ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., APL CO. PTE LTD.

, AND
MAERSK-FILIPINAS, INC., PETITIONERS, V. SECRETARY OF FINANCE AND
COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
(G.R. No. 222239, January 15, 2020)
LAZARO-JAVIER, J.:

Antecedents
On July 1, 2005, Republic Act No. 9337 (RA 9337) was enacted, amending select provisions
of the 1997 National Internal Revenue Code (NIRC), namely, Sections 27, 28, 34, 106, 107,
108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288.

In relation to these amendments, then Commissioner of Internal Revenue (CIR) Lilian Hefti
issued Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) dated January 30, 2008.
It sought to "clarify certain provisions of the National Internal Revenue Code of 1997, as
amended (Code), as it applies to shipping companies and their agents as well as their
suppliers to ensure that the law is properly implemented and taxes are properly collected, in
a manner that aligns with acceptable business practices." Its relevant portions read:
Q-3: Are on-line international sea carriers subject to VAT?

A-3: No. On-line international sea carriers are not subject to VAT they being
subject to percentage tax under Title V of the Tax Code. They are liable to
the three percent (3%) percentage tax imposed on their gross receipts from
outbound fares and freight, pursuant to Section 118 of the Code.

However, if these on-line international sea carriers engage in other

transactions not exempt under Section 119 of the Code, they shall be liable
to the twelve percent (12%) VAT on these transactions.

Q-4: Are demurrage fees collected by on-line international sea carriers due
to delay by the shipper in unloading their inbound cargoes subject to tax?

A-4: Yes, Demurrage fees, which are in the nature of rent for the use of
property of the carrier in the Philippines is considered income from Philippine
source and is subject to income tax under the regular rate as the other types
of income of the on-line carrier. Said other line of business may likewise be
subject to VAT or percentage tax applying the rule on threshold discussed in
the succeeding paragraph.

Q-5: Are detention fees and other charges collected by international sea
carriers subject to tax?

A-5: Detention fees and other charges relating to outbound cargoes and
inbound cargoes are all considered Philippine-sourced income of the
international sea carriers they being collected for the use of property or
rendition of services in the Philippines, and are subject to the Philippine
income tax under the regular rate, and to the Value added tax, if the total
annual receipts from all the VAT-registered activities exceeds one million five
hundred thousand pesos (P1,500,000.00). However, if the total annual gross
receipts do not exceed one million five hundred thousand pesos, said
taxpayer is liable to pay the 3% percentage tax.

xxx

Q-14: Are sales of goods, supplies, equipment, fuel and services to persons
engaged in international shipping operations subject to VAT?

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 A-14: The sale of goods, supplies, equipment, fuel and services including
leases of property) to the common carrier to be used in its international sea
transport operations is zero-rated. Provided, that the same is limited to
goods, supplies, equipment, fuel and services pertaining to or attributable to
the transport of goods and passengers from a port in the Philippine directly
to a foreign port without docking or stopping at any other port in the
Philippines to unload passengers and/or cargoes loaded in and from another
domestic port; Provided, further, that if any portion of such fuel, equipment,
goods or supplies and services is used for purposes other than that
mentioned in this paragraph, such portion of fuel, equipment, goods,
supplies and services shall be subject to 12% VAT.

xxx

Q-34: Are commission incomes received by the local shipping agents from
their foreign principals subject to VAT?

A-34: The commission income or fees received by the local shipping agents
for outbound freights/fares received by their foreign principals which are on-
line international sea carriers (touching any port in the Philippines as part of
their operation) shall be zero-rated pursuant to the provisions of Section
108(B)(4) of the Code. Said provision does not require that payments of the
commission income or fees for "services rendered to persons engaged in
international shipping operations, including leases of property for use
thereof," be paid in acceptable foreign currency in order that such
transaction may be zero-rated. On the other hand, commission income or
fees received by the local shipping agents pertaining to inbound
freights/fares received by their foreign principals/on-line international sea
carriers or pertaining to freights/fares received by off-line international sea
carriers shall be subject to VAT at 12%.

Five (5) years after the enactment of RA 9337, on December 6, 2010, petitioners Association
of International Shipping Lines, Inc. (AISL), APL Co. Pte. Ltd. (APL), and Maersk-Filipinas, Inc.
(Maersk) sought to nullify RMC 31-2008 via a petition for declaratory relief entitled
"Association of International Shipping Lines, Inc. (AISL), APL Co. Pte. Ltd. (APL), and Maersk-
Filipinas, Inc. (Maersk) v. Commissioner of Internal Revenue." The case was raffled to RTC-
Branch 98, Quezon City, and docketed as Civil Case No. Q-09-64241.

Petitioners prayed that the trial court: 1) issue a writ of preliminary injunction enjoining the
then BIR Commissioner and her representatives, agents, or those acting under her
instructions or on her behalf from implementing, enforcing, or acting pursuant to or on the
basis of the challenged provisions of RMC 31-2008; and 2) render judgment declaring these
challenged provisions void.

According to petitioners, RMC 31-2008 was void insofar as it imposed regular tax rate of
thirty percent (30%) and twelve percent (12%) VAT on the demurrage and detention fees
collected by international shipping carriers from shippers or consignees for delay in the
return of containers, on the domestic portion of services to persons engaged in international
shipping operations, and on commission income received by local shipping agents from
international shipping carriers or in connection with inbound shipments.

By Order dated May 18, 2012, Branch 98 held that international carriers were not subject to
income tax under Section 28 (A)(1)(3b) of the NIRC. Too, demurrage fees were not
considered income derived from other or separate business of the international carrier.

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Being incidental to the trade or business of the international carrier, demurrage fees should
instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28.
Further the law did not expressly impose 12% VAT on the domestic portion of the services
rendered by international carriers. Thus:

WHEREFORE, premises considered, and pursuant to Rule 35 of the 1997 Rules

of Civil Procedure, the Court grants the motion for summary judgment and
declares as INVALID, the pertinent portions of Revenue Memorandum Circular
No. 31-2008, insofar as the latter subjects the: a) demurrage and detention fees
to the regular corporate income tax rate under Section 28(A)(1) and 12% VAT;
b) domestic portion of the services rendered to persons engaged in international
shipping operation to 12% VAT; and c) commission income or fees received by
local shipping agents from international shipping carriers for the latter's inbound
freights/fares to 12% VAT, for being contrary to Section 28 (A)(1), and (3) and
Section 108 (B)(4) of the National Internal Revenue Code of 1997, as amended.

SO ORDERED.

The Order became final and executory as of June 16, 2012.

On March 7, 2013, Republic Act No. 10378 (RA 10378) was enacted, amending Section 28
(A)(3)(a) of the NIRC. The provision now reads:
SEC. 28. Rates of Income Tax on Foreign Corporations.—
(A) Tax on Resident Foreign Corporations. —
(1) xxx

(2) xxx

(3)International Carrier. — An international carrier doing

business in the Philippines shall pay a tax of two and one-half
percent (2 1/2 %) on its 'Gross Philippine Billings' as defined
hereunder:
(a) International Air Carrier. — 'Gross Philippine Billings'
refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo, and mail
originating from the Philippines in a continuous and
uninterrupted f1ight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage
document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the
Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of
passenger takes place at any part outside the
Philippines on another airline, only the aliquot portion
of the cost of the ticket corresponding to the leg flown
from the Philippines to the point of transshipment shall
form part of Gross Philippine Billings.

(b) International Shipping. — 'Gross Philippine Billings'

means gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final
destination, regardless of the place of sale or payments
of the passage or freight documents.

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 Provided, That international carriers doing business in the Philippines may
avail of a preferential rate or exemption from the tax herein imposed on
their gross revenue derived from the carriage of persons and their excess
baggage on the basis of an applicable tax treaty or international agreement
to which the Philippines is a signatory or on the basis of reciprocity such that
an international carrier, whose home country grants income tax exemption
to Philippine carriers, shall likewise be exempt from the tax imposed under
this provision.
x x x.

The Secretary of Finance, thereafter, issued the implementing rules under Revenue
Regulation No. 15-2013 (RR 15-2013), the validity of which is now the subject of this
petition.

The Proceedings Before the Trial Court

Over three (3) years later, on December 4, 2013, petitioners initiated the present petition for
declaratory relief, this time, challenging Section 4.4 of RR 15-2013 and impleading as
respondents both the Secretary of Finance and the CIR. Section 4.4 reads:
4.4) Taxability of Income Other Than Income From International Transport
Services. — All items of income derived by international carriers that do not
form part of Gross Philippine Billings as defined under these Regulations
shall be subject to tax under the pertinent provisions of the NIRC, as
amended.

Demurrage fees, which are in the nature of rent for the use of
property of the carrier in the Philippines, is considered income from
Philippine source and is subject to income tax under the regular
rate as the other types of income of the on-line carrier.

Detention fees and other charges relating to outbound cargoes and

inbound cargoes are all considered Philippine-sourced income of
international sea carriers they being collected for the use of
property or rendition of services in the Philippines, and are subject
to the Philippine income tax under the regular rate. (Emphasis
supplied)

The case was raffled to RTC-Branch 77, Quezon City, and docketed Special Civil Action No.
R-QZN-13-05590-CV, then presided by Acting Presiding Judge Cleto R. Villacorta III.

Petitioners' Arguments

Petitioners argued that Section 4.4 of RR 15-2013 invalidly subjects demurrage and
detention fees collected by international shipping carriers to regular corporate income tax
rate. This very same imposition had been previously declared invalid by Branch 98 through
its final and executory Order dated May 18, 2012. Section 4.4 of RR 15-2013 should not,
therefore, be given effect by reason of res judicata. The treatment of demurrage and
detention fees on the carriage of cargoes prior to and after the enactment of RA 10378 did
not change. There is nothing in RA 10378 which even touches on demurrage and detention
fees, much less, provides or even implies that they should be treated as income subject to
tax at the regular corporate income tax rate.

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In fact, RR 15-2013 unduly widens the scope of RA 10378 by imposing additional taxes on
international shipping carriers not authorized or provided by law. Besides, demurrage and
detentions fees are not income but penalties imposed by the carrier on the charterer,
shipper, consignee, or receiver, as the case may be, to allow the carrier to recover losses or
expenses associated with or caused by the undue delay in the loading and/or discharge of
the latter's shipments from the containers. They are akin to damages. Assuming that
demurrage and detention fees may be treated as income, these fees are taxable only if they
form part of Gross Philippine Billings (GPB) and taxed at the preferential rate of 2.5%.

Further, RR 15-2013 is invalid because it was promulgated without public hearing as

required by the Revised Administrative Code and case law. Also, no copies of RR 15-2013
were filed with the University of the Philippines - Law Center, as required by the Revised
Administrative Code, thus, the same is deemed not to have become effective.

Respondents' Arguments

By Comment dated February 3, 2014, the Secretary of Finance, through the Office of the
Solicitor General (OSG), countered that the Order dated May 18, 2012 in Civil Case No. Q-09-
64241 did not preclude the Secretary of Finance from issuing Section 4.4 of RR 15-2013
because a) the first case involves RMC 31-2008 which the CIR issued to clarify matters
involving common carriers by sea, in relation to their transport of passengers, goods, and
services, while the second case involves RR 15-2013 which the Secretary of Finance issued
pursuant to his mandate under RA 10378; b) RMC 31-2008 was issued based on the
authority of the CIR to interpret the provisions of the NIRC while RR 15-2013 was issued by
virtue of the authority of the Secretary of Finance under RA 10378; and c) the Secretary of
Finance was not impleaded as respondent in the first case, thus, he is not bound by the
finality of Order dated May 18, 2012. Besides, the Secretary of Finance and the CIR are two
(2) distinct officials governing two (2) separate agencies.

According to respondents, RR 15-2013 does not expand the provisions of RA 10378. It

simply clarifies what constitutes Gross Philippine Billings (GPB) such that anything outside
the definition of GPB is subject to the regular income tax rate for resident foreign
corporations. Thus, the law need not specifically mention demurrage or detention fees as
among those falling outside the definition of GPB.

Respondents stress that demurrage and detention fees are income. They not only serve as
penalties for consignees, they also serve as compensation for extended use of containers.
As resident foreign corporations, they are covered by the provisions on the regular income
tax rate and not the preferential rate of 2.5% imposed on GPB.

Lastly, respondents argue that the absence of public hearing prior to the publication of RR
15-2013 or non-submission of copies thereof to the UP Law Center did not render it
ineffective. An interpretative regulation such as RR 15-2013, to be effective, needs nothing
further than its bare issuance for it gives no real consequence more than what the law itself
already prescribes. It adds nothing to the law and does not affect the substantial rights of
any person.

In its Answer dated January 27, 2014, the CIR, through the BIR Litigation Department
riposted that the trial court had no jurisdiction over the petition for declaratory relief
because its subject matter involved a revenue regulation. Under Commonwealth Act No.
55 (CA 55), actions for declaratory relief do not apply to cases involving tax liabilities under
any law administered by the BIR. Further, res judicata does not apply to the case.

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 Petitioners' Omnibus Motion

Petitioners subsequently filed an Omnibus Motion 1) for Judicial Notice; and 2) for Summary
Judgment dated December 4, 2014.

Petitioners prayed that the trial court take judicial notice of the following: 1) the existence of
RMC 31-2008; 2) the final and executory Order dated May 18, 2012 in Civil Case No. Q-09-
64241 and its Certificate of Finality dated August 28, 2012; 3) the enactment of Republic Act
No. 10378 (RA 10378), which recognized the principle of reciprocity for grant of income tax
exemptions to international shipping carriers and rationalized the taxes imposed thereon;
and 4) the issuance of RR 15-2013.

Petitioners also filed a motion for summary judgment on ground that there was no genuine
issue as to any material fact and/or the facts were undisputed and certain based on the
pleadings, admissions, and affidavits on record.

The Ruling of the Trial Court

Following the parties' exchange of pleadings, the trial court, then presided by Acting
Presiding Judge Villacorta, through its first assailed Order dated September 15, 2015: 1)
granted petitioners' motion for judicial notice of the existence of RMC 31-2008, the issuance
of Order dated May 18, 2012 in Civil Case No. Q-09-64241 and its corresponding Certificate
of Finality dated August 28, 2012, and the enactment of RA 10378 - all these being the
official acts of different branches of government; 2) declared that it had no jurisdiction over
the petition for declaratory relief pursuant to CA 55 which removed from regional trial courts
the authority to rule on cases involving one's liability for tax, duty, or charge collectible
under any law administered by the Bureau of Customs or the BIR; 3) ruled against the
application of res judicata to the case because --- first, res judicata does not give rise to a
cause of action for the purpose of initiating a complaint, res judicata being a shield not a
sword and executive and legislative authorities have the power to enact laws and rules to
supersede judge-made laws or rules, second, the enactment and implementation of RA
10378 constituted a supervening event which negated the application of res judicata, third,
there is no similarity of parties, subject matters, and causes of action between the present
case and Civil Case No. Q-09-64241; and 4) found RR No. 15-2013 to be a reasonable tax
regulation and an interpretative issuance, the effectivity of which does not require a public
hearing, nay, prior registration with the UP Law Center. Thus, the trial court decreed:

WHEREFORE:
(1) The Motion for Judicial Notice is granted. This Court declares that
the issuance of (i) RMC 31-2008, (ii) RTC-Branch 98 Order dated May
18, 2012 in Civil Case No. Q-09-64241, (iii) RTC-Branch 98
Certification of the finality of the Order dated May 18, 2012 in Civil
Case No. Q-09- 64241, (iv) RA 10378, and (v) RR 15-2013, is an
established fact in this case.
(2) The Motion for Summary Judgment is denied and as a result the
instant petition for declaratory relief is dismissed.

Costs de oficio.

SO ORDERED.

Petitioners' partial motion for reconsideration was denied under Order dated January 8,
2016.

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 The Present Petition

Petitioners now seek, on pure questions of law, the Court's discretionary appellate
jurisdiction to review and reverse the assailed dispositions. They essentially reiterate the
arguments raised in their petition for declaratory relief, i.e. a) res judicata and immutability
of judgments apply to this case and the enactment of RA 10378 is not a supervening event
which operates to negate the application of the aforesaid principles; b) RR 15-2013 is invalid
because it erroneously subjects demurrage and detention fees collected by international
shipping carriers to regular income tax rate, albeit these are not income; and c) RR 15-2013
is not an interpretative issuance, thus, a public hearing and prior registration with the UP
Law Center are required for its validity and effectivity.

Respondents Secretary of Finance and CIR, through Senior State Solicitor Jonathan dela
Vega, submits: Res judicata does not apply here because there is no commonality of parties
between this case and Civil Case No. Q-09-64241. The Secretary of Finance and the CIR are
two (2) distinct officials. RR 15-2013 does not add to the provisions of RA 10378. It simply
clarifies how the GPB of international sea carriers should be determined. Its issuance is
germane to the purpose of the law. Lastly, RR 15-2013 is an interpretative regulation, thus,
to be effective, it need not be filed with the UP Law Center.

Petitioners' Reply dated October 27, 2016 echoes their previous arguments against RR 15-
2013.

Issues

1. Does res judicata apply in this case?

2. Is a petition for declaratory relief proper for the purpose of invalidating RR No. 15-
2013?
3. Is RR 15-2013 a valid revenue regulation?

Ruling

Res judicata does not apply here

Res judicata applies in the concept of "bar by prior judgment" if the following requisites
concur: (1) the former judgment or order must be final; (2) the judgment or order must be
on the merits; (3) the decision must have been rendered by a court having jurisdiction over
the subject matter and the parties; and (4) there must be, between the first and the second
action, identity of parties, of subject matter, and of causes of action.

Here, we rule that there is no substantial identity of parties and subject matter.

a) No substantial identity of parties

Tambunting, Jr. v. Sumabat explains the nature of a petition for declaratory relief, thus:
An action for declaratory relief should be filed by a person interested under a
deed, will, contract or other written instrument, and whose rights are
affected by a statute, executive order, regulation or ordinance before breach
or violation thereof. The purpose of the action is to secure an authoritative
statement of the rights and obligations of the parties under a statute, deed,
contract, etc. for their guidance in its enforcement or compliance and not to
settle issues arising from its alleged breach. It may be entertained only
before the breach or violation of the statute, deed, contract, etc. to which it

7
 refers. Where the law or contract has already been contravened prior to the
filing of an action for declaratory relief, the court can no longer assume
jurisdiction over the action. In other words, a court has no more jurisdiction
over an action for declaratory relief if its subject, i.e., the statute, deed,
contract, etc., has already been infringed or transgressed before the
institution of the action. Under such circumstances, inasmuch as a cause of
action has already accrued in favor of one or the other party, there is
nothing more for the court to explain or clarify short of a judgment or final
order. (Emphasis supplied)

Thus, it is required that the parties to the action for declaratory relief be those whose rights
or interests are affected by the contract or statute being questioned. Section 2 of Rule 63 of
the Rules of Court further underscores that a judgment in a petition for declaratory relief
binds only the impleaded parties:
Section 2. Parties. — All persons who have or claim any interest which would
be affected by the declaration shall be made parties; and no declaration
shall, except as otherwise provided in these Rules, prejudice the rights of
persons not parties to the action. (2a, R64)

Heirs of Marcelino Doronio v. Heirs of Fortunato Doronio further elucidates on this principle,
thus:
Petitioners cannot also use the finality of the RTC decision in Petition Case
No. U-920 as a shield against the verification of the validity of the deed of
donation. According to petitioners, the said final decision is one for quieting
of title. In other words, it is a case for declaratory relief under Rule 64 (now
Rule 63) of the Rules of Court, which provides:
SECTION 1. Who may file petition. - Any person interested
under a deed, will, contract or other written instrument, or
whose rights are affected by a statute, executive order or
regulation, or ordinance, may, before breach or violation
thereof, bring an action to determine any question of
construction or validity arising under the instrument or
statute and for a declaration of his rights or duties
thereunder.

An action for the reformation of an instrument, to quiet title to real property

or remove clouds therefrom, or to consolidate ownership under Article 1607
of the Civil Code, may be brought under this rule.
SECTION 2. Parties. - All persons shall be made parties who
have or claim any interest which would be affected by the
declaration; and no declaration shall, except as otherwise
provided in these rules, prejudice the rights of persons not
parties to the action.

However, respondents were not made parties in the said Petition Case No. U-
920. Worse, instead of issuing summons to interested parties, the RTC
merely allowed the posting of notices on the bulletin boards
of Barangay Cabalitaan, Municipalities of Asingan and Lingayen, Pangasinan.
As pointed out by the CA, citing the ruling of the RTC.
x x x In the said case or Petition No. U-920, notices were
posted on the bulletin boards of barangay Cabalitaan,
Municipalities of Asingan and Lingayen, Pangasinan, so that
there was a notice to the whole world and during the initial
hearing and/or hearings, no one interposed objection thereto.

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 Suits to quiet title are not technically suits in rem, nor are they, strictly
speaking, in personam, but being against the person in respect of the res,
these proceedings are characterized as quasi in rem. The judgment in such
proceedings is conclusive only between the parties. Thus, respondents are
not bound by the decision in Petition Case No. U-920 as they were not made
parties in the said case. (Emphasis supplied)

Applying the foregoing principles here, we find that there is no identity of parties between
Civil Case No. Q-09-64241 and this case.

The final and executory Order dated May 18, 2012 of RTC-Branch 98 in Civil Case No. Q-09-
64241 is only binding on herein petitioners Association of International Shipping Lines, Inc.,
APL Co. Pte. Ltd. and Maersk-Filipinas, Inc. and the lone respondent in that case, the CIR.
Meanwhile, in this case, although the petitioners are the same, the respondents include not
only the CIR but the Secretary of Finance as well. Note that the Secretary of Finance was not
party in Civil Case No. Q-09-64241. Consequently, the Secretary of Finance is not bound by
the final and executory judgment in Civil Case No. Q-09-64241. Additionally, unlike in the
said case, it is the Secretary of Finance's issuance which is the subject of the present
challenge, not the CIR's.

The distinction between the CIR and the Secretary of Finance, as respondents, is not
hairsplitting. On one hand, when BIR Commissioner Lilian B. Hefti issued RMC 31-2008 on
January 30, 2008, she did so under the auspices of Section 4 of the NIRC. On the other hand,
when Secretary Cesar Purisima issued RR 15-2013 on September 20, 2013, he did so in
obedience to the legislative directive under Section 5 of RA 10378 and pursuant to his rule-
making power under Section 244 of the NIRC.

Verily, the Commissioner and the Secretary cannot be considered as one, For when they
issued their respective revenue memoranda or regulation, they did so pursuant to the
separate powers and prerogatives granted by law.

b) No substantial identity of subject matter

While it is true that RMC 31-2008, subject of Civil Case No. Q-09-64241, on one hand, and
RR 15-2013, subject of the present case, on the other, both treat demurrage and detention
fees to be within the prism of regular corporate income tax rate, each, however, differs from
the other with respect to the authority from which it emanated.

In Civil Case No. Q-09-64241, what was challenged was the CIR's authority to issue RMC 31-
2008 pursuant to Section 4 of the NIRC. On the other hand, what is being challenged here is
the Secretary of Finance's authority to issue RR 15-2013 in accordance with Section 244 of
the NIRC and Section 5 of RA 10378. The CIR and the Secretary of Finance derive their
respective powers from two (2) distinct sources, thus, their respective issuances, too, are
separate and independent of each other.

More, the supposed invalidity of the CIR's issuance in Civil Case No. Q-09-64241 does not
preclude the Secretary of Finance from rendering his issuance on the same subject.

More important, the judgment in Civil Case No. Q-09-64241 does not rise to a level of a
judicial precedent to be followed in subsequent cases by all courts in the land, since the
same was rendered by a regional trial court, and not by this Court. Verily, the Order dated
May 18, 2012 of RTC-Branch 98, although binding on the CIR, cannot serve as a judicial
precedent for the purpose of precluding the Secretary of Finance from promulgating a
similar issuance on the same subject.

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A petition for declaratory relief is not the proper remedy to seek the invalidation
of RR 15-2013; petition is treated as one for prohibition
To begin with, the trial court dismissed the case below, among others, for lack of jurisdiction
pursuant to Section 1 of CA 55, which reads:
Section 1. Section one of Act Numbered Thirty-seven hundred and thirty-six is hereby
amended so as to read as follows:
"SECTION 1. Construction. — Any person interested under a deed, contract
or other written instrument, or whose rights are affected by a statute, may
bring an action in a Court of First Instance to determine any question of
construction or validity arising under such deed, contract, instrument or
statute and for a declaration of his rights or duties thereunder: Provided,
however, That the provisions of this Act shall not apply to cases where a
taxpayer questions his liability for the payment of any tax, duty, or charge
collectible under any law administered by the Bureau of Customs or the
Bureau of Internal Revenue." (Emphasis supplied)

In CJH Development Corp. v. BIR, this Court clarified that CA 55 is still good law, thus:
CJH alleges that CA No. 55 has already been repealed by the Rules of Court;
thus, the remedy of declaratory relief against the assessment made by the
BOC is proper. It cited the commentaries of Moran allegedly to the effect that
declaratory relief lies against assessments made by the BIR and BOC. Yet
in National Dental Supply Co. v. Meer, this Court held that:

From the opinion of the former Chief Justice Moran may be deduced that the
failure to incorporate the above proviso [CA No. 55 in section 1, rule 66, [now
Rule 64 is not due to an intention to repeal it but rather to the desire to
leave its application to the sound discretion of the court, which is the sole
arbiter to determine whether a case is meritorious or not. And even if it be
desired to incorporate it in rule 66, it is doubted if it could be done under the
rule-making power of the Supreme Court considering that the nature of said
proviso is substantive and not adjective, its purpose being to lay down a
policy as to the right of a taxpayer to contest the collection of taxes on the
part of a revenue officer or of the Government. With the adoption of said
proviso, our law-making body has asserted its policy on the matter, which
is to prohibit a taxpayer to question his liability for the payment of any tax
that may be collected by the Bureau of Internal Revenue. As this Court well
said, quoting from several American cases, "The Government may fix the
conditions upon which it will consent to litigate the validity of its original
taxes..." "The power of taxation being legislative, all incidents are within the
control of the Legislature." In other words, it is our considered opinion that
the proviso contained in Commonwealth Act No. 55 is still in full force and
effect and bars the plaintiff from filing the present action.

As a substantive law that has not been repealed by another statute, CA No.
55 is still in effect and holds sway. Precisely, it has removed from the courts'
jurisdiction over petitions for declaratory relief involving tax
assessments. The Court cannot repeal, modify or alter an act of the
Legislature. (Emphasis supplied)

CIR v. Standard Insurance, Co., Inc. further reinforced the rule that regional trial courts have
no jurisdiction over petitions for declaratory relief against the imposition of tax liability or
validity of tax assessments:
The more substantial reason that should have impelled the RTC to desist
from taking cognizance of the respondent's petition for declaratory relief
except to dismiss the petition was its lack of jurisdiction.

10
We start by reminding the respondent about the inflexible policy that taxes, being the
lifeblood of the Government, should be collected promptly and without hindrance or delay.
Obeisance to this policy is unquestionably dictated by law itself. Indeed, Section 218 of the
NIRC expressly provides that "[n]o court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed by the
[NIRC]." Also, pursuant to Section 11 of R.A. No. 1125, as amended, the decisions or rulings
of the Commissioner of Internal Revenue, among others, assessing any tax, or levying, or
distraining, or selling any property of taxpayers for the satisfaction of their tax liabilities are
immediately executory, and their enforcement is not to be suspended by any appeals
thereof to the Court of Tax Appeals unless "in the opinion of the Court [of Tax Appeals] the
collection by the Bureau of Internal Revenue or the Commissioner of Customs may
jeopardize the interest of the Government and/or the taxpayer," in which case the Court of
Tax Appeals "at any stage of the proceeding may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond for not more than
double the amount."

In view of the foregoing, the RTC not only grossly erred in giving due course
to the petition for declaratory relief, and in ultimately deciding to
permanently enjoin the enforcement of the specified provisions of the NIRC
against the respondent, but even worse acted without jurisdiction.

Tambunting, Jr. v. Sumabat, explained the nature of a petition for declaratory relief, thus:
An action for declaratory relief should be filed by a person interested under a
deed, will, contract or other written instrument, and whose rights are
affected by a statute, executive order, regulation or ordinance before breach
or violation thereof. The purpose of the action is to secure an authoritative
statement of the rights and obligations of the parties under a statute, deed,
contract, etc. for their guidance in its enforcement or compliance and not to
settle issues arising from its alleged breach. It may be entertained only
before the breach or violation of the statute, deed, contract, etc. to which it
refers. Where the law or contract has already been contravened prior to the
filing of an action for declaratory relief, the court can no longer assume
jurisdiction over the action. In other words, a court has no more jurisdiction
over an action for declaratory relief if its subject, i.e., the statute, deed,
contract, etc., has already been infringed or transgressed before the
institution of the action. Under such circumstances, inasmuch as a cause of
action has already accrued in favor of one or the other party, there is
nothing more for the court to explain or clarify short of a judgment or final
order.

Verily, since there is no actual case involved in a petition for declaratory relief, it cannot be
the proper vehicle to invoke the power of judicial review to declare a statute as invalid or
unconstitutional. As decreed in DOTR v. PPSTA, the proper remedy is certiorari or
prohibition, thus:
The Petition for Declaratory Relief is not the proper remedy

One of the requisites for an action for declaratory relief is that it must be
filed before any breach or violation of an obligation. Section 1, Rule 63 of the
Rules of Court states, thus:

xxx

11
 Thus, there is no actual case involved in a Petition for Declaratory Relief. It
cannot, therefore, be the proper vehicle to invoke the judicial review powers
to declare a statute unconstitutional.

It is elementary that before this Court can rule on a constitutional issue,

there must first be a justiciable controversy. A justiciable controversy refers
to an existing case or controversy that is appropriate or ripe for judicial
determination, not one that is conjectural or merely anticipatory. As We
emphasized in Angara v. Electoral Commission, any attempt at abstraction
could only lead to dialectics and barren legal questions and to sterile
conclusions unrelated to actualities.

To question the constitutionality of the subject issuances, respondents

should have invoked the expanded certiorari jurisdiction under Section 1 of
Article VIII of the 1987 Constitution. The adverted section defines judicial
power as the power not only "to settle actual controversies involving rights
which are legally demandable and enforceable," but also "to determine
whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the
Government."

There is a grave abuse of discretion when there is patent violation of the

Constitution, the law, or existing jurisprudence. On this score, it has been
ruled that "the remedies of certiorari and prohibition are necessarily broader
in scope and reach, and the writ of certiorari or prohibition may be issued to
correct errors of jurisdiction committed not only by a tribunal, corporation,
board or officer exercising judicial, quasi-judicial or ministerial functions, but
also to set right, undo[,] and restrain any act of grave abuse of discretion
amounting to lack or excess of jurisdiction by any branch or instrumentality
of the Government, even if the latter does not exercise judicial, quasi-judicial
or ministerial functions." Thus, petitions for certiorari and prohibition are the
proper remedies where an action of the legislative branch is seriously
alleged to have infringed the Constitution. (Emphasis supplied)

In Diaz et at v. Secretary of Finance, et al., the Court, nonetheless, held that a petition for
declaratory relief may be treated as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good; or if the
assailed act or acts of executive officials are alleged to have usurped legislative authority,
thus:
On August 24, 2010 the Court issued a resolution, treating the petition as
one for prohibition rather than one for declaratory relief, the characterization
that petitioners Diaz and Timbol gave their action. The government has
sought reconsideration of the Court's resolution, however, arguing that
petitioners' allegations clearly made out a case for declaratory relief, an
action over which the Court has no original jurisdiction. The government
adds, moreover, that the petition does not meet the requirements of Rule 65
for actions for prohibition since the BIR did not exercise judicial, quasi-
judicial, or ministerial functions when it sought to impose VAT on toll fees.
Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate
remedy in the ordinary course of law against the BIR action in the form of an
appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one
for prohibition if the case has far-reaching implications and raises questions
that need to be resolved for the public good. The Court has also held that a

12
 petition for prohibition is a proper remedy to prohibit or nullify acts of
executive officials that amount to usurpation of legislative authority.

Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists
who use the tollways everyday, but more so on the government's effort to
raise revenue for funding various projects and for reducing budgetary
deficits. (Emphasis supplied)

Here, RR 15-2013 greatly impacts the Philippine maritime industry since it is considered "as
more of the 'backbone' of the Philippines' burgeoning economy due to its significance both
for trade and transportation." For this reason and the fact that the issue at hand has already
pended since 2013 or for more than six (6) years now, first with the trial court and now with
this Court, we resolve to treat the present case as one for certiorari or prohibition and settle
the controversy once and for all. Diaz aptly enunciated:

Although the petition does not strictly comply with the requirements of Rule
65, the Court has ample power to waive such technical requirements when
the legal questions to be resolved are of great importance to the public. The
same may be said of the requirement of locus standi which is a mere
procedural requisite. (Emphasis supplied)

RR 15-2013 is a valid issuance

In treating demurrage and detention fees as regular income subject to regular income tax
rate, the Secretary of Finance relied on Section 28(A)(I)(3a) of the NIRC, as amended by RA
10378, viz.:
SEC. 28. Rates of Income Tax on Foreign Corporations. —
(A) Tax on Resident Foreign Corporations. —
(1) xxx
(2) xxx
(3). International Carrier.—An international carrier doing
business in the Philippines shall pay a tax of two and one-half
percent (2 1/2 %) on its 'Gross Philippine Billings' as defined
hereunder:
(c) International Air Carrier. — 'Gross Philippine Billings'
refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo, and mail
originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage
document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the
Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of
passenger takes place at any part outside the
Philippines on another airline, only the aliquot portion
of the cost of the ticket corresponding to the leg flown
from the Philippines to the point of transshipment shall
form part of Gross Philippine Billings.
(d) International Shipping. — 'Gross Philippine Billings'
means gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final

13
 destination, regardless of the place of sale or payments
of the passage or freight documents.

Provided, That international carriers doing business in the Philippines may avail of a
preferential rate or exemption from the tax herein imposed on their gross revenue derived
from the carriage of persons and their excess baggage on the basis of an applicable tax
treaty or international agreement to which the Philippines is a signatory or on the basis of
reciprocity such that an international carrier, whose home country grants income tax
exemption to Philippine carriers, shall likewise be exempt from the tax imposed under this
provision.(Emphasis supplied)

x x x.

This provision is still in effect since it was not amended by RA 10963 or the Tax Reform for
Acceleration and Inclusion law.

To determine whether demurrage and detention fees are subject to the preferential 2.5%
rate, we refer to the definition of "Gross Philippine Billings" (GPB) under Section 28(A)(I)(3a)
of the NIRC, as amended by RA 10378, viz.: "gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final destination, regardless of the place of sale or
payments of the passage or freight documents."

RR 15-2013 echoes this definition, thus:

B) Determination of Gross Philippine Billings of International Sea Carriers. — In computing
for "Gross Philippine Billings" of international sea carriers, there shall be included the total
amount of gross revenue whether for passenger, cargo, and/or mail originating from the
Philippines up to final destination, regardless of the place of sale or payments of the passage
or freight documents.

xxx

Verily, the GPB covers gross revenue derived from transportation of passengers, cargo
and/or mail originating from the Philippines up to the final destination. Any other income,
therefore, is subject to the regular income tax rate. When the law is clear, there is no other
recourse but to apply it regardless of its perceived harshness. Dura lex sed lex.

Under RR 15-2013, demurrage and detention fees are not deemed within the scope of GPB.
For demurrage fees "which are in the nature of rent for the use of property of the carrier in
the Philippines, is considered income from Philippine source and is subject to income tax
under the regular rate as the other types of income of the on-line carrier." On the other
hand, detention fees and other charges "relating to outbound cargoes and inbound cargoes
are all considered Philippine-sourced income of international sea carriers they being
collected for the use of property or rendition of services in the Philippines, and are subject to
the Philippine income tax under the regular rate."

Demurrage fee is the allowance or compensation due to the master or owners of a ship, by
the freighter, for the time the vessel may have been detained beyond the time specified or
implied in the contract of affreightment or the charter-party. It is only an extended freight or
reward to the vessel, in compensation for the earnings the carrier is improperly caused to
lose.

Detention occurs when the consignee holds on to the carrier's container outside of the port,
terminal, or depot beyond the free time that is allotted. Detention fee is charged when
import containers have been picked up, but the container (regardless if it is full or empty) is
still in the possession of the consignee and has not been returned within the allotted time.

14
Detention fee is also charged for export containers in which the empty container has been
picked up for loading, and the loaded container is returned to the steamship line after the
allotted free time.

Indeed, the exclusion of demurrage and detention fees from the preferential rate of 2.5% is
proper since they are not considered income derived from transportation of persons, goods
and/or mail, in accordance with the rule expressio unios est exclusio alterius.

Demurrage and detention fees definitely form part of an international sea carrier's gross
income. For they are acquired in the normal course of trade or business. The phrase "in the
course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of
whether or not the person engaged therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to
members or their guests), or government entity.

Surely, gross income means income derived from whatever source, including compensation
for services; the conduct of trade or business or the exercise of a profession; dealings in
property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and
a partner's distributive share in the net income of a general professional partnership, among
others. Demurrage and detention fees fall within the definition of "gross income" - the
former is considered as rent payment for the vessel; and the latter, compensation for use of
a carrier's container.

RR 15-2013 is an interpretative and internal issuance

An interpretative or implementing rule is defined under Section 2 (2), Chapter 1, Book VIII of
the Revised Administrative Code, viz.:
Section 2. Definitions. - As used in this Book:
xxx
(2) "Rule" means any agency statement of general applicability that implements or
interprets a law, fixes and describes the procedures in, or practice requirements of, an
agency, including its regulations. The term includes memoranda or statements concerning
the internal administration or management of an agency not affecting the rights of, or
procedure available to, the public.
Chapter 2 of Book VII of the same Code further provides the manner by which administrative
rules attain effectivity:
Section 3. Filing.-
-1 Every agency shall file with the University of the Philippines Law Center
three (3) certified copies of every rule adopted by it. Rules in force on the
date of effectivity of this Code which are not filed within three (3) months
from that date shall not thereafter be the basis of any sanction against any
party or persons.
-2 The records officer of the agency, or his equivalent functionary, shall carry
out the requirements of this section under pain of disciplinary action.
-3 A permanent register of all rules shall be kept by the issuing agency and
shall be open to public inspection.

Section 4. Effectivity. - In addition to other rule-making requirements provided by law not

inconsistent with this Book, each rule shall become effective fifteen (15) days from the date
of filing as above provided unless a different date is fixed by law, or specified in the rule in
cases of imminent danger to public health, safety and welfare, the existence of which must
be expressed in a statement accompanying the rule. The agency shall take appropriate
measures to make emergency rules known to persons who may be affected by them.

SECTION 5. Publication and Recording.—The University of the Philippines Law Center shall:

15
 -1 Publish a quarterly bulletin setting forth the text of rules filed with it
during the preceding quarter; and
-2 Keep an up-to-date codification of all rules thus published and remaining
in effect, together with a complete index and appropriate tables.

SECTION 6. Omission of Some Rules.— (1) The University of the Philippines Law Center may
omit from the bulletin or the codification any rule if its publication would be unduly
cumbersome, expensive or otherwise inexpedient, but copies of that rule shall be made
available on application to the agency which adopted it, and the bulletin shall contain a
notice stating the general subject matter of the omitted rule and new copies thereof may be
obtained.

(2) Every rule establishing an offense or defining an act which, pursuant to law is punishable
as a crime or subject to a penalty shall in all cases be published in full text.

SECTION 7. Distribution of Bulletin and Codified Rules.—The University of the Philippines Law
Center shall furnish one (1) free copy each of every issue of the bulletin and of the codified
rules or supplements to the Office of the President, Congress, all appellate courts and the
National Library. The bulletin and the codified rules shall be made available free of charge to
such public officers or agencies as the Congress may select, and to other persons at a price
sufficient to cover publication and mailing or distribution costs.

SECTION 8. Judicial Notice.—The court shall take judicial notice of the certified copy of each
rule duly filed or as published in the bulletin or the codified rules.

SECTION 9. Public Participation.—(1) If not otherwise required by law, an agency shall, as far
as practicable, publish or circulate notices of proposed rules and afford interested parties
the opportunity to submit their views prior to the adoption of any rule.
-2 In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
-3 In case of opposition, the rules on contested cases shall be
observed. (Emphasis supplied)

Excepted are interpretative regulations and those merely internal in nature, which do not
require filing with the U.P. Law Center for their effectivity. On this score, ASTEC v. ERC is
proper:

As interpretative regulations, the policy guidelines of the ERC on the treatment of discounts
extended by power suppliers are also not required to be filed with the U.P. Law Center in
order to be effective. Section 4, Chapter 2, Book VII of the Administrative Code of 1987
requires every rule adopted by an agency to be filed with the U.P. Law Center to be
effective. However, in Board of Trustees of the Government Service Insurance System v.
Velasco, this Court pronounced that "[n]ot all rules and regulations adopted by every
government agency are to be filed with the UP Law Center." Interpretative regulations and
those merely internal in nature are not required to be filed with the U.P. Law
Center. Paragraph 9 (a) of the Guidelines for Receiving and Publication of Rules and
Regulations Filed with the U.P. Law Center states:

9. Rules and Regulations which need not be filed with the U.P. Law Center, shall, among
others, include but not be limited to, the following:

a. Those which are interpretative regulations and those merely internal in nature, that is,
regulating only the personnel of the Administrative agency and not the public. (Emphasis
supplied)

16
RR 15-2013 is an internal issuance for the guidance of "all internal revenue officers and
others concerned." It is also an interpretative issuance vis-à-vis RA 10378, thus:
SECTION 2. SCOPE. — Pursuant to Section 244 of the National Internal Revenue Code of
1997 (NIRC), as amended, and Section 5 of RA No. 10378, these Regulations are hereby
promulgated to implement RA No. 10378, amending Sections 28(A)(3)(a), 109, 118 and 236
of the NIRC.

RR 15-2013 merely sums up the rules by which international carriers may avail of
preferential rates or exemption from income tax on their gross revenues derived from the
carriage of persons and their excess baggage based on the principle of reciprocity or an
applicable tax treaty or international agreement to which the Philippines is a signatory.
Interpretative regulations are intended to interpret, clarify or explain existing statutory
regulations under which the administrative body operates. Their purpose or objective is
merely to construe the statute being administered and purport to do no more than interpret
the statute. Simply, they try to say what the statute means and refer to no single person or
party in particular but concern all those belonging to the same class which may be covered
by the said rules.

Indeed, when an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance, for it gives no real consequence more than what the
law itself has already prescribed. As such, RR 15-2013 need not pass through a public
hearing or consultation, get published, nay, registered with the U.P. Law Center for its
effectivity.

ACCORDINGLY, the petition is DENIED for lack of merit. The Orders dated September 15,
2015 and January 8, 2016 of the Regional Trial Court, Branch 77, Quezon City, in Special
Civil Action No. R-QZN-13-05590-CV are AFFIRMED.
SO ORDERED.

Peralta, C.J., (Chairperson), Caguioa, J. Reyes, Jr., and Lopez, JJ., concur.

17
 COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. BASES CONVERSION
AND DEVELOPMENT AUTHORITY, RESPONDENT.
(G.R. No. 217898, January 15, 2020)
LAZARO-JAVIER, J.:

The Case

This petition for review assails the following dispositions of the Court of Tax Appeals (CTA)
En Banc in CTA EB Case No. 1123 (CTA Case No. 8140) entitled "Commissioner of Internal
Revenue v. Bases Conversion and Development Authority:"
1. Decision dated December 16, 2014 granting the claim for tax refund of
respondent Bases Conversion and Development Authority (BCDA); and,

2. Resolution dated April 15, 2015, denying the motion for reconsideration of
petitioner Commissioner of Internal Revenue (CIR).

Antecedents

Respondent BCDA was the owner of four (4) real properties in Bonifacio Global City, Taguig
City which had a total area of 12,036 sq. m.. The lots were collectively referred to as the
"Expanded Big Delta Lots." It entered into a contract to sell with the "Net Group," an
unincorporated joint venture composed of four (4) corporations: (1) 18-14 Property Holdings,
Incorporated; (2) 14-8b Property Holdings, Inc.; (3) The Net Group Project Management
Corporation; and (4) The Net Group Property Management Corporation. The total purchase
price was Php2,032,749,327.96. The "Net Group" committed not to remit to the Bureau of
Internal Revenue (BIR) the total amount of Php101,637,466.40 as Creditable Tax Withheld at
source (CWT) to give time to respondent to present a certification of tax exemption on or
before June 9, 2008.

On May 28, 2008, respondent sought from petitioner the aforesaid certification but the CIR
did not respond.

On July 31 2008, respondent and the "Net Group" executed the corresponding Deeds of
Absolute Sale. In view of respondent's failure to present a certification of tax exemption, the
"Net Group" deducted the amount of Php101,637,466.40 as CWT and issued to respondent
the corresponding certificates of creditable tax withheld at source. The "Net Group" remitted
the amount to the BIR Regional District Office No. 44.

On March 9, 2009, respondent wrote the BIR for refund of the amount but, again, petitioner
did not respond.

On July 29, 2010, respondent sought affirmative relief from the CTA, specifically for refund of
the amount in question. Respondent claimed that it was exempt from all taxes and fees
arising from or in relation to the sale, as provided under its charter, Republic Act (RA) 7227,
as amended by RA 7917.

In its answer, petitioner countered that respondent failed to support its claim for tax refund.
In particular, respondent allegedly failed to show, by competent evidence, that the CWT was
erroneously or illegally withheld. Respondent's claim for tax refund purportedly did not
comply with the procedural requirements. Besides, all taxes paid to the BIR are presumed
lawful and proper.

Ruling of the CTA First Division

18
In its Decision dated September 13, 2013, the CTA First Division ruled in respondent's
favor, viz.:

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED.
Accordingly, respondent Commissioner of Internal Revenue is ORDERED to REFUND in favor
of petitioner BASES CONVERSION DEVELOPMENT AUTHORITY the amount of
P101,637,466.40, representing creditable withholding tax paid on July 31, 2008 in
connection with the sale/disposition of the 12,036 square-meter property, otherwise known
as the "Expanded Big Delta Lots", located in Fort Bonifacio, Taguig City.

SO ORDERED.

Petitioner's subsequent motion for reconsideration was denied under Resolution dated
January 30, 2014.

On the CIR's petition for review, the CTA En Banc affirmed under Decision dated December
16, 2014. It also denied petitioner's motion for reconsideration under Resolution dated April
15, 2015.

The CTA En Banc ruled that while respondent is, indeed, not among the exempt corporations
listed under Section 27 (C) of the 1997 National Internal Revenue Code (NIRC) or RA 8424,
as amended by RA 9337 and RA 10026, nevertheless, insofar as the sale of the "Expanded
Big Delta Lots" is concerned, RA 7227, as amended by RA 7917 specifically exempts
respondent from taxes. While the NIRC and its amending statutes were only promulgated
after respondent was established, RA 7227, as amended is a special law. The NIRC, being a
general law, is not deemed to have amended or superseded the special law in the absence
of an express repeal thereof in the NIRC itself.

Additionally, Section 32(B) (7) (b) of the NIRC excludes from gross income and exempts from
income tax, "the income derived from any public utility or from the exercise of any essential
governmental functions accruing to the Government of the Philippines or to any political
subdivisions." Section 2.57.5 of Revenue Regulations No. 2-98 likewise provides that
"withholding of CWT should not apply to income payments made to national Government
and its instrumentalities."

The CTA further ruled that the sale proceeds of the subject properties are excluded from
respondent's gross income pursuant Section 32 of the NIRC. Also, Section 2.57.5 of Revenue
Regulation No. 2-98, the creditable withholding tax system does not apply to the National
Government and its instrumentalities.

Finally, the CTA En Banc upheld the tax-exempt provision in respondent's Charter. It
ordained:

xxx xxx xxx

xxx petitioner's reliance in the cases of Philam Asset Management, Inc. v. Commissioner of
Internal Revenue, United International Pictures AB v. Commissioner of Internal Revenue and
Asiaworld Properties Phil. Corp v. Commissioner of Internal Revenue, is misplaced. It is
noteworthy that the petitioner-taxpayers in these cases do not have a tax-exempt provision
on its transaction that is akin to respondent's charter.

The Present Petition

19
Petitioner now urges this Court to nullify the CTA En Banc's Decision dated December 16,
2014 and Resolution dated April 15, 2015. Petitioner reiterates that respondent is not
exempt from CWT. But even assuming it is, respondent's failure to comply with the
requirements for tax refund negates its entitlement to such refund. Petitioner argues, in the
main:

1. RA 7227, as amended by RA 7917 was supplanted by the NIRC specifically its

Section 27(c). The NIRC got enacted in 1997 and took effect on January 1, 1998.
In case of conflict, a later law prevails over an earlier law.

2. In claiming for tax refund, respondent did not comply with Section 10 of Revenue
Regulation No. 6-85 requiring that the income which was supposedly taxed must
be shown to have been included in the gross income. It must also be proved that
the tax was in fact withheld at source.

Petitioner cites Commissioner of Internal Revenue v. Far East Bank and Trust
Company where the claim for refund was denied for failure of therein respondent
to present the Certificates of Creditable Tax Withheld at source.

Additionally, petitioner asserts that respondent's Annual Income Tax Return,

copies of the Deeds of Absolute Sale, BIR payment Forms 0605, BIR Tax Payment
Deposit Slips, and Certificates of Creditable Withholding Tax do not sufficiently
establish that the income from the sale of the subject properties is part of the
gross income.

3. Respondent failed to indicate in its income tax return whether it was availing of a
tax credit or a tax refund. Since respondent carried over the 2008 excess credit,
then this "carry over" should also apply to the CWT that was withheld from the
sale of the properties. When "carry over" is availed of, the option for refund is no
longer available.

In its Comment, respondent ripostes: Section 8 of RA 7227 as amended by RA 7917 provides

that the proceeds from [respondent's] sale of government lands and other properties are
exempt from all forms of taxes and fees. Further, Administrative Order (AO) 236 has
declared that (a) the proceeds from the sale of government lands and other properties
pursuant to RA 7227, as amended, are government funds and shall be remitted to the
National Treasury and shall accrue to the General Fund of the Government and (b) the funds
are automatically appropriated for the budget requirement of the several beneficiary-
agencies identified under RA 7917.

Respondent further calls attention to paragraph (d), Section 8 of RA 7227, as amended by

RA 7917. The provision commands that respondent's Global City properties shall be sold and
the sale proceeds shall not be diminished. Respondent asserts that this provisions signifies
that such sales are not subject to any taxes or fees.

Respondent avers that RA 7227, as amended, a special law, was not deemed superseded by
the NIRC, a general law. On this score, respondent cites Lichauco & Company, Inc. v.
Apostol, Fajardo v. Villafuerte, De Villa v. Court of Appeals, and Commissioner of Internal
Revenue v. Court of Tax Appeals.

Too, respondent posits that the income from the sale of the Expanded Big Delta Lots was not
included in its 2008 Income Tax Return precisely because the sale was excluded from its
gross income per Section 8 of RA 7227, as amended. The sale proceeds are in the nature of
a special appropriation because their disposition has already been determined by RA 7227,

20
as amended. Thus, the use of the disposition proceeds for purposes other than that for
which they were specifically intended violates not only RA 7227 but also the Constitution.

Core Issue

Is the BCDA exempt from Creditable Withholding Tax (CWT) on the sale of its Global City
properties?

Ruling

The affirmative answer is found in Section 8 of RA 7227, as amended by RA 7917, otherwise

known as the Bases Conversion and Development Act of 1992, viz.:

SECTION 8. Funding Scheme. - The capital of the Conversion Authority shall come from the
sales proceeds and/or transfers of certain Metro Manila military camps, including all lands
covered by Proclamation No. 423, series of 1957, commonly known as Fort Bonifacio and
Villamor (Nicholas) Air Base, namely:

Camp Area in has.

(more or less)

xxx xxx xxx

The President is hereby authorized to sell the above lands, in whole or in part, which are
hereby declared alienable and disposable, pursuant to the provisions of existing laws and
regulations governing sales of government properties: Provided, That no sale or disposition
of such lands will be undertaken until a development plan embodying projects for
conversion shall be approved by the President in accordance with paragraph (b), Section 4,
of this Act. However, six (6) months after approval of this Act, the President shall authorize
the Conversion Authority to dispose of certain areas in Fort Bonifacio and Villamor as the
latter so determines. The Conversion Authority shall provide the President a report on any
such disposition or plan for disposition within one (1) month from such disposition or
preparation of such plan. The proceeds from any sale, after deducting all expenses related
to the sale, of portions of Metro Manila military camps as authorized under this Act, shall
be deemed appropriated for the purposes herein provided for the following purposes with
their corresponding percent shares of proceeds:

(1) Thirty-five percent (35%) - To primarily finance the self-reliance and

modernization program of the AFP, the transfer of the AFP military camps and the
construction of new camps and the rehabilitation and expansion of the AFP's medical
facilities, and the modernization of the government arsenal;

(2) Twenty-seven and a half percent (27.5%) - To finance the construction and
upgrading of infrastructure such as highways, railways and other transport facilities
to make Subic, Clark and other former bases accessible: Provided, That other public
works, utilities and irrigation projects not specified herein shall be included: Provided,
further, That the conversion into commercial uses of the former military baselands
proper and their extensions shall be undertaken as much as practicable through the
Build Operate-Transfer (BOT) scheme or financed by locator enterprises: Provided,
finally, That this appropriation shall be retained by the Conversion Authority as part
of its paid-up capital, pursuant to Section 6 of this Act;

21
 (3) Twelve Percent (12%) - To finance the National Shelter Program: Provided, That
fifty percent (50%) thereof, shall be used to finance mass social housing project for
the underprivileged and homeless citizens of the country and the other fifty percent
(50%) to concessional and long-term housing loan assistance for the homeless of
Metro Manila, Olongapo City, Angeles City and other affected municipalities
contiguous to the base areas;

(4) Three percent (3%) - To finance the National Health Insurance Program;

(5) Five percent (5%) - To finance critical infrastructure projects not covered by the
Build-Operate-Transfer (BOT) program in areas surrounding the former base lands;

(6) Two percent (2%) - To finance the benefits/claims of Military War Veterans and
their dependents under Republic Act No. 7696;

(7) One percent (1%) - As contribution for the Higher Education Development Fund
under Section 10 of Republic Act No. 7722, otherwise known as the Higher Education
Act of 1994, the amount of Five hundred million pesos (P500,000,000) or so much
thereof, and the balance to finance [students'] scholarship, faculty development and
the improvement of physical plants of colleges and universities under the
Commission on Higher Education (CHED);

(8) Two percent (2%) - To finance the science and technology scholarships and
training of thousands of young Filipino scientists and students in selected countries to
be identified by the Department of Science and Technology; and the Study Now Pay
Later Program for poor but deserving youths who shall enrol or are enrolled in
science and technology (S&T) courses which will propel the country to achieve
modernization and competitive excellence in the 21st century: Provided, That at least
one (I) scholar/trainee shall be selected from each municipality/city of the country:
Provided, further, That they shall render service to the Government for at least three
(3) years or shall engage in S&T entrepreneurial activities within the country;

(9) One percent (1%) - To finance the multi-year program of the prosecution service;

(10) Two percent (2%), but in no case exceeding Two billion pesos (P2,000,000,000) -
To finance a multi-year modernization program of the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and improvement of prison
facilities.
Provided, That seventy percent (70%) of this appropriations shall be used for capital
outlay and thirty percent (30%) for training programs and early retirement schemes
for their officers and personnel.

(11) One percent (1%), but in no case to exceed One billion pesos (P1,000,000,000) -
To finance a multi-year judicial reform program;

(12) Two percent (2%) to finance the establishment of preschool and daycare centers
nationwide;

(13) One-half percent (1/2%) but not to exceed Five hundred million pesos
(P500,000,000) for the summer program for the education of students (SPES) in
accordance with Republic Act No. 7323;

(14) One percent (1%) for the construction of Senior Citizens Centers as provided
under Republic Act No. 7876;

22
 (15) Three percent (3%) to the emergency and contingent needs of the areas
devastated by the Mount Pinatubo eruptions;

(16) Two percent (2%) for infrastructure development of future special economic
zones to be created;

Approximately forty hectares (40 has.) of land in Fort Bonifacio, Phase I, shall be retained as
a national government and local government centers, sports facilities and parks: Provided,
That, in the case of Fort Bonifacio, two and five-tenths percent (2.5%) of the proceeds
thereof in equal shares shall each go to the Municipalities of Makati, Taguig and Pateros:
Provided, further, That in no case shall farmers affected be denied due compensation.

The provisions of law to the contrary notwithstanding, the proceeds of the sale thereof shall
not be diminished and, tlterefore, exempt from all forms oftaxes and fees. (Emphasis
supplied)

Section 8 is two (2) pronged. The first commands that the sale proceeds of certain
properties in Fort Bonifacio and Villamor (Nicholas) Air Base are deemed appropriated by
Congress to each of the aforenamed recipients and for the respective purposes specified
therein. Consequently, the sale proceeds are not BCDA income but public funds subject to
the distribution scheme and purposes provided in the law itself. Book VI, Chapter 5, Section
32 of the Administrative Code of 1987 directs that "[a]ll monies appropriated for functions,
activities, projects and programs shall be available solely for the specific purposes for which
these are appropriated." The second expressly enjoins that the proceeds of the sale shall not
be diminished by any item or circumstance, including all forms of taxes and fees, to wit:

The provisions of law to the contrary notwithstanding, the proceeds of the sale thereof shall
not be diminished and, therefore, exempt from all forms of taxes and fees

The provision is self-explanatory.

The Court has invariably ruled that when the law speaks in clear and categorical language,
there is no occasion for interpretation; there is only room for application. In Bloomberry
Resorts and Hotels, Inc., v. Bureau of Internal Revenue, the Court clarified that petitioner
remained exempt from payment of corporate income tax on its gaming revenues since the
PAGCOR Charter or Presidential Decree No. 1869 explicitly provides tax exemption for
persons or entities contracting with PAGCOR relative to casino operations.

The CIR, nonetheless, argues against the application of Section 8 here because the same
had been purportedly repealed by Section 27 of the NIRC, as amended:

SECTION 27. Rates of Income Tax on Domestic Corporations. -

xxx xxx xxx

C) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The

provisions of existing special or general laws to the contrary notwithstanding, all
corporations, agencies, or instrumentalities owned or controlled by the Government, except
the Government Service Insurance System (GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC), the local water districts (LWDs), and the
Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in a
similar business, industry, or activity.

23
The argument does not persuade. We agree with the CTA-En Banc that Section 27 is a
general law while Section 8 of RA 7227, as amended by RA 7917 is a special law. As a rule, a
general law cannot impliedly repeal a special law. Commissioner of Internal Revenue v.
Semirara Mining Corporation is apropos:

As regards the claim of petitioner that respondent SMC's VAT exemption has already been
repealed, this Court affirms the CTA decision that respondent SMC's VAT exemption remains
intact. R.A. No. 9337's amendment of the NIRC did not remove the VAT exemption of
respondent SMC xxx

xxx xxx xxx

xxx [T]his Court had the occasion to discuss in depth the reasons why PD No. 972 cannot be
impliedly repealed by the repealing clause of R.A. No. 9337, a general law, to wit:
It is a fundamental rule in statutory construction that a special law cannot be repealed or
modified by a subsequently enacted general law in the absence of any express provision in
the latter law to that effect. A special law must be interpreted to constitute an exception to
the general law in the absence of special circumstances warranting a contrary conclusion.
The repealing clause of RA No. 9337, a general law, did not provide for the express repeal of
PD No. 972, a special law xxx

xxx xxx xxx

xxx Had Congress intended to withdraw or revoke the tax exemptions under PD No. 972, it
would have explicitly mentioned Section 16 of PD No. 972, in the same way that it
specifically mentioned Section 13 of RA No. 6395 and Section 6, paragraph 5 of RA No.
9136, as among the laws repealed by RA No. 9337.

xxx xxx xxx

There are two categories of repeal by implication. The first is where provisions in the two
acts on the same subject matter are in an irreconcilable conflict. The later act to the extent
of the conflict constitutes an implied repeal of the earlier one. The second is if the later act
covers the whole subject of the earlier one and is clearly intended as a substitute, it will
operate to repeal the earlier law.

Implied repeal by irreconcilable inconsistency takes place when the two statutes cover the
same subject matter; they are so clearly inconsistent and incompatible with each other that
they cannot be reconciled or harmonized; and both cannot be given effect, that is, that one
law cannot [be] enforced without nullifying the other.

Another. Section 27 governs all corporations, agencies, or instrumentalities owned or

controlled by the Government (GOCCs), with the exception of a few. It directs these GOCCs
to "pay such rate of tax upon their taxable income as are imposed by this Section upon
corporations or associations engaged in a similar business, industry, or activity." The
directive presupposes that the funds are income, hence, taxable.

On the other hand, Section 8 of RA 7227, as amended by RA 7917, specifically governs

BCDA's disposition of the properties enumerated therein and their sale proceeds. The law
exempts these sale proceeds from all kinds of fees and taxes as the same law has already
appropriated them for specific purposes and for designated beneficiaries.

It is settled that between a general law and a special law, the latter prevails. For a special
law reveals the legislative intent more clearly than a general law does. Verily, the special
law should be deemed an exception to the general law.

24
In light of the foregoing considerations, therefore, the standard procedural and documentary
requirements for tax refund applicable to GOCCs in general do not apply to BCDA vis-a-
vis the properties and the sale proceeds specified under Section 8 of RA 7227, as amended.
To repeat, there is no income to speak of here; only the sale proceeds of specific properties
which the legislature itself exempts from all taxes and fees.

ACCORDINGLY, the petition is DENIED. The Decision dated December 16, 2014 and
Resolution dated April 15, 2015 of Court of Tax Appeals (CTA) En Banc in CTA EB Case No.
1123 (CTA Case No. 8140) are AFFIRMED. No costs.

SO ORDERED.

Peralta, C. J., (Chairperson-First Division), Caguioa, J. Reyes, Jr., and Lopez, JJ., concur.

25
 IN THE MATTER OF DECLARATORY RELIEF ON THE VALIDITY OF BIR REVENUE
MEMORANDUM CIRCULAR NO. 65-2012 "CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER ASSESSMENTS/CHARGES
COLLECTED BY CONDOMINIUM CORPORATIONS"
(G.R. No. 215801, January 15, 2020)

BUREAU OF INTERNAL REVENUE (BIR), AS HEREIN REPRESENTED BY ITS

COMMISSIONER KIM S. JACINTO-HENARES AND REVENUE DISTRICT OFFICER (RDO)
RICARDO B. ESPIRITU, PETITIONER, VS. FIRST E-BANK TOWER CONDOMINIUM
CORP., RESPONDENT.

IN THE MATTER OF DECLARATORY RELIEF ON THE VALIDITY OF BIR REVENUE

MEMORANDUM CIRCULAR NO. 65-2012 "CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER ASSESSMENTS/CHARGES
COLLECTED BY CONDOMINIUM CORPORATIONS"

FIRST E-BANK TOWER CONDOMINIUM CORP., PETITIONER, VS. BUREAU OF

INTERNAL REVENUE (BIR), AS HEREIN REPRESENTED BY ITS COMMISSIONER KIM S.
JACINTO-HENARES,* RESPONDENT.
(G.R. No. 218924)

LAZARO-JAVIER, J.:

The Cases

These twin cases refer to the: 1) Petition for Review filed by the Bureau of Intemal Revenue
(BIR) (G.R. No. 215801); and 2) Special Civil Action for Certiorari initiated by the First E-Bank
Tower Condominium Corp. (First E-Bank) (G.R. No. 218924). Both cases assail the following
dispositions of the Court of Appeals in CA-G.R. CV No. 102266 entitled "In the Matter of
Declaratory Relief on the Validity of BIR Revenue Memorandum Circular No. 65-2012
'Clarifying the Taxability of Association Dues, Membership Fees and Other Assessments !
Charges Collected by Condominium Corporations, 'First E-Bank Tower Condominium Corp. v.
Bureau of Internal Revenue ( BIR ) represented by its Commissioner Kim S.Jacinto-Henares,
et al."

1) Resolution dated June 26, 2014 dismissing for alleged lack of jurisdiction the respective
appeals of the First E-Bank and the BIR et al., viz.:

It appearing from the records that the subject matter of the instant appeal is
the Resolution dated 05 September 2013 of the RTC-Branch 146, Makati
City, declaring "to have been invalidly issued" BIR Revenue Memorandum
Circular No. 65-2012 dated 31 October 2 012 which imposed 12% value
added tax and 32% income tax on association dues/membership fees and
other charges collected by condominium corporation from its members and
tenants, taking into account Section 7 (a) of Republic Act No. 9282 (which
took effect on 23 April 2004) which expressly provides that the Court of Tax
Appeals has exclusive appellate jurisdiction over "Decisions, orders or
resolutions of the Regional Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction,"
considering that the Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases and resolving tax
problems, the instant appeal is hereby DISMISSED outright for lack of
jurisdiction over the nature and subject matter of the action.

26
 The Compliance/Manifestation dated 16 May 2014 of RTC Judge Encarnacion
Jaja G. Moya and Branch Clerk of Court Therese Lynn R. Bandong,
Manifestations dated 29 May 2014 and 30 May 2014 of First E-Bank Tower
Condominium Corporation and the Manifestation dated 02 June 2014 ofthe
Republic ofthe Philippines are NOTED.

Let the instant appeal be considered CLOSED and TERMINATED.

Let the original records be returned to the trial court.

SO ORDERED.

2) Resolution dated November 27, 2014 denying the parties' respective motions for
reconsideration.

The Facts

The First E-Bank filed the petition below for declaratory relief seeking to declare as invalid
Revenue Memorandum Circular No. 65-2012 (RMC No. 65-2012) dated October 31,
2012. The case was raffled to the Regional Trial Court, Branch 146, Makati City.
RMC No. 65-2012 entitled "Clarifying the Taxability of Association Dues, Membership Fees
and Other Assessments/ Charges Collected by Condominium Corporations" relevantly reads:
xxx

CLARIFICATION

The taxability of association dues, membership fees, and other assessments/charges

collected by a condominium corporation from its members, tenants and other entities are
discussed hereunder.

I. Income Tax -- The amounts paid in as dues or fees by members and

tenants of a condominium corporation form part of the gross income of the
latter subject to income tax. This is because a condominium corporation
furnishes its members and tenants with benefits, advantages, and privileges
in return for such payments. For tax purposes, the association dues,
membership fees, and other assessments/charges collected by a
condominium corporation constitute income payments or compensation for
beneficial services it provides to its members and tenants. The previous
interpretation that the assessment dues are funds which are merely held in
trust by a condominium corporation lacks legal basis and is hereby
abandoned.

Moreover, since a condominium corporation is subject to income tax, income

payments made to it are subject to applicable withholding taxes under
existing regulations.

II. Value-Added Tax (VAT) -Association dues, membership fees, and other
assessments/charges collected by a condominium corporation are subject to
VAT since they constitute income payment or compensation for the
beneficial services it provides to its members and tenants.

Section 105 of the National Internal Revenue Code of 1997, as amended, provides:

27
"SECTION 105. Persons Liable. -Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108
of this Code.

Xxx

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity." (Emphasis supplied)

The above provision is clear -- even a non-stock, non-profit organization or government

entity is liable to pay VAT on the sale of goods or services. This conclusion was affirmed by
the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and
Commonwealth Management and Services Corporation, G.R. No. 125355, March 30, 2000. In
this case, the Supreme Court held:

"(E)ven a non-stock, non-profit organization or government entity, is liable to pay VAT on the
sale of goods or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term "in the
course of trade or business" requires the regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not the entity is profit- oriented.

The definition of the term "in the course of trade or business" incorporated in the present
law applies to all transactions even to those made prior to its enactment. Executive Order
No. 273 stated that any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The present law merely
stresses that even a nonstock, nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of
services" as the "performance of all kinds of services for others for a fee, remuneration or
consideration. " It includes "the supply of technical advice, assistance or services rendered
in connection with technical management or administration of any scientific, industrial or
commercial undertaking or project."

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98
emphasizing that a domestic corporation that provided technical, research, management
and technical assistance to its affiliated companies and received payments on a
reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on
services rendered. In fact, even if such corporation was organized without any intention of
realizing profit, any income or profit generated by the entity in the conduct of its activities
was subject to income tax.

Hence, it is immaterial whether the primary purpose of a corporation indicates that it

receives payments for services rendered to its affiliates on a reimbursement-on-cost basis
only, without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT."

Accordingly, the gross receipts of condominium corporations including association dues,

membership fees, and other assessments/charges are subject to VAT, income tax and

28
income payments made to it are subject to applicable withholding taxes under existing
regulations.

xxx

The First E-Bank's Allegations

In its Petition dated December 20, 2012, the First E-Bank essentially alleged: It was a non-
stock non-profit condominium corporation. It owned and possessed, through its members, a
condominium office building. RMC No. 65-2012 imposed on it two (2) tax liabilities: 1) value-
added tax (VAT) of P118,971. 53 to be paid on December 2012 and every month thereafter;
and b) income tax ofP665,904.12 to be paid on or before April 15, 2013 and every year
thereafter.

RMC No. 65-2012 burdened the owners of the condominium units with income tax and VAT
on their own money which they exclusively used for the maintenance and preservation of
the building and its premises. RMC No. 65-2012 was oppressive and confiscatory because it
required condominium unit owners to produce additional amounts for the thirty-two percent
(32%) income tax and twelve percent (12%) VAT.

Through the Makati Commercial Estate Association, Inc., it sent a Letter dated December 5,
2012 to the BIR Commissioner requesting deferment of RMC No. 65-2012. A Letter dated
December 19, 2012 was likewise sent to Makati City Revenue District Officer Ricardo B.
Espiritu informing him of the continuous judicial consignation of the income tax and VAT
payments due under RMC No. 65-2012.

The BIR et al .'s Comments

Under Comment dated February 11, 2013, the BIR and RDO Espiritu through the Office of
the Solicitor General (OSG) riposted that declaratory relief was no longer proper here
considering that RMC No. 65-2012 already took effect on October 31, 2012. The alleged
injury which the First E-Bank sought to prevent had already arisen as of that date.

By its separate comment,* the BIR's Litigation Division argued that the petition should be
dismissed for violation of the principle of primary jurisdiction. Several condominium
corporations had already referred the issue to the BIR Law Division for further clarification.
Ultimately, only the Secretary of Finance had primary jurisdiction over the issue raised here.
Too, a petition for declaratory relief will not prosper if the questioned statute had already
been breached, as in this case. RMC No. 65-2012 was only a clarificatory issuance on
pertinent laws, specifically the National Internal Revenue Code (NIRC). It was merely a
restatement of the BIR's prevailing position on the issue of taxation.

The First E-Bank's Reply

The First E-Bank replied that judicial consignation of its tax payments under protest was
necessary.
The Trial Court's Ruling

By Resolution dated September 5, 2013, the trial court ruled that the First E-Bank correctly
resorted to a petition for declaratory relief for the purpose of invalidating RMC No. 65-2012.
On this score, the trial court declared as invalid RMC No. 65-2012 for it purportedly

29
expanded the law, created an additional tax burden on condominium corporations, and was
issued without the requisite notice and hearing, thus:

As to the validity of the Memorandum Circular issued, it is respondent's contention that it

merely clarified and was simply issued to restate and clarify the prevailing position and
ruling of the BIR. It was a mere interpretation of an existing law which has already been in
effect and which was not set to be amended. However, the same appears to be not true as it
goes beyond its objective to clarify the existing statute. The assailed Revenue Memorandum
Circular not merely interpreted or clarified the existing BIR Ruling but in fact legislated or
introduced a new legislation under the mantle of its quasi-legislative authority. The BIR
Commissioner, under the guise of clarifying income tax on association dues, made Revenue
Memorandum Circular effective immediately. In so doing, the passage contravenes the
constitutional mandate of due process of law.

xxx

The above cited portion of the Memorandum Circular failed to show what particular law it
clarified. Instead it shows that it merely departed from the several rulings of the Bureau
exempting from income tax the assessments/charges collected by condominium
corporations from its members, on the ground that the collection of association dues and
other assessments/charges are merely held in trust to be used solely for administrative
expenses in implementing its purpose. The new circular in effect made its own legislation
abandoning the previous rulings of the BIR which became the practice of the condominium
corporations including herein petitioner. The Revenue Circular changed and departed from
the long standing ruling of the BIR that association dues and other fees and charges
collected from members are tax exempt. In so doing, it abruptly charges from taxpayer an
imposition which was then not existing, and worse made it immediately effective which is
prejudicial to the rights of the petitioner. It did not merely interpret or clarify but changed
altogether the long standing rules of the Bureau of Internal revenue.

xxx

Moreover, it is already the common business practice of petitioner that the association dues,
membership fees and the like are not included as part of its income and therefore of the
VAT. The advent of the Memorandum Circular 65-2012 issued by the Commissioner changes
the tax liability of petitioner in the sense that it is now subject to tax. It created a new tax
burden upon petitioner. Petitioner then could not be faulted to consign judicially as they
claim, the [VAT) amount pending resolution of the petition for declaratory relief herein filed.
Respondent BIR Commissioner should have accorded petitioner the opportunity to be heard,
which was the bone of contention of the letter sent to the Honorable Commissioner which
was not acted upon.

The Revenue Memorandum Circular did not only clarify an existing law, but changes its
import and interpretation that in so doing it prejudices the right of the petitioner as a tax
payer.

xxx

Since the BIR in passing the subject memorandum circular failed to accord respondent or
those similarly situated as a tax payer due notice and opportunity to be heard, before
issuing said circular it is this court's opinion that the issuance was arbitrarily and in violation
of the due process clause of the constitution. The respondent in imposing additional tax
burden on petitioner violated the latter's constitutional right to due notice and hearing.

xxx

30
In another vein, the trial court noted the absence of proof that the First E-Bank actually
made a judicial consignation of its purported tax payments.

The BIR et al. moved for reconsideration. It argued that the petition was premature, RMC No.
65-2012 was valid, and the petition for declaratory relief should be dismissed for violating
the principle of primary jurisdiction. For its part, the First E-Bank moved for partial
reconsideration, praying that the consignated funds be released.

By Order dated December 18,2013, the trial court denied the parties' respective motions for
reconsideration.1avvph!1 It reiterated that the First E-Bank properly resorted to a petition
for declaratory relief for the purpose of invalidating RMC No. 65-2012. It also noted that the
First E-Bank appeared to have judicially consignated the funds only on November 17, 2013,
following the resolution of the case on September 5, 2013. For sure, this judicial
consignation, which was belatedly done, cannot justify a modification of the aforesaid
resolution. The trial court, nonetheless, pronounced that the First E-Bank was not precluded
from filing the proper motion to withdraw the consignated amounts upon the finality of the
ruling on the validity of RMC 65-2012.

The Proceedings before the Court of Appeals

Aggrieved, both parties appealed to the Court of Appeals. On one hand, the BIR et al.
challenged the trial court's ruling insofar as it: a) decreed that the First E-Bank correctly
availed of the petition for declaratory relief when it sought to nullify RMC No. 65-2012; and
b) declared the same as invalid. On the other hand, the First E-Bank assailed the trial court's
ruling insofar as it declined to order the release of the judicially consignated amounts.

The Court of Appeals' Dispositions

By its first assailed Resolution dated June 26, 2014, the Court of Appeals dismissed the
appeal of the First E-Bank and the joint appeal of the BIR et al. on ground of lack of
jurisdiction. It emphasized that jurisdiction over the case was exclusively vested in the Court
of Tax Appeals since the trial court's impugned resolution involved a tax matter.
Both the First E-Bank and the BIR et al., moved for reconsideration. They commonly asserted
that the Court of Appeals had appellate jurisdiction over their respective appeals emanating
from a petition for declaratory relief which sought to invalidate RMC No. 65-2012.

By its second assailed Resolution dated November 27, 2014, the Court of Appeals denied the
motions for reconsideration and stressed anew that the Court of Tax Appeals had exclusive
jurisdiction over the appeals.

The Present Petitions

In G.R. No. 218924, the First E-Bank initiated, on alleged ground of grave abuse of
discretion, a Special Civil Action for Certiorari21 to nullify the assailed dispositions of the
Court of Appeals. According to the First E-Bank, the Court of Appeals, not the Court of Tax
Appeals, has jurisdiction over its appeal since the subject matter of the case is not local tax
or taxes per se but a petition to declare as invalid RMC No. 65-2012. The Court of Appeals
purportedly based its rulings on conjectures and surmises, not on established facts and law.

31
In G.R. No. 215801,22 the BIR et al. availed ofRu1e 45 of the Revised Rules of Court. They
plead the same legal issue pertaining to which court has jurisdiction over the trial court's
decision.

Issues

First: Is a petition for declaratory relief proper for the purpose of invalidating RMC No. 65-
2012?

Second: Did the Court of Appeals validly dismiss the twin appeals on ground of lack of
jurisdiction?

Third: Is RMC No. 65-2012 valid?

a) Is a condominium corporation engaged in trade or business?
b) Are assoc1atwn dues, membership fees, and other assessments/charges subject to
income tax, value-added tax, and withholding tax?

Fourth: Is the First E-Bank entitled to the release of its judicially consignated tax payments?

Ruling

A petition for declaratory

relief is not the proper
remedy to seek the invalidation
of RMC No. 65-2012

An action for declaratory relief is governed by Section 1, Rule 63 of the Revised Rules of
Court, thus:

Section l. Who may file petition. Any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation may, before breach or violation thereof
bring an action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties, thereunder.
Declaratory relief requires the following elements: (1) the subject matter of the controversy
must be a deed, will, contract or other written instrument, statute, executive order or
regulation, or ordinance; (2) the terms of said documents and the validity thereof are
doubtful and require judicial construction; (3) there must have been no breach of the
documents in question; (4) there must be an actual justiciable controversy or the "ripening
seeds" of one between persons whose interests are adverse; (5) the issue must be ripe for
judicial determination; and (6) adequate relief is not available through other means or other
forms of action or proceeding.

The Court rules that certiorari or prohibition, not declaratory relief, is the proper remedy to
assail the validity or constitutionality of executive issuances. DOTR v. PPSTA24 is apropos:
The Petition for Declaratory Relief is not the proper remedy
One of the requisites for an action for declaratory relief is that it must be filed before any
breach or violation of an obligation. Section 1, Rule 63 of the Rules of Court states, thus:

xxx

32
Thus, there is no actual case involved in a Petition for Declaratory Relief . It cannot,
therefore, be the proper vehicle to invoke the judicial review powers to declare a statute
unconstitutional.

It is elementary that before this Court can rule on a constitutional issue, there must first be a
justiciable controversy. A justiciable controversy refers to an existing case or controversy
that is appropriate or ripe for judicial determination, not one that is conjectural or merely
anticipatory. As We emphasized in Angara v. Electoral Commission, any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile conclusions
unrelated to actualities.

To question the constitutionality of the subject issuances, respondents should have invoked
the expanded certiorari jurisdiction under Section 1 of Article VIII of the 1987 Constitution .
The adverted section defines judicial power as the power not only "to settle actual
controversies involving rights which are legally demandable and enforceable," but also "to
determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government."

There is a grave abuse of discretion when there is patent violation of the Constitution, the
law, or existing jurisprudence. On this score, it has been ruled that "the remedies of
certiorari and prohibition are necessarily broader in scope and reach, and the writ of
certiorari or prohibition may be issued to correct errors of jurisdiction committed not only by
a tribunal, corporation, board or officer exercising judicial, quasi-judicial or ministerial
functions, but also to set right, undo, and restrain any act of grave abuse of discretion
amounting to lack or excess of jurisdiction by any branch or instrumentality of the
Government, even if the latter does not exercise judicial, quasi-judicial or ministerial
functions." Thus, petitions for certiorari and prohibition are the proper remedies where an
action of the legislative branch is seriously alleged to have infringed the Constitution.
(Emphasis supplied)

In Diaz v. The Secretary of Finance, et al., the Court, nonetheless, held that a petition for
declaratory relief may be treated as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good; or if the
assailed act or acts of executive officials are alleged to have usurped legislative authority,
thus:

On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition
rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol
gave their action. The government has sought reconsideration of the Court's resolution,
however, arguing that petitioners' allegations clearly made out a case for declaratory relief:
an action over which the Court has no original jurisdiction. The government adds, moreover,
that the petition does not meet the requirements of Rule 65 for actions for prohibition since
the BIR did not exercise judicial, quasi-judicial, or ministerial functions when it sought to
impose VAT on toll fees. Besides, petitioners Diaz and Timbo has a plain, speedy, and
adequate remedy in the ordinary course of law against the BIR action in the form of an
appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one for prohibition if
the case has far-reaching implications and raises questions that need to be resolved for the
public good. The Court has also held that a petition for prohibition is a proper remedy to
prohibit or nullify acts of executive officials that amount to usurpation of legislative
authority.

Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would
impact, not only on the more than half a million motorists who use the tollways everyday,

33
but more so on the government's effort to raise revenue for funding various projects and for
reducing budgetary deficits. (Emphasis supplied)

Here, RMC No. 65-2012 has far-reaching ramifications among condominium corporations
which have proliferated throughout the country. For numerous Filipino families,
professionals, and students have, for quite sometime now, opted for condominium living as
their new way of life. The matter of whether indeed the contributions of unit owners solely
intended for maintenance and upkeep of the common areas of the condominium building
are taxable is imbued with public interest. Suffice it to state that taxes, being the lifeblood of
the government, occupy a high place in the hierarchy of State priorities, hence, all questions
pertaining to their validity must be promptly addressed with the least procedural
obstruction.

Notably, the issue at hand has already pended for six (6) years now, first with the trial court,
then with the Court of Appeals, and now with this Court. Hence, to forestall any further
delay, instead of remanding the cases to the Court of Appeals, we here and now
write finis to these cases once and for all, Diaz enunciated:

To dismiss the petition and resolve the issues later, after the challenged VAT has been
imposed, could cause more mischief both to the tax-paying public and the government. A
belated declaration of nullity of the BIR action would make any attempt to refund to the
motorists what they paid an administrative nightmare with no solution. Consequently, it is
not only the right, but the duty of the Court to take cognizance of and resolve the issues that
the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court
has ample power to waive such technical requirements when the legal questions to be
resolved are of great importance to the public. The same may be said of the requirement
of locus standi which is a mere procedural requisite.

G.R. No. 218924

The First E-Bank faults the Court of Appeals with grave abuse of discretion amounting to lack
or excess of jurisdiction when the latter dismissed the former's appeal from the trial court's
Resolution dated September 5, 2013 and Order dated December 18, 2013.
A petition for certiorari is proper where the impugned dispositions, as in this case, are
tainted with grave abuse of discretion amounting to lack or excess ofjurisdiction. More so
where a petition for review on certiorari does not appear to be a plain, speedy, and
adequate remedy to address the First E Bank's urgent concerns on its accumulated
supposed tax liabilities which will never get halted until the validity of RMC No. 65-2012 is
finally resolved, and considerations of public welfare and public policy compel the speedy
resolution of the cases through the extraordinary remedy of certiorari.

The Court, in some instances, allowed a petition for certiorari to prosper notwithstanding the
availability of appeal. Mallari v. Banco Filipino Savings & Mortgage Bank enumerates these
instances, viz.:

Indeed, the Court in some instances has allowed a petition for certiorari to prosper
notwithstanding the availability of an appeal, such as, (a) when public welfare and the
advancement of public policy dictate it; (b) when the broader interest of justice so requires;
(c) when the writs issued are null; and (d) when the questioned order amounts to an
oppressive exercise of judicial authority.

So must it be.

G.R. No. 215801

34
On the part of the BIR et al., they opted to pursue the regular route under Rule 45 of the
Revised Rules of Court. Surely, being the beneficiary of the taxes paid by the First E-Bank,
the State has no compelling need to avail of the extraordinary remedy under Rule 65. At any
rate, Rule 45 is undoubtedly an available remedy in the ordinary course of law.

The parties’ resort to the Court of

Appeals was proper in light of the
then prevailing jurisprudence

We now resolve the issue of jurisdiction.

Section 7 of Republic Act No. 9282 (RA 9282) outlines the appellate jurisdiction of the Court
of Tax Appeals, viz.:

Sec. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relations thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau
oflnternal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original
or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges, seizure, detention or release
of property affected, fines, forfeitures or other penalties in relation thereto,
or other matters arising under the Customs Law or other laws administered
by the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of
real property originally decided by the provincial or city board of assessment
appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs
which are adverse to the Government under Section 2315 of the Tariff and
Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of non-
agricultural product, commodity or article, and the Secretary of Agriculture
in the case of agricultural product, commodity or article, involving dumping
and countervailing duties under Section 301 and 302, respectively, of the
Tariff and Customs Code, and safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to
impose said duties.

35
On August 30, 2008, the Court en banc decreed in British American Tobacco v. Camacho, et
al. that the Court of Tax Appeals did not have jurisdiction to pass upon the constitutionality
or validity of a law or rule, thus:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general,
this does not include cases where the constitutionality of a law or rule is challenged. Where
what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative function, the regular
courts have jurisdiction to pass upon the same. The determination of whether a specific rule
or set of rules issued by an administrative agency contravenes the law or the constitution is
within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial power, which includes the authority
of the courts to determine in an appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
(Emphasis supplied )

The prevailing dictum then was only regular courts had jurisdiction to pass upon the
constitutionality or validity of tax laws and regulations.

On February 4, 2014, the Court en banc recognized that the Court of Tax Appeals possessed
all such implied, inherent, and incidental powers necessary to the full and effective exercise
of its appellate jurisdiction over tax cases. City of Manila v. Judge Grecia-Cuerdo is relevant,
thus:

A grant of appellate jurisdiction implies that there is included in it the power necessary to
exercise it effectively, to make all orders that will preserve the subject of the action, and to
give effect to the final determination of the appeal. It carries with it the power to protect
that jurisdiction and to make the decisions of the court thereunder effective. The court, in
aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters
necessary to the efficient and proper exercise of that jurisdiction. For this purpose, it may,
when necessary, prohibit or restrain the performance of any act which might interfere with
the proper exercise of its rightful jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court which is endowed with a particular
jurisdiction should have powers which are necessary to enable it to act effectively within
such jurisdiction. These should be regarded as powers which are inherent in its jurisdiction
and the court must possess them in order to enforce its rules of practice and to suppress
any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA
and shall possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a
general grant of jurisdiction, in addition to those expressly conferred on them. These
inherent powers are such powers as are necessary for the ordinary and efficient exercise of
jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as
to the due administration of justice; or are directly appropriate, convenient and suitable to
the execution of their granted powers; and include the power to maintain the court's
jurisdiction and render it effective in behalf of the litigants.

36
Thus, this Court has held that "while a court may be expressly granted the incidental powers
necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive
legislation, implies the necessary and usual incidental powers essential to effectuate it, and,
subject to existing laws and constitutional provisions, every regularly constituted court has
power to do all things that are reasonably necessary for the administration of justice within
the scope of its jurisdiction and for the enforcement of its judgments and mandates." Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the main action,
and coming within the above principles, may be tal{en cognizance of by the court and
determined, since such jurisdiction is in aid of its authority over the principal matter, even
though the court may thus be called on to consider and decide matters which, as original
causes of action, would not be within its cognizance. (Emphasis supplied)

Consequently, the Court held that the authority of the Court of Tax Appeals to take
cognizance of petitions for certiorari against interlocutory orders of the RTC in local tax
cases was deemed included in the authority or jurisdiction granted it by law.
The Court underscored that the grant of appellate jurisdiction to the Court of Tax Appeals
included such power necessary to exercise it effectively. Besides, a split-jurisdiction between
the Court of Tax Appeals and the Court of Appeals is anathema to the orderly administration
of justice. "The Court cannot accept that such was the legislative motive, especially
considering that the law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review over local tax cases
without mention of any other court that may exercise such power."

On August 16, 2016, in Banco de Oro v. Republic of the Phils., et al., the Court en bane
pronounced in no uncertain terms that the Court of Tax Appeals had jurisdiction to rule on
the constitutionality or validity of a tax law or regulation or administrative issuance, viz.:
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only in the lawful exercise of its power
to pass upon all maters brought before it, as sanctioned by Section 7 of Republic Act No.
1125, as amended.

This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of
cases directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue memorandum circulars, rulings).

Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance, Central Board of Assessment Appeals,
Secretary of Trade and Industry) on tax-related problems must be brought exclusively to the
Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of Tax Appeals to have
exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the
acts and omissions of the said quasi-judicial agencies should, thus, be filed before the Court
of Tax Appeals.

Republic Act No. 9282, a special and later law than Batas Pambansa Big. 129 provides an
exception to the original jurisdiction of the Regional Trial Courts over actions questioning the
constitutionality or validity of tax laws or regulations. Except for local tax cases, actions
directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance may be filed directly before the Court of Tax Appeals.

Furthermore, with respect to administrative issuances (revenue orders, revenue

memorandum circulars, or rulings), these are issued by the Commissioner under its power to

37
make rulings or opinions in connection with the implementation of the provisions of internal
revenue laws. Tax rulings, on the other hand, are official positions of the Bureau on inquiries
of taxpayers who request clarification on certain provisions of the National Internal Revenue
Code, other tax laws, or their implementing regulations. Hence, the determination of the
validity of these issuances clearly falls within the exclusive appellate jurisdiction of the Court
of Tax Appeals under Section 7 (1) of Republic Act No. 1125, as amended, subject to prior
review by the Secretary of Finance, as required under Republic Act No. 8424. (Emphasis
supplied)

Banco de Oro further stressed that such undoubted jurisdiction is exclusively vested in the
Court of Tax Appeals whether it is raised by the taxpayer directly or as a defense.

Here, following the trial court's denial of their respective motions for reconsideration, the
parties appealed to the Court of Appeals. On June 26, 2014, the Court of Appeals dismissed
the appeals, and on November 27, 2014, denied the parties' motions for reconsideration.
Based on this sequence of events, the whole time the case was ongoing below, the
prevailing doctrine had been British American Tobacco ordaining that the Court of Tax
Appeals did not have jurisdiction to decide the validity or constitutionality of laws or rules.
Consequently, the parties correctly elevated the trial court's resolution to the Court of
Appeals, which should have taken cognizance of, and resolved, the appeals on the merits.

RMC No. 65-2012 is invalid

We now turn to the substantive issue: Is RMC No. 65-2012 valid?

a) A condominium corporation is not engaged in trade or business

The issue on whether association dues, membership fees, and other assessments/charges
collected by a condominium corporation in the usual course of trade or business is not
novel. Yamane v. BA Lepanto Condominium Corp. positively resolved it, viz.:
Obviously, none of these stated corporate purposes are geared towards maintaining a
livelihood or the obtention of profit. Even though the Corporation is empowered to levy
assessments or dues from the unit owners, these amounts collected are not intended for the
incurrence of profit by the Corporation or its members, but to shoulder the multitude of
necessary expenses that arise from the maintenance of the Condominium Project. Just as
much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the
particular expenses to be defrayed by the regular assessments collected from the unit
owners. These would include the salaries of the employees of the Corporation, and the cost
of maintenance and ordinary repairs of the common areas.

The City Treasurer nonetheless contends that the collection of these assessments and dues
are "with the end view of getting full appreciative living values" for the condominium units,
and as a result, profit is obtained once these units are sold at higher prices. The Court cites
with approval the two counterpoints raised by the Court of Appeals in rejecting this
contention. First, if any profit is obtained by the sale of the units, it accrues not to the
corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale
of the corporation, the owner is already required to pay capital gains tax on the appreciated
value of the condominium unit.

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every
Makati City car owner may be considered as being engaged in business, since the repairs or
improvements on the car may be deemed oriented towards appreciating the value of the car
upon resale. There is an evident distinction between persons who spend on repairs and
improvements on their personal and real property for the purpose of increasing its resale
value, and those who defray such expenses for the purpose of preserving the property. The

38
vast majority of persons fall under the second category, and it would be highly specious to
subject these persons to local business taxes .The profit motive in such cases is hardly the
driving factor behind such improvements, if it were contemplated at all. Any profit that
would be derived under such circumstances would merely be incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of
"full appreciative living values," a phrase that defies statutory explication, commonsensical
meaning, the English language, or even definition from Google." Full appreciative living
values" is nothing but blather in search of meaning, and to impose a tax hinged on that
standard is both arbitrary and oppressive.

xxx

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of
ownership over personal and real property is limited by its stated corporate purposes, which
are by themselves further limited by the Condominium Act .A condominium corporation,
while enjoying such powers of ownership, is prohibited by law from transacting its properties
for the purpose of gainful profit. (Emphasis supplied)

xxx

Yamane did emphasize that a corporation condominium is not designed to engage in

activities that generate income or profit. A discussion on the nature of a condominium
corporation is, indubitably, in order.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726 (RA
4726) (The Condominium Act). Under the law, a condominium is an interest in real property
consisting of a separate interest in a unit in a residential, industrial or commercial building
and an undivided interest in common, directly or indirectly, in the land on which it is located
and in other common areas of the building. To enable the orderly administration over these
common areas which the unit owners jointly own, RA 4726 permits the creation of a
condominium corporation for the purpose of holding title to the common areas. The unit
owners shall in proportion to the appurtenant interests of their respective units
automatically be members or shareholders of the condominium corporation to the exclusion
of others.

Sections 10 and 22 of RA 4726 focus on the non-profit purpose of a condominium

corporation. Under Section 10, the corporate purposes of a condominium corporation are
limited to holding the common areas, either in ownership or any other interest in real
property recognized by law; management of the project; and to such other purposes
necessary, incidental, or convenient to the accomplishment of these purposes. Additionally,
Section 10 prohibits the articles of incorporation or by-laws of the condominium corporation
from containing any provisions contrary to the provisions of RA 4726, the enabling or master
deed, or the declaration of restrictions of the condominium project.

Also, under Section 22, the condominium corporation, as the management body, may only
act for the benefit of the condominium owners in disposing tangible and intangible personal
property by sale or otherwise in proportion to the condominium owners' respective interests
in the common areas.

Further, Section 9 allows a condominium corporation to provide for the means by which it
should be managed. Specifically, it authorizes a condominium corporation to collect
association dues, membership fees, and other assessments/charges for: a) maintenance of
insurance policies; b) maintenance, utility, gardening and other services benefiting the
common areas, for the employment of personnel necessary for the operation of the building,
and legal, accounting and other professional and technical services; c) purchase of

39
materials, supplies and the like needed by the common areas; d) reconstruction of any
portion or portions of any damage to or destruction of the project; and e) reasonable
assessments to meet authorized expenditures.

In fine, the collection of association dues, membership fees, and other assessments/charges
is purely for the benefit of the condominium owners. It is a necessary incident to the
purpose to effectively oversee, maintain, or even improve the common areas of the
condominium as well as its governance.

As held in Yamane "[t]he profit motive in such cases is hardly the driving factor behind such
improvements, if it were contemplated at all. Any profit that would be derived under such
circumstances would merely be incidental, if not accidental." More, a condominium
corporation is especially formed for the purpose of holding title to the common area and
exists only for the benefit of the condominium owners. Nothing more.

RMC No. 65-2012, sharply departs from Yamane and the law on condominium corporations.
It invalidly declares that the amounts paid as dues or fees by members and tenants of a
condominium corporation form part of the gross income of the latter, thus, subject to income
tax, value-added tax, and withholding tax. The reason given --- a condominium corporation
furnishes its members and tenants with benefits, advantages, and privileges in return for
such payments, consequently, these payments constitute taxable income or compensation
for beneficial services it provides to its members and tenants, hence, subject to income tax,
value-added tax, and withholding tax.

We cannot agree.

b) Association dues, membership fees, and other assessments/charges are not subject to
income tax, value-added tax and withholding tax

First. Capital is a fund or property existing at one distinct point in time while income
denotes a flow of wealth during a definite period of time. Income is gain derived and severed
from capital. Republic Act No. 8424 (RA 8424) or the Tax Reform Act of 1997 was in effect
when RMC No. 65-2012 was issued on October 31, 2012. In defining taxable income, Section
31 of RA 8424 states:

Section 31. Taxable Income Defined.- The term taxable income means the pertinent items of
gross income specified in this Code, less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income by this Code or other special laws.
Gross income means income derived from whatever source, including compensation for
services; the conduct of trade or business or the exercise of a profession; dealings in
propetiy; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and
a partner's distributive share in the net income of a general professional
partnership,43 among others.

On December 19, 2017, Section 31 was amended by Republic Act No. 10963 (RA
10963) (The TRAIN Law). The provision now reads:
Sec. 31. Taxable Income Defined. The term "taxable income" means the pertinent items of
gross income specified in this Code, less deductions if any, authorized for such types of
income by this Code or other special laws.

There is no substantial difference between the original definition under RA 8424 and the
subsequent definition under the TRAIN Law. The only difference is that the phrase "and/or
personal and additional exemptions" was deleted. Still, both the former and current
definitions are consistent--- 'taxable income' refers to "the pertinent items of gross income

40
specified in this Code." A comparison of RA 8424 and the TRAIN Law shows the items under
gross income insofar as they are relevant to the present case, viz.:

RA 842445 (the law in effect when RMC RA 10963 (signed into law on
No. 65-2012 was issued on October 31, December 19, 2017 and took effect on
2012) January 1, 2018)

Section 32. Gross Income. - Section 32. Gross Income.-

(A) General Definition. - Except when (A) General Definition. - Except when
otherwise provided in this Title, gross otherwise provided in this Title, gross
income means all income derived from income means all income derived from
whatever source, including (but not limited whatever source, including (but not limited
to) the following items: to) the following items:
(1) Compensation for services in whatever (1) Compensation for services in whatever
form paid, including, but not limited to fees, form paid, including, but not limited to fees,
salaries, wages, commissions, and similar salaries, wages, commissions, and similar
items; items;
(2) Gross income derived from the conduct (2) Gross income derived from the conduct
of trade or business or the exercise of a of trade or business or the exercise of a
profession; profession;
xxx xxx

Section 32. Gross Income. - Section 32. Gross Income.-

(A) General Definition. - Except when otherwise provided in this Title, gross income means
all income derived from whatever source, including (but not limited to) the following items:
(A) General Definition. - Except when otherwise provided in this Title, gross income means
all income derived from whatever source, including (but not limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items; (1) Compensation for
services in whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession; (2) Gross income derived from the conduct of trade or business or the
exercise of a profession;

xxxxxx

Section 32 of RA 8424 does not include association dues, membership fees, and other
assessments/charges collected by condominium corporations as sources of gross income.
The subsequent amendment under the TRAIN Law substantially replicates the old Section
32.

Clearly, RMC No. 65-2012 expanded, if not altered, the list of taxable items in the law. RMC
No. 65-2012, therefore, is void. Besides, where the basic law and a rule or regulation are in
conflict, the basic law prevails.

As established in Yamane, the expenditures incurred by condominium corporations on

behalf of the condominium owners are not intended to generate revenue nor equate to the
cost of doing business.

In the very recent case of ANPC v. BIR, the Court pronounced that membership fees,
assessment dues, and other fees collected by recreational clubs are not subject to income
tax, thus:

41
As correctly argued by ANPC, membership fees, assessment dues, and other fees of similar
nature only constitute contributions to and/or replenishment of the funds for the
maintenance and operations of the facilities offered by recreational clubs to their exclusive
members . They represent funds "held in trust" by these clubs to defray their operating and
general costs and hence, only constitute infusion of capital.

Case law provides that in order to constitute "income," there must be realized "gain."
Clearly, because of the nature of membership fees and assessment dues as funds inherently
dedicated for the maintenance, preservation, and upkeep of the clubs' general operations
and facilities, nothing is to be gained from their collection. This stands in contrast to the tees
received by recreational clubs coming from their income-generating facilities, such as bars,
restaurants, and food concessionaires, or from income-generating activities, like the renting
out of sports equipment, services, and other accommodations: In these latter examples,
regardless of the purpose of the fees' eventual use, gain is already realized from the
moment they are collected because capital maintenance, preservation. or upkeep is not
their pre-determined purpose. As such, recreational clubs are generally free to use these
fees for whatever purpose they desire and thus, considered as unencumbered "fruits"
coming from a business transaction.

Further, given these recreational clubs' non-profit nature, membership fees and assessment
dues cannot be considered as funds that would represent these clubs' interest or profit from
any investment. In fact, these fees are paid by the clubs' members without any expectation
of any yield or gain (unlike in stock subscriptions), but only for the above-stated purposes
and in order to retain their membership therein.

In fine, for as long as these membership fees, assessment dues, and the like are treated as
collections by recreational clubs from their members as an inherent consequence of their
membership, and are, by nature, intended for the maintenance, preservation, and upkeep of
the clubs' general operations and facilities, then these fees cannot be classified as "the
income of recreational clubs from whatever source" that are "subject to income tax.

Instead, they only form part of capital from which no income tax may be collected or
imposed. (Emphasis supplied)

Similarly, therefore, association dues, membership fees, and other assessments/charges are
not subject to income tax because they do not constitute profit or gain. To repeat, they are
collected purely for the benefit of the condominium owners and are the incidental
consequence of a condominium corporation's responsibility to effectively oversee, maintain,
or even Improve the common areas of the condominium as well as its governance.

Second. Association dues, membership fees, and other assessments/charges do not arise
from transactions involving the sale, barter, or exchange of goods or property. Nor are they
generated by the performance of services. As such, they are not subject to value-added tax
per Section 105 of RA 8424, viz.:

Section 105. Persons Liable. -Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108
of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

42
The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
course of trade or business. (Emphasis supplied)

The value-added tax is a burden on transactions imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto, so much so that even a non-
stock, non-profit organization or government entity, is liable to pay value-added tax on the
sale of goods or services.

Section 106 of RA 8424 imposes value-added tax on the sale of goods and properties. The
term 'goods' or 'properties' shall mean all tangible and intangible objects which are capable
of pecuniary estimation. These 'goods' or 'properties' include real property, intellectual
property, equipment, and rights over motion picture films. Section 106 of RA 8424 likewise
imposes value-added tax on transactions such as transfer of goods, properties, profits, or
inventories.

Section 108 of RA 8424 further imposes value-added tax on sale of services and use or lease
of properties. It defines "sale or exchange of services," as follows:

The phrase 'sale or exchange of services' means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest-houses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of goods or cargoes;
common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines; sales of electricity by
generation companies, transmission, and distribution companies; services of franchise
grantees of electric utilities, telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. x x x

The phrase 'sale or exchange of services' shall include the use of intellectual property, use
of certain types of equipment, supplying certain types of knowledge or information, lease of
motion picture films, and use of transmission or air time.

Both under RA 8424 (Sections 106, 107, and 108) and the TRAIN Law, there, too, is no
mention of association dues, membership fees, and other assessments/charges collected by
condominium corporations being subject to VAT. And rightly so. For when a condominium
corporation manages, maintains, and preserves the common areas in the building, it does so
only for the benefit of the condominium owners. It cannot be said to be engaged in trade or

43
business, thus, the collection of association dues, membership fees, and other
assessments/charges is not a result of the regular conduct or pursuit of a commercial or an
economic activity, or any transactions incidental thereto.

Neither can it be said that a condominium corporation is rendering services to the unit
owners for a fee, remuneration or consideration. Association dues, membership fees, and
other assessments/charges form part of a pool from which a condominium corporation must
draw funds in order to bear the costs for maintenance, repair, improvement, reconstruction
expenses and other administrative expenses.

Indisputably, the nature and purpose of a condominium corporation negates the carte
blanche application of our value-added tax provisions on its transactions and activities. CIR
v. Magsaysay Lines, Inc., stated:

Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears
direct relevance to the taxpayer's role or link in the production chain. Hence, as affirmed by
Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the
sale, barter or exchange of goods or services by persons who engage in such activities, in
the course of trade or business. These transactions outside the course of trade or business
may invariably contribute to the production chain, but they do so only as a matter of
accident or incident. As the sales of goods or services do not occur within the course of
trade or business, the providers of such goods or services would hardly, if at all, have the
opportunity to appropriately credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first place only through the
ordinary course of trade or business. (Emphasis supplied)

Too, ANPC held that membership fees, assessment dues, and the like collected by
recreational clubs are not subject to value-added tax "because in collecting such fees, the
club is not selling its service to the members. Conversely, the members are not buying
services from the club when dues are paid; hence, there is no economic or commercial
activity to speak of as these dues are devoted for the operations/maintenance of the
facilities of the organization. As such, there could be no 'sale, barter or exchange o.f goods
or properties, or sale of a service' to speak of, which would then be subject to VAT under the
1997 NIRC." This principle equally applies to condominium corporations which are similarly
situated with recreational clubs insofar as membership fees, assessment dues, and other
fees of similar nature collected from condominium owners are devoted to the operations and
maintenance of the facilities of the condominium. In sum, RMC No. 65-2012 illegally imposes
value-added tax on association dues, membership fees, and other assessments/charges
collected and received by condominium corporations.

Third. The withholding tax system was devised for three (3) primary reasons, i.e. --- (1) to
provide taxpayers a convenient manner to meet their probable income tax liability; (2) to
ensure the collection of income tax which can otherwise be lost or substantially reduced
through failure to file the corresponding returns; and (3) to improve the government's cash
flow. This results in administrative savings, prompt and efficient collection of taxes,
prevention of delinquencies and reduction of governmental effort to collect taxes through
more complicated means and remedies. Succinctly put, withholding tax is intended to
facilitate the collection of income tax. And if there is no income tax, withholding tax cannot
be collected.

Section 57 of RA 8424 directs that only income, be it active or passive, earned by a payor-
corporation can be subject to withholding tax, viz. :

Section 57. Withholding of Tax at Source.-

44
(A) Withholding of Final Tax on Certain Incomes.- Subject to rules and regulations the
Secretary of Finance may promulgate, upon the recommendation of the Commissioner,
requiring the filing of income tax return by certain income payees, the tax imposed or
prescribed by Sections 24(8)(1), 24(8)(2), 24(C), 24(D)(l); 25(A)(2), 25(A)(3), 25(8), 25(C),
25(D), 25(E), 27(D)(l), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(
b), 28(A)(7) (c), 28(8)(1), 28(8)(2), 28(8)(3), 28(8)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c);
33; and 282 of this Code on specified items of income shall be withheld by payor-corporation
and/or person and paid in the same manner and subject to the same conditions as provided
in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source.- The Secretary of Finance may, upon the
recommendation of the Commissioner, require the withholding of a tax on the items of
income payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one percent (l%) but
not more than thirty-two percent (32%) thereof, which shall be credited against the income
tax liability of the taxpayer for the taxable year.

xxx

Although Section 57 (B) was later amended by the TRAIN Law, it still decrees that the
withholding of tax covers only the income payable to natural or juridical persons, thus:

Sec. 57. Withholding of Tax at Source.-

(A) x x x

(B) Withholding of Creditable Tax at Source. - The Secretary of Finance may, upon the
recommendation of the Commissioner, require the withholding of a tax on the items of
income payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one percent (1%) but
not more than thirty-two percent (32%) thereof, which shall be credited against the income
tax liability of the taxpayer for the taxable year: Provided, That, beginning January 1, 2019,
the rate of withholding shall not be less than one percent (1%) but not more than fifteen
percent (15%) of the income payment.

xxx

Yamane aptly stated "[e]ven though the Corporation is empowered to levy assessments or
dues from the unit owners, these amounts collected are not intended for the incurrence of
profit by the Corporation or its members, but to shoulder the multitude of necessary
expenses that arise from the maintenance of the Condominium Project. "

Fourth. Section 4 of RA 8424 empowers the BIR Commissioner to interpret tax laws and to
decide tax cases:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases- The
power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

45
But the BIR Commissioner cannot, in the exercise of such power, issue administrative rulings
or circulars inconsistent with the law to be implemented. Administrative issuances must not
override, supplant, or modify the law, they must remain consistent with the law intended to
carry out. Surely, courts will not countenance administrative issuances that override, instead
of remaining consistent and in harmony with the law they seek to apply and implement.

As shown, the BIR Commissioner expanded or modified the law when she declared that
association dues, membership fees, and other assessments/charges are subject to income
tax, value-added tax, and withholding tax. In doing so, she committed grave abuse of
discretion amounting to lack or excess of jurisdiction. As to what constitutes 'grave abuse of
discretion' and when a government branch, agency, or instrumentality is deemed to have
committed it, Kilusang Mayo Uno v. Aquino III instructs:

Grave abuse of discretion denotes a "capricious, arbitrary[,] and whimsical exercise of

power. The abuse of discretion must be patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform a duty enjoined by law, as not to act at all in
contemplation of law, or where the power is exercised in an arbitrary and despotic manner
by reason of passion or hostility."

Any act of a government branch, agency, or instrumentality that violates a statute or a

treaty is grave abuse of discretion. However, grave abuse of discretion pertains to acts of
discretion exercised in areas outside an agency's granted authority and, thus, abusing the
power granted to it. Moreover, it is the agency's exercise of its power that is examined and
adjudged, not whether its application of the law is correct. (Emphasis supplied)

In sum, the BIR Commissioner is empowered to interpret our tax laws but not expand or
alter them. In the case of RMC No. 65-2012, however, the BIR Commissioner went beyond, if
not, gravely abused such authority.

If proper, the First E-Bank may

recover the consignated amounts,
through a separate action or
proceeding

The general rule is that a void law or administrative act cannot be the source of legal rights
or duties. Article 7 of the Civil Code enunciates this general rule, as well as its
exception: "Laws are repealed only by subsequent ones, and their violation or non-
observance shall not be excused by disuse, or custom or practice to the contrary. When the
courts declared a law to be inconsistent with the Constitution, the former shall be void and
the latter shall govern. Administrative or executive acts, orders and regulations shall be
valid only when they are not contrary to the laws or the Constitution." Jurisprudence is
replete with instances when this Court had directed the refund of taxes that were paid under
invalid tax measures, thus:
1) In Icard v. The City Council of Baguio , 59 this Court held that the City of Baguio's
ordinances, namely, Ordinance No. 6 -V (which imposed an amusement tax of 0.20
for each person entering a night club) and Ordinance No. 11-V (which provides for a
property tax on motor vehicles) were ultra vires. As a consequence, this Court
ordered the City of Baguio to refund to petitioner-appellee in that case the sum of
P254.80 which he paid as amusement tax.
2) In Matalin Coconut Co., Inc. v. The Municipal Council of Malabang the Court agreed
with the trial court's finding that the Municipality of Malabang's Municipal Ordinance
No. 45-66, imposing a "police inspection fee" of P0.30 per sack of cassava starch or
flour was an invalid act of taxation. The trial court's directive to the municipal
treasurer "to refund to the petitioner the payments it made under the said ordinance

46
 from September 27, 1966 to May 2, 1967, amounting to P25,500.00, as well as all
payments made subsequently thereafter" was likewise affirmed by this Court.
3) In Cagayan Electric Power and Light, Co. Inc. v. City of Cagayan de Oro , 61 this
Court directed the City of Cagayan de Oro to refund to CEPALCO the tax payments
made by the latter "on the lease or rental of electric and/or telecommunication posts,
poles or towers by pole owners to other pole users at ten percent (10%) of the annual
rental income derived from such lease or rental" after the city's tax Ordinance No.
9503-2005 was declared invalid.

Petitioner resorted to judicial consignation of its alleged tax payments in the court, thus,
reckons with the requirements of judicial consignation, viz.: (1) a debt due; (2) the creditor
to whom tender of payment was made refused without just cause to accept the payment, or
the creditor was absent, unknown or incapacitated, or several persons claimed the same
right to collect, or the title of the obligation was lost; (3) the person interested in the
performance of the obligation was given notice before consignation was made; (4) the
amount was placed at the disposal of the court; and (5) the person interested in the
performance of the obligation was given notice after the consignation was made.

Here, it is imperative to determine whether the First E-Bank actually complied with the
requirements for judicial consignation. This is a question of fact which by this Court, not
being a trial court cannot pass upon. The trial court, therefore, thus correctly held that the
First E-Bank may initiate the appropriate motion for the release of the consignated funds,
upon finality of the judicial determination on the validity of RMC No. 65-2012 and only after
it has determined the presence of the requirements for judicial consignation.

A final word

RMC No. 65-2012 is invalid for ordaining that "gross receipts of condominium corporations
including association dues, membership fees, and other assessments/charges are subject to
VAT, income tax and income payments made to it are subject to applicable withholding
taxes." A law will not be construed as imposing a tax unless it does so clearly and expressly.
In case of doubt, tax laws must be construed strictly against the government and in favor of
the taxpayer. Taxes, as burdens that must be endured by the taxpayer, should not be
presumed to go beyond what the law expressly and clearly declares.

ACCORDINGLY, the Court RESOLVES:

1) To REVERSE and SET ASIDE the assailed Resolutions dated June 26, 2014 and
November 27, 2014 of the Court of Appeals in CA-G.R. CV No. 102266;

2) To DENY the Petition for Review dated February 17,2015 in G.R. No. 215801 and
the Special Civil Action for Certiorari dated February 12, 2015 in G.R. No. 218924;
and

3) To AFFIRM the Resolution dated September 5, 2013 and Order dated December
18, 2013 of the Regional Trial Court, Branch 146, Makati City in Special Civil
Action No. 12-1236.

SO ORDERED.

Peralta, C.J.(Chairperson), Caguioa, Reyes, J., Jr., and Lopez, JJ., concur.

47
 CITY OF DAVAO AND MR. ERWIN ALPARAQUE, IN HIS OFFICIAL CAPACITY AS
ACTING CITY TREASURER OF THE CITY OF DAVAO, PETITIONERS, VS. AP
HOLDINGS, INC., RESPONDENT.
(G.R. No. 245887, January 22, 2020)
LAZARO-JAVIER, J.:

The Case

This Petition for Review on Certiorari assails the Decision dated August 20, 2018 and the
Resolution dated January 23, 2019 of the Court of Tax Appeals En Banc in CTA EB No. 1640
finding respondent AP Holdings, Inc. (APHI) entitled to a refund or credit of the 0.55% local
business taxes it paid to petitioner City of Davao for the dividends it earned from its San
Miguel Corporation (SMC) preferred shares and interests from its money market placements
for the taxable year 2010.

Antecedents

The Coconut Industry Investment Fund (CIIF) under Presidential Decree 582 (PD 582) is a
fund from part of the levy imposed on the initial sale by coconut farmers of copra and other
coconut products. Pursuant to PD 582's mandate, the CIIF was invested in six (6) oil mills,
the CIIF Oil Mills Group (CIIF OMG).

Sometime in 1983, CIIF OMG bought shares of stock from SMC. It also established fourteen
(14) holding companies, one of which is APHI, for the sole purpose of owning and holding
such shares, viz:

PRIMARY PURPOSE

The primary purpose for which such Corporation is formed is:

To purchase, subscribe for, or otherwise acquire and own, hold, use, sell, assign, transfer,
mortgage, pledge, exchange, or otherwise dispose of real and personal property of every
kind and description, including shares of stock, voting trust certificates for shares of the
capital stock, bonds, debentures, notes, evidences of indebtedness, and other securities,
contracts, or obligations of any corporation or corporations, association or associations,
domestic or foreign, and to pay therefor in whole or in part in cash or by exchanging
therefor stocks, bonds, or other evidences of indebtedness or securities, contracts, or
obligation, to receive, collect, and dispose of the interest, dividends and income arising from
such property, and to possess and exercise in respect thereof, all the rights, powers and
privileges of ownership, including all voting powers on any stocks so owned; and to do every
act and thing covered generally by the denomination "holding corporation," and especially
to direct the operations of other corporations through the ownership of stock therein,
provided however that the Corporation shall not act as an investment company or a
securities broker and/or dealer nor exercise the functions of a trust corporation."
(Underscore supplied)

Over time, APHI received cash and stock dividends from its SMC preferred shares. These
dividends were deposited in a trust account which earned interest from money market
placements.

In 1986, APHI's SMC shares were sequestered by the Presidential Commission on Good
Government. Subsequently, cases were filed before this Court questioning the ownership of
the CIIF, CIIF OMG, the fourteen (14) holding companies and the SMC shares held by them.

48
One of these cases was G.R. Nos. 177857-58, entitled "Philippine Coconut Producers
Federation, Inc. v. Republic of the Philippines."

In 2011, petitioner City of Davao, through its City Treasurer, issued a Business Tax Order of
Payment directing APID to pay 0.55% local business tax in the amount of P723,531.50.
Pursuant to Section 69(f) of the 2005 Revenue Code of the City of Davao, the tax was
assessed on the dividends and interests APID earned from its SMC preferred shares and
money market placements, respectively. APHI paid the assessment under protest.
Subsequently, it filed an administrative claim for refund or tax credit with the City Treasurer.
Claiming that the City Treasurer failed to act on the protest, APHI filed a petition for review
with the Regional Trial Court.

Meanwhile, by Decision dated January 24, 2012, this Court in G.R. Nos. 177857-58 declared
the CIIF companies, including APHI and the CIIF block of SMC shares, as public funds or
property necessarily owned by the government.

The Regional Trial Court's Decision

By Decision dated June 22, 2015, the trial court ruled that APHI's primary purpose in its
Amended Articles of Incorporation resembles the definition of a financial intermediary under
Section 4101Q. of the Manual of Regulations for Non-Bank Financial Institutions, and, hence,
taxable under Section 69(f) of the 2005 Revenue Code of the City of Davao, viz:

SECTION 69. Imposition of Tax. - There is hereby imposed on the following persons who
establish, operate, conduct or maintain their respective business within the City a graduated
business tax in the amounts hereafter prescribed:

xxxx

(f) On Banks and Other Financial Institutions, at a rate of fifty-five per cent (55%) of one
percent (1%) of the gross receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from financial leasing, dividends,
rentals on property, and profit from exchange or sale of property, insurance premium. All
other income and receipts not herein enumerated shall be excluded in the computation of
the tax.

APHI moved for reconsideration but was denied under Order dated September 11, 2015.

The Court of Tax Appeals (CTA) Division's Decision

By Decision dated January 30, 2017, the CTA Division affirmed the trial court's decision.
Through Resolution dated April 17, 2017, it denied petitioners' motion for reconsideration.

The Court of Tax Appeals En Banc's Decision

By Decision dated August 20, 2018, the CTA En Banc reversed and declared APHI entitled to
a tax refund or credit. It found that APHI was not a non-bank financial intermediary for the
following reasons:

First, APHI did not fall under the definition of a non-bank financial intermediary under
Section 131 (e) of the Local Government Code (LGC),15 Section 22 (W) of the National

49
Internal Revenue Code (NIRC) of 199716 and Section 4101Q.1 of the Bangko Sentral ng
Pilipinas' (BSP) Manual of Regulations for Non-Bank Financial Institutions.

Second, although APHI's functions, based on its Amended Articles of Incorporation, included
supposed functions of a non-bank financial intermediary, it was not shown that these
functions were its principal purpose.

Third, it was not established that the functions performed by non-bank financial
intermediaries were done by APHI on a regular and recurring basis.

Fourth, there was no evidence showing that APHI held itself out as a non-bank intermediary.

Lastly, APHI belonged to the CIIF block of SMC shares, which were declared to be owned by
the government, thus, any tax imposed upon it is a tax on the government. Under Section
133 (o) of the LGC, local government units cannot tax the National Government.
By Resolution dated January 23, 2019, the CTA En Banc denied petitioners' motion for
reconsideration.

The Present Petition

Petitioners now seek to reverse the CTA En Banc's dispositions. They essentially assert:

a)APHI is deemed a "bank and other financial institution," specifically as a "non-bank

financial intermediary or an investment company" because it owned a substantial number of
shares and received millions of pesos of dividends from its investments.

b)Its business purpose as contained in the Amended Articles of Incorporation is broad

enough to catch all the descriptive functions of a non-bank financial intermediary under
Section 4101Q.1 of the Manual of Regulations for Non-Bank Financial Institutions of the BSP.
Too, the statement in APHI's Articles of Incorporation that it shall not act as an investment
company or securities broker is not conclusive proof that it is not a "bank or other financial
institution." For based on the tax audit and its financial statements, APHI has no other
business except its primary business of stock investment and money market placements
with SMC.

c)The Bureau of Local Government Finance's (BLGF's) opinion on the exemption from local
business taxes is not binding upon the courts since BLGF is not among the quasi-judicial
agencies whose technical findings on questions of fact and law are binding in the courts.

On the other hand, APHI counters in the main:

a)Pursuant to Section 143 (f) of the LGC, petitioners can only collect business taxes on the
dividends and interest income of banks and other financial institutions. Since it is not
engaged in those businesses, its dividends and interest income cannot be subject to local
business taxes.

b)It is not a bank or non-bank financial intermediary considering that it is not engaged in
lending money, investing, reinvesting or trading securities on a regular and recurring basis.
More, it was not required by the Securities and Exchange Commission to secure secondary
license nor was it regulated by the BSP or the Insurance Commission.

c)Mere ownership of shares of stock of SMC does not ipso facto qualify it as a non-bank
financial intermediary.

50
d)It is a holding company. Its Articles of Incorporation expressly prohibits it from acting as a
financial intermediary.

e)APHI, as well as its SMC shares and income derived therefrom are national government
properties which are exempt from local business taxes as declared by the BLGF.

Issue

As a CIIF holding company, is APHI liable to pay local business taxes on its dividend earnings
from its SMC preferred shares?

Ruling

We rule in the negative.

In the recent case of City of Davao, et al. v. Randy Allied Ventures, Inc. (RAVI), the Court
ordained that RAVI, a CIIF holding company like APHI, was exclusively established to own
and hold SMC shares of stock. As such, it is not liable to pay local business taxes on the
dividends earned from its SMC preferred shares as the same shares are government assets
owned by the national government for the benefit of the coconut industry, thus:

In this case, it is clear that RAVI is neither a bank nor other financial institution, i.e., an NBFI.
In order to be considered as an NBFI under the National Internal Revenue Code, banking
laws, and pertinent regulations, the following must concur:

a. The person or entity is authorized by the BSP to perform quasi-banking functions;

b. The principal functions of said person or entity include the lending, investing or placement
of funds or evidences of indebtedness or equity deposited to them, acquired by them, or
otherwise coursed through them, either for their own account or for the account of others;
and

c. The person or entity must perform any of the following functions on a regular and
recurring, not on an isolated basis, to wit:

1. Receive funds from one (1) group of persons, irrespective of number, through traditional
deposits, or issuance of debt or equity securities; and make available/lend these funds to
another person or entity, and in the process acquire debt or equity securities;

2. Use principally the funds received for acquiring various types of debt or equity securities;

3. Borrow against, or lend on, or buy or sell debt or equity securities.

As observed in the COCOFED case, RAVI is a CIIF holding company. The SMC preferred
shares held by it are considered government assets owned by the National Government for
the coconut industry. As held in the same case, these SMC shares as well as any resulting
dividends or increments from said shares are owned by the National Government and shall
be used only for the benefit of the coconut farmers and for the development of the coconut
industry. Thus, RAVI's management of the dividends from the SMC preferred shares,
including placing the same in a trust account yielding interest, is not tantamount to doing
business whether as a bank or other financial institution, i.e., an NBFI, but rather an activity
that is essential to its nature as a CIIF holding company.

51
Verily, therefore, CIIF holding companies, including APHI itself and the entire CIIF block of
SMC shares, are public assets owned by the Republic of the Philippines. Consequently,
dividends and any income from these shares are also owned by the Republic. On this score,
APHI cannot be considered as a non-bank financial intermediary since its investment and
placement of funds are not done in a regular or recurring manner for the purpose of earning
profit. Rather, its management of dividends from the SMC shares is only in furtherance of its
purpose as a CIIF holding company for the benefit of the Republic.

All told, the City of Davao acted beyond its taxing authority when it imposed the questioned
business tax on APHI.

ACCORDINGLY, the petition is DENIED. The Decision dated August 20, 2018 and Resolution
dated January 23, 2019 of the Court of Tax Appeals En Banc in CTA EB No. 1640
are AFFIRMED.

SO ORDERED.

Peralta, C. J., Caguioa, J. Reyes, Jr., and Lopez, JJ., concur.

52