Wigberto E. Tanada et al, in representation of various taxpayers and as non-governmental organizations, petitioners, vs. EDGARDO ANGARA, et al, respondents.G.R. No. 118295 May 2, 1997

G.R. No. 118295               May 2, 1997

Wigberto E. Tanada et al, in representation of various taxpayers and as non-governmental organizations, petitioners,

vs.

EDGARDO ANGARA, et al, respondents.

Facts:  Respondent Rizalino Navarro, then Secretary of The Department of Trade and Industry (Secretary Navarro, for brevity), representing the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay Round of Multilateral Negotiations.

By signing the Final Act, Secretary Navarro on behalf of the Republic of the Philippines, agreed:

(a)    to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities, with a view to seeking approval of the Agreement in accordance with their procedures; and

(b)    to adopt the Ministerial Declarations and Decisions.

The Philippine President had ratified the said treaty, which was subsequently concurred by the Senate.  Hence, this case petition by Sen. Wigberto Tanada, together with other lawmakers, taxpayers, and various NGO’s to nullify the Philippine ratification of the World Trade Organization (WTO) Agreement.

(There are several issues, but for the sake of Taxation, the issue is:)

Issue: Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and impair Philippine sovereignty specifically the legislative power exercised by the Congress?

Held: NO. A portion of sovereignty may be waived without violating the Constitution, based on the rationale that the Philippines "adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of cooperation and amity with all nations."

Petitioners claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress.

However, while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations.

Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of Principles and State Policies, the Constitution "adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations."  By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which are considered to be automatically part of our own laws. One of the oldest and most fundamental rules in international law is pacta sunt servanda — international agreements must be performed in good faith. "A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties . . . A state which has contracted valid international obligations is bound to make in its legislations such modifications as may be necessary to ensure the fulfillment of the obligations undertaken."

In fact, the Philippines has entered into many other international pacts — both bilateral and multilateral — that involve limitations on Philippine sovereignty. These are enumerated by the Solicitor General in his Compliance dated October 24, 1996, as follows:

(It was a long list; below are some of the international agreements the Philippines has entered into in relation to taxation)

(a)          Bilateral convention with the United States regarding taxes on income, where the Philippines agreed, among others, to exempt from tax, income received in the Philippines by, among others, the Federal Reserve Bank of the United States, the Export/Import Bank of the United States, the Overseas Private Investment Corporation of the United States. Likewise, in said convention, wages, salaries and similar remunerations paid by the United States to its citizens for labor and personal services performed by them as employees or officials of the United States are exempt from income tax by the Philippines.

(b)          Bilateral agreement with Belgium, providing, among others, for the avoidance of double taxation with respect to taxes on income.

(c)          Bilateral convention with the Kingdom of Sweden for the avoidance of double taxation.

(d)          Bilateral convention with the French Republic for the avoidance of double taxation.

(e)          Bilateral air transport agreement with Korea where the Philippines agreed to exempt from all customs duties, inspection fees and other duties or taxes aircrafts of South Korea and the regular equipment, spare parts and supplies arriving with said aircrafts.

(f)           Bilateral air service agreement with Japan, where the Philippines agreed to exempt from customs duties, excise taxes, inspection fees and other similar duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment, stores on board Japanese aircrafts while on Philippine soil.

In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens.

The same reciprocity characterizes the Philippine commitments under WTO-GATT.

Additional Note: International Treaties & Trade Treaties. International treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. But unless anarchy in international relations is preferred as an alternative, in most cases we accept that the benefits of the reciprocal obligations involved outweigh the costs associated with any loss of political sovereignty. Trade treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically stand to gain disproportionately from trade liberalization. This is due to the simple fact that liberalization will provide access to a larger set of potential new trading relationship than in case of the larger country gaining enhanced success to the smaller country's market.

Roxas y Cia vs Court of Tax Appeals 23 SCRA 276

Roxas y Cia vs Court of Tax Appeals

23 SCRA 276

Facts:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession several properties. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. At the conclusion of the WW2, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers.

The CIR demanded from Roxas y Cia the payment of deficiency income taxes resulting from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence,100% of the profits derived there from was taxed. The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the CTA which sustained the assessment. Hence, this appeal.

Issue:

Is Roxas y Cia liable for the payment of deficiency income for the sale of Nasugbu farmlands?

Ruling:

 NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of 10 years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only inconsonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%

Taganito Mining Corporation vs. Commissioner of Internal Revenue CTA Case No. 4702 April 28, 1995

Taganito Mining Corporation vs. Commissioner of Internal Revenue

CTA Case No. 4702

April 28, 1995

Facts: Taganito Mining Corporation (TMC) is a domestic corporation expressly granted a permit by the government via an operating contract to explore, develop and utilize mineral deposits found in a specified portion of a mineral reservation area located in Surigao del Norte and owned by the government. In exchange, TMC is obliged to pay royalty to the government over and above other taxes.

From July to December 1989, TMC removed, shipped and sold substantial quantities of Beneficiated Nickel Silicate ore and chromite ore and paid excise taxes in the amount of Php6,277,993.65 in compliance with Sec.151(3) of the Tax Code. The 5% excise tax was based on the amount and weight shown in the provisional invoice issued by TMC. The metallic minerals are then shipped abroad to Japanese buyers where the minerals were analyzed allegedly by independent surveyors upon unloading at its port of destination. Analysis abroad would oftentimes reveal a different value for the metallic minerals from that indicated in the temporary/provisional invoice submitted by TMC.

Variance is in the “market values” in the provisional invoice and that indicated in the final calculation sheet presented by the buyers. Variances occur in the weight of the shipment or the price of the metallic minerals per kg and sometimes in their metallic content resulting in discrepancies in the total selling price. It is always the price indicated in the final invoice that is determinative of the amount that the buyers will eventually pay TMC. TMC had no quarrel with the price they would receive from the clients for the metallic minerals sold but claims that there has been overpayment of excise taxes already paid to the government declaring that the 5% excise tax were based on the amount indicated in the provisional invoice, and if the excise tax would be based on the final invoice, they would be paying less.

Contentions of TMC:

1) TMC is entitled to a refund because the actual market value that should be made the basis of the taxes is the amount specified in the independent surveyor abroad; (2) The government in receiving the royalties due it from amount indicated in the final invoice

Commissioner’s defense: (1) claim for refund is subject pending administrative investigation; (2) tax was collected in accordance with law; (3) burden of proof is upon the taxpayer to establish the right to refund; (4) mere allegations of refundability do not ipso facto merit refund claimed; (5) claims for refund of taxes are construed strictly against claimant, it being in the nature of an exemption; (6) TMC’s right to claim for refund is already barred after failing to file it within the 2 year prescriptive period, which should be counted from the time specified by law for payment and not on the date of actual payment;

ISSUES:

1.      W/N TMC is entitled to refund

NO. Tax refund partake of the nature of an exemption, and as such, tax exemption cannot be allowed unless granted in the most explicit and categorical language. Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.

2.  W/N the actual market value that should be used should be the market value after the assessment abroad was conducted

NO.

Sec. 151(3) of the Tax Code : on all metallic minerals, a tax of five percent (5%) based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced: or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in case of importation.

The law refers to the actual market value of the minerals at the time these minerals were moved away from the position it occupied, i.e. Philippine valuation and analysis because it is in this country where these minerals were extracted, removed and eventually shipped abroad. To reckon the actual market value at the time of removal is also consistent with the essence of an excise tax. It is a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral products from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967).

The law is clear. It does not speak of actual market value at the time the mineral products are unloaded at the country of destination neither does it speak of the selling price as the basis of the excise tax. The law even requires payment of excise taxes upon the removal of the mineral product or quarry resources from the locality where mined or upon removal from customs custody in the case of importations (Sec. 151 © of the Tax Code). It would then necessitate an analysis of these metallic minerals upon its removal to be able to accomplish the payment of excise taxes as required by law. Furthermore, it would be impossible for one to comply with the date prescribed by law for payment of excise taxes if one has to wait for the final analysis to be done in the country where it is to be shipped and certainly impractical.

This set-up established by the petitioner is contrary to the principle of administrative feasibility which is one of the basic principles of a sound tax system. Tax laws should be capable of convenient, just and effective administration which is why it fixes a standard or a uniform tax base upon which taxes should be paid. In the case of excise taxes on mineral and mineral products, the basis provided by law is the actual market value of these minerals at the time of removal.

3.           W/N the action has prescribed

As to prescription:

Petitioner’s contention: Respondent can no longer raise the issue of prescription because she did not aver that defense; petitioner said that their claim for refund was filed on time.

Ruling: NO. The court finds that the petition for review was filed within the period provided by law. Petitioner paid the excise taxes on a quarterly basis, the last and final payment being on January 19, 1990. The claim for refund was filed on September 11, 1990 and the petition for review was received by this Court on January 17, 1992.

The SC has ruled that if a tax is paid on installments or only in part, the period is counted from the date of the last or final payment until the whole or entire tax liability is fully paid. Period should be counted from full payment because it is only then that one can determine if there was overpayment.

Other discussion:

Petitioner’s contention: Petitioner argues that excise taxes should be based on the amount indicated in the final invoice because the government in receiving royalties acknowledges this amount as its basis.

Ruling: NO. Excise tax is different from royalties. Excise tax is a tax on the privilege of extracting minerals from the earth while royalty as the term is used and understood in mining and oil operations means a share in the product or profit paid to the owner of the property (Words and Phrases, vol.37A, p.605). Royalty paid to the government is rightfully based on the amount indicated in the final invoice because it is the amount which will be received by the seller from the buyer as consideration for the sale of mineral products.

***Petitioner’s claim for refund in the amount of P362,628.82 is hereby denied with costs against petitioner.

ALFREDO PATALINGHUG, petitioner, vs. HON. COURT OF APPEALS, RICARDO CRIBILLO, MARTIN ARAPOL, CORAZON ALCASID, PRIMITIVA SEDO, respondents; G.R. No. 104786 January 27, 1994;

G.R. No. 104786 January 27, 1994; 

ALFREDO PATALINGHUG, petitioner, vs. HON. COURT OF APPEALS, RICARDO CRIBILLO, MARTIN ARAPOL, CORAZON ALCASID, PRIMITIVA SEDO, respondents;  

Doctrine: A tax declaration is not conclusive of the nature of the property for zoning purposes.

Once a local government has reclassified an area as commercial,  that determination for zoning purposes must prevail

Facts: 
Sangguniang Panlungsod of Davao City enacted Ordinance No. 363, series of 1982 otherwise known as the "Expanded Zoning Ordinance of Davao City," Section 8 of which states:

Sec. 8. USE REGULATIONS IN C-2 DISTRICTS (Shaded light red in the Expanded Zoning Map) — AC-2 District shall be dominantly for commercial and compatible industrial uses as provided hereunder:

3.1 Funeral Parlors/Memorial Homes with adequate off street parking space (see parking standards of P.D. 1096) and provided that they shall be established not less than 50 meters from any residential structures, churches and other institutional buildings.

Patalinghug later on acquired approval and certification zoning compliance for the construction of a funeral parlor in the name and style of Metropolitan Funeral Parlor at Cabaguio Avenue, Agdao, Davao City. Several residents of Barangay Agdao complained that the construction of petitioner's funeral parlor violated Ordinance No. 363, since it was allegedly situated within a 50-meter radius from the Iglesia ni Kristo Chapel and several residential structures. An investigation was conducted and found out that "the nearest residential structure, owned by Wilfred G. Tepoot is only 8 inches to the south. The trial court ruled that Tepoot's building was commercial while  the Appellate Court disagreed and ruled that although it was used by Mr. Tepoot's lessee for laundry business, it was a residential lot as reflected in the tax declaration, thus paving the way for the application of Ordinance No. 363.

Issue:  Whether or not petitioner's operation of a funeral home constitutes permissible use within a particular district or zone in Davao City.

Ruling: Yes.  Petitioner's operation of a funeral home constitutes permissible use within a particular district or zone in Davao City.  He did not violate Section 8 of Davao City Ordinance No. 363.

A tax declaration is not conclusive of the nature of the property for zoning purposes. A property may have been declared by its owner as residential for real estate taxation purposes but it may well be within a commercial zone. A discrepancy may thus exist in the determination of the nature of property for real estate taxation purposes vis-a-vis the determination of a property for zoning purposes.

The trial court's determination that Mr. Tepoot's building is commercial and, therefore, Sec. 8 is inapplicable, is strengthened by the fact that the Sangguniang Panlungsod has declared the questioned area as commercial or C-2. Consequently, even if Tepoot's building was declared for taxation purposes as residential, once a local government has reclassified an area as commercial,  that determination for zoning purposes must prevail. While the commercial character of the questioned vicinity has been declared thru the ordinance, private respondents have failed to present convincing arguments to substantiate their claim that Cabaguio Avenue, where the funeral parlor was constructed, was still a residential zone. Unquestionably, the operation of a funeral parlor constitutes a "commercial purpose," as gleaned from Ordinance No. 363.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue (CIR), respondent. G.R. No. 81311 June 30, 1988

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners,

vs.

HON. BIENVENIDO TAN, as Commissioner of Internal Revenue (CIR), respondent.

xxx

PADILLA, J.:

FACTS: 
Because of the similarity of the main issues, these four petitions were consolidated. It  seek to nullify EO No. 273. [EO No. 273 was issued by the President of the Philippines (CORY) on July 25, 1987, to take effect on January 1, 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT)].

Petitioners contend that: (1) EO No. 273 is unconstitutional on the ground that the President had no authority to issue it; (2) that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.

ISSUE #1: W/N EO 273 is unconstitutional? →  NO

RULING #1: No. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.

ISSUE #2: W/N President had authority to issue EO 273 →  YES

RULING #2: Yes. It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers. (Art. II, sec. 1)

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. (Article XVIII, sec. 6)

ISSUE #3: W/N EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution →  NO

RULING #3: No.

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. ⁴

Justice Laurel: A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; . . ."

Justice Tuason: "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation."

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. ⁶

Other issue: W/N EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. →  NO

Sec. 103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local Tax Code, and professional services performed by registered general professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax Code.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation.

FRANCISCO I. CHAVEZ, vs. JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC. G.R. No 76778

FRANCISCO I. CHAVEZ, vs. JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC.
G.R. No 76778 

Doctrine:
To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Facts:
Chavez, the petitioner, seeks to declare unconstitutional EO 73 of Pres Cory Aquino titled “PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE (PD 464), AS AMENDED.”

Chavez, as a taxpayer and an owner of three parcels of land. He alleges the following:
1.           that EO 73 accelerated the application of the general revision of assessments thereby mandating an excessive increase in real property taxes;

2.           that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and

3.           that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession.

Chavez argues further that the unreasonable increase in real property taxes brought about by EO No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP) joins Chavez in his petition to declare unconstitutional EO 73, but additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments and does not meet the requirements of due process.

ISSUE: W/N the assailed EO is unconstitutional.

RULING:   

NO.

The revision of the assessments in EO 73 does not impose new taxes nor increase taxes but changed the date of implementation of the increase from January 1988 to January 1, 1987.

***There was an EO No. 1019 passed deferring the increase of tax. The original date of increase was supposed to be on 1985,  and was moved to 1988. But with the issuance of EO 73, instead of 1988, gihimo ug 1987.

The Assessment for General Revision in 1984 was based on Section 21 of Presidential Decree No. 464.

Thus, the court agrees with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464.

Also the change of date of increase was justified in the Whereas Clause of EO 73 which states:

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people;

Court agrees with the observation of the Office of the Solicitor General that without EO 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Other issues:

Intervention of ROAP is not proper to be resolved in the present petition. The issue here is limited to the constitutionality of EO 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties.

ROAP, who questioned PD 464, cannot assail it in his intervention since Chavez, original complainant, did not objected PD 464.

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs. DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents. G.R. No. 108524 November 10, 1994

G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs.

DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.

FACTS:                

Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution.

Respondents represent departments of the executive branch of government charged with the generation of funds and the assessment, levy and collection of taxes and other imposts.

The pertinent provision of the NIRC states:

Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added tax:

(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary producer or the owner of the land where the same are produced;

(b) Sale or importation in their original state of agricultural and marine food products, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption, and breeding stock and genetic material therefor;

Under §103(a), the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under §103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution regardless of who the seller is.

On June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in question, classifying copra as an agricultural non-food product and declaring it "exempt from VAT only if the sale is made by the primary producer pursuant to Section 103(a) of the Tax Code, as amended."

The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under §103(b) of the NIRC. Petitioner challenges the validity of RMC No. 47-91.

Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the competent government agency to determine the proper classification of food products.

ISSUE:                 

Whether the assailed circular is valid.

RULING:              

YES. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state.

Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes."

Another contention:         It was also argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the government would lose revenues as the 10% tax base is correspondingly diminished.

This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer or owner of the land from which the same is produced, but in the case of agricultural food products their sale in their original state is exempt at all stages of production or distribution. At any rate, the argument that the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or policy which should be addressed to respondent officials and to Congress.