Republic v.

Caguioa
G.R. 168584 – October 15, 2007
J. Carpio-Morales

Topic: Scope and Nature of Taxation

Doctrine: There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its
continuance doubtful. Being a mere statutory privilege, a tax exemption may be modified or withdrawn at will by the
granting authority. To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive
and supreme. The power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to
restrictions which rest on the discretion of the authority exercising it.

Petitioner: Republic of the Philippines

Respondents: Hon. Caguioa; and several domestic corporations doing business at the Subic Bay Freeport Zone

Case Summary: Several businesses in the Subic Special Economic and Freeport Zone through RA 7227 were
granted Certificates of Registration of their businesses and Tax Exemptions for the things they would be importing
into SBMA. Several years later, RA 9334 was enacted then amending certain sections of the NIRC, particularly
Section 131 which in the past allowed tax exemptions for certain groups. Because of this the BIR and the BOC
commissioners were then asking for the tax payments of the private businesses. The private respondents filed for a
WPI/TRO assailing the constitutionality of RA 9334, which Judge Caguioa then granted. Upon reaching the
Supreme Court, the Court found that Caguioa acted with GADALEJ for the situation was obviously not in line with
the requisites needed to be present for a WPI/TRO to issue. In addition, the Court declared that t here is no vested
right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful.
Being a mere statutory privilege, a tax exemption may be modified or withdrawn at will by the granting authority.
To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme.
The power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions
which rest on the discretion of the authority exercising it.

Facts:

The petitioners in this case seek via petition for certiorari and prohibition to annul the May 4, 2005 order of Judge Caguioa
which granted the private respondents’ application for the issuance of a writ of preliminary injunction which stated the
implementation of RA 9334 (An Act increasing the excise tax rates imposed on alcohol and tobacco products, amending
certain sections of the NIRC of 1977)

 1992: Congress enacted RA 7227 or the Bases Conversion and Development Act of 1992 – created the Subic
Special Economic and Freeport Zone (SBF) and the Subic Bay Metropolitan Authority (SBMA)
o The RA envisioned the SBF to be developed into a “self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities around the zone
o Pursuant to such act, the private respondents applied for and were granted Certificates of Registration
and Tax Exemption
o The certificates allowed them to engage in the business either of trading, retailing or wholesaling, import
and export, warehousing, distribution and/or transshipment of general merchandize, including alcohol and
tobacco products, and uniformly granted tax exemptions for such importations in such certificates:
 ARTICLE IV. The company shall be entitled to tax and duty-free importation of raw material,
capital equipment, and household and personal items for use solely within the Subic Bay Freeport
Zone… All importations by the company are exempt from inspection by the Societe Generale de
Surveillance if such importations are delivered immediately and for use solely within the Subic
Bay Freeport Zone.
 January 1, 2005: Congress passed RA 9334 and Section 6 of the Act amended Sec. 131 of the NIRC of 1977. The
pertinent part of the provision declares that the importation of cigars and cigarettes, distilled spirits, fermented
liquors and wines into the Philippines, even if destined for tax and duty-free shops shall now be subject to all
applicable taxes, duties, charges, including excise taxes due. This shall also apply to cigars and cigarettes, distilled
spirits, fermented liquors and wines brought directly or legislated freeports of the Subic Bay Economic Freeport
Zone created under RA 7227.
  February 3, 2005: former BIR Commissioner Parayno Jr. requested then Customs Commissioner Jereos to
immediately collect the excise tax due on imported alcohol and tobacco products brought to the Duty Free
Philippines and Freeport zones.
 February 15, 2005: Private respondents wrote the offices of respondent collector of customs and the SBMA
administrator requesting for a reconsideration of the directives. Despite these letters, they were not allowed to file
any warehousing entry for their shipments.
o The private respondents then brought before the RTC of Olongapo City a special action for declaratory
relief to have certain provisions of RA 9334 declared as unconstitutional.
 They submit that (1) RA 9334 should not be interpreted to alter or modify RA 7227 because
repeals by implication are not favored; (2) a general law like RA 9334 cannot amend RA 7227,
which is a special law; and (3) the assailed law violates the one bill-one subject rule embodied in
the Constitutions as well as the constitutional proscription against the impairment of the obligation
of contracts.
 The Private respondents also allege the great and irreparable loss and injury that would befall
them as a consequence of the imposition of taxes on alcohol and tobacco products brought into the
SBF  they then prayed for the issuance of a WPI and/or TRO and preliminary injunction to
enjoin the directives of the petitioners.
Issues + Held:
1. W/N the Trial Court was proper in granting the WPI in favor of the private respondents – NO
 Section 3 of Rule 58 of the ROC provides for the grounds for issuance of a preliminary injunction.
o For the writ to issue, the plaintiff must be able to establish that (1) there is a clear and unmistakable right to
be protected; (2) the invasion of the right sought to be protected is material and substantial, and (3) there is
an urgent and paramount necessity for the writ to prevent serious damage.
o Conversely, the failure to establish either the existence of a clear and positive right which should be
judicially protected through the writ of injunction, or the acts or attempts to commit any act which
endangers or tends to endanger the existence of said right, or of the urgent need to prevent serious damage,
is a sufficient ground for denying the preliminary injunction.
 It is beyond cavil that RA 7227 granted private respondents’ exemption from local and national taxes,
including excise taxes on their importations.
 Upon a comparison of the old Section 131 of the NIRC and the new Section 131, it is clear that through RA 9334,
the amended section now provides that such taxes, duties and charges, including excise taxes, shall apply to
importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the SBF.
 Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of private
respondents, the Court found it of utmost importance to state certain basic principles that should throw light on the
propriety of the issuance of the WPI in the case:
1. Every presumption must be indulged in favor of the constitutionality of a state. The burden of proving the
unconstitutionality of a law rests on the party assailing the law.
2. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its
continuance doubtful. Being a mere statutory privilege, a tax exemption may be modified or withdrawn at
will by the granting authority. To state otherwise is to limit the taxing power of the State, which is
unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so unlimited in force
and so searching in extent, it is subject only to restrictions which rest on the discretion of the authority
exercising it.
3. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of
the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed. In case of doubt, non-exemption is favored.
4. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or
repeal. Flowing from the basic precept of constitutional law that no law is irrepealable, Congress can enact a
law withdrawing a tax exemption just as efficaciously as it may grant the same.
5. The rights granted under the Certificates of Registration and Tax Exemption of private respondents are not
absolute and unconditional as to constitute rights in esse – those clearly founded on or granted by law or is
enforceable as a matter of law. The certificates granted to them were in essence a “permit to operate” their
respective businesses as in the nature of licenses, which the bulk of jurisprudence considers as neither a
property nor a property right. The licensee takes his license subject to such conditions as the grantor sees fit
to impose, including its revocation at pleasure. A license can be revoked at any time since it does not confer
an absolute right. While the tax exemption contained the Certificates of Registration may have been part of
 the inducement for carrying on their businesses in the SBF, this exemption, nevertheless is far from being
contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked.
6. Whatever right may have been acquired on the basis of the Certificates and Tax Exemption must yield to the
State’s valid exercise of police power. It is well to remember that taxes may be made the implement of the
police power. It is not difficult to recognize that public welfare and necessity underlie the enactment of RA
9334. As petitioners point out, the assailed provision was passed to curb the pernicious practice of some
unscrupulous business enterprises inside the SBF of using the tax exemption privileges for smuggling
purposes.
7. As a rule, the Courts should avoid issuing a WPI which would in effect dispose of the main case without trial.
8. A court may issue a WPI only when the petitioner assailing the statute has made out a case of
unconstitutionality or invalidity strong enough, in the mind of the judge, to overcome the presumption of
validity, in addition to a showing of a clear legal right to the remedy sought.
9. The feared injurious effects of the imposition of duties, charges and taxes on private respondents’ businesses
cannot possibly outweigh the dire consequences that the non-collection of taxes, not to mention the unabated
smuggling in the SB, would wreak the government.
 All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this
Court may and should intervene in a clear case of abuse.
o One such case of GAD in this case was present when Judge Caguioa issued the WPI despite the clear
absence of a clear and unquestioned legal right of the private respondents.
 The possibility of irreparable damage without proof of an actual existing right would not justify an injunctive relief.
o Besides, the private respondents are not lacking an appropriate relief. They may avail themselves of a tax
refund or tax credit should RA 9334 be declared invalid  Sections 204 and 229 of the NIRC provide for
the recovery of erroneously or illegally collected taxes which would be the nature of the excise taxes paid
should the act be declared unconstitutional.
o In addition, they may also opt not to import, or import less of those items which no longer enjoy tax
exemption.
 The Court also finds that the public respondent overstepped his discretion when he arbitrarily fixed the injunction
bond of the SBF enterprises at only P1 million.
o Rule 58, Section 4 (b) provides that a bond is executed in favor of the party enjoined to answer for all
damages which it may sustain by reason of injunction.
 The power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people. That the enforcement of tax laws and the collection of taxes are
of paramount importance for the sustenance of government has been repeatedly observed. Taxes being the
lifeblood of the government that should be collected without unnecessary hindrance, every precaution must
be taken not to unduly suppress it.

Ruling: WHEREFORE, Petition is PARTLY GRANTED. The WPI by Judge Caguioa is nullified and set aside. The writ of
prohibition is DENIED.