classification of rules adminlaw cases

7/29/2019 Classification of Rules AdminLaw Cases

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EN BANC

[G.R. No. L-16704. March 17, 1962.]

VICTORIAS MILLING COMPANY, INC. , petitioner-appellant , vs. SOCIAL SECURITY COMMISSION , respondent-appellee .

Ross, Selph & Carrascoso for petitioner-appellant.

Solicitor General and Ernesto Duran for respondent-appellee.

SYLLABUS

1. STATUTORY CONSTRUCTION; DISTINCTION BETWEEN AN ADMINISTRATIVE RULE AND AN ADMINISTRATIVE INTERPRETATION OFLAW; NATURE OF ADMINISTRATIVE RULES AND REGULATIONS. When an administrative agency promulgates rules and regulations, it makes "makes" a new law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merelyinterprets a pre-existing law (Parker, Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and regulations whenpromulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute,and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in

general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and themanner of carrying out the law are often times left to the administrative agency entrusted with its enforcement.

2. ID.; ID.; BINDING EFFECT OF ADMINISTRATIVE RULES ON COURTS; REQUISITES. A rule is binding on the courts so long as theprocedure fixed for its promulgation is followed and its scope is within the statutory authority granted by the legislature, even if the courtsare not in agreement with the policy stated therein or its innate wisdom (Davis, op. cit., pp. 195-197). On the other hand, administrativeinterpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means.

3. ID.; ID.; CIRCULAR NO. 22 OF THE SOCIAL SECURITY COMMISSION MERELY AN ADVISORY OPINION AND NEED NOT BE APPROVED BYTHE PRESIDENT. Circular No. 22 of the Social Security Commission purports merely to advise employers-members of the System of what,in the light of the amendment of the law, they should include in determining the monthly compensation of their employees upon which thesocial security contributions should be based. It did not add any duty or detail that was not already in the law as amended. It merely statedand circularized the opinion of the Commission as to how the law should be construed. Such circular, therefore, did not require presidentialapproval and publication in the Official Gazette for its effectivity.

4. ID.; INTERPRETATION OF TERMS OR WORDS; RULE WHEN A TERM OR WORD IS SPECIFICALLY DEFINED IN A STATUTE. While therule is that terms or words are to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term orword is specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for it can not begainsaid that a particular phrase or term may have one meaning for one purpose and another meaning for some other purpose.

D E C I S I O N

BARRERA , J p:

On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following tenor.

"Effective November 1, 1958, all Employers in computing the premiums due the System, will take into considerationand include in the Employee's remuneration all bonuses and overtime pay, as well as the cash value of other media of remuneration. All these will comprise the Employee's remuneration or earnings, upon which the 3-1/2% and 2- 1/2%contributions will be based, up to a maximum of P500 for any one month."

Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the Social Security Commission ineffect protesting against the circular as contradictory to a previous Circular No. 7, dated October 7, 1957 expressly excluding overtimepay and bonus in the computation of the employers' and employees' respective monthly premium contributions, and submitting, "Inorder to assist your System in arriving at a proper interpretation of the term `compensation' for the purposes of" such computation,their observations on Republic Act 1161 and its amendment and on the general interpretation of the words "compensation",


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"remuneration" and "wages". Counsel further questioned the validity of the circular for lack of authority on the part of the SocialSecurity Commission to promulgate it without the approval of the President and for lack of publication in the Official Gazette.

Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule or regulation that needed the approval of the President and publication in the Official Gazette to be effective, but a mere administrative interpretation of the statute, a mere statement of general policy or opinion as to how the law should be construed.

Not satisfied with this ruling, petitioner comes to this Court on appeal.

The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as contemplated in Section 4(a) of RepublicAct 1161 empowering the Social Security Commission "to adopt, amend and repeal subject to the approval of the President such rules andregulations as may be necessary to carry out the provisions and purposes of this Act."

There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative interpretation of a lawwhose enforcement is entrusted to an administrative body. When an administrative agency promulgates rules and regulations, it "makes" anew law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and regulations when promulgated in pursuanceof the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewithmay be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressingthe policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law areoften times left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are theproduct of a delegated power to create new or additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is within the statutory authoritygranted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means.

Circular No. 22 in question was issued by the Social Security Commission, in view of the amendment of the provisions of the Social SecurityLaw defining the term "compensation" contained in Section 8(f) of Republic Act No. 1161 which, before its amendment, reads as follows:

"(f) Compensation All remuneration for employment include the cash value of any remuneration paid in any mediumother than cash except (1) that part of the remuneration in excess of P500 received during the month; (2) bonuses,allowances or overtime pay; and (3) dismissal and all other payments which the employer may make, although not legally required to do so."

Republic Act No. 1792 changed the definition of "compensation" to:

"(f) Compensation All remuneration for employment include the cash value of any remuneration paid in any mediumother than cash except that part of the remuneration in excess of P500.00 received during the month."

It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay given in addition to the regular or base paywere expressly excluded or exempted from the definition of the term "compensation", such exemption or exclusion was deleted by theamendatory law. It thus became necessary for the Social Security Commission to interpret the effect of such deletion or elimination. CircularNo. 22 was, therefore, issued to apprise those concerned of the interpretation or understanding of the Commission, of the law as amended,which it was its duty to enforce. It did not add any duty or detail that was not already in the law as amended. It merely stated andcircularized the opinion of the Commission as to how the law should be construed.

The case of People vs. Jolliffe (G.R. No. L-9553, promulgated on may 30, 1959) cited by appellant, does not support its contention that thecircular in question is a rule or regulation. What was there said was merely that a regulation may be incorporated in the form of a circular.

Such statement simply meant that the substance and not the form of a regulation is decisive in determining its nature. It does not lay down ageneral proposition of law that any circular, regardless of its substance and even if it is only interpretative, constitutes a rule or regulationwhich must be published in the Official Gazette before it could take effect.

The case of People vs. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the present case, because the penalty that may beincurred by employers and employees if they refuse to pay the corresponding premiums on bonus, overtime pay, etc. which the employerpays to his employees, is not by reason of non-compliance with Circular No. 22, but for violation of the specific legal provisions contained inSection 27 (e) and (f) of Republic Act No. 1161.

We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System of what, in the light of the amendment of the law, they should include in determining the monthly compensation of their employees upon which the social security contributionsshould be based, and that such circular did not require presidential approval and publication in the Official Gazette for its effectivity.


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It hardly need be said that the Commission's interpretation of the amendment embodied in its Circular No. 22, is correct. The expresselimination among the exemptions excluded in the old law, of all bonuses, allowances and overtime pay in the determination of the"compensation" paid to employees makes it imperative that such bonuses and overtime pay must now be included in the employee'sremuneration in pursuance of the amendatory law. It is true that in previous cases, this Court has held that bonus is not demandable becauseit is not part of the wage, salary, or compensation of the employee. But the question in the instant case is not whether bonus is demandableor not as part of compensation, but whether, after the employer does, in fact, give or pay bonus to his employees, such bonuses shall beconsidered compensation under the Social Security Act after they have been received by the employees. While it is true that terms or wordsare to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term or word is specifically defined in

a particular law, such interpretation must be adopted in enforcing that particular law, for it can not be gainsaid that a particular phrase orterm may have one meaning for one purpose and another meaning for some other purpose. Such is the case that is now before us. RepublicAct 1161 specifically defined what "compensation" should mean "For the purposes of this Act". Republic Act 1792 amended such definition bydeleting some exceptions authorized in the original Act. By virtue of this express substantial change in the phraseology of the law, whateverprior executive or judicial construction may have been given to the phrase in question should give way to the clear mandate of the new law.

IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against appellant. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Paredes, Dizon and De Leon, JJ., concur.


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EN BANC

[G.R. No. L-9408. October 31, 1956.]

EMILIO Y. HILADO , petitioner , vs . THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents .

Emilio Y. Hilado in his own behalf.

Solicitor General Ambrosio Padilla, Assistant Solicitor General Ramon Avancea and Solicitor Jose P. Alejandro for respondents.

SYLLABUS

1. TAXATION; INCOME TAX; LOSSES DEDUCTIBLE; LOSS CONSISTING OF PORTION OF WAR DAMAGE CLAIM. Petitionerclaimed in his 1951 income tax return the deduction of the portion of his war damage claim which had been duly approved by thePhilippine War Damage Commission under the Philippine Rehabilitation Act for 1946 but which was not paid and never has been paidpursuant to a notice upon him by said Commission that said part of his claim will not be paid until the United States Congress shouldmake further appropriation. He claims that said amount represents a "business asset" within the meaning of said Act which he isentitled to deduct as a loss in his return for 1951. Held: Assuming that the said amount represents a portion of petitioner's war damageclaim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he

received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950.In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. Neither can the said amount beconsidered as a "business asset" which can be deducted as a loss in contemplation of law because its collections is not enforceable as amatter of right, but is dependently merely upon the generosity and magnanimity of the U.S. government.

2. ID.; LOSSES OF PROPERTY DURING THE WAR DEDUCTIBLE IN THE YEAR OF ACTUAL DESTRUCTION. It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrativepowers, caused the issuance of General Circular No. V-123 as in implementation or interpretative regulation of section 30 of the sameCode, under which the aforesaid amount was allowed to be deducted "in the year the last installment was received with notice that nofurther payment would be made until the United States Congress makes further appropriation therefore," but such circular was foundlatter to be wrong and was revoked and the Secretary of Finance, through the V-139 which not only revoked and declared void hisprevious Circular No. V-123 but laid down the rule that losses of property which occurred during the period of World War II from fires,storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. As the amount claimed does not represent a "business asses" that may be deducted as a loss in 1951,it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line

with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowance as deduction onlywithin the corresponding taxable year.

3. ID.; ID.; WRONG CONSTRUCTION OF LAW CANNOT GIVE RISE TO VESTED RIGHTS. General Circular No. V-123, havingbeen issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason isobvious; a vested right cannot spring from a wrong interpretation.

4. ADMINISTRATIVE LAW; CONSTRUCTION OF STATUTES BY ADMINISTRATIVE OFFICIALS NOT BINDING ON THEIRSUCCESSORS. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of hispredecessors in office because the construction of a statute by those who administer it is not binding on their successors if thereafterthe latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railway& Steamship Clerks, 85 F. (2d) 152, 109 A.L. R., 345.]

5. INTERNATIONAL LAW; NATURE OF INTERNAL REVENUE LAWS; ENFORCEABLE DURING ENEMY OCCUPATION. Internalrevenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect wereactually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax

payments were affected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of theoccupying enemy.

D E C I S I O N

BAUTISTA ANGELO , J p:

On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed,among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issuedby the Collector of Internal Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the


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basis of said return, an assessment notice demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthlyinstallments, the last payment having been made on January 2, 1953.

Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General CircularNo. V-139 which not only revoked and declared void his general Circular No. V- 123 but laid down the rule that losses of property whichoccurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement aredeductible in the year of actual loss or destruction of said property. As a consequence, the amount of P12,837.65 was disallowed as adeduction from the gross income of petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of thesum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by petitioner was denied, he filed apetition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming the assessment made byrespondent Collector of Internal Revenue. This is an appeal from said decision.

It appears that petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting ina portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the PhilippineRehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commissionthat said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that saidamount of P12,837.65 represents a "business asset" within the meaning of said Act which he is entitled to deduct as a loss in his returnfor 1951. This claim is untenable.

To begin with, assuming that said a mount represents a portion of the 75% of his war damage claim which was not paid, thesame would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War DamageCommission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, saidamount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a"business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right,but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there wasabsolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for theliberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War DamageCommission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, "All findings of the Commission concerning the amount of loss or damagesustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of theproperty lost or damaged, shall be conclusive and shall not be reviewable by any court". (section 113).

It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exerciseof his administrative powers, caused the issuance of General Circular No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed to be deducted "in the year the last installment wasreceived with notice that no further payment would be made until the United States Congress makes further appropriation therefor",but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the soundness or validity of suchcircular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion of which reads as follows:

"Yet it might be argued that war losses were not included as deductions for the year when they weresustained because the taxpayers had prospects that losses would be compensated for by the United States Government;

that since only uncompensated losses are deductible, they had to wait until after the determination by the PhilippineWar Damage Commission as to the compensability in part or in whole of their war losses so that they could excludefrom the deductions those compensated for by the said Commission; and that, of necessity, such determination could becomplete only much later than in the year when the loss was sustained. This contention falls to the ground when it isconsidered that the Philippine Rehabilitation Act which authorized the payment by the United States Government of war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long after the losseswere sustained. It cannot be said therefore, that the property owners had any conclusive assurance during the yearssaid losses were sustained, that the compensation was to be paid therefor. Whatever assurance they could have had,could have been based only on some information less reliable and less conclusive than the passage of the Act itself.Hence, as diligent property owners, they should adopt the safest alternative by considering such losses deductibleduring the year when they were sustained."

In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139which not only revoked and declared void his previous Circular No. V 123 but laid down the rule that losses of property whichoccurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement aredeductible for income tax purposes in the year of actual destruction of said property. We can hardly argue against this opinion. Since wehave already stated that the amount claimed does not represent a "business asset" that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section30 ( d ) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within thecorresponding taxable year.

Petitioner's contention that during the last war and as a consequence of enemy occupation in the Philippines "there was notaxable year" within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemyoccupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed duringthat period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of theoccupied territory and not of the occupying enemy.


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"Furthermore, it is a legal maxim, that excepting that of a political nature, 'Law once established continuesuntil changed by some competent legislative power. It is not changed merely by change of sovereignty.' (Joseph H.Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the sameauthor says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131): 'There can be no break orinterregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and whenchanged it continues in such changed condition until the next change and so forever. Conquest or colonization isimpotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereignby legislative act creates a change.'" (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)

It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our

courts in view of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revokingit and approving in lieu thereof General Circular No. V-139. It cannot be denied, however, that the Secretary of Finance is vested withauthority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute bythose administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should begiven. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]

"When the Commissioner determined in 1937 that the petitioner was not exempt and never had been, it washis duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusionreached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the petitioner fromtax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710."(Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554).

With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect andobliterate the vested right acquired by petitioner under the previous circular, suffice it to say that General Circular No. V-123, havingbeen issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason isobvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration.

"It seems too clear for serious argument that an administrative officer can not change a law enacted byCongress. A regulation that is merely an interpretation of the statute when once determined to have been erroneousbecomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenuedoes not preclude or estop the government from collecting a tax which is legally due." (Ben Stocker, et al., 12 B. T. A.,1351.)

"Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law or whichinfringe upon the rights of others." (Article 2254, New Civil Code.)

Wherefore, the decision appealed from is affirmed Without pronouncement as to costs.

Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ.,concur.


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SECOND DIVISION

[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 , respondents .

The Solicitor General for respondents.

Angara, Abello Concepcion Regala for petitioner.

SYNOPSIS

Petitioner, Philippine Bank of Communications, on August 7, 1987, requested the Commissioner of Internal Revenue (CIR) for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quartets of 1985. On July 25, 1988, it 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 investigationby the CIR, petitioner instituted a petition for review on Nov. 18, 1988 before the Court of Tax Appeals (CTA). In 1993, the CTA rendered adecision denying the request for a tax refund or credit in the amount of P5,299,749.95 on the ground that it was filed beyond the two-yearreglementary period. The petitioner's claim for refund in 1986 was likewise denied on the assumption that it was automatically credited byPBCom against its tax payment in the succeeding year. These pronouncements by the CTA were affirmed in toto by the CA. Hence, this

petition. Petitioner argues that its claim for refund tax credits are not yet barred by prescription relying on the applicability of RevenueMemorandum Circular No. 7-85 stating that overpaid income taxes are not covered by the two-year prescriptive period under the Tax Codeand that taxpayers may claim refund or tax credits within (ten) 10 years under Art. 1414 of the Civil Code. CTAIDE

The Supreme Court ruled that when the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of twoyears to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec.230 of the 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed byCongress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific andless general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely acceptedthat 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. Thus, courts will not countenanceadministrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.

SYLLABUS

1. TAXATION; GENERAL PRINCIPLES; BASIS AND PURPOSE; GENERATE FUNDS FOR THE STATE TO FINANCE THE NEEDS OF THECITIZENRY AND ADVANCE THE COMMON WEAL. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose isto generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under theConstitution 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.

2. ID.; TAX REFUND FOR CLAIMING REFUND ON OVERPAYMENT; PRESCRIPTIVE PERIOD THEREOF. From the same perspective, claimsfor 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. Section 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 taxerroneously or illegally collected. The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of InternalRevenue, with two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, shouldbe computed from the time of filing the Adjustment Return and final payment of the tax for the year.

3. ADMINISTRATIVE LAW; ADMINISTRATIVE BODIES; CIRCULARS AND ISSUANCES; SHOULD NOT RUN AGAINST THE STATUTE PASSED BYCONGRESS. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two to ten years onclaims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NLRC. Inso doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bearsrepeating that Revenue memorandum-circulars are considered administrative rulings which are issued from time to time by theCommissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty isto enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judiciallyfound to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and inharmony with, the law they seek to apply and implement.


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4. ID.; COMMISSIONER OF INTERNAL REVENUE; ERRORS IN ADMINISTRATIVE INTERPRETATION; CANNOT PUT THE STATE IN ESTOPPEL. Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by therespondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrativeinterpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, hisinterpretation could not be given weight for to do so would, in effect, amend the statute.

5. ID.; ADMINISTRATIVE BODIES; ADMINISTRATIVE DECISIONS; DO NOT FORM PART OF THE LEGAL SYSTEM. Article 8 of the Civil Coderecognizes 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 a shield against judicialaction. 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. Moreover, the non-retroactivity of rulings by theCommissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts andnot by the Commissioner of Internal Revenue.

6. TAXATION; PAYMENT; CLAIM FOR REFUND; CONSTRUED IN STRICTISSIMI JURIS AGAINST THE TAXPAYER. As repeatedly held by thisCourt, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

7. ID.; NATIONAL INTERNAL REVENUE CODE, INCOME TAX; EXCESS OF THE TOTAL QUARTERLY PAYMENTS THEREOF IS EITHERREFUNDED OR CREDITED AGAINST THE ESTIMATED QUARTERLY INCOME TAX LIABILITIES FOR THE SUCCEEDING TAXABLE YEAR. Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income taxcomputed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be creditedagainst the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

8. ID.; ID.; ID.; ID.; REMEDIES ARE IN THE ALTERNATIVE AND THE CHOICE OF ONE PRECLUDES THE OTHER. 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 fora refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies arein the alternative, and the choice of one precludes the other.

9. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF QUASI-JUDICIAL BODIES; ACCORDED GREAT WEIGHT. That the petitioner optedfor an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is afinding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence tocontrovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on theirpart to disturb out reliance thereon. aEIADT

D E C I S I O N

QUISUMBING , J p:

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

"IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The Decision of theCourt 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 credit 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 refundamounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited thesame 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.
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Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippinelaws, 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-endedDecember 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, endingDecember 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 BIRwithholding 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 propertyrentals 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 onNovember 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, filedbefore the Court of Tax Appeals, are as follows:

1985 1986

Net Income (Loss) (P25,317,228.00) (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 refundor 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 bylaw. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it wasautomatically 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 forlack of merit . 6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However onSeptember 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 excessquarterly income tax payments can be prejudiced by the subsequent BIR rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterlyincome 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 therefund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there weretaxes 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 creditson the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?
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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 thetwo-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income taxwith the BIR with 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 THEFILING OF THE FINAL ADJUSTMENT RETURN

TO: All Internal Revenue Officers and Others Concerned

Sections 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 recoveryof 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 incourt is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should be 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 incometax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showingrefundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue MemorandumOrder No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, thereturns 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 caseslike 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 within the two-year period . As already stated, actions hereon by theBureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover fromthe Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10years 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 toinjustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs . Court of Tax Appeals 10 petitioner claims that rulings or circularspromulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBNcase, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injusticewould 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 rule as follows: Cdpr

"Sec. 246. Non-retroactivity of rulings . Any revocation, modification or reversal of any of the rules andregulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by theCommissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial tothe 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 himby the Bureau of Internal Revenue;

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

c) where the taxpayer acted in bad faith."
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Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-year prescriptive period forfiling tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted IncomeTax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner citedcases 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 thepetitioner 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'scontention, 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 tofinance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not requirejudicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain themeans to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied shouldbe 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 BIRbeing an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptiveperiod 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 anycourt for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegallyassessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to havebeen excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with theCommissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paidunder protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment ; Provided however, That theCommissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the returnupon 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 f inal 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 isascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this dateis April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have earlier said in the TMX Salescase, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should beconsidered in conjunction with it." 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to tenyears 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 byCongress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specificand less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widelyaccepted 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, courtswill not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek toapply 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 lawcannot 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 iscontrary to the provisions and spirit of Act No. 4003 as amended, because whereas the prohibition prescribed in saidFisheries Act was for any single period of time not exceeding five years duration, FAO No. 37-1 fixed no period, that is to
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say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probablydue to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, thebasic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms andprovisions of the latter. . . . In this connection, the attention of the technical men in the offices of Department Heads whodraft rules and regulation is called to the importance and necessity of closely following the terms and provisions of thelaw 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 astatute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.

As aptly stated by respondent Court of Appeals:

"It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, isestopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The Memorandum Circular, statingthat a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is anobligation 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 the corresponding petition for reviewwithin the two-year prescription period, and that the lengthening of the period of limitation on refund from two to tenyears would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, was the rulingand 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 theCommissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to theexpress provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute." 25

Article 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of thecountry. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operateto vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of thelaw by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule thesame . 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because thenullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be notedthat, 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 itsclaim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatictax credit in 1987. prcd

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over theactual 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 theadministration 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 examiningthe adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply forautomatic tax credit. This was the basis used (vis-a-vis 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 theautomatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refundand 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 FinalAdjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of thepetitioner was not offered as evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts, therebeing 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 COSTSagainst the petitioner. cdphil
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EN BANC

[G.R. No. 95832. August 10, 1992.]

MAYNARD R. PERALTA , petitioner , vs. CIVIL SERVICE COMMISSION , respondent .

Tranquilino F. Meris Law Office for petitioner.

SYLLABUS

1. ADMINISTRATIVE LAW; OPINIONS RENDERED BY ADMINISTRATIVE OR EXECUTIVE AGENCIES, MERELY ADVISORY. When anadministrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law; and theadministrative interpretation of the law is at best advisory, for it is the courts that finally determine what the law means. It has also beenheld that interpretative regulations need not be published.

2. ID.; ADMINISTRATIVE CONSTRUCTION, NOT BINDING UPON THE COURTS. Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an administrative agency may be disturbed or set aside by the judicial department if there isan error of law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the spirit of alegislative enactment.

3. STATUTORY CONSTRUCTION; INTENT OR SPIRIT OF THE LAW MUST PREVAIL OVER THE LETTER THEREOF. Where the true intent of the law is clear that calls for the application of the cardinal rule of statutory construction that such intent or spirit must prevail over theletter thereof, for whatever is within the spirit of a statute is within the statute, since adherence to the letter would result in absurdity,injustice and contradictions and would defeat the plain and vital purpose of the statute. (Hidalgo vs. Hidalgo , G.R. No. L-25326, May 29, 1970,33 SCRA 105)

4. ID.; REPUBLIC ACT NO. 2625 AMENDING THE REVISED PENAL CODE; LEGISLATIVE INTENT TO EXCLUDE SATURDAYS, SUNDAYS ANDHOLIDAYS FROM COMPUTATION OF LEAVE, MANIFEST. The intention of the legislature in the enactment of R.A. 2625 may be gleanedfrom, among others, the sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No. 41 (which becameR.A. 2625). He said: "The law actually provides for sick leave and vacation leave of 15 days each year of service to be with full pay. But underthe present law, in computing these periods of leaves, Saturday, Sunday and holidays are included in the computation so that if an employeeshould become sick and absent himself on a Friday and then he reports for work on a Tuesday, in the computation of the leave the Saturdayand Sunday will be included, so that he will be considered as having had a leave of Friday, Saturday, Sunday and Monday, or four days. "Thepurpose of the present bill is to exclude from the computation of the leave those days, Saturdays and Sundays, as well as holidays, because

actually the employee is entitled not to go to office during those days. And it is unfair and unjust to him that those days should be counted inthe computation of leaves."

5. ID.; ID.; FIFTEEN (15) DAYS VACATION AND FIFTEEN (15) DAYS SICK LEAVE WITH FULL PAY GRANTED TO ALL EMPLOYEES,EXCLUSIVE OF SATURDAYS, SUNDAYS AND HOLIDAYS; PRINCIPLE OFUBI LEX NON DISTINGUIT NEC NOS DISTINGUERE DEBEMUS, APPLIED. R.A. 2625 specifically provides that government employees are entitled to fifteen (15) days vacation leave of absence with fullpay and fifteen (15) days sick leave with full pay, exclusive of Saturdays, Sundays and Holidays in both cases. Thus, the law speaks of thegranting of a right and the law does not provide for a distinction between those who have accumulated leave credits and those who haveexhausted their leave credits in order to enjoy such right. Ubi lex non distinguit nec nos distinguere debemus . The fact remains that government employees, whether or not they have accumulated leave credits, are not required by law to work on Saturdays, Sundays andHolidays and thus they can not be declared absent on such non-working days. They cannot be or are not considered absent on non-workingdays; they cannot and should not be deprived of their salary corresponding to said non-working days just because they were absent without pay on the day immediately prior to, or after said non-working days. A different rule would constitute a deprivation of property without dueprocess.

6. CONSTITUTIONAL LAW; AN UNCONSTITUTIONAL ACT IS NOT A LAW AND GENERALLY CONFERS NO RIGHT; QUALIFICATION. Thegeneral rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection;it creates no office; it is in legal contemplation as inoperative as though it had never been passed. But, as held in Chicot County DrainageDistrict vs. Baxter State Bank : ". . . . It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such determination is an operative fact andmay have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration. The effect of thesubsequent ruling as to invalidity may have to be considered in various aspects with respect to particular relations, individual andcorporate; and particular conduct, private and official."

D E C I S I O N


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PADILLA , J p:

Petitioner was appointed Trade-Specialist II on 25 September 1989 in the Department of Trade and Industry (DTI). His appointment wasclassified as "Reinstatement/Permanent". Before said appointment, he was working at the Philippine Cotton Corporation, a government-owned and controlled corporation under the Department of Agriculture. LibLex

On 8 December 1989, petitioner received his initial salary, covering the period from 25 September to 31 October 1989. Since he had noaccumulated leave credits, DTI deducted from his salary the amount corresponding to his absences during the covered period, namely, 29September 1989 and 20 October 1989, inclusive of Saturdays and Sundays . More specifically, the dates of said absences for which salarydeductions were made, are as follows:

1. 29 September 1989 Friday

2. 30 September 1989 Saturday

3. 01 October 1989 Sunday

4. 20 October 1989 Friday

5. 21 October 1989 Saturday

6. 22 October 1989 Sunday

Petitioner sent a memorandum to Amando T. Alvis (Chief, General Administrative Service) on 15 December 1989 inquiring as to the law onsalary deductions, if the employee has no leave credits.

Amando T. Alvis answered petitioner's query in a memorandum dated 30 January 1990 citing Chapter 5.49 of the Handbook of Informationon the Philippine Civil Service which states that "when an employee is on leave without pay on a day before or on a day immediatelypreceding a Saturday, Sunday or Holiday, such Saturday, Sunday, or Holiday shall also be without pay (CSC, 2nd Ind., February 12, 1965)."

Petitioner then sent a letter dated 20 February 1990 addressed to Civil Service Commission (CSC) Chairman Patricia A. Sto. Tomas raisingthe following question:

"Is an employee who was on leave of absence without pay on a day before or on a day immediately preceding aSaturday, Sunday or Holiday, also considered on leave of absence without pay on such Saturday, Sunday or Holiday?" 1

Petitioner in his said letter to the CSC Chairman argued that a reading of the General Leave Law as contained in the Revised AdministrativeCode, as well as the old Civil Service Law (Republic Act No. 2260), the Civil Service Decree (Presidential Decree No. 807), and the CivilService Rules and Regulations fails to disclose a specific provision which supports the CSC rule at issue. That being the case, the petitionercontended that he cannot be deprived of his pay or salary corresponding to the intervening Saturdays, Sundays or Holidays (in the factualsituation posed), and that the withholding (or deduction) of the same is tantamount to a deprivation of property without due process of law.llcd

On 25 May 1990, respondent Commission promulgated Resolution No. 90-497, ruling that the action of the DTI in deducting from the salaryof petitioner, a part thereof corresponding to six (6) days (September 29, 30, October 1, 20, 21, 22, 1989) is in order. 2 The CSC stated that:

"In a 2nd Indorsement dated February 12, 1965 of this Commission, which embodies the policy on leave of absencewithout pay incurred on a Friday and a Monday, reads:

'Mrs. Rosalinda Gonzales is not entitled to payment of salary corresponding to January 23 and 24,1965, Saturday and Sunday, respectively, it appearing that she was present on Friday, January 22, 1965 but was on leave without pay beginning January 25, the succeeding Monday. It is the view of this Office that an

employee who has no more leave credit in his favor is not entitled to the payment of salary on Saturdays, Sundaysor holidays unless such non-working days occur within the period of service actually rendered .' (Emphasissupplied)

The rationale for the above ruling which applies only to those employees who are being paid on monthly basis, rests onthe assumption that having been absent on either Monday or Friday, one who has no leave credits, could not befavorably credited with intervening days had the game been working days. Hence, the above policy that for anemployee on leave without pay to be entitled to salary on Saturdays, Sundays or holidays, the same must occur betweenthe dates where the said employee actually renders service. To rule otherwise would allow an employee who is onleave of absent (sic) without pay for a long period of time to be entitled to payment of his salary corresponding toSaturdays, Sundays or holidays. It also discourages the employees who have exhausted their leave credits fromabsenting themselves on a Friday or Monday in order to have a prolonged weekend, resulting in the prejudice of thegovernment and the public in general." 3
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Petitioner filed a motion for reconsideration and in Resolution No. 90-797, the respondent Commission denied said motion for lack of merit.The respondent Commission in explaining its action held:

"The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service Commission rulings to be observed whenever an employee of the government who has no more leave credits, is absent on a Friday and/or a Monday is credits,is absent on a Friday and/or a Monday is enough basis for the deduction of his salaries corresponding to the interveningSaturdays and Sundays . What the Commission perceived to be without basis is the demand of Peralta for the payment of his salaries corresponding to Saturdays and Sundays when he was in fact on leave of absence without pay on a Fridayprior to the said days. A reading of Republic Act No. 2260 (sic) does not show that a government employee who is onleave of absence without pay on a day before or immediately preceding Saturday, Sunday or legal holiday is entitled topayment of his salary for said days. Further, a reading of Senate Journal No. 67 dated May 4, 1960 of House Bill No. 41(Republic Act No. 2625) reveals that while the law excludes Saturdays, Sundays and holidays in the computation of leave credits, it does not, however, include a case where the leave of absence is without pay. Hence, applying theprinciple of inclusio unius est exclusio alterius, the claim of Peralta has no merit. Moreover, to take a different posturewould be in effect giving more premium to employees who are frequently on leave of absence without pay, instead of discouraging them from incurring further absence without pay." 4

Petitioner's motion for reconsideration having been denied, petitioner filed the present petition.

What is primarily questioned by the petitioner is the validity of the respondent Commission's policy mandating salary deductionscorresponding to the intervening Saturdays, Sundays or Holidays where an employee without leave credits was absent on the immediatelypreceding working day.

During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-540 dated 23 April 1991 amending thequestioned policy, considering that employees paid on a monthly basis are not required to work on Saturdays, Sundays or Holidays. In saidamendatory Resolution, the respondent Commission resolved "to adopt the policy that when an employee, regardless of whether he hasleave credits or not, is absent without pay on day immediately preceding or succeeding Saturday, Sunday or holiday, he shall not beconsidered absent on those days." Memorandum Circular No. 16 Series of 1991 dated 26 April 1991, was also issued by CSC Chairman Sto.Tomas adopting and promulgating the new policy and directing the Heads of Departments, Bureaus and Agencies in the national and localgovernments, including government-owned or controlled corporations with original charters, to oversee the strict implementation of thecircular.

Because of these developments, it would seem at first blush that this petition has become moot and academic since the very CSC policy beingquestioned has already been amended and, in effect, Resolutions No. 90-497 and 90-797, subject of this petition for certiorari, have alreadybeen set aside and superseded. But the issue of whether or not the policy that had been adopted and in force since 1965 is valid or not, remainsunresolved . Thus, for reasons of public interest and public policy, it is the duty of the Court to make a formal ruling on the validity orinvalidity of such questioned policy. llcd

The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the following powers and duties:

"Sec. 16 (e) with the approval by the President to prescribe, amend and enforce suitable rules and regulations forcarrying into effect the provisions of this Civil Service Law, and the rules prescribed pursuant to the provisions of thislaw shall become effective thirty days after publication in the Official Gazette;

xxx xxx xxx

(k) To perform other functions that properly belong to a central personnel agency." 5

Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy. Said policy was embodied in a 2ndIndorsement dated 12 February 1965 of the respondent Commission involving the case of a Mrs. Rosalinda Gonzales. The respondent Commission ruled that an employee who has no leave credits in his favor is not entitled to the payment of salary on Saturdays, Sundays orHolidays unless such non-working days occur within the period of service actually rendered. The same policy is reiterated in the Handbook of Information on the Philippine Civil Service. 6 Chapter Five on leave of absence provides that:

"5.51 When intervening Saturday, Sunday or holiday considered as leave without pay when an employee is on leavewithout pay on a day before or on a day immediately preceding a Saturday, Sunday or holiday, such Saturday, Sundayor holiday shall also be without pay. (CSC, 2nd Ind., Feb. 12, 1965)."

It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and Answers on Leave of Absences, whichstates the following:
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"27. How is leave of an employee who has no more leave credits computed if:

(1) he is absent on a Friday and the following Monday?

(2) if he is absent on Friday but reports to work the following Monday?

(3) if he is absent on a Monday but present the preceding Friday?

(1) He is considered on leave without pay for 4 days covering Friday to Monday;

(2) He is considered on leave without pay for 3 days from Friday to Sunday;

(3) He is considered on leave without pay for 3 days from Saturday to Monday."

When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre -existing law; andthe administrative interpretation of the law is at best advisory, for it is the courts that finally determine what the law means. 8 It has alsobeen held that interpretative regulations need not be published. 9

In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission interpreted the provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending the Revised Administrative Code, and which stated as follows:

"SECTION 1. Sections two hundred eighty-four and two hundred eighty-five-A of the Administrative Code, as amended,

are further amended to read as follows:

'SEC. 284. After at least six months' continues (sic) faithful, and satisfactory service, the President or proper head of department, or the chief of office in the case of municipal employees may, in his discretion, grant to an employee orlaborer, whether permanent or temporary, of the national government, the provincial government, the government of achartered city, of a municipality, of a municipal district or of government-owned or controlled corporations other thanthose mentioned in Section two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four hereof,fifteen days vacation leave of absence with full pay, exclusive of Saturdays, Sundays and holidays, for each calendar yearof service.

'SEC. 285-A. In addition to the vacation leave provided in the two preceding sections each employee or laborer, whetherpermanent or temporary, of the national government, the provincial government, the government of a chartered city, of a municipality or municipal district in any regularly and specially organized province, other than those mentioned inSection two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four hereof, shall be entitled tofifteen days of sick leave for each year of service with full pay, exclusive of Saturdays, Sundays and holidays: Provided,That such sick leave will be granted by the President, Head of Department or independent office concerned, or the chief of office in case of municipal employees, only on account of sickness on the part of the employee or laborer concernedor of any member of his immediate family.'"

The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as referring only to government employeeswho have earned leave credits against which their absences may be charged with pay, as its letters speak only of leaves of absence with full pay . The respondent Commission ruled that a reading of R.A. 2625 does not show that a government employee who is on leave of absencewithout pay on a day before or immediately preceding a Saturday, Sunday or legal holiday is entitled to payment of his salary for said days.

Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an administrative agency may bedisturbed or set aside by the judicial department if there is an error of law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the spirit of a legislative enactment. 10

We find this petition to be impressed with merit.

As held in Hidalgo vs . Hidalgo : 11

" . . . where the true intent of the law is clear that calls for the application of the cardinal rule of statutory constructionthat such intent or spirit must prevail over the letter thereof, for whatever is within the spirit of a statute is within thestatute, since adherence to the letter would result in absurdity, injustice and contradictions and would defeat the plainand vital purpose of the statute."

The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others, the sponsorship speech of Senator ArturoM. Tolentino during the second reading of House Bill No. 41 (which became R.A. 2625). He said:
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"The law actually provides for sick leave and vacation leave of 15 days each year of service to be with full pay. But under the present l

classification of rules adminlaw cases

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