compiled cases- doctrines in taxation

7/27/2019 Compiled Cases- Doctrines in Taxation

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D. CERTAIN DOCTRINE IN TAXATION

[G.R. No. 151899. August 16, 2005.]

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,

INC., petitioner, vs. PROVINCE OF LAGUNA and MANUEL E.LEYCANO, JR., in his capacity as the Provincial Treasurer of

the Province of Laguna, respondents.

Estelito P. Mendoza for petitioner.

Antonio P. Relova for respondents.

SYLLABUS

1.POLITICAL LAW; LOCAL GOVERNMENTS; LOCAL TAXES; FRANCHISE

TAX; REPUBLIC ACT NO. 7925, SECTION 23 THEREOF; CONSTRUED; CASE AT

BAR. In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod, et al., this

Court has interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23

does not operate to exempt PLDT from the payment of franchise tax. We quote what we

have said in Davao and reiterated in Bacolod. In sum, it does not appear that, in

approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax

exemption to all telecommunications entities. Applying the rule of strict construction oflaws granting tax exemptions and the rule that doubts should be resolved in favor of

municipal corporations in interpreting statutory provisions on municipal taxing powers,

we hold that 23 of R.A. No. 7925 cannot be considered as having amended petitioner's

franchise so as to entitle it to exemption from the imposition of local franchise taxes.

Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount

of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it

is not entitled to a refund of taxes paid by it for the period covering the first to the third

quarter of 1998.

2.ID.; ID.; ID.; ID.; ID.; TAX EXEMPTION GRANTED TO GLOBE AND SMARTDOES NOT APPLY TO ALL TELECOMMUNICATION ENTITIES. As

before, PLDTargues that because Smart Communications, Inc. (SMART) and Globe

Telecom (GLOBE) under whose respective franchises granted after the effectivity of the

Local Government Code, are exempt from franchise tax, it follows that petitioner is

likewise exempt from the franchise tax sought to be collected by the Province of Laguna,

on the reasoning that the grant of tax exemption to SMART and GLOBE ipso factoapplies to PLDT, consistent with the "most-favored-treatment" clause found in Section 23


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of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).

Again, there is nothing novel in petitioner's contention. For sure, in Davao, this Court

even adverted to PLDT's similar argument therein, thus: Finally, if [PLDT] argues that

because Smart and Globe are exempt from the franchise tax, it follows that it must

likewise be exempt from the tax being collected by the City of Davao because the grant

of tax exemption to Smart and Globe ipso facto extended the same exemption to it, whichargument this Court rejected in said case in the following wise: The acceptance of

petitioner's theory would result in absurd consequences. To illustrate: In its franchise,

Globe is required to pay a franchise tax of only one and one-half percentum (1/2% [sic])

of all gross receipts from its transactions while Smart is required to pay a tax of three

percent (3%) on all gross receipts from business transacted. Petitioner's theory would

require that, to level the playing field, any "advantage, favor, privilege, exemption, or

immunity" granted to Globe must be extended to all telecommunications companies,

including Smart. If, later, Congress again grants a franchise to another

telecommunications company imposing, say, one percent (1%) franchise tax, then all

other telecommunications franchises will have to be adjusted to "level the playing field"so to speak. This could not have been the intent of Congress in enacting Section 23 of

Rep. Act 7925. Petitioner's theory will leave the Government with the burden of having

to keep track of all granted telecommunications franchises, lest some companies betreated unequally. It is different if Congress enacts a law specifically granting uniform

advantages, favor, privilege, exemption or immunity to all telecommunications entities.

3.ID.; ID.; ID.; ID.; DOES NOT REFER TO TAX EXEMPTION BUT ONLY TO

EXEMPTION FROM CERTAIN REGULATIONS AND REQUIREMENTS IMPOSED

BY THE NATIONAL TELECOMMUNICATIONS COMMISSION.

On PLDT's motion for reconsideration in Davao, the Court added in its en bancResolution of March 25, 2003, that even as it is a state policy to promote a level playing

field in the communications industry, Section 23 of Rep. Act No. 7925 does not refer to

tax exemption but only to exemption from certain regulations and requirements imposed

by the National Telecommunications Commission: . . . . The records of Congress are

bereft of any discussion or even mention of tax exemption. To the contrary, what the

Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his

sponsorship of H.B. No. 14028, which became R.A. No. 7925, were 'equal access clauses'

in interconnection agreements, not tax exemptions. He said: There is also a need to

promote a level playing field in the telecommunications industry. New entities must be

granted protection against dominant carriers through the encouragement of equitable

access charges and equal access clauses in interconnection agreements and the strict

policing of predatory pricing by dominant carriers. Equal access should be granted to all

operators connecting into the interexchange network. There should be no discrimination

against any carrier in terms of priorities and/or quality of services. Nor does the term

'exemption' in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption

from certain regulations and requirements imposed by the National Telecommunications

Commission (NTC). For instance, R.A. No. 7925, 17 provides: 'The Commission shall


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exempt any specific telecommunications service from its rate or tariff regulations if the

service has sufficient competition to ensure fair and reasonable rates or tariffs.' Another

exemption granted by the law in line with its policy of deregulation is the exemption

from the requirement of securing permits from the NTC every time a telecommunications

company imports equipment.

4.ID.; ID.; ID.; ID.; ID.; RULE THAT TAX EXEMPTION SHOULD BE APPLIED IN

STRICTISSIMI JURIS AGAINST THE TAXPAYER AND LIBERALLY IN FAVOROF THE GOVERNMENT APPLIES EQUALLY TO TAX EXCLUSIONS.

PLDT's third assigned error has likewise been squarely addressed in the same en banc

Resolution, when the Court rejected PLDT's contention that the "in-lieu-of-all-taxes"

clause does not refer to "tax exemption" but to "tax exclusion" and hence, the strictissimi

juris rule does not apply. The en banc explains that these two terms actually mean the

same thing, such that the rule that tax exemption should be applied in strictissimi jurisagainst the taxpayer and liberally in favor of the government applies equally to tax

exclusions: Indeed, both in their nature and in their effect there is no difference betweentax exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom

from a charge or burden to which others are subjected. Exclusion, on the other hand, is

the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from

gross income and allowable deductions. Exclusion is thus also an immunity or privilegewhich frees a taxpayer from a charge to which others are subjected. Consequently, the

rule that tax exemption should be applied in strictissimi juris against the taxpayer and

liberally in favor of the government applies equally to tax exclusions. To construe

otherwise the 'in lieu of all taxes' provision invoked is to be inconsistent with the theory

that R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globe and

Smart.

5.ID.; ID.; ID.; ID.; INTERPRETATION THEREOF IS A LEGAL QUESTION NOT

WITHIN THE EXPERTISE OF THE BUREAU OF LOCAL GOVERNMENT

FINANCE TO DETERMINE. As in Davao, PLDT presently faults the trial court for

not giving weight to the ruling of the BLGF which, to petitioner's mind, is anadministrative agency with technical expertise and mastery over the specialized matters

assigned to it. Again, to quote from our ruling in Davao: To be sure, the BLGF is not an

administrative agency whose findings on questions of fact are given weight and deference

in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a

highly specialized court which performs judicial functions as it was created for the

review of tax cases. In contrast, the BLGF was created merely to provide consultativeservices and technical assistance to local governments and the general public on local

taxation, real property assessment, and other related matters, among others. The question

raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925.

There is, therefore, no basis for claiming expertise for the BLGF that administrative

agencies are said to possess in their respective fields.


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D E C I S I O N

GARCIA, Jp:

Twice, this Court has denied the earlier plea of petitioner Philippine Long DistanceCompany, Inc. (PLDT) to be adjudged exempt from the payment of franchise tax

assessed against it by local government units. The first was in the 2001 case ofPLDT vs.

City of Davao1and the second, in the very recent case ofPLDT vs. City of Bacolod, et

al.2. Indeed, no less than the Court en banc, in its Resolution of March 25, 2003 3,

denied PLDT's motion for reconsideration in Davao. In both cases, the Court in effect

ruled that the desired relief is not legally feasible.

No less than PLDT's third, albeit this time involving the Province of Laguna, the instant

similar petition for review on certiorari under Rule 45 of the Rules of Court seeks the

reversal of the decision dated 28 November 2001 4of the Regional Trial Court at Laguna,dismissing PLDT's petition in its Civil Case No. SC-3953, an action for refund offranchise tax.

Except for inconsequential factual details which understandably vary from the first two

(2) PLDT cases, the legal landscape is practically the same:

PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to renderlocal and international telecommunications services. On August 24, 1991, the terms and

conditions of its franchise were consolidated under Republic Act No. 7082, 5Section 12

of which embodies the so-called "in-lieu-of-all taxes" clause, whereunder PLDT shall paya franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise

tax shall be "in lieu of all taxes". More specifically, the provision pertinently reads:

SEC. 12.. . . In addition thereto, the grantee, its successors or assigns shall pay afranchise tax equivalent to three percent (3%) of all gross receipts of the

telephone or other telecommunications businesses transacted under this

franchise by the grantee, its successors or assigns, and the said percentage shallbe in lieu of all taxes on this franchise or earnings thereof: . . . (Italics ours).

Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as

theLocal GovernmentCode, took effect. Section 137 of the Code, in relation to Section151 thereof, grants provinces and other local government units the power to impose local

franchise tax on businesses enjoying a franchise, thus:

SEC. 137.Franchise Tax. Notwithstanding any exemption granted by any

law or other special law, the province may impose a tax on businesses enjoyinga franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of
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the gross annual receipts for the preceding calendar year based on the incoming

receipt, or realized, within its territorial jurisdiction.

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all

persons, whether natural or juridical, save those expressly mentioned therein, were

withdrawn, necessarily including those taxes from which PLDT is exempted under the"in-lieu-of-all taxes" clause in its charter. We quote Section 193: IDCcEa

SEC. 193.Withdrawal of Tax Exemption Privileges. Unless otherwiseprovided in this Code, tax exemptions or incentives granted to, or presently

enjoyed by all persons, whether natural or juridical, including government-

owned or controlled corporations, except local water districts, cooperatives dulyregistered under R.A. 6938, non-stock and non-profit hospitals and educational

institutions, are hereby withdrawn upon the effectivity of this Code.

Invoking its authority under Section 137,supra, of theLocal Government Code,

the Province of Laguna, through its local legislative assembly, enacted ProvincialOrdinance No. 01-92, made effective January 1, 1993, imposing a franchise tax upon allbusinesses enjoying a franchise, PLDT included.

On January 28, 1998, PLDT, in compliance with the aforementioned Ordinance, paid

the Province of Laguna its local franchise tax liability for the year 1998 in the amount of

One Million Eighty-One Thousand Two Hundred Twelve and 10/100 Pesos

(P1,081,212.10).

Prior thereto, Congress, aiming to level the playing field among telecommunication

companies, enacted Republic Act No. 7925, otherwise known as thePublicTelecommunications Policy Act of the Philippines, which took effect on March 16, 1995.

To achieve the legislative intent, Section 23 thereof, also known as the "most-favored

treatment" clause, provides for an equality of treatment in the telecommunicationsindustry, to wit:

SEC. 23.Equality of Treatment in the Telecommunications Industry Any

advantage, favor, privilege, exemption, or immunity granted under existingfranchises, or may hereafter be granted, shall ipso facto become part of

previously granted telecommunications franchises and shall be accorded

immediately and unconditionally to the grantees of such franchises:Provided,

however, That the foregoing shall neither apply to nor affect provisions oftelecommunications franchises concerning territory covered by the franchise,

the life span of the franchise, or the type of the service authorized by thefranchise.

Then, on June 2, 1998, the Department of Finance, thru its Bureau of Local GovernmentFinance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity

date of thePublic Telecommunications Policy Act of the Philippines, 6PLDT, among
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other telecommunication companies, became exempt from local franchise tax.

Pertinently, the BLGF ruling reads:

It appears that RA 7082 further amending Act No. 3436 which grantedto PLDT a franchise to install, operate and maintain a telephone system

throughout the Philippine Islands was approved on August 3, 1991. Section 12of said franchise, likewise contains the 'in lieu of all taxes' proviso.

In this connection, Section 23 of RA 7929, quoted hereunder, which wasapproved on March 1, 1995 provides for the equality of treatment in the

telecommunications industry:

xxx xxx xxx

On the basis of the aforequoted Section 23 of RA 7925, PLDT as atelecommunications franchise holder becomes automatically covered by the tax

exemption provisions of RA 7925, which took effect on March 16, 1995.

Accordingly, PLDT shall be exempt from the payment of franchise and business

taxes imposable by LGUs under Sections 137 and 143, respectively of the LGC[Local Government Code], upon the effectivity of RA 7925 on March 16, 1995.

However, PLDT shall be liable to pay the franchise and business taxes on its

gross receipts realized from January 1, 1992 up to March 15, 1995, during

which period PLDT was not enjoying the 'most favored clause' provision of RA7025 [sic].

On the basis of the aforequoted ruling, PLDT refused to pay the Province of Laguna its

local franchise tax liability for 1999. And, on December 22, 1999, it even filed with theOffice of the Provincial Treasurer a written claim for refund of the amount it paid as localfranchise tax for 1998.

With no refund having been made, PLDT instituted with the Regional Trial Court

at Laguna a petition therefor against the Province and its Provincial Treasurer, which

petition was thereat docketed as Civil Case No. SC-3953.

In its decision of November 28, 2001, the trial court denied PLDT's petition, thus:

WHEREFORE, the petition is denied. Petitioner PLDT is not exempt from

paying local franchise and business taxes to the Respondent Province. Refund

is denied. For failure to substantiate the claim for exemplary damages and

attorneys fees, the same is likewise denied.

SO ORDERED.

Hence, this recourse by PLDT, faulting the trial court, as follows:


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5.01.a.THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER

PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED

AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925,TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM

INC., (GLOBE) (REPUBLIC ACT NO. 7229) AND SMART

COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO. 7294), WHICHARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO

THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAXES MAY BE

IMPOSED ON PETITIONER BY RESPONDENT PROVINCE.

5.01.b.THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION137 OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS

RESPONDENTPROVINCE TO IMPOSE THE FRANCHISE TAX, AND

SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OFTAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE IN THIS CASE.

5.01.c.THE LOWER COURT ERRED IN APPLYING PRINCIPLES OFSTATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE

DISFAVORED AND IN HOLDING THAT SECTION 23 OF REPUBLICACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT) DOES

NOT SUPPORT PETITIONER'S POSITION IN THIS CASE.

5.01.d.THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE

RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAUOF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT

FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES

IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL

GOVERNMENT CODE.

5.01.e.THE LOWER COURT ERRED IN NOT GRANTING PETITIONER'S

CLAIM FOR TAX REFUND.

5.01.f.THE LOWER COURT ERRED IN DENYING THE PETITION

BELOW.

We note, quite interestingly, that except for the particular local government unitsinvolved in the earlier case ofPLDT vs. City of Davao7and the very recent case

ofPLDT vs. City of Bacolod, et al., 8the arguments presently advanced by petitioner on

the issues raised herein are but a mere reiteration if not repetition of the very samearguments it has already raised in the two (2) earlier PLDT cases. For sure, the errors

presently assigned are substantially the same as those inDavao and inBacolod, all of

which have been adequately addressed and passed upon by this Court in its decisionstherein as well as in its en banc Resolution inDavao.
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InPLDT vs. City of Davao, and again inPLDT vs. City of Bacolod, et al., this Court has

interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not

operate to exempt PLDT from the payment of franchise tax. We quote what we have said

inDavao and reiterated inBacolod.

In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congressintended it to operate as a blanket tax exemption to all telecommunicationsentities. Applying the rule of strict construction of laws granting tax exemptions

and the rule that doubts should be resolved in favor of municipal corporations in

interpreting statutory provisions on municipal taxing powers, we hold that 23

of R.A. No. 7925 cannot be considered as having amended petitioner's franchiseso as to entitle it to exemption from the imposition of local franchise taxes.

Consequently, we hold that petitioner is liable to pay local franchise taxes in the

amount of P3,681,985.72 for the period covering the first to the fourth quarterof 1999 and that it is not entitled to a refund of taxes paid by it for the period

covering the first to the third quarter of 1998.9

The Court explains further:

To begin with, tax exemptions are highly disfavored. The reason for this wasexplained by this Court inAsiatic Petroleum Co. v. Llanes, in which it was held:

. . . Exemptions from taxation are highly disfavored, so much so that they may

almost be said to be odious to the law. He who claims an exemption must be

able to point to some positive provision of law creating the right. . . As was saidby the Supreme Court of Tennessee inMemphis vs. U. & P. Bank(91 Tenn.,

546, 550), 'The right of taxation is inherent in the State. It is a prerogative

essential to the perpetuity of the government; and he who claims an exemptionfrom the common burden must justify his claim by the clearest grant of organic

or statute law.' Other utterances equally or more emphatic come readily to hand

from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt(16Howard, 416), it was said by Chief Justice Taney, that the right of taxation will

not be held to have been surrendered, 'unless the intention to surrender is

manifested by words too plain to be mistaken.' In the case of the Delaware

Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States

said that the surrender, when claimed, must be shown by clear, unambiguous

language, which will admit of no reasonable construction consistent with the

reservation of the power. If a doubt arises as to the intent of the legislature, that

doubt must be solved in favor of the State. InErie Railway Company vs.Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt,

speaking of exemptions, observed that a State cannot strip itself of the mostessential power of taxation by doubtful words. 'It cannot, by ambiguous

language, be deprived of this highest attribute of sovereignty.' In Tennessee vs.

Whitworth (117 U.S., 129, 136), it was said: 'In all cases of this kind thequestion is as to the intent of the legislature, the presumption always being

against any surrender of the taxing power.' InFarrington vs. Tennessee and


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County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: '. . . When

exemption is claimed, it must be shown indubitably to exist. At the outset, every

presumption is against it. A well-founded doubt is fatal to the claim. It is onlywhen the terms of the concession are too explicit to admit fairly of any other

construction that the proposition can be supported.'

The tax exemption must be expressed in the statute in clear language that leaves

no doubt of the intention of the legislature to grant such exemption. And, even ifit is granted, the exemption must be interpreted instrictissimi juris against the

taxpayer and liberally in favor of the taxing authority.

xxx xxx xxx

The fact is that the term 'exemption' in 23 is too general. A cardinal rule instatutory construction is that legislative intent must be ascertained from a

consideration of the statute as a whole and not merely of a particular provision.

For, taken in the abstract, a word or phrase might easily convey a meaningwhich is different from the one actually intended. A general provision may

actually have a limited application if read together with other provisions. Hence,

a consideration of the law itself in its entirety and the proceedings of both

Houses of Congress is in order.

xxx xxx xxx

R.A. No. 7925 is thus a legislative enactment designed to set the national policy

on telecommunications and provide the structures to implement it to keep up

with the technological advances in the industry and the needs of the public. The

thrust of the law is to promote gradually the deregulation of the entry, pricing,and operations of all public telecommunications entities and thus promote a

level playing field in the telecommunications industry. There is nothing in thelanguage of 23 nor in the proceedings of both the House of Representatives

and the Senate in enacting R.A. No. 7925 which shows that it contemplates the

grant of tax exemptions to all telecommunications entities, including those

whose exemptions had been withdrawn by the LGC.

What this Court said inAsiatic Petroleum Co. v. Llanes applies mutatis

mutandis to this case: 'When exemption is claimed, it must be shown

indubitably to exist. At the outset, every presumption is against it. A well-

founded doubt is fatal to the claim. It is only when the terms of the concessionare too explicit to admit fairly of any other construction that the proposition can

be supported.' In this case, the word 'exemption' in 23 of R.A. No. 7925 could

contemplate exemption from certain regulatory or reporting requirements,bearing in mind the policy of the law. It is noteworthy that, in holding Smart

and Globe exempt from local taxes, the BLGF did not base its opinion on 23

but on the fact that the franchises granted to them after the effectivity of theLGC exempted them from the payment of local franchise and business taxes.


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As before, PLDT argues that because Smart Communications, Inc. (SMART) and Globe

Telecom (GLOBE) under whose respective franchises granted after the effectivity of

theLocal Government Code, are exempt from franchise tax, it follows that petitioner is

likewise exempt from the franchise tax sought to be collected by the Province of Laguna,

on the reasoning that the grant of tax exemption to SMART and GLOBE ipso

facto applies to PLDT, consistent with the "most-favored-treatment" clause found inSection 23 of thePublic Telecommunications Policy Act of the Philippines (Rep. Act No.

7925).

Again, there is nothing novel in petitioner's contention. For sure, inDavao, this Court

even adverted to PLDT's similar argument therein, thus:

Finally, it [PLDT] argues that because Smart and Globe are exempt from the

franchise tax, it follows that it must likewise be exempt from the tax being

collected by the City of Davao because the grant of tax exemption to Smart andGlobe ipso facto extended the same exemption to it,

which argument this Court rejected in said case in the following wise:

The acceptance of petitioner's theory would result in absurd consequences. To

illustrate: In its franchise, Globe is required to pay a franchise tax of only oneand one-half percentum (1/2% [sic]) of all gross receipts from its transactions

while Smart is required to pay a tax of three percent (3%) on all gross receipts

from business transacted. Petitioner's theory would require that, to level theplaying field, any "advantage, favor, privilege, exemption, or immunity"

granted to Globe must be extended to all telecommunications companies,

including Smart. If, later, Congress again grants a franchise to anothertelecommunications company imposing, say, one percent (1%) franchise tax,

then all other telecommunications franchises will have to be adjusted to "level

the playing field" so to speak. This could not have been the intent of Congress

in enacting Section 23 of Rep. Act 7925. Petitioner's theory will leave theGovernment with the burden of having to keep track of all granted

telecommunications franchises, lest some companies be treated unequally. It is

different if Congress enacts a law specifically granting uniform advantages,favor, privilege, exemption or immunity to all telecommunications entities.

On PLDT's motion for reconsideration inDavao, the Court added in its en

banc Resolution of March 25, 2003, 10

that even as it is a state policy to promote a levelplaying field in the communications industry, Section 23 of Rep. Act No. 7925 does not

refer to tax exemption but only to exemption from certain regulations and requirementsimposed by the National Telecommunications Commission:

. . . . The records of Congress are bereft of any discussion or even mention of

tax exemption. To the contrary, what the Chairman of the Committee onTransportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No.


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14028, which became R.A. No. 7925, were 'equal access clauses' in

interconnection agreements, not tax exemptions. He said:

There is also a need to promote a level playing field in the telecommunicationsindustry. New entities must be granted protection against dominant carriers

through the encouragement ofequitable access charges and equal accessclauses in interconnection agreements and the strict policing of predatory

pricing by dominant carriers.Equal access should be granted to all operatorsconnecting into the interexchange network. There should be no discrimination

against any carrier in terms of priorities and/or quality of services.

Nor does the term 'exemption' in 23 of R.A. No. 7925 mean tax exemption.The term refers to exemption from certain regulations and requirements

imposed by the National Telecommunications Commission (NTC). For

instance, R.A. No. 7925, 17 provides: 'The Commission shall exempt any

specific telecommunications service from its rate or tariff regulations if the

service has sufficient competition to ensure fair and reasonable rates or tariffs.'Another exemption granted by the law in line with its policy of deregulation is

the exemption from the requirement of securing permits from the NTC everytime a telecommunications company imports equipment.11

PLDT's third assigned error has likewise been squarely addressed in the same en

banc Resolution, when the Court rejected PLDT's contention that the "in-lieu-of-all-

taxes" clause does not refer to "tax exemption" but to "tax exclusion" and hence,thestrictissimi juris rule does not apply. The en banc explains that these two terms

actually mean the same thing, such that the rule that tax exemption should be appliedinstrictissimi juris against the taxpayer and liberally in favor of the government applies

equally to tax exclusions:

Indeed, both in their nature and in their effect there is no difference between tax

exemption and tax exclusion. Exemption is an immunity or privilege; it isfreedom from a charge or burden to which others are subjected. Exclusion, on

the other hand, is the removal of otherwise taxable items from the reach of

taxation, e.g., exclusions from gross income and allowable deductions.Exclusion is thus also an immunity or privilege which frees a taxpayer from a

charge to which others are subjected. Consequently, the rule that tax exemption

should be applied instrictissimi juris against the taxpayer and liberally in favorof the government applies equally to tax exclusions. To construe otherwise the

'in lieu of all taxes' provision invoked is to be inconsistent with the theory that

R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globeand Smart. 12

As inDavao, PLDT presently faults the trial court for not giving weight to the ruling of

the BLGF which, to petitioner's mind, is an administrative agency with technical
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expertise and mastery over the specialized matters assigned to it. Again, to quote from

our ruling inDavao:

To be sure, the BLGF is not an administrative agency whose findings onquestions of fact are given weight and deference in the courts. The authorities

cited by petitioner pertain to the Court of Tax Appeals, a highly specializedcourt which performs judicial functions as it was created for the review of taxcases. In contrast, the BLGF was created merely to provide consultative services

and technical assistance to local governments and the general public on local

taxation, real property assessment, and other related matters, among others. The

question raised by petitioner is a legal question, to wit, the interpretation of 23of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the

BLGF that administrative agencies are said to possess in their respective

fields. 13

With the reality that the arguments presently advanced by petitioner are but a mere

reiteration if not a virtual repetition of the very same arguments it has already raisedinDavao and inBacolod, all of which arguments and submissions have been extensively

addressed and adequately passed upon by this Court in its decisions in said two

(2) PLDT cases, and noting that the instant recourse has not raised any new fresh issue to

warrant a second look, it, too, must have to fall.

WHEREFORE, and on the basis of our consistent ruling inPLDT vs. City of

Davao andPLDT vs. City of Bacolod, et al., the petition is DENIED and the assailed

decision of the trial court AFFIRMED.

With treble costs against petitioner.IHAcCS

SO ORDERED.

[G.R. No. 140230. December 15, 2005.]

COMMISSIONER OF INTERNAL

REVENUE, petitioner, vs. PHILIPPINE LONG DISTANCE

TELEPHONE COMPANY, respondent.

Osias B. Baldovino and Pablo M. Bastes for petitioner.

Meer Meer & Meerfor respondent.
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SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENTS; DOCTRINE OF STARE

DECISIS; A POINT OF LAW ALREADY ESTABLISHED WILL, GENERALLY, BEFOLLOWED BY THE SAME DETERMINING COURT AND BY ALL COURTS OFLOWER RANK IN SUBSEQUENT CASES WHERE THE SAME LEGAL ISSUE IS

RAISED. Under the doctrine ofstare decisis et non quieta movere, a point of law

already established will, generally, be followed by the same determining court and by all

courts of lower rank in subsequent cases where the same legal issue is raised. . . . The

Court has time and again stated that the rule onstare decisis promotes stability in the law

and should, therefore, be accorded respect. However, blind adherence to precedents,simply as precedent, no longer rules. More important than anything else is that the court is

right, thus its duty to abandon any doctrine found to be in violation of the law in force.

2.TAXATION TAXES; DIRECT AND INDIRECT TAXES, DISTINGUISHED.

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the

burden of taxation, taxes may be classified into either direct tax or indirect tax. In context,

direct taxes are those that are exacted from the very person who, it is intended or desired,

should pay them; they are impositions for which a taxpayer is directly liable on the

transaction or business he is engaged in. On the other hand, indirect taxes are those that

are demanded, in the first instance, from, or are paid by, one person in the expectation and

intention that he can shift the burden to someone else. Stated elsewise, indirect taxes aretaxes wherein the liability for the payment of the tax falls on one person but the burden

thereof can be shifted or passed on to another person, such as when the tax is imposed

upon goods before reaching the consumer who ultimately pays for it. When the seller

passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it,

to the purchaser as part of the price of goods sold or services rendered. To put the

situation in graphic terms, by tacking the VAT due to the selling price, the seller remainsthe person primarily and legally liable for the payment of the tax. What is shifted only to

the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated

differently, a seller who is directly and legally liable for payment of an indirect tax, such

as the VAT on goods or services, is not necessarily the person who ultimately bears the

burden of the same tax. It is the final purchaser or end-user of such goods or services who,

although not directly and legally liable for the payment thereof, ultimately bears the

burden of the tax.

3.ID.; ID.; INDIRECT TAXES; VALUE-ADDED TAX, ADVANCE SALES TAX AND

COMPENSATING TAX ARE INDIRECT TAXES. The NIRC classifies VAT as "an

indirect tax . . . the amount of [which] may be shifted or passed on to the buyer,

transferee or lessee of the goods". . . . Advance sales tax has the attributes of an indirect

tax because the tax-paying importer of goods for sale or of raw materials to be processed


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into merchandise can shift the tax or, to borrow fromPhilippine Acetylene Co., Inc.

vs. Commissioner of Internal Revenue, lay the "economic burden of the tax", on the

purchaser, by subsequently adding the tax to the selling price of the imported article or

finished product. Compensating tax also partakes of the nature of an excise tax payable by

all persons who import articles, whether in the course of business or not. The rationale forcompensating tax is to place, for tax purposes, persons purchasing from merchants in the

Philippines on a more or less equal basis with those who buy directly from foreign

countries.

4.ID.; ID.; ID.; THE LIABILITY FOR THE PAYMENT OF THE INDIRECT TAXES

LIES ONLY WITH THE SELLER OF THE GOODS OR SERVICES, NOT IN THE

BUYER THEREOF. It bears to stress that the liability for the payment of the indirect

taxes lies only with the seller of the goods or services, not in the buyer thereof. Thus, one

cannot invoke one's exemption privilege to avoid the passing on or the shifting of the

VAT to him by the manufacturers/suppliers of the goods he purchased. Hence, it isimportant to determine if the tax exemption granted to a taxpayer specifically includes the

indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed

that the tax exemption embraces only those taxes for which the buyer is directly liable.

5.ID.; TAX EXEMPTIONS; STATUTES GRANTING TAX EXEMPTIONS MUST BE

CONSTRUED STRICTLY AGAINST THE TAXPAYER AND LIBERALLY IN

FAVOR OF THE TAXING AUTHORITY. Time and again, the Court has stated that

taxation is the rule, exemption is the exception. Accordingly, statutes granting tax

exemptions must be construed instrictissimi juris against the taxpayer and liberally in

favor of the taxing authority. To him, therefore, who claims a refund or exemption fromtax payments rests the burden of justifying the exemption by words too plain to be

mistaken and too categorical to be misinterpreted. . . . It cannot be over-emphasized that

tax exemption represents a loss of revenue to the government and must, therefore, not rest

on vague inference. When claimed, it must be strictly construed against the taxpayer who

must prove that he falls under the exception. And, if an exemption is found to exist, it

must not be enlarged by construction, since the reasonable presumption is that the state

has granted in express terms all it intended to grant at all, and that, unless the privilege is

limited to the very terms of the statute the favor would be extended beyond dispute in

ordinary cases.

6.POLITICAL LAW; CONSTITUTIONAL LAW; STATUTES; REPUBLIC ACT 7082;THE CLAUSE "IN LIEU OF ALL TAXES," CONSTRUED; CASE AT BAR. [T]he

clause "in lieu of all taxes" in Section 12 of RA 7082 is immediately followed by the

limiting or qualifying clause "on this franchise or earnings thereof", suggesting that theexemption is limited to taxes imposed directly on PLDT since taxes pertaining

to PLDT's franchise or earnings are its direct liability. Accordingly, indirect taxes, not

being taxes on PLDT's franchise or earnings, are outside the purview of the "in lieu"


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provision. If we were to adhere to the appellate court's interpretation of the law that the

"in lieu of all taxes" clause encompasses the totality of all taxes collectible under the

Revenue Code, then, the immediately following limiting clause "on this franchise and its

earnings" would be nothing more than a pure jargon bereft of effect and meaning

whatsoever. Needless to stress, this kind of interpretation cannot be accorded a governingsway following the familiar legal maxim redendo singula singulis meaning, take the

words distributively and apply the reference. Under this principle, each word or phrase

must be given its proper connection in order to give it proper force and effect, rendering

none of them useless or superfluous.

D E C I S I O N

GARCIA, Jp:

In this petition for review on certiorari, the Commissioner of Internal

Revenue (Commissioner) seeks the review and reversal of the September 17, 1999

Decision 1of the Court of Appeals (CA) in CA-G.R. No. SP 47895, affirming, in effect,the February 18, 1998 decision 2of the Court of Tax Appeals (CTA) in C.T.A. Case No.

5178, a claim for tax refund/credit instituted by respondent Philippine Long Distance

Company (PLDT) against petitioner for taxes it paid to the Bureau of Internal Revenue

(BIR) in connection with its importation in 1992 to 1994 of equipment, machineries and

spare parts.

The facts:

PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate

and maintain a telecommunications system throughout the Philippines.

For equipment, machineries and spare parts it imported for its business on different dates

from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of

P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00;

advance sales tax of P12,460,219.00 and other internal revenue taxes of P25,337,697.00.For similar importations made between March 1994 to May 31, 1994, PLDT paid

P116,041,333.00 value-added tax (VAT).

On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on

its tax exemption privilege under Section 12 of R.A. 7082, which reads:
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Sec. 12.The grantee . . . shall be liable to pay the same taxes on their real estate,

buildings, and personal property, exclusive of this franchise, as other persons or

corporations are now or hereafter may be required by law to pay. In additionthereto, the grantee, . . . shall pay a franchise tax equivalent to three percent (3%)

of all gross receipts of the telephone or other telecommunications businessestransacted under this franchise by the grantee, its successors or assigns, and the

said percentage shall be in lieu of all taxes on this franchise or earnings

thereof: Provided, That the grantee . . . shall continue to be liable for income

taxes payable under Title II of the National Internal Revenue Code pursuant to

Sec. 2 of Executive Order No. 72 unless the latter enactment is amended orrepealed, in which case the amendment or repeal shall be applicable thereto.

(Emphasis supplied). TSDHCc

Responding, the BIR issued on April 19, 1994 Ruling No. UN-140-94, 3pertinently

reading, as follows:

PLDT shall be subject only to the following taxes, to wit:

xxx xxx xxx

7.The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its

franchise or earnings thereof.

xxx xxx xxx

The "in lieu of all taxes" provision under Section 12 of RA 7082 clearly

exempts PLDT from all taxes including the 10% value-added tax (VAT)prescribed by Section 101 (a) of the same Code on its importations of

equipment, machineries and spare parts necessary in the conduct of its businesscovered by the franchise, except the aforementioned enumerated taxes for

which PLDT is expressly made liable.

xxx xxx xxx

In view thereof, this Office . . . hereby holds that PLDT, is exempt from VAT onits importation of equipment, machineries and spare parts . . . needed in its

franchise operations.

Armed with the foregoing BIR ruling, PLDT filed on December 2, 1994 a claim 4for tax

credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had

been paying "in connection with its importation of various equipment, machineries and

spare parts needed for its operations". With its claim not having been acted upon by the

BIR, and obviously to forestall the running of the prescriptive period therefor, PLDT filed

with the CTA a petition for review,5therein seeking a refund of, or the issuance of a tax
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credit certificate in, the amount of P280,552,286.00, representing compensating taxes,

advance sales taxes, VAT and other internal revenue taxes alleged to have been

erroneously paid on its importations from October 1992 to May 1994. The petition was

docketed in said court as CTA Case No. 5178.

On February 18, 1998, the CTA rendered a decision6granting PLDT's petition,

pertinently saying:

This Court has noted that petitioner has included in its claim receipts coveringthe period prior to December 16, 1992, thus, prescribed and barred from

recovery. In conclusion, We find that the petitioner is entitled to the reduced

amount of P223,265,276.00 after excluding from the final computation thosetaxes that were paid prior to December 16, 1992 as they fall outside the two-year

prescriptive period for claiming for a refund as provided by law. The

computation of the refundable amount is summarized as follows:

COMPENSATING TAX

Total amount claimedP126,713.037.00

Less:

a)Amount already prescribed: . . .

TotalP38,015,132.00

b)Waived by petitioner

(Exh. B-216)P1,440,874.00P39,456,006.00

Amount refundableP87,257,031.00

ADVANCE SALES TAX

Total amount claimedP12,460.219.00

Less amount already prescribed:P5,043,828.00
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18/69


OTHER BIR TAXES

Total amount claimedP25,337,697.00

Less amount already prescribed:11,187,740.00


VALUE ADDED TAX

Total amount claimedP116.041,333.00

Less amount waived by petitioner

(unaccounted receipts)1,599,436.00


TOTAL AMOUNT REFUNDABLEP223,265,276.00,

=============

(Breakdown omitted)

and accordingly disposed, as follows:

WHEREFORE, in view of all the foregoing, this Court finds the instant petition

meritorious and in accordance with law. Accordingly, respondent is herebyordered to REFUND or to ISSUE in favor of petitioner a Tax Credit Certificate

in the reduced amount of P223,265,276.00 representing erroneously paid value-

added taxes, compensating taxes, advance sales taxes and other BIR taxes on itsimportation of equipments (sic), machineries and spare parts for the period


19/69

covering the taxable years 1992 to 1994. ICHAaT

Noticeably, the CTA decision, penned by then Associate Justice Ramon O. de Veyra, with

then CTA Presiding Judge Ernesto D. Acosta, concurring, is punctuated by a dissenting

opinion 7of Associate Judge Amancio Q. Saga who maintained that the phrase "in lieu ofall taxes" found in Section 12 of R.A. No. 7082,supra, refers to exemption from "directtaxes only" and does not cover "indirect taxes", such as VAT, compensating tax and

advance sales tax.

In time, the BIR Commissioner moved for a reconsideration but the CTA, in its

Resolution 8of May 7, 1998, denied the motion, with Judge Amancio Q. Saga reiterating

his dissent.9

Unable to accept the CTA decision, the BIR Commissioner elevated the matter to the

Court of Appeals (CA) by way of petition for review, thereat docketed as CA-G.R. No.47895.

As stated at the outset hereof, the appellate court, in the herein challenged

Decision 10dated September 17, 1999, dismissed the BIR's petition, thereby effectively

affirming the CTA's judgment.

Relying on its ruling in an earlier case between the same parties and involving the same

issue CA-G.R. SP No. 40811, decided 16 February 1998 the appellate court partly

wrote in its assailed decision:

This Court has already spoken on the issue of what taxes are referred to in thephrase "in lieu of all taxes" found in Section 12 of R.A. 7082. There are noreasons to deviate from the ruling and the same must be followed pursuant to the

doctrine ofstare decisis. . . . . "Stare decisis et non quieta movere. Stand by the

decision and disturb not what is settled."

Hence, this recourse by the BIR Commissioner on the lone assigned error that:

THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ISEXEMPT FROM THE PAYMENT OF VALUE-ADDED TAXES,

COMPENSATING TAXES, ADVANCE SALES TAXES AND OTHER BIR

TAXES ON ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION INITS FRANCHISE THAT THE 3% FRANCHISE TAX ON ITS GROSS

RECEIPTS SHALL BE IN LIEU OF ALL TAXES ON ITS FRANCHISE OR

EARNINGS THEREOF.

There is no doubt that, insofar as the Court of Appeals is concerned, the issue petitioner

presently raises had been resolved by that court in CA-G.R. SP No. 40811,
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20/69

entitled Commissioner of Internal Revenue vs. Philippine Long Distance Company. There,

the Sixteenth Division of the appellate court declared that under the express provision of

Section 12 of R.A. 7082,supra, "the payment [by PLDT] of the 3% franchise tax of [its]

gross receipts shall be in lieu of all taxes" exempts PLDT from payment of compensating

tax, advance sales tax, VAT and other internal revenue taxes on its importation of variousequipment, machinery and spare parts for the use of its telecommunications system. IDASHa

Dissatisfied with the CA decision in that case, the BIR Commissioner initially filed with

this Court a motion for time to file a petition for review, docketed in this Court as G.R.No. 134386. However, on the last day for the filing of the intended petition, the then BIR

Commissioner had a change of heart and instead manifested 11that he will no longer

pursue G.R. No. 134386, there being no compelling grounds to disagree with the Court of

Appeals' decision in CA-G.R. 40811. Consequently, on September 28, 1998, the Court

issued a Resolution 12in G.R. No. 134386 notifying the parties that "no petition" was filed

in said case and that the CA judgment sought to be reviewed therein "has now becomefinal and executory". Pursuant to said Resolution, an Entry of Judgment 13was issued by

the Court of Appeals in CA-G.R. SP No. 40811. Hence, the CA's dismissal of CA-G.R.

No. 47895 on the additional ground ofstare decisis.

Under the doctrine ofstare decisis et non quieta movere, a point of law already

established will, generally, be followed by the same determining court and by all courts of

lower rank in subsequent cases where the same legal issue is raised. 14For reasons needing

no belaboring, however, the Court is not at all concluded by the ruling of the Court of

Appeals in its earlier CA-G.R. SP No. 47895.

The Court has time and again stated that the rule onstare decisis promotes stability in the

law and should, therefore, be accorded respect. However, blind adherence to precedents,

simply as precedent, no longer rules. More important than anything else is that the court is

right,15thus its duty to abandon any doctrine found to be in violation of the law in

force. 16

As it were, the former BIR Commissioner's decision not to pursue his petition in G.R. No.

134386 denied the BIR, at least as early as in that case, the opportunity to obtain from the

Court an authoritative interpretation of Section 12 of R.A. 7082. All is, however, not lost.For, the government is not estopped by acts or errors of its agents, particularly on matters

involving taxes. Corollarily, the erroneous application of tax laws by public officers does

not preclude the subsequent correct application thereof. 17Withal, the errors of certainadministrative officers, if that be the case, should never be allowed to jeopardize the

government's financial position. 18
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Hence, the need to address the main issue tendered herein.

According to the Court of Appeals, the "in lieu of all taxes" clause found in Section 12

of PLDT's franchise (R.A. 7082) covers all taxes, whether direct or indirect; and that said

section states, in no uncertain terms, that PLDT's payment of the 3% franchise tax on allits gross receipts from businesses transacted by it under its franchise is in lieu of all taxes

on the franchise or earnings thereof. In fine, the appellate court, agreeing with PLDT,

posits the view that the word "all" encompasses any and all taxes collectible under the

National Internal Revenue Code (NIRC), save those specifically mentioned

in PLDT's franchise, such as income and real property taxes.

The BIR Commissioner excepts. He submits that the exempting "in lieu of all taxes"

clause covers direct taxes only, adding that for indirect taxes to be included in the

exemption, the intention to include must be specific and unmistakable. He thus faults the

Court of Appeals for erroneously declaring PLDT exempt from payment of VAT andother indirect taxes on its importations. To the Commissioner, PLDT's claimedentitlement to tax refund/credit is without basis inasmuch as the 3% franchise tax being

imposed on PLDT is not a substitute for or in lieu of indirect taxes.

The sole issue at hand is whether or not PLDT, given the tax component of its franchise,

is exempt from paying VAT, compensating taxes, advance sales taxes and internalrevenue taxes on its importations.

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the

burden of taxation, taxes may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intendedor desired, should pay them; 19 they are impositions for which a taxpayer is directly liable

on the transaction or business he is engaged in. 20

On the other hand, indirect taxes are those that are demanded, in the first instance, from,

or are paid by, one person in the expectation and intention that he can shift the burden to

someone else. 21Stated elsewise, indirect taxes are taxes wherein the liability for the

payment of the tax falls on one person but the burden thereof can be shifted or passed on

to another person, such as when the tax is imposed upon goods before reaching the

consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, ineffect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price

of goods sold or services rendered. ECcTaH

To put the situation in graphic terms, by tacking the VAT due to the selling price, the

seller remains the person primarily and legally liable for the payment of the tax. What is

shifted only to the intermediate buyer and ultimately to the final purchaser is the burden
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of the tax. 22Stated differently, a seller who is directly and legally liable for payment of an

indirect tax, such as the VAT on goods or services, is not necessarily the person who

ultimately bears the burden of the same tax. It is the final purchaser or end-user of such

goods or services who, although not directly and legally liable for the payment thereof,

ultimately bears the burden of the tax. 23

There can be no serious argument that PLDT, vis--vis its payment of internal revenue

taxes on its importations in question, is effectively claiming exemption from taxes not

falling under the category of direct taxes. The claim covers VAT, advance sales tax and

compensating tax.

The NIRC classifies VAT as "an indirect tax . . . the amount of [which] may be shifted or

passed on to the buyer, transferee or lessee of the goods". 24As aptly pointed out by Judge

Amancio Q. Saga in his dissent in C.T.A. Case No. 5178, the 10% VAT on importation of

goods partakes of an excise tax levied on the privilege of importing articles. It is not a taxon the franchise of a business enterprise or on its earnings. It is imposed on all taxpayerswho import goods (unless such importation falls under the category of an exempt

transaction under Sec. 109 of the Revenue Code) whether or not the goods will eventually

be sold, bartered, exchanged or utilized for personal consumption. The VAT on

importation replaces the advance sales tax payable by regular importers who import

articles for sale or as raw materials in the manufacture of finished articles for sale. 25

Advance sales tax has the attributes of an indirect tax because the tax-paying importer of

goods for sale or of raw materials to be processed into merchandise can shift the tax or, to

borrow fromPhilippine Acetylene Co, Inc. vs. Commissioner of Internal Revenue, 26lay

the "economic burden of the tax", on the purchaser, by subsequently adding the tax to the

selling price of the imported article or finished product.

Compensating tax also partakes of the nature of an excise tax payable by all persons who

import articles, whether in the course of business or not. 27The rationale for compensating

tax is to place, for tax purposes, persons purchasing from merchants in the Philippines on

a more or less equal basis with those who buy directly from foreign countries. 28

It bears to stress that the liability for the payment of the indirect taxes lies only with the

seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke one's

exemption privilege to avoid the passing on or the shifting of the VAT to him by themanufacturers/suppliers of the goods he purchased. 29Hence, it is important to determine

if the tax exemption granted to a taxpayer specifically includes the indirect tax which is

shifted to him as part of the purchase price, otherwise it is presumed that the taxexemption embraces only those taxes for which the buyer is directly liable.30

Time and again, the Court has stated that taxation is the rule, exemption is the exception.
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compiled cases- doctrines in taxation

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