G.R. No. 167278             February 27, 2008

ATTY. GIL A. VALERA, CPA-LCB, Deputy Commissioner, Revenue Collection Monitoring Group, Bureau of Customs, petitioner, vs.OFFICE OF THE OMBUDSMAN, rep. by Hon. ORLANDO C. CASIMIRO, Deputy Ombudsman for the and Military Other Law Enforcement Offices (MOLEO), in his capacity as Acting Ombudsman; PNP-CIDG, rep. by Director General Eduardo S. Matillano (public complainant); ATTY. ADOLFO CASARENO (private complainant); Hon. CESAR V. PURISIMA, Secretary of Finance, Department of Finance; Hon. ALBERTO D. LINA, Commissioner of Customs, Bureau of Customs; Hon. ROBERTO D. GEOTINA, Deputy Commissioner for Internal Administration Group, Bureau of Customs; and HONORABLE COURT OF APPEALS(Fourth Division), respondents.

D E C I S I O N

PUNO, C.J.:

Public office is a public trust.1 Public officers and employees must at all times be accountable to the people, serve them with utmost responsibility, integrity, loyalty and efficiency, and act with patriotism and justice, and lead modest lives.2 With the numerous ills and negative perception surrounding the revenue collection agencies of the government, this mandate of our fundamental law becomes all the more relevant to the present petition. Petitioner, a Deputy Commissioner of the Bureau of Customs, seeks to reverse and set aside the Decision3 rendered by the Court of Appeals which affirmed the Decision4 of the Office of the Deputy Ombudsman for the Military and other Law Enforcement Offices (OMB-MOLEO) finding him guilty of grave misconduct, and decreeing his dismissal from the service with all the accessory penalties appertaining thereto.

The records show that petitioner Gil A. Valera was appointed by President Gloria Macapagal Arroyo as Deputy Commissioner of Customs in charge of the Revenue Collection Monitoring Group on July 13, 2001. He took his oath of office on August 3, 2001, and assumed his post on August 7 of the same year.

On December 21, 2001, he filed in the Regional Trial Court (RTC) of Manila, for and on behalf of the Bureau of Customs, a collection case with prayer for the issuance of a writ of preliminary attachment for the collection of P37,195,859.00 in unpaid duties and taxes against Steel Asia Manufacturing Corporation (SAMC), which utilized fraudulent tax credit certificates in the payment of its duties. The case, docketed as Civil Case No. 01-102504, was raffled off to Branch 39 of the RTC of Manila.

On January 16, 2002, a writ of preliminary attachment was issued against SAMC in the aforementioned case. The writ was duly

implemented and the raw materials, finished products and plant equipment of SAMC were subsequently attached. Petitioner and SAMC entered into a compromise agreement wherein the latter offered to pay on a staggered basis through thirty (30) monthly equal installments the P37,195,859.00 duties and taxes sought to be collected in the civil case.

On August 20, 2003, the Director of the Criminal Investigation and Detention Group of the Philippine National Police, Eduardo Matillano, filed a letter-complaint against petitioner with the Ombudsman, which reads:

Investigation conducted disclosed that Atty. Gil A. Valera was appointed as Deputy Commissioner, Bureau of Customs by the President on July 13, 2001, took his oath on August 03, 2001 and assumed his post on August 07, 2001.

On January 30, 2002, while in the performance of his official functions, Atty. Gil A. Valera had compromised the case against the Steel Asia Manufacturing Corporation in Civil Case No. 01-102504 before Branch 39, RTC Manila without proper authority from the Commissioner of the Bureau of Customs in violation of Section 2316 TCCP (Authority of the Commission to make Compromise) and without the approval of the President, in violation of Executive Order No. 156 and Executive Order No. 38. Such illegal acts of Atty. Gil A. Valera indeed caused undue injury to the government by having deprived the government of its right to collect the legal interest, surcharges, litigation expenses and damages and gave the Steel Asia unwarranted benefits in the total uncollected amount of FOURTEEN MILLION SEVEN HUNDRED SIXTY TWO THOUSAND FOUR HUNDRED SIXTY SEVEN PESOS AND SEVENTY CENTAVOS (P14,762,467.70), which is violative of Sections 3(e) and (g) respectively of RA 3019.

Further investigation disclosed that Atty. Gil A. Valera while being a Bureau of Customs official directly and indirectly had financial or pecuniary interest in the CACTUS CARGOES SYSTEMS a brokerage whose line of business or transaction, in connection with which, he intervenes or takes part in his official capacity by way of causing the employment of his brother-in-law, Ariel Manongdo, thus, violating 3(h) of RA 3019 and RA 6713 and Section 4, RA 3019 as against Ariel Manongdo.

Finally, investigation also disclosed that on April 21, 2002 Atty. Gil A. Valera traveled to Hongkong with his family without proper authority from the office of the President in violation of Executive Order No. 298 (foreign travel of government personnel) dated May 19,

1995, thus, he committed an administrative offense of Grave Misconduct.5

The administrative aspect of the complaint was docketed as OMB-C-A-03-0379-J. On November 12, 2003, then Ombudsman Simeon V. Marcelo issued a Memorandum6 to Special Prosecutor Dennis M. Villa-Ignacio, inhibiting himself from the cases against the petitioner, and directing the latter to act in his stead and place. Acting pursuant to this authority, Special Prosecutor Villa-Ignacio made the finding that by entering into the compromise agreement, petitioner may have made concessions that may be deemed highly prejudicial to the government, i.e., waiver of the legal interest and the penalty charges imposed by law, as well as the virtual exoneration of SAMC of its fraudulent act of using spurious tax credit certificates. He issued an Order7 placing petitioner on preventive suspension for six (6) months without pay pending administrative investigation on the matter.

On March 19, 2004, the petitioner filed his motion for reconsideration of the preventive suspension order. Upon the lapse of the period8 within which the Special Prosecutor, as acting Ombudsman, should have resolved the motion for reconsideration, petitioner filed a Petition for Certiorari and Prohibition before the Court of Appeals on March 29, 2004, docketed as CA-G.R. SP No. 83091 and raffled off to the Special First Division.

On June 14, 2004, Special Prosecutor Villa-Ignacio inhibited himself from the cases of herein petitioner in view of a complaint filed by the latter against him. OMB-C-A-03-0379-J was next assigned to the OMB-MOLEO, represented by respondent Orlando C. Casimiro.

On June 25, 2004, the Special First Division of the Court of Appeals rendered a Decision9 setting aside the preventive suspension order of Special Prosecutor Villa-Ignacio and directing him to desist from taking any further action in OMB-C-A-03-0379-J. In so ruling, the appellate court held mainly that Special Prosecutor Villa-Ignacio was not authorized by law to sign and issue preventive suspension orders.

The OMB-MOLEO perfected an appeal from this decision on July 16, 2004. The appeal, docketed as G.R. No. 164250, was raffled off to the Second Division of this Court, and was eventually elevated motu proprio to the Court En Banc.

In the meantime, the adjudication of OMB-C-A-03-0379-J continued and the respondent Deputy Ombudsman issued a Decision10 finding the petitioner administratively liable for grave misconduct and decreeing his dismissal from the service, with all the accessory penalties appertaining thereto. It was found that petitioner committed grave misconduct based on the following charges:

(i) compromising the case against SAMC in Civil Case No. 01-102504 before Branch 39, RTC Manila, without

proper authority from the Commissioner of the Bureau of Customs in violation of Section 231611 of the Tariff and Customs Code, and without the approval of the President in violation of Section 4(d) of Executive Order (E.O.) No. 156 as amended by E.O. No. 38;12

(ii) causing the employment of his brother-in-law with the Cactus Cargoes Systems, Inc. whose principal business involves transactions with the Bureau of Customs in violation of Section 3(d) of Republic Act (R.A.) No. 3019;13 and

(iii) traveling to Hongkong without conforming with the guidelines on the application to travel abroad for private purposes of public officials.14

The petitioner questioned this decision before the Court of Appeals, via a petition for review, and the case was raffled off to the 4th Division and docketed as CA G.R. SP. No. 86281.

The 4th Division of the Court of Appeals refrained from ruling on the first charge against the petitioner in deference to this Court in G.R. No. 164250. It however found enough evidence to substantiate the second and third charges and issued and promulgated its assailed decision affirming the decision of respondent Deputy Ombudsman finding petitioner guilty of grave misconduct. It held as follows:

After careful consideration of the matter, this Court finds it more prudent to defer from deciding the matters raised in connection with the first ground raised by petitioner in deference to the Supreme Court which is now tackling the very same issues. Respondents themselves argued that:

"Needless to state, the Office of the Ombudsman lost no time in bringing the foregoing matters to the attention of the Honorable Supreme Court in a petition for review (G.R. No. 164250). Since then, the Supreme Court has motu proprio elevated the case from the Second Division to the Court En Banc, apparently because of the serious nature of the issues raised against the honorable Special First Division." (Rollo, p. 292)

It should also be considered that a ruling of the Supreme Court on the applicability of Section 2316 of the TCC is determinative of the existence of a basis to the charges made against petitioner.

Coming now to the second ground raised, petitioner asserted that the respondents erred in finding him liable

for the employment of his brother-in-law Ariel N. Manongdo with CCSI, claiming that there is no evidence that he had any participation in the employment of said brother-in-law, to wit:

"But, nothing is contained in the decision under review, particularly under the heading 'evidence for the complainant', which shows that petitioner did anything or performed any act or participated in any way, directly or indirectly, in the employment of his brother-in-law, Ariel N. Manongdo, with CCSI. Simply put, the finding of fact is also a conclusion of law with no fact or iota of evidence to support the discussion and conclusion in the decision under review." (Rollo, p. 48)

Respondents countered that petitioner not only used his "official ascendancy" (Rollo, p. 348) to cause the employment of his brother-in-law with CCSI, but they further claimed that the joint-affidavit (Rollo, pp. 88-93) of the elements of the Criminal Investigation Detection Group (CIDG) showed that petitioner was a co-owner of CCSI as shown by the fact that he invited his close friends and relatives to the blessing of the brokerage firm. The relevant portion of said joint-affidavit stated that:

"12. Further, during the conduct of our surveillance on the lifestyle of Atty. Valera, we received information that he has sent text messages to his close friends and relatives for the blessing of his brokerage. The text of the message is as follows" 'ON WED, INVITE KO KAYO SA BLESSING NG BROKERAGE KO. ROOM 604, GLC Bldg., TM KALAW cor MABINI 6 TO 8 PM.'

13. Atty. Gil A. Valera's visitors were mostly his classmates from Ramon Magsaysay Cubao High School. He gave our asset his professional card (Annex '35');

14. Our investigation disclosed that the GLC Bldg. is owned by a certain Mr. GERARDO L. CONTRERAS. According to Ms. JENNIE ESGUERRA, the building administrator, party on the 6th Floor was the inauguration of the CACTUS CARGOES SYSTEMS represented by its Marketing Coordinator, Mr. ARIEL MONONGDO (sic). Our information was that Monongdo is the brother-in-law of Atty. Valera. Attached are the SEC Registration of Cactus Cargo

Inc., (Annex '36') and the Contract of Lease signed by Mr. Ariel Monongdo the Marketing Manager of Cactus with the building administrator (Annex '37')." (Rollo, pp. 91-92)

Respondents also asserted that CCSI is a customs brokerage firm which necessarily deals on a regular basis with petitioner's office, more particularly:

"The Code of Conduct and Ethical Standards (R.A. No. 6713), under Section 7, subpar. (b)(3) thereof, is very specific in criminalizing the act of '(r)ecommend(ing) any person to any position in a private enterprise which has a regular or pending official transaction with their office.' On the other hand, Section 3 (d) of the Anti Graft and Corrupt Practices Act (sic) (R.A. No. 3019) punishes as criminal offense a public officer's act of '(a)ccepting or having any member of his family accept employment in a private enterprise which has pending official business with him during the pendency thereof or within one year after its termination." (Rollo, pp. 349-350)

Parenthetically, petitioner also argued that this charge was also held by the Special First Division to be "too trivial". However, the Court considers that statement to have been made in relation to the question of whether or not the deputy ombudsman had the power to order petitioner's preventive suspension. That is, that statement should not be read to be a disposition of the question on the merits.

Now, to dispose of the matter, it should be noted that the findings of the respondent Deputy Ombudsman regarding the second charge was based on two (2) grounds: first, the alleged act of using petitioner's influence to obtain employment for his brother-in-law and, second, the mere fact of employment of his brother-in-law in a company which has regular business with petitioner's office.

While the evidence regarding the alleged use of influence by the petitioner to cause the employment of his brother-in-law maybe a little tenuous, the Court finds basis to the second ground. The Court notes that petitioner did not deny that CCSI has regular transactions with his office. Neither did he deny that Ariel Monongdo is his brother-in-law. Under Section 3(d) of R.A. No. 3019, as amended, mere acceptance by a member of his family of employment with a private enterprise which has pending official business with the official involved is considered a corrupt practice. It is

clear, therefore, that mere acceptance by Ariel Manongdo, a family member, of the employment with CCSI rendered petitioner liable under the law. The Court, therefore, agrees with respondent Deputy Ombudsman when he held that:

"Moreover, the Anti-Graft and Corrupt Practices Act (R.A. 3019) prohibits the public officer's act of accepting or having any member of his family accept employment in a private enterprise which has pending official business with him during the pendency thereof or within one year after its termination. Ariel N. Manongdo, as brother-in-law of respondent Valera falls squarely within the definition of family under Section 4 of the same law." (Rollo, p. 70)

Coming now to the matter of his travel to Hongkong which is the subject matter of the third objection raised by petitioner, he first argued that his constitutional right to be informed of the charges against him had been violated. He asserted that while the Matillano Complaint charged him with violating E.O. No. 278, the questioned Decision was based on E.O. No. 39.

The Court does not agree with this assertion. It should be remembered that the present case is an administrative case while Section 14 of Art. 3 of the 1987 Constitution refers strictly to criminal prosecution. Said Constitutional provision reads:

"SECTION 14. (1) No person shall be held to answer for a criminal offense without due process of law. (2) In all criminal prosecutions, the accused shall be presumed innocent until the contrary is proved, and shall enjoy the right to be heard by himself and counsel, to be informed of the nature and cause of the accusation against him, to have a speedy, impartial, and public trial, to meet the witnesses face to face, and to have compulsory process to secure the attendance of witnesses and the production of evidence in his behalf. However, after arraignment, trial may proceed notwithstanding the absence of the accused provided that he has been duly notified and his failure to appear is unjustifiable."

It is well-settled that in an administrative case, due process is served when the respondent was given an opportunity to be heard (Utto v. Comelec, 375 SCRA 523 [2002]). In the instant case, petitioner cannot deny that he was given all the opportunity to present his side

of the story. Thus, the Court agrees with respondents when they argued:

"It is, thus, unfortunate that instead of demonstrating that he either complied with the requirement of presidential authority to travel that petitioner, as a lawyer, presumably knows to have existed (sic), or that he was legitimately exempted therefrom, petitioner instead resorted to the unavailing technicality that the complaint did not properly identify by the correct number [the] EO in point. Petitioner invokes the right to be informed of charges against an accused which, needless to state, has specific application to criminal charges. Needlessly, however, even in criminal cases, what matters is not the title of the law violated but rather the allegations of acts constituting a crime. In his case, the allegation in the complaint was simply that petitioner did not comply with the requirement for presidential authority to travel abroad. It certainly fully informed him of his infraction. After the issue was joined on such factual allegation, identifying and enforcing the applicable law by the public respondent simply followed as part and parcel of its quasi-judicial function." (Rollo, p. 35)

Turning now to his defense that his foreign travel should not be taken against him because at the time he made the travel with his family, he was a private citizen because he was prevented by a temporary restraining order issued by this Court in CA-G.R. SP No. 69855 (in the case entitled Rosqueta versus Hon. Judge Juan Nabong) from assuming office and from dispossessing then Deputy Commissioner Rosqueta of the position of Deputy Commissioner.

The Court cannot subscribe to this argument. Under the theory proposed by petitioner, there was in effect an interegnum as to his government service during the effectivity of the TRO. But it cannot be denied that once CA-G.R. SP No. 69855 was decided and petitioner was allowed to assume his position, the effectivity of his appointment retroacted to the original date of appointment. While the temporary restraining order was in effect, he nevertheless continued to assert on his right to the office. The Court also notes that petitioner did not even present any evidence to show that he had dissociated himself from the office at the time in question. As pointed out by the respondents' Comment:

"For that matter, petitioner cannot claim that he suffered a gap in his public service during the period covered by the so-called TRO. He certainly was not dissociated from office during such period. He continued to be a public officer, notwithstanding, such that the application on him of the presidential authority to travel can not be deemed to have been then suspended." (Rollo, p. 356)

x x x

In fine, while the Court refrained from tackling the first charge against petitioner, the Court finds that as to the second and third charges, respondent Deputy Ombudsman did not err in finding petitioner guilty of grave misconduct.15

On September 30, 2005, without going into the issue of petitioner's guilt, the Court En Banc rendered a decision in G.R. No. 164250 ruling that the power to place a public officer or employee under preventive suspension pending an investigation is lodged only with the Ombudsman or the Deputy Ombudsmen and affirmed the nullification and setting aside by the appellate court of the preventive suspension order of the Special Prosecutor.

Petitioner now comes before us praying that he be absolved of the charges against him and that the decision of the 4th Division of the Court of Appeals which effectively affirmed the decision of the OMB-MOLEO be annulled and set aside.

We shall now put a finis to this controversy that has raged bitterly for the past several months and shun further delay so as to ensure that this case would really attain finality and resolve whether petitioner is guilty of grave misconduct in connection with administrative case OMB-C-A-03-0379-J.

First, we discuss the definition of grave misconduct as established by jurisprudence:

Misconduct is a transgression of some established and definite rule of action, more particularly, unlawful behavior or gross negligence by a public officer.16 The misconduct is grave if it involves any of the additional elements of corruption, willful intent to violate the law or disregard of established rules, which must be proved by substantial evidence.17

At the onset, the Court would like to point out that in an administrative proceeding, the quantum of proof required for a finding of guilt is only substantial evidence, that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.18 We reiterate the well-settled rule that, when supported by substantial evidence and absent any clear showing of abuse, arbitrariness or capriciousness, findings of fact

of administrative agencies, especially when affirmed by the Court of Appeals, are binding and conclusive upon this Court.19 After a thorough examination of the evidence on record, we find no reason to depart from this rule.

With respect to the second and third charges against the petitioner, the 4th Division of the Court of Appeals agreed with the findings of the OMB-MOLEO. The petitioner utterly failed to show that the factual findings of the respondent, affirmed by the appellate court, were attended with arbitrariness or abuse. The Matillano letter-complaint as well as its supporting affidavits made clear allegations under oath that petitioner recommended his brother-in-law, Ariel Manongdo, for employment with Cactus Cargoes Systems, Inc. (CCSI), a customs brokerage firm which necessarily deals on a regular basis with petitioner's office. Further, the Matillano letter-complaint also categorically asserted that petitioner traveled to Hongkong without obtaining the proper clearance. These allegations under oath constitute substantial evidence required in administrative proceedings.

On the other hand, petitioner did not deny that Ariel Manongdo is his brother-in-law or that CCSI has regular transactions with his office. Neither did he deny that he failed to comply with the requirement of presidential authority to travel abroad. It is thus unfortunate that instead of demonstrating that he is innocent of the charges, the petitioner instead resorted to unavailing technicalities to disprove the allegations. The Supreme Court cannot weigh once more the evidence submitted not only before the Office of the Ombudsman but also before the Court of Appeals. All told, we are convinced that there is substantial evidence to hold petitioner liable for the second and third charges against him.

Be that as it may, petitioner raises some legal issues regarding these charges which we shall settle.

Anent the second charge, petitioner contends that under Section 3(d) of R.A. No. 3019,20 a brother-in-law is not included within the scope of the word "family" and therefore, he cannot be found liable under the said law. In arguing so, petitioner refers to the definition of the word "family" found under Section 3(g) of R.A. No. 6713, which states:

SEC. 3. Definition of Terms. - As used in this Act, the term:

x x x

(g) "Family of public officials or employees" means their spouses and unmarried children under eighteen (18) years of age.

This contention deserves scant consideration.

Section 3 of R.A. No. 6713 is unequivocal in that its definition of terms is limited to as used in the Act. Under R.A. No. 6713, the term "family" was used only once under Section 4, par. (h),21 which implores public officials and employees and their families to observe "simple living." The restrictive definition accorded to the word "family" under the law is logical since children of public officials and employees who are above eighteen and already emancipated by law and freed from parental authority should not be bound by this standard where their emancipation may lead them to an otherwise private lifestyle or one which is not beholden to the public trust.

This otherwise perfect logic would result in irrationality if we follow the contention of petitioner that the definition of "family" under R.A. No. 6713 should also apply to R.A. No. 3019. It makes no rhyme nor reason to suppose that public officials and employees are prohibited from having their children under eighteen years accept employment in a private enterprise having pending official business before their office, and yet are allowed to have their children over eighteen years, which is the employable age, to do so.

What petitioner fails to mention is that R.A. No. 6713 itself prohibits the act of public officials and employees during their incumbency to recommend any person to any position in a private enterprise which has a regular or pending official transaction with their office.22 Certainly, the definition of the word "family" under said law would unduly limit and render meaningless Section 3(d) of R.A. No. 3019 if applied to the latter. In fact, family relation is defined under Section 4 of R.A. No. 301923 which, according to the said section, "shall include the spouse or relatives by consanguinity or affinity in the third civil degree." Thus, we need not look beyond the provisions of R.A. No. 3019 to hold that a brother-in-law falls within the definition of family under Section 3(d) thereof.

Proceeding now to the legal issue with respect to the third charge, it is advanced by petitioner that a public official reverts to his quo ante status as a private citizen upon being subjected to a temporary restraining order directing him to refrain from holding his office. Hence, he need not comply with the requirements for traveling abroad during said period.

We are not persuaded.

We agree with the appellate court that petitioner suffered no gap in his public service while the temporary restraining order was in effect. The nature of a temporary restraining order which would have the effect of preventing a public officer from discharging his office is provisional until a preliminary injunction is issued by the court hearing the case. Because of its temporary character, it would not have the effect of divesting such officer of the public character of his office.

It cannot be denied that once CA-G.R. SP No. 69855 was decided and petitioner was allowed to re-assume his office, the effectivity

of his appointment retroacted to the original date of his appointment. He certainly remained as a public officer during such period and it was incumbent upon him, especially since he was continuously asserting his right to the office, to comply with the guidelines on the application to travel abroad for private purposes24

of public officials.

We now come to the pivotal first charge facing petitioner that was left unresolved by the Court of Appeals in deference to this Court - that of compromising the case against SAMC without prior authorization from the Commissioner of Customs in violation of Section 231625 of the Tariff and Customs Code, and without prior approval of the President as required by Section 4(d)26 of E.O. No. 156 as amended by E.O. No. 38.

Prefatorily, we emphasize that violations or disregard of regulations governing the collection of government funds are administratively sanctionable. Intended to raise revenue for government operations, these regulations must be followed strictly.

On the first provision of the special law alleged to have been violated by petitioner, Title VI Book II of the Tariff and Customs Code entitled "ADMINISTRATIVE AND JUDICIAL PROCEEDINGS" is divided as follows:

1. Part 1 - Search, Seizure and Arrest,

2. Part 2 - Administrative Proceedings,

3. Part 3 - Judicial Proceedings,

4. Part 4 - Surcharges, Fines and Forfeitures,

5. Part 5 - Disposition of Property in Customs Custody, and

6. Part 7 - Fees and Charges. (Note: No Part 6)

According to petitioner, Sections 2301 up to 2316 are provisions found under Part 2 and pertain to administrative proceedings, while Sections 2401 and 2402 are provisions found under Part 3 and pertain to judicial proceedings. Section 2316 provides:

Section 2316. Authority of Commissioner to make Compromise.-Subject to the approval of the Secretary of Finance, the Commissioner of Customs may compromise any case arising under this Code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of fines, surcharges and forfeitures unless otherwise specified by law.

While Section 2401 as amended, which was made by petitioner as basis for his entering into the compromise agreement, provides:

Section 2401. Supervision and Control over Criminal and Civil Proceedings.-Civil and criminal actions and proceedings instituted in behalf of the government under the authority of this Code or other law enforced by the Bureau shall be brought in the name of the government of the Philippines and shall be conducted by customs officers but no civil or criminal action for the recovery of duties or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner.

Thus, for petitioner, since the case wherein the compromise agreement was entered into was already pending before a regular court, the requirement of prior authority of the Commissioner of Customs to enter into a compromise is not necessary.

This contention must fail.

Basic is the maxim in statutory construction that a statute must be read or construed as a whole or in its entirety. All parts, provisions, or sections, must be read, considered or construed together, and each must be considered with respect to all others, and in harmony with the whole.27

A reading of the provisions cited by the petitioner will show that there is really no conflict between them. Section 2401 covers the matter of the institution and filing of civil and criminal actions by customs officers, which is subject to the approval of the Commissioner if filed for the recovery of duties or the enforcement of any fine, penalty or forfeiture under the Code. It does not cover the compromise of such civil or criminal actions, while Section 2316 is the provision that deals with such a situation. In fact, the latter is categorical in providing an encompassing scope for the strict conditions for any compromise. Its coverage includes "any case arising under this code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of fines, surcharges and forfeitures unless otherwise specified by law." Doubtless, civil cases for collection of customs taxes and duties, including the one in the case at bar, would fall under this coverage.

To be sure, the adoption of petitioner's interpretation of these provisions would result in absurdity that could not have been intended by Congress. Following his logic, the Commissioner of Customs has to actively participate and seek the approval of the Secretary of Finance in compromising administrative collection cases; whereas, customs officers without even seeking authority from the Commissioner or approval from the Secretary of Finance can proceed to bargain off much larger collection cases in courts. Clearly, the Court cannot countenance the abuse and corruption engendered by this misreading of the law.

Petitioner next claims that there was no violation of Section 4(d)28 of E.O. No. 156 as amended by E.O. No. 38, when he entered into the compromise agreement without the express approval of the President.

E.O. No. 156, as amended by E.O. No. 38, created a Special Task Force to investigate and prosecute the irregularities relative to the "tax credit scam" committed at the center of the Department of Finance and to recover and collect revenues lost by the government through the "scam." Section 4(d) thereof provides:

Section 4. Powers, Duties and Functions. The Task Force shall have the following powers, duties and functions:

x x x

d) To recommend the settlement of cases for approval of the President, subject to appropriate rules on the settlement of claims by the government;

In the case at bar, and during the time relevant to this case,29 specifically on May 10, 2002, the then Chairman of the Task Force, Department of Finance Undersecretary Cornelio Gison, reported to the then Department of Finance Secretary Jose Isidro Camacho the successful collection by petitioner of P37,195,859.00 in the SAMC case. On October 3, 2002, in his Memorandum,30 Department of Finance Undersecretary Innocencio P. Ferrer, Jr., who succeeded Undersecretary Gison, also congratulated petitioner for his accomplishment in the said case.

Petitioner invokes the principle of qualified political agency wherein these acts of the Special Task Force Chairmen - who both approved the compromise agreement and lauded him for his accomplishment in the recovery efforts against the original grantees and buyers of fraudulently secured tax credit certificates - should be considered as approval by the President herself, especially since she did not disapprove of nor reprobate their acts.

This argument is likewise unavailing.

E.O. No. 156, as amended by E.O. No. 38, is clear in its requirement that in cases involving tax credit scams the favorable recommendation for approval by the Special Task Force and the approval by the President of the Republic are both required. The approval by the Chairmen of the Special Task Force is still subject to approval of the President. Prior presidential approval is the highest form of check and balance within the Executive branch of government and cannot be satisfied by mere failure of the President to reverse or reprobate the acts of subordinates. To sanction otherwise would be to ask the Court to reward passivity and render nugatory the fundamental safeguard required under the law.

The Court notes that in Civil Case No. 01-102504, SAMC defrauded the government of the amount of P37,195,859.00 in unpaid duties and taxes with the use of fraudulent tax credit certificates that were directly and originally procured by its officials on the basis of inexistent supporting documents. The legal interest, surcharges, litigation expenses and damages of this principal amount totaled a staggering P14,762,467.70, which petitioner effectively waived through his entering into a compromise agreement with SAMC. We find lamentable the utter disregard of the legal requirements for entering into a compromise displayed by petitioner which is further aggravated by the fact that there were already sufficient properties of SAMC that were attached in the said case to satisfy not only the principal amount owed but also the penalties, surcharges and interests.

No amount of reasoning can infuse an empty plea to justify this bloodletting. Fundamental it is in law that taxes being the lifeblood of the government,31 such must be continuously replenished and carefully preserved-and no public official should maintain a standard lower than utmost diligence in keeping our revenue system flowing. It is not for any government official to deem it within his complete control to let precious blood flow to the private sphere where it would have been rightfully and lawfully collected by the public through the government.

Persons appointed to the revenue collection agencies of the government, like petitioner, ought to live up to the strictest standards of honesty and integrity in the public service and must at all times be above suspicion. Because of the nature of their office, the officials and employees of the Bureau of Customs should serve as the primary role models in the faithful observance of the constitutional canon that public office is a public trust. Petitioner, being a Deputy Commissioner of the Revenue Collection Monitoring Group, should know that his actuations reflect adversely on the integrity and efficiency of his office and erode the faith and confidence of our people in its daily administration. We find that the totality of petitioner's acts constitutes flagrant disregard of established rules constitutive of grave misconduct.

One final note. It appears that petitioner is no longer a Deputy Commissioner of Customs.32 This fact, however, does not render this petition moot and academic. As held in Gallo v. Cordero:

. . . [T]he jurisdiction that was ours at the time of the filing of the administrative complaint was not lost by the mere fact that the respondent public official had ceased to be in office during the pendency of his case. The Court retains its jurisdiction either to pronounce the respondent official innocent of the charges or declare him guilty thereof. A contrary rule would be fraught with injustices and pregnant with dreadful and dangerous implications. For what remedy would the people have against a judge or any other public official who resorts to wrongful and illegal conduct during his last days in office? xxx If innocent, respondent official merits vindication of his name and integrity as he

leaves the government which he has served well and faithfully; if guilty, he deserves to receive the corresponding censure and a penalty proper and imposable under the situation.33

WHEREFORE, premises considered, the petition is DENIED. The assailed Decision dated February 28, 2005 of the Court of Appeals in CA G.R. SP. No. 86281 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.

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

QUISUMBING, J.:

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

IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20,1993, are hereby AFFIRMED in toto.

SO ORDERED. 4

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.

SO ORDERED. 5

The facts on record show the antecedent circumstances pertinent to this case.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."

The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Tax Due NIL NIL

Quarterly tax.

Payments Made 5,016,954.00 —

Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69

* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.

On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due course for lack of merit. 6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before us.

The issues raised by the petitioner are:

I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection, applied retroactivity, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10). 7

II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 8

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax

with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.

TO: All Internal Revenue Officers and Others Concerned.

Sec. 85 And 86 Of the National Internal Revenue Code provide:

xxx xxx xxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide;

xxx xxx xxx

It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the

date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as follows:

Sec. 246 Non-retroactivity of rulings— Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers except in the following cases:

a). where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue;

b). where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based;

c). where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. 12 Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner's cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's contention, the

relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:

Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. 21

In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case. 23

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec.

230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review within the two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute. 25

Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 28

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative. 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31…..WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the petitioner.1âwphi1.nêt

SO ORDERED.

NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN, respondent.

D E C I S I O N

PUNO, J.:

This is a petition for review1[1] of the Decision2[2] and the Resolution3[3] of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power

1

2

3

Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.4[4] 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.”5[5] Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants.6[6]

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7[7] Pursuant to section 37 of Ordinance No. 165-92,8[8] the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the preceding year.9[9]

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government,10[10] refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees11[11] in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

“Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its

4

5

6

7

8

9

10

11

indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

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

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

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

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power.” 12[12]

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest.13[13] Respondent alleged that petitioner’s exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14[14] which reads as follows:

“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.”

On January 25, 1996, the trial court issued an Order15[15] dismissing the case. It ruled that the tax exemption privileges granted to

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13

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15

petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the national government. Pertinent portion of the Order reads:

“The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

‘Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local government.’

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to this, it should be noted here that in the NPC Charter’s declaration of Policy, Congress declared that: ‘xxx (2) the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial institutions.’ (underscoring supplied). To allow plaintiff to subject defendant to

its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose the subject tax on the defendant.” 16[16]

On appeal, the Court of Appeals reversed the trial court’s Order17[17] on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.18[18] It ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19

[19]

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal’s Decision. This was denied by the appellate court, viz:

“The Court finds no merit in NPC’s motion for reconsideration. Its arguments reiterated therein that the taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the NPC Charter which is a special law—finds the answer in Section 193 of the LGC to the effect that ‘tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except local water districts xxx are hereby withdrawn.’ The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED.”20[20]

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In this petition for review, petitioner raises the following issues:

“A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC’S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE.”21[21]

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on “businesses enjoying a franchise,” pursuant to section 151 in relation to section 137 of the LGC, viz:

“Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.” (emphasis supplied)

xxx

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly

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urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.”

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city government to private entities that are engaged in trade or occupation for profit.22[22]

Section 131 (m) of the LGC defines a “franchise” as “a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare, security and safety.” From the phraseology of this provision, the petitioner claims that the word “private” modifies the terms “persons” and “corporations.” Hence, when the LGC uses the term “franchise,” petitioner submits that it should refer specifically to franchises granted to private natural persons and to private corporations.23[23] Ergo, its charter should not be considered a “franchise” for the purpose of imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines “business” as “trade or commercial activity regularly engaged in as means of livelihood or with a view to profit.” Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a “non-profit organization.” In any case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and improvement of its facilities and services.24[24]

Petitioner also alleges that it is an instrumentality of the National Government,25[25] and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26[26] where this Court held

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that local governments have no power to tax instrumentalities of the National Government, viz:

“Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere local government.

‘The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)’

This doctrine emanates from the ‘supremacy’ of the National Government over local governments.

‘Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even seriously burden it from accomplishment of them.’ (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as ‘ a tool regulation’ ( U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the ‘power to destroy’ (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.”27[27]

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

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“It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute.”28[28]

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner’s exemption from taxation; “police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation.”29[29]

The petition is without merit.

Taxes are the lifeblood of the government,30[30] for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty,31[31] the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity;32[32] without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives.33[33] Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, 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 charges34[34] pursuant to Article X, section 5 of the 1987 Constitution, viz:

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“Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments.”

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country’s highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also “dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders.” 35[35] The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:

“Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units.”

To recall, prior to the enactment of the Rep. Act No. 7160, 36[36] also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959,37[37] the Local Autonomy Act of 1959,38[38] the Decentralization Act of 196739[39] and the Local Government Code of 1983.40[40] Despite these initiatives, however, the shackles of dependence on the national government remained.

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Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies.41[41]

Considered as the most revolutionary piece of legislation on local autonomy, 42[42] the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.43[43]

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, viz:

“Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

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(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.” (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming Corporation44[44]

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relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45[45] nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.46[46] In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax, viz:

“Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, ‘taxes, fees and charges of any kind on the national government, its agencies and instrumentalities, and local government units’; however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, ‘real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.’”47[47]

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, 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.48[48] In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation.49[49] The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself.50[50] On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as

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the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires.51[51] The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use.52[52]

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is “a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state.”53[53] It is not levied on the corporation simply for existing as a corporation, upon its property54[54] or its income,55[55] but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise.56[56] It is within this context that the phrase “tax on businesses enjoying a franchise” in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a “franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes petitioner’s primary and secondary franchises. It serves as the petitioner’s charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span.57

[57] As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary corporations, viz:

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(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions xxx;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or railway of private and public ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting condemnation proceedings by the national, provincial and municipal governments;

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(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources xxx ”58[58]

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59[59] nationalizing the electric power industry. Although Exec. Order No. 21560[60] thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government’s territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government, and its charter characterized it as a “non-profit” organization.

These contentions must necessarily fail.

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,

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petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name,61

[61] and can exercise all the powers of a corporation under the Corporation Code.62[62]

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. Section 2 of Pres. Decree No. 202963[63] classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

“A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock xxx.” (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government.64[64] Included in the class of GOCCs performing proprietary functions are “business-like” entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA),65

[65] among others.

Petitioner was created to “undertake the development of hydroelectric generation 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.”66[66] Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and

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commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.67[67]

A closer reading of its charter reveals that even the legislature treats the character of the petitioner’s enterprise as a “business,” although it limits petitioner’s profits to twelve percent (12%), viz:68

[68]

“(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the said purpose xxx.”(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits.69[69] The main difference is that the petitioner is mandated to devote “all its returns from its capital investment, as well as excess revenues from its operation, for expansion”70[70] while other franchise holders have the option to distribute their profits to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner’s contention that its tax exemptions under its charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and

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categorically, and supported by clear legal provisions.71[71] In the case at bar, the petitioner’s sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, “all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities.” However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72[72] It reads:

“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.” (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73[73] Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax “notwithstanding any exemption granted by any law or other special law.” This particular provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74[74] MERALCO’s exemption from the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna.75[75] Ruling in favor of the local government in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

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“It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCO’s tax exemption has been withdrawn. The explicit language of section 137 which authorizes the province to impose franchise tax ‘notwithstanding any exemption granted by any law or other special law’ is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only 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.”76[76] (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. 77[77] But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax “notwithstanding any exemption granted by law or other special law,” the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.

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Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, “the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.”78[78]

With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

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