us to enjoin the re-audit of his fiscal responsibility or accountability, invoking the

following grounds:

1. The re-audit involved settled and closed accounts which under Section 52 of the Audit Code can no

longer be re-opened and reviewed.

2. The re-audit was initiated by respondent Chairman alone, and not by the Commission as a collegial

body;

3. The report of the special audit team that recommended the re-audit is faulty as the team members

themselves admitted several constraints in conducting the re-audit, e.g. unavailability of the documents,

frequent turn-over and movement of personnel, etc.;

4. The re-audit covered transactions done even after petitioner's retirement;

5. He was not given prior notice of the re-audit;

6. He was not given access to the working papers; and

7. Respondents were barred by res judicata from proceeding with the re-audit (Rollo, pp. 19-40).

The petition must fail insofar as it seeks to abort the completion of the re-audit. While at the beginning

petitioner raised objections to the manner the audit was conducted and the authority of respondents to

re-open the same, he subsequently cooperated with the examination of his accounts and transactions as

a COA official.

With respect to the legal objections raised by petitioner to the partial findings of the respondents withrespect to his accountability, such findings are still tentative. As petitioner has requested, he is entitled to

a reasonable time within which to submit his comment thereon.

But in order to prepare his comment, petitioner should be given access to the working papers used by

the special audit team. The audit report covered a period of ten years (1976-1985) and involved

numerous transactions. It would be unfair to expect petitioner to comment on the COA's findings of the

report without giving him a chance to verify how those findings were arrived at.

It has been seven years since petitioner's retirement. Since then he was only paid half of his retirement

benefits, with the other half being withheld despite the issuance of two clearances and the approval of

his retirement application. As of the filing of this petition on December 21, 1990, no criminal or

administrative charge had been filed against petitioner in connection with his position as former Acting

Chairman and Chairman of the COA.

WHEREFORE, the petition is GRANTED insofar as it seeks to compel respondent Chairman of the COAto pay petitioner's retirement benefits in full and his monthly pensions beginning in March 1991.

The petition is DENIED insofar as it seeks to nullify COA Office Order No. 88-10677 and the audit report

dated February 28, 1989 but petitioner should be given full access to the working papers to enable him

to prepare his comment to any adverse findings in said report. The temporary restraining order is

LIFTED.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo,

Puno, Vitug and Kapunan, JJ., concur.


5/44

PHILACOR CREDIT CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

2013-02-06 | G.R. No. 169899

SECOND DIVISION

D E C I S I O N

BRION, J.:Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court seeking the reversalof the decision2 dated September 23, 2005 of the Court of Tax Appeals (CTA) en bane in C.T.A, E.B. No.19 (C.T.A. Case No. 5674). In the assailed decision, the CTA en banc affirmed the CTA Division'sresolution3 of April 6, 2004. Both courts held that petitioner Philacor Credit Corporation (Philacor), as anassignee of promissory notes, is liable for deficiency documentary stamp tax (DST) on (1) the issuanceof promissory notes; and (2) the assignment of promissory notes for the fiscal year ended 1993.The facts are not disputed.Philacor is a domestic corporation organized under Philippine laws and is engaged in the business ofretail financing. Through retail financing, a prospective buyer of a home appliance - with neither cash norany credit card - may purchase appliances on installment basis from an appliance dealer. After Philacor

conducts a credit investigation and approves the buyer's application, the buyer executes a unilateralpromissory note in favor of the appliance dealer. The same promissory note is subsequently assigned bythe appliance dealer to Philacor.4Pursuant to Letter of Authority No. 17107 dated July 6, 1974, Revenue Officer Celestino Mejia examinedPhilacor's books of accounts and other accounting records for the fiscal year August 1, 1992 to July 31,1993. Philacor received tentative computations of deficiency taxes for this year. Philacor's FinanceManager, Leticia Pangan, contested the tentative computations of deficiency taxes (totalingP20,037,013.83) through a letter dated April 17, 1995.5On May 16, 1995, Mr. Mejia sent a letter to Philacor revising the preliminary assessments as follows:

Deficiency Income Tax P 9,832,098.22Deficiency Percentage Tax 866,287.60Deficiency Documentary Stamp Tax 3,368,169. 45==============Total P 14,066,555.276==============

Philacor then received Pre-Assessment Notices (PANs), all dated July 18, 1996, covering the allegeddeficiency income, percentage and DSTs, including increments.7On February 3, 1998, Philacor received demand letters and the corresponding assessment notices, alldated January 28, 1998. The assessments, inclusive of increments, cover the following:

Deficiency Income Tax P 12, 888,085.09Deficiency Percentage Tax 1,185,977.07Deficiency DST Tax 3,368,196. 45===============Total P 17,442,231.618===============

On March 4, 1998, Philacor protested the PANs, with a request for reconsideration and reinvestigation. Italleged that the assessed deficiency income tax was erroneously computed when it failed to take intoaccount the reversing entries of the revenue accounts and income adjustments, such as repossessions,write-offs and legal accounts. Similarly, the Bureau of Internal Revenue (BIR) failed to take into accountthe reversing entries of repossessions, legal accounts, and write-offs when it computed the percentagetax; thus, the total income reported, that the BIR arrived at, was not equal to the actual receipts of

payment from the customers. As for the deficiency DST, Philacor claims that the accredited appliancedealers were required by law to affix the documentary stamps on all promissory notes purchased untilthe enactment of Republic Act No. 7660, otherwise known as An Act Rationalizing Further the Structureand Administration of the Documentary Stamp Tax,9 which took effect on January 15, 1994. In addition,Philacor filed, on the following day, a supplemental protest, arguing that the assessments were void forfailure to state the law and the facts on which they were based.10On September 30, 1998, Philacor filed a petition for review before the CTA Division, docketed as C.T.A.Case No. 5674. 11The CTA Division rendered its decision on August 14, 2003.12 After examining the documents submittedby the parties, it concluded that Philacor failed to declare part of its income, making it liable for deficiencyincome tax and percentage tax. However, it also found that the Commissioner of Internal Revenue (CIR)erred in his analysis of the entries in Philacor's books thereby considerably reducing Philacor's liability toa deficiency income tax of P1,757,262.47 and a deficiency percentage tax of P613,987.86. The CTAalso ruled that Philacor is liable for the DST on the issuance of the promissory notes and theirsubsequent transfer or assignment. Noting that Philacor failed to prove that the DST on its promissory

notes had been paid for these two transactions, the CTA held Philacor liable for deficiency DST ofP673,633.88, which is computed as follows:

Total Notes purchased during the taxable year P 269,453,556.94Divided by rate under Section 180 200.00-----------------------Basis of DST P 1,347,267.78Multiply by DST rate (Section 180, 1993Tax Code .20-----------------------DST on notes purchased P 269,453.55Add: Total DST on Notes assigned (Section 180) 269,453.55-----------------------P 538,907.10Deficiency Documentary Stamp TaxAdd: 25% surcharge 134,726.78-----------------------Total Deficiency Documentary Stamp Tax P 673,633.8813===============

All sums for deficiency taxes included surcharge and interest.Both parties filed their motions for reconsideration. The CIR's motion was denied for having been filedout of time.14 On the other hand, the CTA partially granted Philacor's motion in the resolution of April 6,2004,15 wherein it cancelled the assessment for deficiency income tax and deficiency percentage tax.These assessments were withdrawn because the CTA found that Philacor had correctly declared itsincome; the discrepancy of P2,180,564.00 had been properly accounted for as proper adjustments toPhilacor's net revenues. Nevertheless, the CTA Division sustained the assessment for deficiency DST inthe amount of P673,633.88.Philacor filed a petition for review before the CTA en banc.16


6/44

In its decision17 dated September 23, 2005, the CTA en banc affirmed the resolution of April 6, 2004 ofthe CTA Division. It reiterated that Philacor is liable for the DST due on two transactions - the issuance ofpromissory notes and their subsequent assignment in favor of Philacor. With respect to the issuance ofthe promissory notes, Philacor is liable as the transferee which "accepted" the promissory notes from theappliance dealer in accordance with Section 180 of Presidential Decree No. 1158, as amended (1986Tax Code).18 Further citing Section 4219 of Regulations No. 26,20 the CTA en banc held that a person"using" a promissory note is one of the persons who can be held liable to pay the DST. Since the subject

promissory notes do not bear documentary stamps, Philacor can be held liable for DST. As for theassignment of the promissory notes, the CTA en banc held that each and every transaction involvingpromissory notes is subject to the DST under Section 173 of the 1986 Tax Code; Philacor is liable as thetransferee and assignee of the promissory notes.On November 18, 2005, Philacor filed the present petition, raising the following assignment of errors:I

"USING" IN REGULATIONS NO. 26 DOES NOT APPEAR IN SECTIONS [SIC] 173 NOR 180 OF THETAX CODE; AND, THEREFORE WENT BEYOND THE LAW [SIC]

II

"ACCEPTING" IN SECTION 173 OF THE TAX CODE DOES NOT APPLY TO PROMISSORY NOTES

III

THE CTA EN BANC DECISION EXTENDED THE WORDS "ASSIGNMENT" AND "TRANSFERRING" INSECTION 173 TO THE PROMISSORY NOTES; SUCH THAT, THE "ASSIGNMENT" OR"TRANSFERRING" OF PROMISSORY NOTES IS SUBJECT TO DST. HOWEVER SECTIONS 176, 178,AND 198 OF TI TLE VII OF THE TAX COD E EXP RESS LY IMP OSE S [SI C] DST ON THETRANSFER/ASSIGNMENT OF CERTAIN DOCUMENTS WHICH REVEALS THE LEGISLATIVEINTENT THAT ONLY THE ASSIGNMENT/TRANSFER OF CERTAIN DOCUMENTS IN SECTIONS 176,178, AND 198 ARE SUBJECT TO DST

IV

BIR RULING 139-97 RULED THAT THE ASSIGNMENT OF A LOAN, WHICH IN SECTION 180 ISTREATED IN THE SAME BREATH AS A PROMISSORY NOTE, IS NOT SUBJECT TO DST21

We find the petition meritorious.

Philacor is not liable for the DST on the issuance of the promissory notes.

Neither party questions that the issuances of promissory notes are transactions which are taxable underthe DST. The 1986 Tax Code clearly states that:Section 180. Stamp tax on promissory notes, bills of exchange, drafts, certificates of deposit, debtinstruments used for deposit substitutes and others not payable on sight or demand. - On all bills ofexchange (between points within the Philippines), drafts, or certificates of deposits, debt instrumentsused for deposit substitutes or orders for the payment of any sum of money otherwise than at sight or ondemand, on all promissory notes, whether negotiable or non-negotiable except bank notes issued forcirculation, and on each renewal of any such note, there shall be collected a documentary stamp tax oftwenty centavos on each two hundred pesos, or fractional part thereof, of the face value of any such billof exchange, draft certificate of deposit, debt instrument, or note. [emphasis supplied; underscores ours]

Under the undisputed facts and the above law, the issue that emerges is: who is liable for the tax?

Section 173 of the 1997 National Internal Revenue Code (1997 NIRC) names those who are primarilyliable for the DST and those who would be secondarily liable:Section 173. Stamp taxes upon documents, instruments, and papers. - Upon documents, instruments,and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or propertyincident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had oraccomplished, the corresponding documentary stamp taxes prescribed in the following sections of thisTitle, by the person making, signing, issuing, accepting, or transferring the same, and at the same time

such act is done or transaction had: Provided, that wherever one party to the taxable document enjoysexemption from the tax herein imposed, the other party thereto who is not exempt shall be the onedirectly liable for the tax. [emphases supplied; underscores ours]

The persons primarily liable for the payment of the DST are the person (1) making; (2) signing; (3)issuing; (4) accepting; or (5) transferring the taxable documents, instruments or papers. Should theseparties be exempted from paying tax, the other party who is not exempt would then be liable.Philacor did not make, sign, issue, accept or transfer the promissory notes. The acts of making, signing,issuing and transferring are unambiguous. The buyers of the appliances made, signed and issued thedocuments subject to tax, while the appliance dealer transferred these documents to Philacor whichlikewise indisputably received or "accepted" them. "Acceptance," however, is an act that is not evenapplicable to promissory notes, but only to bills of exchange.22 Under Section 13223 of the NegotiableInstruments Law (which provides for how acceptance should be made), the act of acceptance referssolely to bills of exchange. Its object is to bind the drawee of a bill and make him an actual and boundparty to the instrument.24 Further, in a ruling adopted by the BIR as early as 1955, acceptance has

already been given a narrow definition with respect to incoming foreign bills of exchange, not thecommon usage of the word "accepting" as in receiving:The word "accepting" appearing in Section 210 of the National Internal Revenue Code has reference toincoming foreign bills of exchange which are accepted in the Philippines by the drawees thereof.Accordingly, the documentary stamp tax on freight receipts is due at the time the receipts are issued andfrom the transportation company issuing the same. The fact that the transportation contractor issuing thefreight receipts shifts the burden of the tax to the shipper does not make the latter primarily liable to thepayment of the tax.25 (underscore ours)

This ruling, to our mind, further clarifies that a party to a taxable transaction who "accepts" anydocuments or instruments in the plain and ordinary meaning of the act (such as the shipper in the citedcase) does not become primarily liable for the tax. In the same way, Philacor cannot be made primarilyliable for the DST on the issuance of the subject promissory notes, just because it had "accepted" thepromissory notes in the plain and ordinary meaning. In this regard, Section 173 of the 1997 NIRCassumes materiality as it determines liability should the parties who are primarily liable turn out to beexempted from paying tax; the other party to the transaction then becomes liable.Revenue Regulations No. 9-200026 interprets the law more widely so that all parties to a transaction areprimarily liable for the DST, and not only the person making, signing, issuing, accepting or transferringthe same becomes liable as the law provides. It provides:SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. -

(a) In General. - The documentary stamp taxes under Title VII of the Code is a tax on certaintransactions. It is imposed against "the person making, signing, issuing, accepting, or transferring" thedocument or facility evidencing the aforesaid transactions. Thus, in general, it may be imposed on thetransaction itself or upon the document underlying such act. Any of the parties thereto shall be liable forthe full amount of the tax due: Provided, however, that as between themselves, the said parties mayagree on who shall be liable or how they may share on the cost of the tax.

(b) Exception. - Whenever one of the parties to the taxable transaction is exempt from the tax imposed


7/44

under Title VII of the Code, the other party thereto who is not exempt shall be the one directly liable forthe tax. [emphasis ours]

But even under these terms, the liability of Philacor is not a foregone conclusion as from the face of thepromissory note itself, Philacor is not a party to the issuance of the promissory notes, but merely to theirassignment. On the face of the documents, the parties to the issuance of the promissory notes would bethe buyer of the appliance, as the maker, and the appliance dealer, as the payee.

We are aware that while Philacor denies being a party to the issuance of the promissory notes,27 theappliance buyer is made to sign a promissory note only after Philacor has approved its credit application.Moreover, the note Philacor marked as Annex "J" of its petition for review28 is the standard pro formapromissory note that Philacor uses in all similar transactions;29 the same document contains theissuance of the notes in favor of the appliance dealer and their assignments to Philacor. The promissorynotes are also transferred to Philacor by the appliance dealer on the same date that the appliance buyerissues the promissory note in favor of the appliance buyer. Thus, it would seem that Philacor is theperson who ultimately benefits from the issuance of the notes, if not the intended payee of these notes.These observations, however, pertain to facts and implications that are found outside the terms of thedocuments under discussion and are contradictory to their outright terms. To consider these externalitieswould go against the doctrine that the liability for the DST and the amount due are determined from thedocument itself - examined through its form and face - and cannot be affected by proof of facts outsideit.30Nor can the CIR justify his position that Philacor is liable for the tax by citing Section 42 of RegulationsNo. 26, which was issued by the Department of Finance on March 26, 1924:

Section 42. Responsibility for payment of tax on promissory notes. - The person who signs or issues apromissory note and any person transferring or using a promissory note can be held responsible for thepayment of the documentary stamp tax. [emphasis ours; italics supplied]

The rule uses the word "can" which is permissive, rather than the word "shall," which would make theliability of the persons named definite and unconditional. In this sense, a person using a promissory notecan be made liable for the DST if he or she is: (1) among those persons enumerated under the law - i.e.,the person who makes, issues, signs, accepts or transfers the document or instrument; or (2) if thesepersons are exempt, a non-exempt party to the transaction. Such interpretation would avoid any conflictbetween Section 173 of the 1997 NIRC and Section 42 of Regulations No. 26 and would make itunnecessary for us to strike down the latter as having gone beyond the law it seeks to interpret.However, we cannot interpret Section 42 of Regulations No. 26 to mean that anyone who "uses" thedocument, regardless of whether such person is a party to the transaction, should be liable, as thisreading would go beyond Section 173 of the 1986 Tax Code - the law that the rule seeks to implement.Implementing rules and regulations cannot amend a law for they are intended to carry out, not supplantor modify, the law.31 To allow Regulations No. 26 to extend the liability for DST to persons who are noteven mentioned in the relevant provisions of any of our Tax Codes, particularly the 1986 Tax Code (therelevant law at the time of the subject transactions) would be a clear breach of the rule that a statutemust always be superior to its implementing regulations.This expansive interpretation of Regulations No. 26 becomes even more untenable when we look at thedifference between the way our law has been phrased and the way the Internal Revenue Law of theUnited States (US) identified the persons liable for its stamp tax. We also note that despite thesubsequent amendments to our DST provisions, our Congress never saw it fit to phrase our laws usingthe US phraseologies.In Section 110 of our Internal Revenue Code of 1904, the persons liable for the stamp tax are the"persons who shall make, sign or issue the same[.]" Although our 1904 Tax Code was patterned afterthe then existing US Internal Revenue Code, also known as the Act of Congress of July 13, 1866,32 theUS provisions on the stamp tax provide for a wider set of taxpayers: Section 158 thereof places theburden on "persons who shall make, sign or issue, or who shall cause to be made, signed or issued any

instrument, document, or paper of any kind or description whatsoever, or shall accept, negotiate or payor cause to be accepted, negotiated and paid, any bill of exchange, draft, or order, or promissory note forthe payment of money." It goes on further by extending the liability not only to the parties mentioned butalso to "any party having an interest therein." Another US law, the War Revenue Act of June 13, 1898,provides in Section 6 thereof a more succinct phrase whose coverage is just as extensive: "any personsor party who shall make, sign or issue the same, or for whose use or benefit the same shall be made,signed or issued." These provisions have been adopted by various states such as Florida, South

Carolina, New Jersey and Pennsylvania.33Under US laws, liability for the DST is placed on any person who has an interest in the transaction ordocument and whoever may benefit from it. A person who would use it or benefit from it, includingparties who are not named in the instrument, would be liable for the tax. In comparison, our legislatorschose to limit the DST liability only to "persons who shall make, sign or issue [the document orinstrument]."Notably, our revenue laws regarding persons liable for the DST have been repeatedly amended. Insubsequent amendments, the coverage of the liability for DST included persons who "accept" and"transfer" the instrument, document or paper of the taxable transaction. Thereafter, we included theproviso that should any of the parties be exempt, the other party to the transaction would become liable.However, none of these amendments had ever extended the liability to persons who have any interest inor who would benefit from the document or instrument subject to tax. Thus, we cannot allow RegulationsNo. 26 to be interpreted in such a way as to extend the DST liability to persons who are not the partiesnamed in the taxable document or instrument and are merely using or benefiting from it, against theclear intention of our legislature.

In our view, it makes more sense to include persons who benefit from or have an interest in the taxabledocument, instrument or transaction. There appears no reason for distinguishing between the personswho make, sign, issue, transfer or accept these documents and the persons who have an interest inthese and/or have caused them to be made, signed or issued. This also limits the opportunities foravoiding tax. Moreover, there are cases when making all relevant parties taxable could help ouradministrative officers collect tax more efficiently. In this case, the BIR could simply collect from thefinancing companies, rather than go after each and every appliance buyer or appliance seller. However,these are matters that are within the prerogatives of Congress so that any interference from the Court,no matter how well-meaning, would constitute judicial legislation. At best, we can only air our views inthe hope that Congress would take notice.Philacor is not liable for the DST on the assignment of promissory notes.

Philacor, as an assignee or transferee of the promissory notes, is not liable for the assignment ortransfer of promissory notes as this transaction is not taxed under the law.The CIR argues that the DST is levied on the exercise of privileges through the execution of specificinstruments, or the privilege to enter into a transaction. Therefore, the DST should be imposed on everyexercise of the privilege to enter into a transaction.34 There is nothing in Section 180 of the 1986 TaxCode that supports this argument; the argument is even contradicted by the way the provisions on DSTwere drafted.As Philacor correctly points out, there are provisions in the 1997 NIRC that specifically impose the DSTon the transfer and/or assignment of documents evidencing particular transactions. Section 176 imposesa DST on the transfer of due bills, certificates of obligation, or shares or certificates of stock in acorporation, apart from Section 175 which imposes the DST on the issuance of shares of stock in acorporation. Section 178 imposes the DST on certificates of profits, or any certificate or memorandumshowing interest in a property or accumulations of any corporation, and on all transfers of such certificateor memoranda. Section 198 imposes the DST on the assignment or transfer of any mortgage, lease orpolicy of insurance, apart from Sections 183, 184, 185, 194 and 195 which impose it on the issuances ofmortgages, leases and policies of insurance. Indeed, the law has set a pattern of expressly providing forthe imposition of DST on the transfer and/or assignment of documents evidencing certain transactions.


8/44

Thus, we can safely conclude that where the law did not specify that such transfer and/or assignment isto be taxed, there would be no basis to recognize an imposition.A good illustrative example is Section 198 of the 1986 Tax Code which provides that:Section 198. Stamp tax on assignments and renewals of certain instruments. - Upon each and everyassignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance ofany agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise,there shall be levied, collected and paid a documentary stamp tax, at the same rate as that imposed on

the original instrument.

If we look closely at this provision, we would find that an assignment or transfer becomes taxable only inconnection with mortgages, leases and policies of insurance. The list does not include the assignment ortransfer of evidences of indebtedness; rather, it is the renewal of these that is taxable. The present casedoes not involve a renewal, but a mere transfer or assignment of the evidences of indebtedness orpromissory notes. A renewal would involve an increase in the amount of indebtedness or an extension ofa period, and not the mere change in person of the payee.35In BIR Ruling No. 139-97 issued on December 29, 1997, then CIR Liwayway Vinzons-Chato pronouncedthat the assignment of a loan that is not for a renewal or a continuance does not result in a liability forDST. Revenue Regulations No. 13-2004, issued on December 23, 2004, states that "[t]he DST on alldebt instruments shall be imposed only on every original issue and the tax shall be based on the issueprice thereof. Hence, the sale of a debt instrument in the secondary market will not be subject to theDST." Included in the enumeration of debt instruments is a promissory note.The BIR Ruling and Revenue Regulation cited are still applicable to this case, even if they were issued

after the transactions in question had already taken place. They apply because they are issuancesinterpreting the same rule imposing a DST on promissory notes. At the time BIR Ruling No. 139-97 wasissued, the law in effect was the 1986 Tax Code; the 1997 NIRC took effect only on January 1, 1998.Moreover, the BIR Ruling referred to a transaction entered into in 1992, when the 1986 Tax Code hadbeen in effect. On the other hand, the BIR issued Revenue Regulations No. 13-2004 when Section 180of the 1986 Tax Code had already been amended. Nevertheless, the rule would still apply to this casebecause the pertinent part of Section 180 - the part dealing with promissory notes - remained the same;it imposed the DST on the promissory notes' issuances and renewals, but not on their assignment ortransfer:Section 180 of the 1986 Tax Code, as Section 180 of the 1997 NIRC, asamended amended by Republic Act No. 9243

Section 180. Stamp tax on promissory Section 180. Stamp Tax on All Bonds,notes, bills of exchange, drafts, certificates Loan Agreements, Promissory Notes,of deposit, debt instruments used for Bills of Exchange, Drafts, Instrumentsdeposit substitutes and others not payable and Securities Issued by theon sight or demand on all promissory notes, Government or Any of its whether negotiable ornonnegotiable except Instrumentalities, Depositbank notes issued for circulation, and on Substitute Debt Instruments,each renewal of any such note, there shall Certificates of Deposits Bearingbe collected a documentary stamp tax of Interest and Others Not Payabletwenty centavos on each two hundred pesos, on Sight or Demand.or fractional part thereof, of the face value - On all bonds, loan agreements,of any such bill of exchange, draft certificate including those signed abroad,of deposit, debt instrument, or note. wherein the object of the contractis located or used in the Philippines,bills of exchange (between points- On all bills of exchange (between points within the Philippines), drafts,

within the Philippines), drafts, or certificates instruments and securities issued byof deposits, debt instruments used for the Government or any of itsdeposit substitutes or orders for the instrumentalities, deposit substitutepayment of any sum of money otherwise debt instruments, certificatesthan at sight or on demand, orders of deposits drawing interest,for the payment of any sum of moneyotherwise than at sight or on demand,

on all promissory notes, whethernegotiable or non-negotiable, exceptbank notes issued for circulation, andon each renewal of any such note,there shall be collected adocumentary stamp tax of Thirtycentavos (P 0.30) on each Twohundred pesos (P 200), or fractionalpart thereof, of the face value ofany such agreement,bill of exchange,draft, certificate of deposit, or note:Provided,That only one documentarystamp tax shall be imposed oneither loan agreement, or promissorynotes issued to secure such loan,

whichever will yield a higher tax.Provided, however, That loanagreements or promissory notesthe aggregate of which does notexceed Two hundred fifty thousandpesos (P 250,000) executed byindividual for his purchase oninstallment for his personal useor that of his family and not forbusiness resale, barter or hire of ahouse, lot, motor vehicle, applianceor furniture shall be exempt fromthe payment of the documentarystamp tax provided under thisSection.

The settled rule is that in case of doubt, tax laws must be construed strictly against the State and liberallyin favor of the taxpayer. The reason for this ruling is not hard to grasp taxes, as burdens which must beendured by the taxpayer, should not be presumed to go beyond what the law expressly and clearlydeclares. That such strict construction is necessary in this case is evidenced by the change in thesubject provision as presently worded, which now expressly levies the tax on shares of stock as againstthe previlege of issuing certificates of stock as formerly provided.36WHEREFORE, premises considered, we GRANT the petition. The September 23, 2005 Decision of theCourt of Tax Appeals en banc in C.T.A. E.B. No. 19 (C.T.A. Case No. 5674), ordering Philacor CreditCorporation to pay a deficiency documentary stamp tax in connection with the issuances and transfers orassignments of promissory notes for the fiscal year ended July 31, 1993, is SET ASIDE. No costs.

SO ORDERED.ARTURO D. BRION


9/44

Associate Justice

WE CONCUR:ANTONIO T. CARPIOAssociate JusticeChairpersonMARIANO C. DEL CASTILLO

Associate Justice

JOSE PORTUGAL PEREZAssociate Justice

ESTELA M. PERLAS-BERNABEAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case wasassigned to the writer of the opinion of the Court's Division.ANTONIO T. CARPIOAssociate JusticeChairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it ishereby certified that the conclusions in the above Decision had been reached in consultation before thecase was assigned to the writer of the opinion of the Court's Division.MARIA LOURDES P.A. SERENOChief Justice

Footnotes

1 Rollo. pp 31-512 Id. at 8-27: penned by Associate Justice Olga Palanca-Enriquez and concurred in by Associate JusticeErnesto D. Acosta, Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy and Ceasar A.Casanova.3 Id. at 111-118.4 Id. at 31, 39-40.5 Id. at 64-65.6 Id. at 65.7 Ibid.8 Id. at 66.9 Amending for the Purpose Certain Provisions of the National Internal Revenue Code, as amended,Allocating Funds for Specific Programs and for Other Purposes.10 Id. at 67-68.11 Id. at 68.12 Id. at 122-143.13 Id. at 148.14 Id. at 163-166.15 Supra note 3.

16 Rollo, pp. 88-109.17 Supra note 2.18 In 1993, the applicable law was the 1986 Tax Code, which has been subsequently amended by the1997 National Internal Revenue Code (Republic Act No. 8424), also known as the "Tax Reform Act Of1997," which became effective on January 1, 1998.19 Section 42. Responsibility for payment of tax on promissory notes. - The person who signs or issuesa promissory note and any person transferring or using a promissory note can be held responsible for

the payment of the documentary stamp tax.20 Issued on March 26, 1924, entitled "The Revised Documentary Stamp Tax Regulations."21 Rollo, pp. 43-49.22 Jose Campos Jr. & Maria Clara Lopez-Campos, "Notes and Selected Cases on NegotiableInstruments Law," 1994 edition, p. 520.23 Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the signification by thedrawee of his assent to the order of the drawer. The acceptance must be in writing and signed by thedrawee. It must not express that the drawee will perform his promise by any other means than thepayment of money.24 Supra note 22.25 Jose Araas, "Annotations and Jurisprudence on the National Internal Revenue Code, asamended," volume 3, 1963 edition, p. 2, citing BIR Ruling dated September 13, 1955 and the QuarterlyBull., Vol. IV, No. 3.26 Issued on November 22, 2000.27 Rollo, p. 210.

28 Id. at 167.29 Id. at 217.30 Hector de Leon and Hector de Leon, Jr., "The National Internal Revenue Code Annotated, volume 2,2003 ed., p. 288, citing US. v. Isham, 84 US 496 (1873); and Danville Building Ass'n v. Pickering (D. C.)294 F. 117.31 Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.), Inc., G.R. No. 164365,June 8, 2007, 524 SCRA 271, 276.32 Hector S. De Leon, "The National Internal Revenue Code Annotated," 1991 ed., p. 9.33 See Choctawhatchee Electric Cooperative, Inc v. Green, 123 So. 2d 357 (1960); Loyola FederalSavings and Loan Association v. South Carolina Tax Commission, 308 S.C. 211 (1992); Endler v. UnitedStates, 110 F. Supp. 945 (1953); and Pennsylvania Company for Insurances on Lives and GrantingAnnuities v. United States, 39 F. Supp 1019 (1941).34 Rollo, p. 72.35 State of Florida Department of Revenue v. Miami National Bank, 374 So. 2d 1 (1979).36 Lincoln Philippine Life Insurance Corp. v CA. 354 Phil 896, 904 (1998).


10/44

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. A. D. GUERRERO,

Special Administrator, in substitution of NATHANIEL I. GUNN, as Administrator of

the Estate of the late PAUL I. GUNN, respondent.

1967-09-22 | G.R. No. L-20942

D E C I S I O N

FERNANDO, J.:

A novel question, one of importance and significance, is before this Court in this petition for the review of

a decision of the Court of Tax Appeals. For the first time, the Ordinance appended to the Constitution

calls for interpretation, having been invoked to justify a claim for refund of taxes by the estate of an

American national, who in his life-time was engaged in the air transportation business. More specifically,

the issue is whether or not Section 142 of the National Internal Revenue Code allowing Filipinos a refund

of 50 percentum of the specific tax paid on aviation oil, could be availed of by citizens of the United

States and all forms of business enterprises owned or controlled directly or indirectly by them in view of

their privilege under the Ordinance to operate public utilities "in the same manner as to, and under the

same conditions imposed upon, citizens of the Philippines or corporations or associations owned or

controlled by citizens of the Philippines." 1

The Commissioner of Internal Revenue, now petitioner before this Court, denied the claim for refund inthe sum of P2,441.93 filed by the administrator of the estate of Paul I. Gunn, thereafter substituted by the

present respondent A. D. Guerrero as special administrator under the above section of the National

Internal Revenue Code. 2 The deceased operated an air transportation business under the business

name and style of Philippine Aviation Development; his estate, it was claimed, "was entitled to the same

rights and privileges as Filipino citizens operating public utilities including privileges in the matter of

taxation." The Commissioner of Internal Revenue disagreed, ruling that such partial exemption from the

gasoline tax was not included under the terms of the Ordinance and that in accordance with the statute,

to be entitled to its benefits, there must be a showing that the United States of which the deceased was a

citizen granted a similar exemption to Filipinos. The refund as already noted was denied. The matter was

brought to the Court of Tax Appeals on a stipulation of facts, no additional evidence being introduced.

Viewing the Ordinance differently, it "ordered the petitioner to refund to the respondent the sum of

P2,441.93 representing 50% of the specific taxes paid on 61,048.19 liters of gasoline actually used in

aviation during the period from October 3, 1956 up to May 31, 1957." Not satisfied with the above

decision, petitioner appealed.

We sustain the Commissioner of Internal Revenue; accordingly, the Court of Tax Appeals is reversed.

To the extent that a refund is allowable, there is in reality a tax exemption. The rule applied with

undeviating rigidity in the Philippines is that for a tax exemption to exist, it must be so categorically

declared in words that admit of no doubt. No such language may be found in the Ordinance. It furnishes

no support, whether express or implied, to the claim of respondent Administrator for a refund.

From 1906, in Catholic Church vs. Hastings 3 to 1966, in Esso Standard Eastern, Inc. vs. Acting

Commissioner of Customs, 4 it has been the constant and uniform holding that exemption from taxation

is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer.

Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be

construed strictissimi juris. 5 The state of the law on the subject was aptly summarized in the Esso

Standard Eastern, Inc. by Justice Sanchez thus: "The drive of petitioner's argument is that marketing of

its gasoline product 'is corollary to or incidental to its industrial operations.' But this contention runs

smack against the familiar rules that exemption from taxation is not favored, and that exemptions in tax

statutes are never presumed. Which are but statements in adherence to the ancient rule that exemptions

from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing

authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an

exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has

granted in express terms certain exemptions, those are the exemptions to be considered, and no more .

. . ."

In addition to Justice Tracey, who first spoke for this Court in the Hastings case in announcing "the

cardinal rule of American jurisprudence that exemption from taxation not being favored," and therefore

"must be strictly construed" against the taxpayer, two other noted American jurists, Moreland and Street,

who likewise served this Court with distinction, reiterated the doctrine in terms even more emphatic.

According to Justice Moreland: "Even though the complaint in this rega rd were well founded, it would

have little bearing on the result of the litigation when we take into consideration the universal rule that he

who claims an exemption from his share of the common burden of taxation must justify his claim by

showing that the Legislature intended to exempt him by words too plain to be mistaken." 6 From Justice

Street: "Exemptions from taxation are highly disfavored, so much so that they may almost be said to be

odious to the law. He who claims an exemption must be able to point to some positive provision of law

creating the right. It cannot be allowed to exist upon a vague implication such as is supposed to arise in

this case from the omission from Act No. 1654 of any reference to liability for tax. The books are full of

very strong expressions on this point." 7

At the time then when the Ordinance took effect in April, 1947, the strict rule against tax exemption wasundisputed and indisputable. Such being the case, it would be a plain departure from the terms of the

Ordinance to predicate a tax exemption where none was intended. Wellsettled is the principle ". . . that a

constitutional provision must be presumed to have been framed and adopted in the light and

understanding of prior and existing laws and with reference to them. 'Courts are bound to presume that

the people adopting a constitution are familiar with the previous and existing laws upon the subjects to

which its provisions relate, and upon which they express their judgment and opinion in its adoption'." 8

Respect for and deference to doctrines of such undeniable force and cogency preclude an affirmance of

the decision of the Court of Tax Appeals. This is not to say that the scope of the Ordinance is to be

restricted or confined. What it promises must be fulfilled. There must be recognition of the right of the

"citizens of the United States and to all forms of business enterprise owned or controlled, directly or

indirectly, by citizens of the United States" to operate public utilities "in the same manner as to, and

under the same conditions imposed upon, citizens of the Philippines or corporations or associations

owned or controlled by citizens of the Philippines."

If the language of the Ordinance applies to tax refund or exemption, then the Court of Tax Appeals

should be sustained. It does not, however. Its terms are clear. Standing alone, without any franchise to

supply that omission, it affords no warrant for the claim here made. While good faith, no less than

adherence to the categorical wording of the Ordinance, requires that all the rights and privileges thus

granted to Americans and business enterprises owned and controlled by them be respected, anything

further would not be warranted. Nothing less will suffice, but anything more is not justified.

This conclusion has reinforcement that comes to it from another avenue of approach, the historical

background of the Ordinance. In public law questions, history many a time holds the key that unlocks the

door to understanding. Justice Tuason would thus have courts "look to the history of the times, examine

the state of things existing when the Constitution was framed and adopted, . . . and interpret it in the light

of the law then in operation." 9 Justice Laurel earlier noted that while historical discussion is not decisive,

it is valuable. 10 A brief resume then of the events that led to its being appended to the Constitution will


11/44

not be inappropriate.

Early in 1945, liberation primarily through the efforts of the American forces under General MacArthur,

assisted by Filipino guerrillas, heralded the dawn, awaited so long and so anxiously, ending the dark

night of the Japanese Occupation, which was only partly mitigated by a show of cooperation on the part

of some Filipino leaders of stature and eminence. All throughout those years, the Japanese Army in the

Philippines enforced repressive measures, severe in character. What was even more regrettable, in the

last few weeks, the few remaining Japanese troops in Manila and suburbs made a suicidal stand. Thescorched earth policy was followed. Guerrilla suspects paid dearly for their imaginary sins. There were

recorded cases, not few in number, or the old and infirm, even those of tender years, not being spared.

The Americans shelled Japanese positions, unfortunately not always with precision, as would have been

unavoidable perhaps in any case. The lot of the helpless civilians, already suffering from acts born out of

desperation of a cornered prey, became even more unenviable. They were caught in the cross-fire.

The toll in the destruction of the property and the loss of lives was heavy; the price the Filipinos paid was

high. The feeling then, and even now for that matter, was that it was worth it. For life during the period of

the Japanese Occupation had become unbearable. There was an intolerable burden on the spirit and the

kind of man with all civil liberties wantonly disregarded. There was likewise a well-nigh insupportable

affliction on his health and physical well-being, with food, what there was of it, difficult to locate and

beyond the means of even the middle-income groups. Medicine was equally scarce, what was available

commanding prices unusually high. A considerable portion of the population were dressed in rags and

lived under the most pitiable conditions in houses that had seen much better days. Moreover in a

garrison state with the Japanese kempetai, 11 and the contemptible spies and informers, there was everpresent that fear of the morrow, the sense of living at the edge of an impending doom.

It was fortunate that the Japanese Occupation ended when it did. Liberation was hailed by all, but the

problems faced by the legitimate government were awesome in their immensity. The Philippine treasury

was bankrupt and her economy prostrate. There were no dollar-earning export crops to speak of;

commercial operations were paralyzed; and her industries were unable to produce with mills, factories

and plants either destroyed or their machineries obsolete or dismantled. It was a desolate and tragic

sight that greeted the victorious American and Filipino troops. Manila, particularly that portion south of

the Pasig, lay in ruins, its public edifices and business buildings lying in a heap of rubble and numberless

houses razed to the ground. It was in fact, next to Warsaw, the most devastated city in the expert opinion

of the then General Eisenhower. There was thus a clear need of help from the United States. American

aid was forthcoming but on terms proposed by her government and later on accepted by the Philippines.

One such condition expressly set forth in the Philippine Trade Act of 1946 passed by the Congress of the

United States was that: "The disposition, exploitation, development, and utilization of all agricultural,

timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,

all forces and sources of potential energy, and other natural resources of the Philippines, and the

operation of public utilities, shall, if open to any person, be open to citizens of the United States and to all

forms of business enterprises owned or controlled directly or indirectly, by United States citizens.'' 12

The above was embodied in an Executive Agreement concluded on July 4, 1946, the agreement being

signed by the President of the Republic of the Philippines and the plenipotentiary of the President of the

United States. The Constitution being in the way, both the exploitation of natural resources and the

operation of public utilities having been reserved for Filipinos, there was a need for an amendment. Such

an amendment was only forthcoming. It took the form of the Ordinance now under consideration, which

took effect on April 9, 1947.

The Ordinance thus came into being at a time when the liberation of the Philippines had elicited a vast

reservoir of goodwill for the United States, one that has lasted to this day notwithstanding irritants that

mar ever so often the relationship even among the most friendly of nations. Her prestige was never so

high. The Philippines after hearing opposing views on the matter conceded parity rights. She adopted

the Ordinance. To that grant, she is committed. Its terms are to be respected. In view of the equally

fundamental postulate that legal concepts imperatively calling for application cannot be ignored, however,

it follows that tax exemption to Americans or to business owned or controlled directly or indirectly by

American citizens, based solely on the language of the Ordinance, cannot be allowed. There is nothing

in its history that calls for a different view. Had the parties been of a different mind, they would haveemployed words indicative of such intention. What was not there included, whether by purpose or

inadvertence, cannot be judicially supplied.

One final consideration. The Ordinance is designed for a limited period to allow what the Constitution

prohibits; Americans may operate public utilities. During its effectivity, there should be no thought of

whittling down the grant thus freely made. Nonetheless, being of a limited duration, it should not be given

an interpretation that would trench further on the plain constitutional mandate to limit the operation of

public utilities to Filipino hands. That is to show fealty to the fundamental law, which, in the language of

Story "was not intended to provide merely for the exigencies of a few years" unlike the Ordinance "but

was to endure through a long lapse of ages, the events of which w ere locked up in the inscrutable

purposes of Providence." 13 This is merely to emphasize that the Constitution unlike an ordinance

appended to it, to borrow from Cardozo "states or ought to state not rules for the passing hour, but

principles for an expanding future.'' 14 That is transitory in character then should not be given an

interpretation at war with the plain and explicit command of what is to continue far into the future, unless

there be some other principle of acknowledged primacy that compels the contrary. 15

It would seem to follow from all the foregoing that the decision of the Court of Tax Appeals enlarged the

scope and operation of the Ordinance. It failed unfortunately to abide by what the controlling precedents

require, namely, that tax exemption is not to be presumed and that if granted, it is to be most strictly

construed. No such grant was apparent on the face of the Ordinance. No such grant could be implied

from its history, much less from its transitory character. The Court of Tax Appeals went too far. That

cannot be done.

WHEREFORE, the decision of the Court of Tax Appeals is reversed and the case is remanded to it, to

grant respondent Administrator the opportunity of proving whether the estate could claim the benefits of

Section 142 of the National Internal Revenue Code, allowing refund to citizens of foreign countries on a

showing of reciprocity. With costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and

Angeles, JJ., concur.

Footnotes

1. The Ordinance appended to the Constitution reads as follows: "Notwithstanding the provisions of

section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing Constitution, during the

effectivity of the Executive Agreement entered into by the President of the Philippines with the President

of the United States on the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of

Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third

of July, nineteen hundred and seventy-four, the disposition, exploitation, development, and utilization of

all agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and

other mineral oils, all forces of potential energy, and other natural resources of the Philippines, and the

operation of public utilities, shall, if open to any person, be open to citizens of the United States and to all

forms of business enterprises owned or controlled, directly or indirectly, by citizens of the United States


12/44

in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or

corporations or associations owned or controlled by citizens of the Philippines."

2. Section 142 of the National Internal Revenue Code as amended reads as follows: "Section 14.

Specific tax on manufactured oils and others fuels. - On refined and manufactured mineral oils and motor

fuels, there shall be collected the following taxes: (a) . . . ; (b) . . . ; (c) Naphtha, gasoline, and all other

similar products of distillation, per liter of volume capacity, eight centavos; and (d) . . . Whenever any of

the oils mentioned above are, during the five years from June eighteen, nineteen hundred and fifty-two,used in agriculture and aviation, fifty-percentum of the specific tax paid thereon shall be refunded by the

Collector of Internal Revenue upon the submission of the following: (1) . . . ; (2) . . . ; (3) In case of

aviation oils, a sworn certificate satisfactory to the Collector proving that the said oils were actually used

in aviation: Provided, That no such refunds shall be granted in respect to the oils used in aviation by

citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in

respect to similar oils used in aviation by citizens and corporations of the Philippines."

3. 5 Phil. 701.

4. L-21841, October 28, 1966. Some of the other cases follow: Govt. of the Phil. v. Monte de Piedad

(1916) 25 Phil. 42; Asiatic Petroleum v. Llanes (1926) 49 Phil. 466; House v. Posadas (1929) 53 Phil.

338; Phil. Tel. & Tel. Co. v. Collector (1933) 58 Phil. 639; Greenfield v. Meer (1946) 77 Phil. 394;

Collector of Internal Revenue v. Manila Jockey Club (1956) 98 Phil. 670; Phil. Guaranty Co. v.

Commissioner, L-22074, Sept. 6, 1965; Abad v. Court of Tax Appeals, L-20834, October 19 1966.

5. Philippine Guaranty Co. v. Commissioner, L-22074, September 6, 1965, per Bengzon, J.

6. Govt. of the Phil. v. Monte de Piedad (1916) 35 Phil. 42. 48.

7. Asiatic Petroleum Co. v. Llanes (1926) 49 Phil. 46G, 471-472. He added: "As was said by the

Supreme Court of Tenneesee in Memphis v. U. & P. Bank (91 Tenn., 546. 550), 'The right of taxation is

inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims

an exemption from the common burden, must justify his claim by the clearest grant of organic or statute

law.' Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio

Life Ins. and Trust Co. v. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of

taxation will not be held to have been surrendered, 'unless the intention to surrender is manifested by

words too plain to be mistaken.' In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the

Supreme Court of the United States said that the surrender, when claimed, must be shown by clear,

unambiguous language, which will admit of no reasonable construction consistent with the reservation of

the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the

State. In Erie Railway Company v. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice

Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of

taxation by doubtful words. 'It cannot, by ambiguous language, be deprived of this highest attribute of

sovereignty.' " (At pp. 471-472).

8. Gold Creek Mining Corp. v. Rodriguez (1938) 66 Phil. 259, 265, per Abad Santos, J., citing Barry v.

Truax, 13 N.C. 131; 99 N.W., 769; 65 L.R.A.. 762.

9. De los Santos v. Mallare (1950) 87 Phil. 289, 295.

10. Schneckenburger v. Moran (1936) 63 Phil. 249, 266.

11. Japanese Military Secret Police.

12. Section 341, Philippine Trade Act of 1946.

13. Martin v. Hunter's Lessee (1816) 1 Wheat 304.

14. Cardozo, The Nature of Judicial Process (1921) 83.

15. What is permanent and enduring, as long as the Constitution remains what it is, is the stress, both

unmistakable and pronounced, on nationalism. So it has been declared repeatedly by this Court. Westart with Justice Laurel, himself one of the foremost architects of the Constitution, who authoritatively

noted the "nationalistic . . . traits" discoverable by "even a sudden dip into a variety of the provisions"

embodied in our charter framed under "an intense spirit of nationalism." (Gold Creek Mining Co. vs.

Rodriguez [1938] 66 Phil. 259, 270.) Justice Perfecto, another delegate, who gained deservedly a

reputation as a civil libertarian, would have the guarantees of due process and equal protection yield to

its nationalistic provisions, one of which "reserves to Filipino citizens the operation of public services or

utilities." (Co Chiong v. Cuaderno [1949] 83 Phil. 242, 251.) From still another former member of the

constitutional convention, who likewise sat on this Court, Justice Labrador: "It would do well to refer to

the nationalistic tendency manifested in various provisions of the Constitution. . . . The nationalization of

the retail trade is only a continuance of the nationalistic protective policy laid down as a primary objective

of the Constitution. Can it be said that a law imbued with the same purpose and spirit underlying many of

the provisions of the Constitution is unreasonable, invalid and unconstitutional?" (Ichong v. Hernandez

[1957] 101 Phil. 1155, 1186.)


13/44

APPLIED FOOD INGREDIENTS COMPANY, INC., Petitioner, vs . COMMISSIONER OF

INTERNAL REVENUE, Respondent.

2013-11-11 | G.R. No. 184266

FIRST DIVISION

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by

Applied Food Ingredients, Company, Inc. (petitioner). The Petition assails the DeCision2 dated 4 June

2008 and Resolution3 dated 26 August 2008 of the Court of Tax Appeals En Bane (CTA En Bane) in

C.TA. EB No. 359. The assailed Decision and Resolution affirmed the Decision4 dated 13 June 2007

and Resolution5 dated 16 January 2008 rendered by the CTA First Division in C.TA. Case No. 6513

which denied petitioner's claim for the issuance of a tax creditcertificate representing its alleged excess

input taxes attributable to zerorated sales for the period 1 April 2000 to 31 December 2000.

THE FACTS

Considering that there are no factual issues in this case, we adopt the findings of fact of the CTA En

Banc, as follows:

Petitioner is registered with the Regional District Office (RDO) No. 43 of the BIR in Pasig City (BIR-Pasig)

as, among others, a Value- Added Tax (VAT) taxpayer engaged in the importation and exportation

business, as a pure buy-sell trader.

Petitioner alleged that from September 1998 to December 31, 2000, it paid an aggregate sum of input

taxes of P9,528,565.85 for its importation of food ingredients, as reported in its Quarterly Vat Return.

Subsequently, these imported food ingredients were exported between the periods of April 1, 2000 to

December 31, 2000, from which the petitioner was able to generate export sales amounting to

P114,577,937.24. The proceeds thereof were inwardly remitted to petitioner's dollar accounts with

Equitable Bank Corporation and with Australia New Zealand Bank-Philippine Branch.

Petitioner further claimed that the aforestated export sales which transpired from April 1, 2000 to

December 31, 2000 were zero-rated sales, pursuant to Section 106(A (2)(a)(1) of the N1RC of 1997.

Petitioner alleged that the accumulated input taxes of P9,528,565.85 for the period of September 1, 1998

to December 31, 2000 have not been applied against any output tax.

On March 26, 2002 and June 28, 2002, petitioner filed two separate applications for the issuance of tax

credit certificates in the amounts of P5,385, 208.32 and P4,143,357.53, respectively.

On July 24, 2002, in view of respondent's inaction, petitioner elevated the case before this Court by wayof a Petition for Review, docketed as C.T.A. C ase No. 6513.

In his Answer filed on August 28, 2002, respondent alleged by way of special and affirmative defenses

that the request for tax credit certificate is still under examination by respondent's examiners; that taxes

paid and collected are presumed to have been made in accordance with law and regulations, hence not

refundable; petitioner's allegation that it erroneously and excessively paid the tax during the year under

review does not ipso facto warrant the refund/credit or the issuance of a certificate thereto; petitioner

must prove that it has complied with the governing rules with reference to tax recovery or refund, which

are found in Sections 204(C) and 229 of the Tax Code, as amended.6

Trial ensued and the CTA First Division rendered a Decision on 13 June 2007. It denied petitioners

claim for failure to comply with the invoicing requirements prescribed under Section 113 in relation toSection 237 of the National Internal Revenue Code (NIRC) of 1997 and Section 4.108-1 of Revenue

Regulations No. 7-95.

On appeal, the CTA En Banc likewise denied the claim of petitioner on the same ground and ruled that

the latters sales for the subject period could not qualify for VAT zero-rating, as the export sales invoices

did not bear the following: 1) the imprinted word zero-rated; 2) TIN-VAT; and 3) BIRs permit number,

all in violation of the invoicing requirements.

THE ISSUES

Petitioner raises this sole issue for the consideration of this Court:

WHETHER OR NOT THE PETITIONER IS ENTITLED TO THE ISSUANCE OF A TAX CREDIT

CERTIFICATE OR REFUND OF THE AMOUNT OF P9,528,565.85 REPRESENTING CREDITABLE INPUT

TAXES INCURRED FOR THE PERIOD OF SEPTEMBER 1, 1998 TO DECEMBER 31, 2000 WHICH ARE

ATTRIBUTABLE TO ZERO-RATED SALES FOR THE PERIOD OF APRIL 1, 2000 TO DECEMBER 31,

2000.7

THE COURTS RULING


14/44

The Petition has no merit.

Our VAT Law provides for a mechanism that would allow VAT registered persons to recover the excess

input taxes over the output taxes they had paid in relation to their sales.

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of InternalRevenue,8 this Court explained that the VAT is a tax on consumption, an indirect tax that the provider of

goods or services may pass on to his customers. Under the VAT method of taxation, which is

invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its

purchases, inputs and imports.

For zero-rated or effectively zero-rated sales, although the sellers in these transactions charge no output

tax, they can claim a refund of the VAT that their suppliers charged them.9

At the outset, bearing in mind that tax refunds or credits - just like tax exemptions - are strictly construed

against taxpayers,10 the latter have the burden to prove strict compliance with the conditions for the

grant of the tax refund or credit.

Section 112 of the NIRC of 1997 laid down the manner in which the refund or credit of input tax may be

made, to wit:

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT registered person, whose sales are zero-rated

or effectively zero-rated may, within two (2) years after the close of the taxable quarter when

statcon cases week 3

Documents