20. CIR V SC JOHNSON INC. June 25, 1999

Facts:Respondent is a domestic corporation organized and operating under the Philippine Laws, entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA pursuant to which the respondent was granted the right to use the trademark, patents and technology owned by the later including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son USA. For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which respondent paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00. On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending respondents case fall squarely within the same circumstances under which said MacGeorge and Gillette rulings were issued. Since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May 1993. On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax credit certificate in the amount of P163,266.00 representing overpaid withholding tax on royalty payments beginning July 1992 to May 1993. The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.

Issue: Whether or not tax refunds are considered as tax exemptions.

Held: It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of the

alleged overpayment of tax on royalties; however there is nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

Case 21: City of Manila v. Coca-Cola Bottlers Philippines, Inc.Petitioner City of Manila is a public corporation empowered to

collect and assess business taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the City of Manila.

Facts: Prior to 25 February 2000, respondent had been paying the City

of Manila local business tax only under Section 14 of Tax Ordinance No. 7794 (tax on Manufacturers), being expressly exempted from the business tax under Section 21 (applies to businesses subject to the Excise, Value-added or Percentage Taxes of the NIRC) of the same tax ordinance.

Petitioner City of Manila subsequently approved Tax Ordinance No. 7988, amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which stated that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof.

The amending ordinance was later declared by the Supreme Court as null and void in the case Coca-cola Bottlers Philippines, Inc. v. City of Manila. However, before the Court could declare the said ordinance null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest. Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to double taxation, as respondent was taxed twice. Petitioner Toledo did not respond to the protest of respondent.

The RTC ruled in favor of the respondent and the decision was received by petitioner on April 20, 2007.

On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for 150-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the petition.

Issues:1.WON petitioners substantially complied with the reglementary period to timely appeal the case for review before the CTA division.

2.WON the ruling of this court in the earlier (Coca-cola case) is doctrinal and controlling in the instant case and petitioner city of Manila can still assess taxes under section 14 and 21 of Tax Ordinance No. 7794, amended.

3.WON the enforcement of Section 21 of the Tax Ordinance No. 7794, as amended constitutes double taxation.

Ruling:

1.NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007, they were able to comply with the period for filing such a petition.   

2.Coca-Cola case is applicable to the instant case. By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that all registered business in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. The aforementioned tax referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that are already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.

The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already paying the local business tax under Section 14 of the same ordinance.

3.YES. Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice by the same jurisdiction for the same thing.  It is obnoxious when the taxpayer is taxed twice, when it should be but once.  Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise specified in preceding paragraphs. In the same way, businesses such as respondents, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].

22. CIR vs. Estate of Benigno Toda; Tax EvasionG.R. No. 147188. September 14, 2004Facts: Cibeles Insurance Corporation authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million.

Toda purportedly sold the property for P100 million to Rafael A. Altonaga. However, Altonaga in turn, sold the same property on the same day to Royal Match Inc. for P200 million. These two transactions were

evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to Royal Dutch, Altonaga paid capital gains tax [6%] in the amount of P10 million.

Issue: Whether or not the scheme employed by Cibelis Insurance Company constitutes tax evasion.

Ruling:Yes! The scheme, explained the Court, resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.

Fraud in its general sense “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another.”

It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes, constitutes one of tax evasion.

Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by

using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI.

23. ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

Facts:Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila.On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title.On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.On April 23, 1981, the lower court rendered a decision judgment is hereby rendered dismissing the amended complaint and ordering:(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel of land including the improvements thereon.The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Issue:1. Won intermediate appellate court committed a grave error of law in not holding petitioner's obligation to pay p2,400.00 for supposed tax delinquency was set-off by the amount of p4,116.00 which the government is indebted to the former.2. Won petitioner was properly and duly notified that an auction sale of his property was to take place on december 5, 1977 to satisfy an alleged tax delinquency of p2,400.00.3. The price of p2,400.00 paid by respontdent ho fernandez was grossly inadequate as to shock one's conscience amounting to fraud and a deprivation of property without due process of law, and consequently, the auction sale made thereof is void.

Ruling:1. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977.There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished. The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;xxx xxx xxx(3) that the two debts be due. xxx xxx xxxThis principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that:A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or

transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction.2. [T]he plaintiff insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed.Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force.3. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption.

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable.WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed.

24. MELECIO R. DOMINGO, CIR vs. HON. LORENZO C. GARLITOS as CFI judge of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents.

FACTS: In a prior case of Domingo vs. Moscoso, the Supreme Court declared as final and executor the order of the lower court for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by the estate of the late Walter Price, which was under the administration of the latter’s wife, Simeona Price. In pursuance to such order, the fiscal then filed a petition for execution; however such petition was denied by the lower court presided by Judge Garlitos. The latter held that the execution is unjustified as the Government is indebted to the estate for Php 262,200, as payment for the cadastral survey of Leyte performed by Price. He ordered instead that the amount of inheritance taxes can be deducted from the Government’s indebtedness to the estate based on the provisions of Articles 1279 and 1290 of the Civil Code; that both the government and the estate are at the same time creditors of the other. Thus, both debts are to be extinguished to the concurrent amount in accordance with law. Hence, this petition for certiorari and mandamus against Judge Garlitos, seeking to annul certain orders of the lower court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes.

ISSUE: Whether or not a tax and a debt may be compensated.

RULING: The court having jurisdiction of the Estate had found that the claim of the Estate against the government has been recognized and the amount has already been appropriated by a corresponding law, Rep. Act No. 2700. Both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation takes place by operation of law and both debts are extinguished to the concurrent amount. Therefore the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Price.

25. Diaz vs. Secretary of Finance (G.R. No. 193007, July 19, 2011)

Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of toll way operators. Court treated the case as one of prohibition.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution.

The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including toll way operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on toll way operations

has been the subject as early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limitthe State's sovereign taxing power which is generally read into contracts.

Issue: May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is subject to VAT)?

Ruling: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section108 who allow others to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state.

A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

26. Plaridel M. Abaya vs. Hon. Secretary Hermogenes E. Ebdane, Jr.

Facts:The Government of Japan and the Government of the Philippines,

through their respective representatives, namely, Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of Japan to the Republic

of the Philippines, and then Secretary of Foreign Affairs Domingo L. Siazon, have reached an understanding concerning Japanese loans to be extended to the Philippines. These loans were aimed at promoting our country’s economic stabilization and development efforts.

The petitioners, Plaridel M. Abaya claims that he filed the instant petition as a taxpayer, former lawmaker, and a Filipino citizen, and Plaridel C. Garcia likewise claims that he filed the suit as a taxpayer, former military officer, and a Filipino citizen. They had assailed the resolution recommending the award to private respondent China Road & Bridge Corporation of the contract for the implementation of civil works for Contract Package No. I (CP I), which consists of the improvement/rehabilitation of the San Andres (Codon)-Virac-Jct. Bago-Viga road, with the length of 79.818 kilometers, in the island province of Catanduanes. The DPWH caused the publication of the “Invitation to Prequalify and to Bid” for the implementation of the CP I project, in two leading national newspapers, namely, the Manila Times and Manila Standard on November 22 and 29, and December 5, 2002.

A total of twenty-three (23) foreign and local contractors responded to the invitation by submitting their accomplished prequalification documents on January 23, 2003. In accordance with the established prequalification criteria, eight contractors were evaluated or considered eligible to bid as concurred by the JBIC. Prior to the opening of the respective bid proposals, it was announced that the Approved Budget for the Contract (ABC) was in the amount of P738,710,563.67.

The bid goes to private respondent China Road & Bridge Corporation was corrected from the original P993,183,904.98 (with variance of 34.45% from the ABC) to P952,564,821.71 (with variance of 28.95% from the ABC) based on their letter clarification dated April 21, 2004.

Petitioner’s Contention: a.) contends that the award of the contract to private respondent China Road & Bridge Corporation violates RA 9184, particularly Section 31 thereof which reads:

SEC. 31. Ceiling for Bid Prices. – The ABC shall be the upper limit or ceiling for the Bid prices. Bid prices that exceed this ceiling shall be disqualified outright from further participating in the bidding. There shall be no lower limit to the amount of the award.

b.) insists that Loan Agreement is neither an international nor an executive agreement that would bar the application of RA 9184.--- They point out that to be considered a treaty, an international or an executive agreement, the parties must be two sovereigns or States

whereas in the case of Loan Agreement No. PH-P204, the parties are the Philippine Government and the JBIC, a banking agency of Japan, which has a separate juridical personality from the Japanese Government.

The respondents however contend that foreign loan agreements, including Loan Agreement No. PH-P204, as executive agreements and, as such, should be observed pursuant to the fundamental principle in international law of pacta sunt servanda. The Constitution, the public respondents emphasize, recognizes the enforceability of executive agreements in the same way that it recognizes generally accepted principles of international law as forming part of the law of the land.34 This recognition allegedly buttresses the binding effect of executive agreements to which the Philippine Government is a signatory. It is pointed out by the public respondents that executive agreements are essentially contracts governing the rights and obligations of the parties. A contract, being the law between the parties, must be faithfully adhered to by them. Guided by the fundamental rule of pacta sunt servanda, the Philippine Government bound itself to perform in good faith its duties and obligations under Loan Agreement.

Issues:1. Whether or not the the loan agreement violates RA 9184.2. Has petitioners as taxpayers the legal standing to file the instant

case against the government?Ruling:

1.) The court ruled in favor of the respondents.Significantly, an exchange of notes is considered a form of an

executive agreement, which becomes binding through executive action without the need of a vote by the Senate or Congress. executive agreements, They sometimes take the form of exchange of notes and at other times that of more formal documents denominated “agreements” or “protocols”.

The fundamental principle of international law of pacta sunt servanda, which is, in fact, embodied in Section 4 of RA 9184 as it provides that “[a]ny treaty or international or executive agreement affecting the subject matter of this Act to which the Philippine government is a signatory shall be observed,” the DPWH, as the executing agency of the projects financed by Loan Agreement No. PH-P204, rightfully awarded the contract for the implementation of civil works for the CP I project to private respondent China Road & Bridge Corporation.

2.) Petitioners, as taxpayers, possess locus standi to file the present suit. Briefly stated, locus standi is a right of appearance in a court of justice on a given question. More particularly, it is a party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as

a result of the governmental act being challenged.  Locus standi, however, is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance on locus standi, including those cases involving taxpayers.    The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government- owned or controlled corporations allegedly in contravention of law. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity.

27. Gonzales vs. MarcosGR No. L-31685 July 31, 1975Facts:

Petitioner questioned the validity of EO No. 30 for benefit of the Filipino people under the name and style of the Cultural Center of the Philippines entrusted with the task to construct a national theatre, a national music hall, an arts building and facilities, to awaken our people's consciousness in the nation's cultural heritage and to encourage its assistance in the preservation, promotion, enhancement and development thereof, with the Board of Trustees to be appointed by the President, the Center having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future. Intended for the construction of the Cultural Center building estimated to cost P48 million.

Petitioner’s contention:EO No. 30 was invalid for it is impermissible encroachment by the

President of the Philippines on the legislative prerogative

Defendant’s contention:Petitioner did not have the requisite personality to contest as a

taxpayer the validity of the executive order in question, as the funds held

by the Cultural Center came from donations and contributions, not one centavo being raised by taxation

Trial Court’s ruling:Petition was dismissed and the lower court stressed that the

funds administered by the Center came from donations and contributions, not by taxation.

Issue:WON petitioner can validly question EO 30 under a taxpayer’s

suit?

Held:A suit filed a taxpayer questioning the validity of an Executive

Order creating a trust, the funds of which came from donations and contributions and not from taxation, fails to satisfy the elemental requisite for a taxpayer's suit. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary interest."

The Presidential alone cannot and need not personally handle the duties of a trustee for and in behalf of the Filipino people in relation with the trust in establishing the Cultural Center of the Philippines as the instrumentality to carry out the agreement between the Republic of the Philippines and the United States as to the use of a special fund coming from the latter for a Philippine Cultural development project. He can, through an executive order, set up a group of persons who would receive and administer the trust estate responsible to him.

Public funds that accrued by way of donation from the United States and financial contributions for the Cultural Center project could be legally considered as "governmental property." They may be acquired under the concept of dominium , the State as a person in law not being deprived of such an attribute, thereafter to be administered by virtue of its prerogative of imperium , through the Executive, the department precisely entrusted with management functions.

The passage of Presidential Decree No. 15 on October 15, 1972 creating the Cultural Center superseding Executive Order No. 30, rendered moot and academic the issue whether the creation of trust fund by executive order constitutes an encroachment by the President on the legislative prerogative. The institution known as the Cultural Center is

other than that assailed in the instant case. In that sense a coup de grace was administered to this proceeding.

28. Liwayway Vinzons-Chato v. Fortune Tobacco G.R. No. 141309On June 10, 1993, the legislature enacted Republic Act No. 7654

(RA 7654), which took effect on July 3, 1993.  Prior to its effectivity, cigarette brands ‘Champion,” “Hope,” and “More” were considered local brands subjected to an ad valorem tax at the rate of 20-45%.  However, on July 1, 1993, or two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying “Champion,” “Hope,” and “More” as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax.  RMC 37-93 in effect subjected “Hope,” “More,” and “Champion” cigarettes to the provisions of RA 7654, specifically, to Sec. 142, (c)(1) on locally manufactured cigarettes which are currently classified and taxed at 55%, and which imposes an ad valorem tax of “55% provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.” On August 3, 1993, respondent filed a petition for review with the Court of Tax Appeals (CTA), which on September 30, 1993, issued an injunction enjoining the implementation of   RMC 37-93. In its decision dated August 10, 1994, the CTA ruled that RMC 37-93 is defective, invalid, and unenforceable and further enjoined petitioner from collecting the deficiency tax assessment issued pursuant to RMC No. 37-93.  This ruling was affirmed by the Court of Appeals, and finally by this Court in Commissioner of Internal Revenue v. Court of Appeals.  It was held, among others, that RMC 37-93, has fallen short of the requirements for a valid administrative issuance. (waah admin law here! )  On April 10, 1997, respondent filed before the RTC a complaint for damages against petitioner in her private capacity.  Respondent contended that the latter should be held liable for damages under Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its constitutional right against deprivation of property without due process of law and the right to equal protection of the laws.

Issue:WON Liwayway, as a public officer, can be held liable

Held:No.

          It is a fundamental principle in the law of public officers that a duty owing to the public in general cannot give rise to a liability in favor of particular individuals.[1]  The failure to perform a public duty can constitute an individual wrong only when a person can show that, in the public duty, a duty to himself as an individual is also involved, and that he has

suffered a special and peculiar injury by reason of its improper performance or non-performance.[2]

 Thus, the rule restated is that an individual cannot have a particular action against a public officer without a particular injury, or a particular right, which are the grounds upon which all actions are founded.[18]

          Juxtaposed with Article 32[19] of the Civil Code, the principle may now translate into the rule that an individual can hold a public officer personally liable for damages on account of an act or omission that violates a constitutional right only if it results in a particular wrong or injury to the former.   In the instant case, what is involved is a public officer’s duty owing to the public in general. But it is a duty owed not to the respondent alone, but to the entire body politic who would be affected, directly or indirectly, by the administrative rule. Furthermore, as discussed above, to have a cause of action for damages against the petitioner, respondent must allege that it suffered a particular or special injury on account of the non-performance by petitioner of the public duty.  A careful reading of the complaint filed with the trial court reveals that no particular injury is alleged to have been sustained by the respondent.   In contrast, the facts of the case eloquently demonstrate that the petitioner took nothing from the respondent, as the latter did not pay a single centavo on the tax assessment levied by the former by virtue of RMC 37-93.         The complaint in this case does not impute bad faith on the petitioner. Without any allegation of bad faith, the cause of action in the respondent’s complaint (specifically, paragraph 2.02 thereof) for damages under Article 32 of the Civil Code would be premised on the findings of this Court in Commissioner of Internal Revenue v. Court of Appeals (CIR v. CA),[33]  where we ruled that RMC No. 37-93, issued by petitioner in her capacity as Commissioner of Internal Revenue, had “fallen short of a valid and effective administrative issuance.”  But this does not mean that such lehislative action was unconstitutional.  Furthermore, in an action for damages under Article 32 of the Civil Code premised on violation of due process, it may be necessary to harmonize the Civil Code provision with subsequent legislative enactments, particularly those related to taxation and tax collection.  Judicial notice may be taken of the provisions of the National Internal Revenue Code, as amended, and of the law creating the Court of Tax Appeals.  Both statutes provide ample remedies to aggrieved taxpayers; remedies which, in fact, were availed of by the respondent—without even having to pay the assessment under protest—

 The availability of the remedies against the assailed administrative action, the opportunity to avail of the same, and actual recourse to these remedies, contradict the respondent’s claim of due process infringement.   Because the respondent’s complaint does not impute negligence or bad faith to the petitioner, any money judgment by the trial court against her will have to be assumed by the Republic of the Philippines. As such, the complaint is in the nature of a suit against the State.[46]

Court ruled in favor of CIR. The civil case pending in the RTC was ordered dismissed.