CIR v. Cebu Portland Cement CompanyDoctrine: The payment of taxes cannot be postponed by simply questioning their validity. The machinery of the state would grind to a halt and all government functions would be paralyzed if this were so. Tax is the lifeblood of the government.

Facts: This case stems from a decision of the Court of Tax Appeals

which ordered the CIR to refund the amount of overpayments of ad valorem taxes on cement produced and sold by the Cebu Portland Cement Company after October 1957.

Cebu Portland moved for the issuance of a writ of execution to enforce said judgment of the Court of Tax Appeals. However, the CIR opposed said motion on the ground that Cebu Portland had an outstanding sales tax liability to which the judgment debt was already credited. In fact, there was still a balance owing on the sales taxes with surcharges.

The CTA granted the motion of Cebu Portland holding that since the tax liability was still being questioned, it could not be set off against the refund.

Arguments: Cebu Portland claims that their tax liability was still being

questioned since according to them, cement is not a manufactured product, but a mineral product. It should have been exempt from taxes under Section 188 of the Tax Code. Moreover, the alleged sales tax deficiency could not be enforced against them since it has already prescribed, not having been made within the 5 year reglementary period from the filing of the tax returns.

Issue: Whether or not cement is a manufactured product and

therefore not exempt from sales taxes. Whether or not the collection of the National Internal

Revenue tax can be enjoined. Whether or not the sales tax assessments have already

prescribed.

Ratio: Cement is considered as a manufactured product and

was never considered otherwise within the meaning of

Section 246 of the Tax Code notwithstanding at least 80% of its components are minerals for the simple reason that cement is a product of the manufacturing process and is no longer the mineral product contemplated in the Tax Code.

Such position of Cebu Portland was apparently encouraged by a previous jurisprudence. Such reliance is misplaced and said decision is no authority for the proposition that after the enactment of RA 1299, cement became a mineral product as distinguished from a manufactured product, and therefore ceased to be subject to sales tax. Such decision was overruled insofar as it is in conflict with the instant decision.

The action has not yet prescribed. The period of prescription begins to run from the time the sales return required in Section 183 of the Tax Code is filed, not the ad valorem tax returns under Section 245 or the income tax return. The commissioner does not consider such returns as compliance with the requirement for the filing of tax returns so as to start the running of the 5 year prescriptive period.

There being no sales tax returns filed, the assessment made by the Commissioner is not barred by the 5 year prescriptive period. Absent a return, or where a return is false or fraudulent, the applicable period is 10 days from the discovery of the fraud, falsity or omission.

The payment of taxes cannot be postponed by simply questioning their validity. The machinery of the state would grind to a halt and all government functions would be paralyzed if this were so. This is provided by Section 291 of the Code which states that no court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this code.

In sum, the Court of Tax Appeals erred in ordering the refund.

Commissioner of Internal Revenue v. AlgueDoctrine: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But such collection

should be made in accordance with the law as any arbitrariness will negate the very reason for government itself.

Taxation should be exercised reasonably and in accordance with the prescribed procedure. If not, then the taxpayer has a right to complain to the courts. The tax collector may be stopped in his tracks if the taxpayer can demonstrate, that the law has not been observed.

Facts: Algue herein was a domestic corporation engaged in

engineering, construction and other allied activities. It received a letter from the CIR showing the total amount as delinquency income taxes for the years 1958 and 1959. Algue (as representative of the corporation) filed a letter of protest or request for reconsideration which was stamped and received on the same day in the office of the CIR.

Thereafter, despite the letter of protest, a warrant of distraint and levy was presented to Algue through its counsel but they refused to receive it on the ground that they filed a letter of protest. The letter of protest was apparently lost in the office. Hence, a Photostat copy of the letter of protest was again given to the BIR but thereafter, Algue was informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy served.

16 days later, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals (which appears to fall within the 30 day period required after the receipt of the decision or ruling).

It should be noted that the letter of protest filed by Algue contained a protest on the disallowance of the deduction of expenses in its income tax returns. It claims that the expenses were ordinary reasonable or necessary business expense, not promotional fees. Hence, should be deducted from the amount to be paid.

Issue: Whether or not the appeal was made on time and in

accordance with the law.

Whether or not the CIR correctly disallowed the P75000 deduction claimed by Algue as legitimate business expenses in its income tax returns.

Ratio: The appeal was made on time and in accordance with

the law. There is a special circumstance in this case and such circumstance prevents the application of the accepted doctrine that a warrant of distraint and levy is proof of the finality of the assessment.

In this case, after Algue's receipt of the notice of assessment, it immediately filed a notice of protest which thereafter, could not be located in the office of the CIR. It was only after a Photostat was submitted, that it was considered by the tax authorities. Thus, during the intervening period, the warrant was premature and could not therefore be served.

The claimed deduction by Algue was permitted under the Internal Revenue Code. Thus, it could not be disallowed by the petitioner. The 75,000 deduction in this case stems from the authority of Alberto Guevara and others to sell the land, factories, and oil manufacturing process of the Philippine Sugar Estate Development Company. Alberto Guevara et al worked for the formation of the Vegetable Oil Investment Corporation, inducing others to invest in it. For the sale of properties, Algue received as an agent a commission of 126,000 and it was from this commission that the 750000 promotional fees were paid to the aforementioned individuals.

It should be noted that the payments were made periodically and not in lump sum. Also, this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required.

According to the Code, all the ordinary and necessary expenses paid or incurred during the taxable year shall be deductibles. Moreover, the Revenue Regulations provide for the inclusion of a reasonable amount of compensation for personal services as deductibles. The test of deductibility in this case is whether they are reasonable and are, in fact, payments purely for service. In this case, Algue has

proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the agents in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos.

C.N. Hodges v. Municipal Board of the City of IloiloDoctrine: Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed with the implied authority to devise ways and means to accomplish their collection in the most effective manner.

Municipal corporations may exercise all powers in the fair intent and purpose of their creation which are reasonably proper to give effect to the powers expressly granted, and in doing so, they are given the choice of the means adapted to the ends and are not confined to any one mode of operation.

Facts: Pursuant to the provisions of the Local Autonomy Act, the

Municipal Board of Iloilo enacted Ordinance No. 33 which required any person, firm, association or corporation to pay a sales tax of ½ of 1% of the selling price of any motor vehicle and prohibiting registration of the sale of the motor vehicle in the Motor Vehicles Office unless the tax has been paid.

CN Hodges believed the same to be invalid for having been passed in excess of authority of the municipal board. Hence, he filed a petition for declaratory judgment with the court and prayed that he be refunded the amount he was required to pay under the ordinance.

The court a quo rendered a decision holding that the sales tax requirement was valid, but the portion of the ordinance which requires the payment as a condition precedent for the registration of the sale is invalid for being repugnant to RA 2264 (which provides for the power of the municipal corporation to tax).

Issue: Whether or not Ordinance No. 33 is valid.

Ratio: Yes. It can be inferred from the provisions of the

Local Autonomy Act that the City of Iloilo has the

authority to approve the ordinance in question for it merely imposes a percentage tax on the sale of a second hand motor vehicle that may be carried out within the city by any person. It comes within the category of a just tax. The Local Autonomy Act only prohibits imposition of percentage taxes on municipalities, municipal districts. It does not comprehend chartered cities such as the City of Iloilo.

The payment as a condition precedent to registration is also valid. It is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. It is not a tax imposed on the registration of a motored vehicle.

Association of Customs Brokers Inc. v. Municipal Board of the City of ManilaDoctrine: If a tax is in its nature an excise or license tax, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege or the engaging in an occupation, it will be considered an excise.

Facts: The City of Manila issued Ordinance No 3379, pursuant to

RA 409 (which gave it the power to tax motor and other vehicles operating within the City of Manila). Such ordinance levies a so-called property tax on motor vehicles operating within the City. It provides that the tax shall be 1% ad valorem per annum and the proceeds of which shall accrue to the streets and bridges funds of the city and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges.

Petitioners herein contends that such tax imposed is actually a license tax which is beyond the power of the city to impose. They further contend that it constitutes double taxation and is in violation of the rule of uniformity in taxation.

Issue: Whether or not the ordinance is valid.

Ratio: Invalid. The character of the tax (property or license)

shall be determined by its incidents and not by its nomenclature. The tax herein is actually a license tax. It is imposed primarily for the purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in the city. This is precisely what the Motor Vehicle Law intends to prevent when it prohibited exaction of fees for the operation of a motor vehicle except property tax. The ordinance in question merely imposes a license fee under the cloak of an ad valorem tax to circumvent the prohibition imposed by said law.

Moreover, the ordinance infringes the rule on the uniformity of taxation since it does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a vehicle registered in the city of manila and in another place but occasionally comes to Manila.

Esso Standard Eastern Inc. v. Commissioner of Internal RevenueDoctrine: Claims for deductions are a matter of legislative grace and do not turn on mere equitable considerations. The tax payer, in every instance, has the burden of justifying the allowance of any deduction claimed.

To be deductible as a business expense, the expense must be 1) ordinary and necessary; 2) paid or incurred within the taxable year; 3) paid or incurred in carrying on a trade or business.

An expense is ordinary when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. It does not require the payment to be habitual or normal in the sense that the same will have to make them often, the payment may be unique or non-recurring to the particular taxpayer affected.

It is necessary when the expenditure is appropriate and helpful in the development of the taxpayer's business.

Facts: ESSO deducted from its gross income an amount which it

claims to be ordinary and necessary business expense (for

the drilling and exploration of petroleum concessions). Such claim was disallowed by the CIR on the ground that the expenses should be capitalized and might be written off as a loss only when a dry hole should result.

ESSO filed an amended return wherein it asked for the refund of P323, 279 by reason of its abandonment as dry holes of several of its oil wells. It also claimed as ordinary and necessary expenses an amount of P340,822.04 representing margin fees it paid to Central Bank on its profit remittances to its New York head office.

The CIR disallowed the deductions claimed for the margin fees paid for it cannot be considered as deductible business expenses within the meaning of the law.

Issue: Whether or not RA 2009 is a police measure or a revenue

measure (if a revenue measure, the margin fees paid by the petitioner should be deductible from ESSO's gross income).

Whether or not the margin fees are considered ordinary and necessary business expenses.

Ratio: It is a police measure. A margin fee is not a tax but an

exaction designed to curb the excessive demands upon our international reserve. It is a form of exchange or control or restriction designed to discourage imports and encourage exports and ultimately, curtail any excessive demand upon the international reserve in order to stabilize the currency.

A tax is levied to provide revenue for government operations while the proceeds of the margin fee are applied to strengthen the international reserve. Thus, the margin fee was imposed in the exercise of the State's police power and not the power of taxation.

It is also not to be deducted since it is considered as ordinary and necessary business expense. When a taxpayer claims deduction, he must be able to point to a specific provision in law to prove that he is entitled to the deduction.

To be deductible as a business expense, the expense must be 1) ordinary and necessary; 2) paid or incurred within the taxable year; 3) paid or incurred in carrying on a trade or business.

An expense is ordinary when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. It does not require the payment to be habitual or normal in the sense that the same will have to make them often, the payment may be unique or non-recurring to the particular taxpayer affected.

It is necessary when the expenditure is appropriate and helpful in the development of the taxpayer's business.

In this case, the margin fees in question were incurred for the remittance of funds to the petitioner's head office in New York which is a separate and distinct income taxpayer from the branch in the Philippines for its disposal abroad. It can never be said that the margin fees were appropriate and helpful in the development of the business. If at all, the margin fees were incurred for the purpose of conducting the corporate affairs in New York, not in the Philippines.

ESSO merely presumed that all corporate expenses are necessary and appropriate.

Progressive Development Corporation v. Quezon CityDoctrine: Local governments are given a broad taxing authority extending to almost everything except those which are mentioned in RA 2264 provided that the tax levied is for public purposes, just and uniform.

To be considered as a license fee, the imposition must relate to an occupation or activity that engages in public interest as to require regulation for the protection and promotion of such public interest it must bear reasonable relation to the probable expenses of regulation, taking into account not only the cost of direct regulation but also the incidentals. When supervision of public officers is reasonable necessary for the safeguarding of public interests, cost of inspection or supervision shall be paid in the form of a license fee.

Facts:

The City Council of Quezon City adopted Ordinances 7997 amended by Ordinance 9236 which imposes a 5% tax on gross receipts on rentals or lease of space in privately owned public markets in QC and a 10% stall rental to the City as supervision fee.

Farmers Market thus filed a petition for preliminary injunction against said city on the ground that the supervision or license tax is in reality a tax on income which according to them, the city may not impose being expressly prohibited by the Local Autonomy Act.

The trial court rendered a decision dismissing the petition stating that said imposition is in reality a privilege tax or license fee which local governments, like the QC, are empowered to impose and collect.

Issue: Whether or not the tax imposed by respondent is properly

characterized as a license fee and not an income tax.

Ratio: The tax imposed is a license fee. First and foremost, the

charter of the city empowers the council to fix the license fee and to tax. Moreover, the Local Autonomy Act also provides that all chartered cities have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business in said cities. The city charter and the Local Autonomy Act, therefore, clearly show that the respondent city is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately owned public market.

A license fee is a legal concept distinguishable from tax. The former is imposed in the exercise of police power while the latter is imposed primarily for the purpose of raising revenues. Thus if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if the regulation if the primary purpose and incidentally revenue is also obtained, it does not make such imposition a tax.

To be considered as a license fee, the imposition must relate to an occupation or activity that engages in public interest as to require regulation for the protection and

promotion of such public interest it must bear reasonable relation to the probable expenses of regulation, taking into account not only the cost of direct regulation but also the incidentals. When supervision of public officers is reasonable necessary for the safeguarding of public interests, cost of inspection or supervision shall be paid in the form of a license fee.

In this case, Farmers Market and Shopping Center is established and operated as a market with a permit to sell foodstuffs. Being a public market, in the sense that it is made open to the general public, the operation thereof required a license issued by the city done principally in the exercise of its police power. It requires close supervision and control by the city for the protection and health by the public.

The 5% tax imposed by the amending ordinance was also held to be valid in the absence of any evidence that it is unreasonably large and excessive and so grossly proportionate to the costs of the regulatory service being performed by the city to compel the court to characterize the imposition as a revenue measure exclusively.

PAL v. EDUDoctrine: Motor vehicle registration fees are veritable taxes and not merely fees. This can be inferred from the provision of the law which imposes them and applies to the funds for the construction and maintenance of public roads, streets and bridges. The fees collected herein are not for regulatory purposes for their express object is to provide for the revenue with which the government is to discharge one of its principal functions – construction and maintenance of highways.

Facts: PAL is a corporation existing and operating under the laws

of the Philippines. Under its franchise, it is exempted from the payment of taxes except a 2% (of the gross revenue) tax imposed derived from its operations under the franchise. Being exempted from the payment of taxes, it has not been paying motor vehicle registration fees for it is under the impression that such fees are taxes.

CIR issued a regulation requiring all the exempted tax entities, including PAL to pay for the vehicle registration

fees citing Republic v. Philippine Rabbit Bus Lines which held that the registration fees are regulatory.

Citing Calalang v. Lorenzo which held that the registration fees are actually taxes, PAL through its counsel demanded a refund of the amount it paid to the BIR.

Issue: Whether motor vehicle registration fees are taxes or merely

regulatory fees.

Ratio: They are veritable taxes, not mere fees. Today, the

matter of motor vehicle registration fees is governed by the Land Transportation Code which provides that the money collected shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum shall during the next previous year and the remaining 80% shall be deposited in the Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges. Hence, it is clear that the legislative intent of such requirement to pay registration fees is mainly to raise funds for the construction and maintenance of the highways and to pay for operating expenses of the administering agency.

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. It is possible for an exaction to be both tax arose, regulation. License fees are looked to as a source of revenue as well as a means of regulation. Indeed, even tax may be made the implement of the state's police power.

If the purpose of primarily revenue, or if revenue is, at least one of the real substantial purposes, then the exaction is properly called a tax. Such is the case for motor vehicle registration fees.

Vehicle registration fees were originally intended for regulation in the exercise of the State's police power. However, over the years, as vehicular traffic exploded and vehicles became necessities, the state found registration a very convenient way of raising revenues. Without changing the nature of registration as fees, their nature has become that of taxes.

However, the refund that PAL is claiming cannot be completely refunded since between June 27, 1968 and April 9, 1979, the tax exemption in the franchise of PAL was repealed.

Villegas v. Hiu Chiong Tsai Pao HoFacts:

The Municipal Board of Manila adopted Ordinance No 6537 which makes it unlawful for any alien to be employed or to engage or participate in any position, occupation or business whether permanent, temporary or causal without first securing an employment permit from the Mayor of manila and paying the permit of P50.

Hiu Chiong was one of the persons affected by this ordinance. Hence he filed an action praying for the issuance of a writ of preliminary injunction and restraining order to stop the enforcement of the ordinance on the ground that it is discriminatory and violative of the rule on uniformity in taxation, it is an illegal delegation of legislative powers, and is arbitrary, oppressive and unreasonable.

Issue: Whether or not the ordinance is valid.

Ratio: The ordinance is void because it does not contain or

suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance, it violates the due process of law, equal protection rule of the constitution and the uniformity in taxation.

The ordinance herein is a revenue measure. Hence, the rule on uniformity must apply to it The requirement that a permit be secured is regulatory in character but the payment of P50 clearly makes it an ordinance to raise money under the guise of regulation. It violates the uniformity in taxation rule since it fails to make distinctions and consider valid substantial differences among individual aliens who are required to pay it (whether he is a causal or permanent, part time or full time or whether he is a lowly employee or a highly paid executive).

It is also an undue delegation of legislative power since it grants the mayor the power to exercise his own discretion on approving permit without conditions imposed for its grant or refusal.

It is a violation of the due process and equal protection clauses since it denies the person the basic right to engage in a means of livelihood when the City Mayor withholds the issuance of the permit.

Compania General De Tabacos De Filipinas v. City of ManilaDoctrine: Tax applies to all kinds of exactions which become public funds. It includes levies for revenue as well as levies for regulatory purposes. Thus, license fees are commonly called taxes. However, a license fee is a legal concept quite distinct from tax. The former is imposed in the exercise of police power for the purpose of regulation while the latter is imposed under the taxing power for the purpose of raising revenues.

Facts: Tabacalera is a duly licensed first class wholesale and retail

liquor dealer. It paid the City of Manila the fixed license fees and the sales taxes as a wholesale and retail dealer of general merchandise. Tabacalera included its liquor sales when it paid for the wholesale, retail and grocery sales of general merchandise, allegedly by mistake. Thus, Tabacalera filed an action for refund based on the theory that in connection with the liquor sales, it should pay license fees and since it already paid the license fees aforesaid, the sales taxes paid by it was an overpayment made by mistake and therefore refundable.

The City refused to make the refund since the payment was made without protest and was by reason of a neglect of duty. Moreover, the amount was already expended by the city.

In this case, there are 4 ordinances. As a liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under Ordinance 3358. However, when the succeeding ordinances were passed, the city treasurer issued a regulation which states that the term general merchandise mentioned in said ordinances includes all the articles referred to in the NIRC (which includes

liquor among taxable articles). Hence, Tabacalera, again, paid for the amount which included the sales of liquor in its sworn quarterly declaration (the amount sought to be recovered).

Issue: Whether or not there is double taxation.

Ratio: The double taxation herein is more apparent than

real. Ordinance 3358 herein is a license fee for the privilege of selling liquors, which not anyone or anybody can freely engage considering that this may endanger public health and morals. On the other hand, the other ordinances, imposed a tax for revenue purposes based on the sales made of the same article or merchandise.

It is settled that both a license fee and a tax may be imposed on the same business or occupation or for selling the same article not being in violation of the rule against double taxation.

American Mail Line et. al v. City of BasilanFacts:

This case involves an ordinance issued by the City of Basilan entitled the Port Area Ordinance which provides that any foreign vessel engaged in coastwide trade which may anchor within the territorial waters of the City of Basila for the purpose of loading or unloading logs shall pay an anchorage fee of ½ centavo per registered gross ton of the vessel for the first 24 hours or part thereof and for the succeeding hours or par thereof. Provided it shall not exceed 75 pesos per day.

Appellees herein are foreign shipping companies licensed to do business in the country and were asked to pay the anchorage fees prescribed in the ordinance. As such, they filed an action for declaratory relief to have the court determine its validity on the ground that the City of Basilan had no authority to collect said anchorage fees.

Issue: Whether or not the City of Basilan had authority to collect

the anchorage fees.

Ratio: The City of Basilan had no authority to collect said

anchorage fees since the charter provided that they only had the authority to levy and collect taxes for general and special purposes in accordance with, or as provided by law. Otherwise stated, they were not granted the blanket power of taxation. There is a legislative intent to limit their taxing power.

The provision which states that they had the power to fix the charges to be paid by all watercraft landing at or using their public wharves does not include such power of taxation.

It cannot be said that this was done as an exercise of police power cannot be sustained since it has already been held that the power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. Fees for purely regulatory purposes may only be of sufficient amount to include the expenses of issuing the license and the cost of the necessary inspection or police surveillance, taking into account not only the expense of the direct regulation, but also the incidental expenses.

The regulatory fee must be more than sufficient to cover the actual cost of inspection or examination. In this case, the fees have no proper reasonable relation to the cost of the issuing of the permits and the cost of inspection or surveillance. The fee imposed exceeds even the harbor fee imposed by the National Government which is only 50 pesos for foreign vessels. All such circumstances point to the conclusion that the fees were intended for revenue purposes.

Osmena v. OrbosFacts:

The OPSF was created by President Marcos to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Such OPSF was reclassified into trust liability accounts and was ordered released to the Ministry of Energy. It also authorized the investment of the fund in government securities with the earnings from such placements accruing to the fund.

The petition at present alleged that the OPSF showed a terminal fund balance deficit and that to abate the worsening deficit, the Energy Regulatory Board issued an order approving the increase in pump prices of petroleum products and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of 6 months.

The petition also avers that the creation of the trust fund violates the constitution particularly the provision which states that all money collected and paid out for a special purpose shall be treated as a special fund and paid out for such purposes only. If such purpose be fulfilled or abandoned, the balance shall be transferred to the general funds of the government. The petitioner claims that the OPSF should be treated as a special fund and not a trust account since a special fund consists of monies collected through the taxing power of the state, such amounts belong to the state although the use is limited to the special purpose or objective for which it was created.

Petitioners further aver that there is an undue delegation of authority to the ERB inasmuch as it was given the authority to impose additional amounts on petroleum products to augment the resources of the Fund.

Issue: Whether or not the OPSF is a special fund. Whether or not there is undue delegation of legislative

power.

Ratio: The OPSF is a buffer mechanism through which the

domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any given time. The OPSF is a device through which the domestic prices of petroleum products are subsidized in part. As such, it is an exercise of the police power of the state and not taxation.

Such circumstance is similar to the stabilization fees collected in relation to the sugar stabilization fund which is

within the power of the State to impose for the promotion of the sugar industry. The tax collected herein is nit a pure exercise of taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the industry. The levy is primarily in the exercise of the police power of the state.

The OPSF is segregated from the general fund and while it is placed in what the law refers to as trust liability account, the fund nonetheless remains subject to the scrutiny of the COA. The court is satisfied that these measures comply with the constitutional description of a special fund (having been levied for a special purpose, once the purpose is fulfilled or abandoned, the balance is to be transferred to the general funds of the government).

On the issue of undue delegation, the court is convinced that there was no undue delegation of legislative power since what is involved here first and foremost, is the police power. Hence, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the state. Constant fluctuation of oil prices do not conveniently permit the setting of fixed or rigid parameters in the law. To do so would render the ERB unable to respond to the undesirable consequences of the fluidity.

Republic of the Philippines v. Bacolod Murcia-MillingFacts:

Philsugin is a semi public corporation created by Republic Act No. 632 (its charter) for the purpose of conducting research (primarily(, either agricultural or industrial for the purpose of introducing processes that will reduce cost production in the sugar industry of the Philippines. It is organized and was given several powers to fulfill such purpose among others, the power to levy amounts for the annual sugar production of sugar.

It imposed a 10 centavo per picul of sugar to be collected for a period of 5 years borne by the sugar cane planters and the sugar centrals in proportion to their milling share. The funds collected shall constitute a special fund to be known as the Sugar Research and Stabilization Fund which shall be available for the exclusive use of the said corporation.

Bacolod Murcia Milling and other milling companies left unpaid balances corresponding to their supposed payments to the Stabilization Fund. During which time, the Stabilization Fund suffered tremendous losses allegedly by reason of the purchase of Philsugin of the Insular Sugar Refinery.

The milling companies with unpaid balances are now questioning the authority of the public corporation to purchase the Insular Sugar Refinery. Being allegedly unauthorized to make the purchase, such milling companies refused to satisfy their unpaid balances to the stabilization fund. They contend that they are to contribute only to the fund insofar as they are benefited by it since it is a special assessments fund and is not a revenue measure.

Issue: Whether or not the collection of the stabilization fund

constitutes as a special fund and not an ordinary tax measure for revenue (since if it is a special assessments fund, the milling companies can rightly refuse to make payments; if it is an ordinary tax, the taxpayer cannot refuse).

Ratio: The court extensively cited the case of Lutz v. Araneta in

deciding the issue in this case. It stated that the fund in the Araneta case is very much similar to the stabilization fund mentioned in the instant case. In the case of Araneta, if was found that the stabilization fund collected therein was actually an exercise of police power of the state, not of taxation, since the tax was levied for the purpose of rehabilitating and stabilizing the sugar industry of the Philippines. Sugar is one of the leading export products in the country. As such, its promotion, protection and advancement greatly redounds to the general welfare of the society. The protection of a large industry constituting one of the great source of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. There is no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment.

Taxation may be made the implement of the state's police power.

Following the abovementioned case, the stabilization fund in this case is not so much an ordinary tax nor is it a special assessments fund. It is actually an exercise of police power of the state for the general welfare, to which the milling companies herein cannot resist.

Victorias Milling Co v. Municipality of Victorias, Province of Negros OccidentalFacts:

Two municipal ordinances are questioned in this case imposing license taxes on operators of sugar centrals and sugar refineries. The license taxes were increased with respect to sugar centrals; and as to sugar refineries, the rates of license taxes as well as the range of the graduated schedule of annual output capacity was also increased. As such, Victoria Millings, in both its sugar central and its sugar refinery located in the Municipality of Victorias come within such terms. It seeks to have the ordinances declared null and void on the ground that it is discriminatory, constitutes double taxation and that it exceeds the amounts required for a regulatory measure.

The trial court rendered a decision invalidating the ordinances in question.

Issue: Whether or not the ordinances are a regulatory or a

revenue measure. Whether or not there is double taxation. Whether or not the ordinances are discriminatory.

Ratio: The ordinances are a revenue measure, not a

regulatory one. The taxing power of the Municipality emanates from Commonwealth Act No. 472 which authorizes it to impose 3 kinds of licenses: 1) license for regulation of useful occupations or enterprises; 2) license for restriction or regulation of non-useful ones; 3) license for revenue (for revenue purposes; not a license fee and rests on taxing power hence, the taxing power

must be conferred by statute upon the municipality, which is so granted by the Commonwealth Act).

The court looked into the purpose of the municipality for passing the ordinance in the whereas clauses and found that the imposition was because of the implementation of the Minimum Wage Law which is greatly draining the treasury as well as for the improvements of the roads and feeder roads of the said municipality. It found that the price of sugar per picul is increasing and hence, found it a stable source of funding for the deficit created by the minimum wage law in their funds. For this reason, it is a revenue raising exaction on privileges or activities. Despite the fact that it is commonly called a tax, a license fee is a tax for revenue raising if found to be so, in contract to the other kind which is imposed in the exercise of police power for purposes of regulation.

When no police inspection, supervision or regulation is provided and a license on the payment of the sum will issue, to do business, under no guardian eye, but according to the unrestrained judgment or fancy of the applicant and the licensee, the presumption is strong that the power of taxation, not police power is being exercised (as in this case).

The ordinance is not discriminatory. It does not single out the milling company. It is of no moment that Victorias Milling is the only sugar milling company in the municipality since if there are other milling companies that will, in the future, be established and operated, the same will be brought under the operation of the said ordinance.

There is also no double taxation in this case. Double taxation is described as direct duplication of taxation. In order for it to exist, the same property must be taxed twice when it should be taxed only once. In this case, the two taxes cover two different objects, the first one taxes a person operating sugar centrals or engaged in the manufacturing of sugar, while the other is imposed on the occupation or the business. Both taxes are not on sugar.

Lutz v. AranetaFacts:

The Sugar Adjustment Act was promulgated due to the threat to our industry by the imminent imposition of export

taxes upon sugar as provided in the Tydings McDuffie Act. It seeks to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof and to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the US market and the imposition of the export taxes.

In section 2 of the said law, an increase of the existing tax on the manufacture of sugar on a graduated basis on each picul of sugar manufactures was imposed and in section 3levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration.

All collections made under the said act shall accrue to a special fund in the Treasury to be known as the Sugar Adjustment and Stabilization Fund and shall be paid out only for purposes enumerated under the law:

1. Place the sugar industry in a position to maintain itself

2. To readjust the benefits derived from the sugar industry by all of the component elements thereof.

3. To limit the production of sugar to areas more economically suited to the production thereof

4. To afford labor employed in the industry a living wage and to improve their living and working conditions.

Walter Lutz, as judicial administrator assails the validity of said tax measure on the ground that it is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively which according to Lutz, was not for a public purpose for which a tax may be constitutionally levied.

Issue: Whether or not the tax provided for in the law is

unconstitutional.

Ratio: Sugar, being one of the great industries of our nation,

sugar occupying a leading position among its export products, is pivotal in the plans of the regime committed to

a policy of currency stability. Hence, it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn, and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.

The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interest as to be within the police power of the sovereign.

The protection and promotion of the sugar industry is a matter of public concern. It follows that the legislature may determine what is necessary for its protection and promotion. The discretion of the legislature herein comes into play, subject to the test of reasonableness and it is not contended that the means in the law bear no relation to the objective pursues or are oppressive in character.

Also, the mere fact that the tax money is being devoted to the sugar industry promotion and stabilization is not a ground and does not constitute expenditure of tax for private purposes.

PCGG v. CojuangcoFacts:

COCOFED, Ballares, COjuangco et. al were acknowledged to be registered stockholders of the UCPB and are authorized to exercise their rights to vote their shares of stock and themselves to be voted upon in the UCPB at a scheduled stockholders' meeting.

Prior to this said meeting it should be understood that the PCGG was created by an executive order issued by the president for the recovery of ill gotten wealth thus accumulated whether located in the Philippines or abroad. PCGG was also empowered to file and prosecute cases investigated under the ordinances.

Pursuant to this authority, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of alleged ill gotten wealth. Among such corporations, were the shares of stock in the UCPB registered in the names of 1 million coconut farmers, or more popularly called, the coconut industry investment fund companies. The sequestered shares were purchased with coconut levy funds which allows PCGG to vote for said sequestered shares.

6 years later, the board of directors of the UCPB called for a stockholders' meeting for the purpose of electing the board of directors. For this reason, Cojuangco et al filed an action omnibus motion to enjoin PCGG from voting the UCPB shares of stock registered in the names of the 1 million nameless farmers and to further enjoin them from voting the SMC shares registered in the names of the CIIF holding companies including those registered in the name of PCGG.

Issue: Whether or not the PCGG may vote the sequestered chares

of stock.

Ratio: Sequestered shares, as a general rule are to be voted

by the registered owner. However, such rule cannot apply when the sequestered stocks are acquired with funds that are prima facie public in character or at least affected with public interest. In this case, the sequestered shares of stocks of the UCPB were acquired with the coco levy funds which are public in character. Thus, the right to vote shall be exercised by the PCGG.

In this case, the public character test, not the two-tiered test applies since the coco levy funds, which were used to acquire the sequestered stocks, are imbued with public interest.

The public character test grants the government the authority to vote shares when the government shares are taken over by private persons who/which registered them in their own names and where the capitalization or shares that were acquired with public funds somehow landed in private hands. Public property registered in the names of non-owners is affected

with trust relations and that the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership.

The coconut levy funds, being clearly affected with public interest, follows that the corporations formed and organized from those funds, and all assets acquired therefrom should also be regarded as clearly affected with public interest.

It is affected by public interest since it cannot be denied that the coconut industry is one of the major industries of the economy. It is the state's concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of the economy.

Public funds are those belonging to any state of to any political subdivision, more specifically, taxes, customs duties and moneys raised by operation of law for the support of the government or for the discharge of its obligations. Coconut levy funds satisfy such definition since they were raised with the use of police and taxing powers of the State and are imposed by the state for the benefit of the coconut industry and its farmers.

A tax has 3 elements (which is satisfied by the coconut levy funds): 1) it is an enforced proportional contribution from persons and properties; 2) imposed by the state by virtue of its sovereignty; 3) levied for the support of the government.

The coconut levy of P15.00 per kilogram of copra was imposed and the proceeds of such levy shall be deposited with the PNB as a separate trust fund which shall not form part of the general fund of the government. They were not voluntary payments or donations. They were enforced contributions exacted on pain of penal sanctions. They were imposed for a public purpose since it will provide for the rehabilitation and stabilization of a threatened industry which is so affected with public interest. It is the state's concern to make it s strong and secure source not only of the livelihood of a significant segment of the population, but also export earnings the sustained growth of which is one of the imperatives of the economy.

In sum, the courts applied the public character test, instead of the "two-tiered test" since the shares of stock in the UCPB were acquired using the coconut levy funds, which, as established, is a special fund created by the government in the exercise of its police power for the rehabilitation and stabilization of the coconut industry in the country. As such, the coconut levy funds were clearly affected by public interest. Thus, it is the PCGG, not the registered owners of the shares of stocks in the UCPB which are given the right to vote the shares.

Commissioner of Internal Revenue v. PLDTFacts:

PLDT, a telecommunications company in the Philippines, paid the BIR compensating taxes, advance sales taxes, other internal revenue taxes and value added taxes. After some time, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under RA 7082 which provides that the grantee shall be exempted from all taxes including the 10% VAT prescribed. For this reason, PLDT was exempted from the VAT on its importation of equipment, machineries and spare parts needed for its franchise operations. PLDT filed a claim for refund but the BIR did not act upon such claim.

Issue: Whether or not PLDT is exempt from the payment of VAT,

compensating taxes, advance sales taxes and other BIR taxes on its importations by virtue of the provision in its franchise that the 3% franchise tax on its gross receipts shall be in lieu of all taxes on its franchise or earnings.

Ratio: PLDT is not exempted from the payment of

compensating tax, advance sales tax, VAT and other internal revenue taxes on its importation of various equipment, machinery, and pare parts for the use of its telecommunications system.

Direct taxes are those that are exacted from the very person who it is intended or desired, should pay them. They are impositions for which a taxpayer is directly liable on the transaction or business he is engaged.

Indirect taxes are those that are demanded in the first instance, from, one person in the expectation and intention that he can shift the burden to someone else such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. He shifts the burden, not the liability to pay it to the purchaser.

The VAT is an indirect tax. It is not a tax on the franchise or a business enterprise or on its earnings. It is imposed on all taxpayers who import goods whether the goods will be sold.

Advance Sales Tax also has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw material to be processed into merchandise can shift the tax or to lay the economic burden of the tax on the purchaser.

Compensating tax also partakes the nature of an excise tax payable by all persons who import articles, whether in the course of business or not.

The liability to pay indirect taxes lies only with the seller of the goods, not in the buyer. Hence, it is important to determine if the tax exemption granted includes indirect tax which is shifted to him as part of the purchase price otherwise, it is presumed that the tax exemption embraces only those for which the buyer is directly liable. Exemptions must be construed against the taxpayer and liberally in favor of the taxing authority.

In this case, the exemption was limited by the following phrase "on this franchise or earnings thereof" suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDT are its direct liability.

In this case, the alleged exemption from the payment of the tax is not clear or express. Unless it appears clearly and manifestly that an exemption is intended, the provision is to be construed strictly against the party claiming the exemption.

Planters Products Inc. v. Fertiphil CorporationFacts:

President Marcos, in the exercise of his legislative powers, issued LOI 1465 which provided the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the Philippines. A capital contribution shall be collected until adequate capital is raised to make PPI viable.

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority. However, after the EDSA revolution, FPA voluntarily stopped the imposition of the P10 levy with the return of democracy. Hence, Fertiphil demanded the refund of the amounts it paid but PPI refused to accede to the demand. Fertiphil questioned the constitutionality of the LOI on the ground that it is unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process.

The RTC ruled that such was an invalid exercise of state's power of taxation as it violated the inherent constitutional prescription that taxes are to be levied for a public purpose. In this case, the collected money was remitted to the depositary bank of PPI and was used to advance its private interest. CA affirmed said decision.

Issue: Whether or not the LOI is a valid legislation pursuant to the

exercise of taxation and police power for public purposes.

Ratio: The imposition of the levy was an exercise by the

State of its taxation powers however, the levy under the LOI is to excessive to serve a mere regulatory purpose since it was o be imposed until there is adequate capital raised to make the PPI viable. The primary purpose of the levy is revenue generation. If primarily revenue generation, the exaction is properly called a tax.

The levy therefore is unconstitutional because it is not for a public purpose and was imposed to give undue benefit to PPI. Taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. Public purpose is not confined to those purposes which are traditionally viewed as governmental functions. It can also include those purposes designed to promote social justice.

Another proof that this was imposed for the benefit of the PPI was the fact that the collected funds were deposited by FPA to the depositary bank of PPI. Moreover, the funds were made to pay corporate debts of the PPI. It is not for the purpose of ensuring the stability of the fertilizer industry in the country.

The amounts collected should be refunded to Fertiphil.

Exxonmobil Petroleum and Chemical Holdings Inc. v. Commissioner of Internal RevenueFacts:

Exxon is engaged in the business of selling petroleum products to domestic and international carriers. It purchased from Caltex and Petron a Jet A-1 fuel and other petroleum products the excise taxes of which were paid for and remitted by both Caltex and Petron. Said taxes were passed on to Exxon which ultimately shouldered the excise taxes and petroleum products.

On various dates, Exxon filed administrative claims for refund with the BIR amounting to the exemptions which should have been granted. Claims having been unheeded, Exxon filed a petition for review with the CTA claiming a refund or tax credit representing the amount of excise tax paid on the Jet and other petroleum products it sold to international carriers from Nov. 2001 to June 2002.

CTA issued a resolution ruling that only the taxpayer or the manufacturer of the petroleum products sold has the legal personality to claim the refund of excise taxes paid on petroleum products sold to international carriers. Hence, Exxon does not have the legal personality to claim the refund.

Issues: Whether or not Exxon has the legal personality to claim the

tax exemption.

Ratio: No. According to the law, Petroleum products sold to

international carriers are exempt entities or agencies and are exempt fro excise taxes provided that the products sold

to such international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance. Excise taxes are in the nature of indirect taxes, the liability for the payment of which may fall on a person other than he who actually bears the burden of the tax. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold services rendered.

As such, Exxon is not a statutory taxpayer. The proper party to question or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. It does not matter that an additional amount is billed as tax to the purchaser. The effect is still the same, namely, that the purchaser DOES NOT pay the tax. He merely pays the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the foods and for nothing else. It is Caltex/Petron, not its consumers who may ask for a refund of whatever amount it is entitled.