J.A.B. Bulao & Associates

CASE 2012-0055: PHILIP L. GO, PACIFICO Q. LIM AND ANDREW Q. LIM VS. DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. (G.R. NO. 194024, 25 APRIL 2012, MENDOZA, J.) SUBJECT/S: HOW JURISDICTION IS DETERMINED; HLURB JURISDICTION; INDISPENSABLE PARTY; DERIVATIVE SUIT; EXHAUSTION OF ADMINISTRATIVE REMEDY; GIVING RESPECT AND FINALITY TO HLURB DECISION (BRIEF TITLE: LIM VS. DISTINCTION PROPERTIES).

 

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DISPOSITIVE:

 

WHEREFORE, the petition is DENIED.

 

SO ORDERED.

 

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WHAT CONFERS JURISDICTION OVER A SUBJECT MATTER?

 

 

IT IS THE LAW.

 

 

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HOW IS JURISDICTION DETERMINED?

 

 

BY THE ALLEGATIONS IN THE COMPLAINT?

 

 

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WHAT IS A COMPLAINT?

 

 

A COMPLAINT COMPRISE A CONCISE STATEMENT OF THE ULTIMATE FACTS CONSTITUTING PLAINTIFF’S CAUSE OF ACTION.

 

 

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IN DETERMINING JURISDICTION WHAT THEREFORE MUST BE CONSIDERED?

 

 

THE ALLEGATIONS OF THE COMPLAINT AND THE RELIEF SOUGHT.

 

 

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IN THE CASE OF HLURB, WHAT DETERMINES JURISDICTION?

 

 

THE NATURE OF THE CAUSE OF ACTION, THE SUBJECT MATTER OR PROPERTY INVOLVED AND THE PARTIES.

 

 

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.[1][17] Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.[2][18]

 

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HOW DO YOU DETERMINE THE EXTENT TO WHICH AN ADMINISTRATIVE AGENCY MAY EXERCISE ITS POWERS?

 

 

BASED ON THE PROVISIONS OF THE STATUTE CREATING IT.

 

 

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IN THE CASE OF HLURB, WHAT LAWS DETERMINE THE EXTENT OF ITS POWERS TO HEAR CASES?

 

 

PD 957 WHICH GRANTED HLURB EXCLUSIVE JURISDICTION TO REGULATE THE REAL ESTATE TRADE AND BUSINESS.

 

 

THIS POWER WAS EXPANDED BY PD 1344 TO THE FOLLOWING CASES:

 

(A)  UNSOUND REAL ESTATE BUSINESS PRACTICES;

 

(B) CLAIMS INVOLVING REFUND AND ANY OTHER CLAIMS FILED BY SUBDIVISION LOT OR CONDOMINIUM UNIT BUYER AGAINST THE PROJECT OWNER, DEVELOPER, DEALER, BROKER OR SALESMAN; AND

 

(C) CASES INVOLVING SPECIFIC PERFORMANCE OF CONTRACTUAL AND STATUTORY OBLIGATIONS FILED BY BUYERS OF SUBDIVISION LOT OR CONDOMINIUM UNIT AGAINST THE OWNER, DEVELOPER, DEALER, BROKER OR SALESMAN.

 

 

 Generally, the extent to which an administrative agency may exercise its powers depends largely, if not wholly, on the provisions of the statute creating or empowering such agency.[3][19] With respect to the HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination of the laws defining the HLURB’s jurisdiction and authority becomes imperative.  P.D. No. 957,[4][20] specifically Section 3, granted the National Housing Authority (NHA) the “exclusive jurisdiction to regulate the real estate trade and business.” Then came P.D. No. 1344[5][21] expanding the jurisdiction of the NHA (now HLURB), as follows:

 

SECTION 1.  In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a)  Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.

 

This provision must be read in light of the law’s preamble, which explains the reasons for enactment of the law or the contextual basis for its interpretation.[6][22]  A statute derives its vitality from the purpose for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[7][23] P.D. No. 957, as amended, aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices.[8][24]

 

The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute unsound business practice or breach of contractual obligations in the real estate trade.  This grant of expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision lots or condominium units automatically fall under its jurisdiction.  The CA aptly quoted the case of Christian General Assembly, Inc. v. Ignacio,[9][25] wherein the Court held that:

 

The mere relationship between the parties, i.e., that of being subdivision owner/developer and subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned administrative agency, the National Housing Authority (NHA) before and now the HLURB, has jurisdiction over complaints aimed at compelling the subdivision developer to comply with its contractual and statutory obligations.[10][26] [Emphases supplied]

 

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IN THIS CASE CERTAIN CONDO OWNERS SUED THE DEVELOPER AND SOUGHT TO INVALIDATE THE CONTRACT BETWEEN THE DEVELOPER AND THE CONDOMINIUM CORPORATION WHICH CONVERTED SOME SALEABLE UNITS INTO COMMON AREAS. ONE GROUND RAISED WAS THAT THE AGREEMENT WAS NOT DULY APPROVED BY THE CONDOMINIUM CORPORATION. HAS HLURB JURISDICTION OVER THE CASE?

 

 

NO.

 

 

FIRST, THE CONDOMIUM CORPORATION, AN INDISPENSABLE PARTY WAS NOT IMPLEADED.

 

 

SECOND, THIS IS A DERIVATIVE SUIT. IT IS A SUIT BY MEMBERS OF A CORPORATION AGAINST THE CORPORATION ITSELF. THIS FALLS UNDER THE JURISDICTION OF SEC, NOW WITH THE COURTS.

 

 

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought.  A perusal of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of  PHCC – the April 29, 2005 Agreement[11][27] entered into by PHCC with DPDCI and its Board Resolution[12][28] which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units from saleable to common areas.  All these were approved by the HLURB.  Specifically, the reliefs sought or prayers are the following:

 

1. Ordering the respondent to restore the gym to its original location;

 

1. Ordering the respondent to restore the hallway at the second floor;

 

1. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, ordering respondent to continue paying the condominium dues for these units, with interest and surcharge;

 

1. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public;

 

1. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00, representing the cost of the deep well, with interests and surcharges;

 

1. Ordering the respondent to pay the complainants moral/exemplary damages in the amount of PHP100,000.00; and

 

1. Ordering the respondent to pay the complainant attorney’s fees in the amount of PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.[13][29] 

 

 

 As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party, PHCC.

 

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WHAT IS AN INDISPENSABLE PARTY?

 

 

IT IS ONE WHO HAS SUCH AN INTEREST IN THE CONTROVERSY OR SUBJECT MATTER THAT A FINAL ADJUDICATION CANNOT BE MADE, IN HIS ABSENCE, WITHOUT INJURING OR AFFECTING THAT INTEREST.[14][30]

 

 

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WHAT HAPPENS IF AN INDISPENSABLE PART IS NOT IMPLEADED?

 

 

THE CASE MUST BE DISMISSED.

 

 

        An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest.[15][30] In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,[16][31] the Court had the occasion to state that:

 

Under Section 7, Rule 3 of the Rules of Court, “parties in interest without whom no final determination can be had of an action shall be joined as plaintiffs or defendants.” If there is a failure to implead an indispensable party, any judgment rendered would have no effectiveness. It is “precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’ The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even to those present.” The purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between the parties themselves, but also as regards other persons who may be affected by the judgment. A decision valid on its face cannot attain real finality where there is want of indispensable parties.[17][32] (Underscoring supplied)

 

        Similarly, in the case of Plasabas v. Court of Appeals,[18][33] the Court held that a final decree would necessarily affect the rights of indispensable parties so that the Court could not proceed without their presence.  In support thereof, the Court in Plasabas cited the following authorities, thus:

 

“The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme Court has held that when it appears of record that there are other persons interested in the subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in the court, the same should be dismissed. x x x When an indispensable party is not before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)

“Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the whole matter in dispute may be determined once and for all in one litigation. (Palarca v. Baginsi, 38 Phil. 177, 178).

 

From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a defendant,[19][34] in the complaint filed before the HLURB as it would be directly and adversely affected by any determination therein.  To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC as a corporate body.  Note that in the judgment rendered by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC; and (2) to refund to PHCC ₱1,277,500.00, representing the cost of the deep well, with interests and surcharges.  Also, the HLURB declared as illegal the agreement regarding the conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a party.

 

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same except through a derivative suit.  In the complaint, however, there was no allegation that the action was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative suit.[20][35]  In the cited case of Chua v. Court of Appeals,[21][36] the Court ruled:

 

        For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. (Underscoring supplied)

 

 

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment.  The CA was, thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

 

 To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

 

Section 13.  Amendment.  After the corporation shall have been created, organized and operating, this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to the Corporation By Laws and subject to the provisions of the Condominium Act.

 

        This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the MDDR.  It should be stressed that petitioners are not asking for any change or modification in the terms of the MDDR. What they are really praying for is a declaration that the agreement regarding the alteration/conversion is illegal.  Thus, the Court sustains the CA’s finding that:

 

        There was nothing in the records to suggest that DPDCI sought the amendment of a part or the whole of such MDDR.  The cited section is somewhat consistent only with the principle that an amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders holding more than 50% of the shares.  The MDDR does not contemplate, by such provision, that all corporate acts ought to be with the concurrence of a majority of the unit owners.[22][37]

 

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate.  This action, therefore, partakes the nature of an “intra-corporate controversy,” the jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court (RTC), pursuant to Section 5b of P.D. No.  902-A,[23][38] as amended by Section 5.2 of Republic Act (R.A.) No. 8799.[24][39]

 

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WHAT IS AN INTRACORPORATE CONTROVERSY?

 

 

ONE WHICH “PERTAINS TO ANY OF THE FOLLOWING RELATIONSHIPS: (1) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND THE PUBLIC; (2) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND THE STATE IN SO FAR AS ITS FRANCHISE, PERMIT OR LICENSE TO OPERATE IS CONCERNED; (3) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND ITS STOCKHOLDERS, PARTNERS, MEMBERS OR OFFICERS; AND (4) AMONG THE STOCKHOLDERS, PARTNERS OR ASSOCIATES THEMSELVES.”[25][40]

 

 

An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.”[26][40]

 

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IN CASE OF DISPUTE ON THE LEGALITY OF ASSESSMENT OF CONDO DUES BY UNIT OWNERS AND THE CONDO CORPORATION WHO HAS JURISDICTION?

 

 

THE COURT.

 

 

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners.  In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,[27][41] an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799.

 

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PETITIONER ARGUED THAT THE RESPONDENTS SHOULD HAVE APPEALED FIRST TO THE HLURB BOARD OF COMMISSIONERS FOLLOWING THE RULE ON EXHAUSTION OF ADMINISTRATIVE REMEDY. IS THEIR CONTENTION CORRECT?

 

 

NO. THE CIRCUMSTANCES PREVAILING WARRANTED A RELAXATION OF THE RULE. THERE ARE EXEPTIONS TO THE RULE.

 

 

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WHAT ARE THESE EXCEPTIONS?

 

 

(A) WHERE THERE IS ESTOPPEL ON THE PART OF THE PARTY INVOKING THE DOCTRINE;

 

 

(B) WHERE THE CHALLENGED ADMINISTRATIVE ACT IS PATENTLY ILLEGAL, AMOUNTING TO LACK OF JURISDICTION;

 

 

(C) WHERE THERE IS UNREASONABLE DELAY OR OFFICIAL INACTION THAT WILL IRRETRIEVABLY PREJUDICE THE COMPLAINANT;

 

 

(D) WHERE THE AMOUNT INVOLVED IS RELATIVELY SO SMALL AS TO MAKE THE RULE IMPRACTICAL AND OPPRESSIVE;

 

 

(E) WHERE THE QUESTION INVOLVED IS PURELY LEGAL AND WILL ULTIMATELY HAVE TO BE DECIDED BY THE COURTS OF JUSTICE;

 

 

(F) WHERE JUDICIAL INTERVENTION IS URGENT;

 

 

(G) WHERE THE APPLICATION OF THE DOCTRINE MAY CAUSE GREAT AND IRREPARABLE DAMAGE;

 

 

(H) WHERE THE CONTROVERTED ACTS VIOLATE DUE PROCESS;

 

 

(I) WHERE THE ISSUE OF NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES HAS BEEN RENDERED MOOT;

 

(J) WHERE THERE IS NO OTHER PLAIN, SPEEDY AND ADEQUATE REMEDY;

 

 

(K) WHERE STRONG PUBLIC INTEREST IS INVOLVED; AND (L) IN QUO WARRANTO PROCEEDINGS.[28][44] [UNDERSCORING SUPPLIED] 

 

 

IN THIS CASE THE CHALLEGED DECISION IS PATENTLY ILLEGAL AND THE QUESTION INVOLVED IS PURELY LEGAL.

 

 

    As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court again agrees with the position of the CA that the circumstances prevailing in this case warranted a relaxation of the rule.

 

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust of the rule is that courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence.[29][42]  It has been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules.  In the case of Republic of the Philippines v. Lacap,[30][43] the Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings.[31][44] [Underscoring supplied] 

 

The situations (b) and (e) in the foregoing enumeration obtain in this case. 

 

        The challenged decision of the HLURB is patently illegal having been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction.  Also, the issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law.  As the Court wrote in Vigilar v. Aquino:[32][45]

 

 

        It does not involve an examination of the probative value of the evidence presented by the parties. There is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be resolved only tentatively by the administrative authorities. The final decision on the matter rests not with them but with the courts of justice. Exhaustion of administrative remedies does not apply, because nothing of an administrative nature is to be or can be done. The issue does not require technical knowledge and experience but one that would involve the interpretation and application of law.   

 

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BUT THE HLURB DECISION MUST BE GIVEN RESPECT AND FINALITY BECAUSE HLURB IS A SPECIALIZED AGENCY. IS THIS CORRECT?

 

 

NO. BECAUSE THE HLURB DECISION IS PATENTLY ILLEGAL.

 

 

        Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the HLURB.  Their reliance on the case of Dangan v. NLRC,[33][46] reiterating the well-settled principles involving decisions of administrative agencies, deserves scant consideration as the decision of the HLURB in this case is manifestly not supported by law and jurisprudence.

 

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a president of DPDCI.  To accord petitioners the right to demand compliance with the commitment under the said brochure is to allow them to profit by their own act.  This, the Court cannot tolerate.

 

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition, however, is without prejudice to any action that the parties may rightfully file in the proper forum.

 

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Republic of the Philippines

Supreme Court

BaguioCity

 

THIRD DIVISION

 

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM Petitioners,       – versus –           DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC.                                     Respondent.

G.R. No. 194024   Present:   VELASCO, JR., J., Chairperson, PERALTA, ABAD, MENDOZA, and PERLAS-BERNABE, JJ.         Promulgated:          April 25, 2012

X ————————————————————————————– X

 

D E C I S I O N

 

 

MENDOZA, J.:

 

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the March 17, 2010 Decision[34][1] and October 7, 2010 Resolution[35][2] of the Court of Appeals (CA) in CA-G.R. SP No. 110013 entitled “Distinction Properties Development & Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim.”

Factual and Procedural Antecedents:

 

        Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of condominium units in Phoenix Heights Condominium located atH. Javier/Canley Road, Bo. Bagong Ilog,PasigCity, MetroManila.

Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation existing under the laws of thePhilippines with principal office atNo. 1020 Soler Street, Binondo,Manila.  It was incorporated as a real estate developer, engaged in the development of condominium projects, among which was the Phoenix Heights Condominium. 

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI, executed a Master Deed and Declaration of Restrictions (MDDR)[36][3] of Phoenix Heights Condominium, which was filed with the Registry of Deeds.  As the developer, DPDCI undertook, among others, the marketing aspect of the project, the sale of the units and the release of flyers and brochures.

 

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and incorporated.  Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the condominium units, except for the two saleable commercial units/spaces:

 

1. G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as the PHCC’s  administration office, and

 

1. G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the building administrator.

 

Although used by PHCC, DPDCI was assessed association dues for these two units.

 

Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for Alteration of Plan[37][4] pertaining to the construction of 22 storage units in the spaces adjunct to the parking area of the building.  The application, however, was disapproved as the proposed alteration would obstruct light and ventilation.

 

In August 2004, through its Board,[38][5] PHCC approved a settlement offer from DPDCI for the set-off of the latter’s association dues arrears with the assignment of title over CCT Nos. 21030 and PT-27396/C-136-II and their conversion into common areas.  Thus, CCT Nos. PT-43400 and PT-43399 were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles.  The said settlement between the two corporations likewise included the reversion of the 22 storage spaces into common areas.  With the conformity of PHCC, DPDCI’s application for alteration (conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common areas) was granted by the Housing and Land Use Regulatory Board (HLURB).[39][6]

 

In August 2008, petitioners, as condominium unit-owners, filed a complaint[40][7] before the HLURB against DPDCI for unsound business practices and violation of the MDDR.  The case was docketed as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated flyers and brochures as to the facilities or amenities that would be available in the condominium and failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public concerning the facilities in the condominium. It alleged that the brochure attached to the complaint was “a mere preparatory draft” and not the official one actually distributed to the public, and that the said brochure contained a disclaimer as to the binding effect of the supposed offers therein.  Also, DPDCI questioned the petitioners’ personality to sue as the action was a derivative suit.

 

After due hearing, the HLURB rendered its decision[41][8] in favor of petitioners.  It held as invalid the agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject units into common areas, which it previously approved, for the reason that it was not approved by the majority of the members of PHCC as required under Section 13 of the MDDR.  It stated that DPDCI’s defense, that the brochure was a mere draft, was against human experience and a convenient excuse to avoid its obligation to provide the facility of the project.  The HLURB further stated that the case was not a derivative suit but one which involved contracts of sale of the respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to Section 1, Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers’ Protective Decree), as amended.  The decretal portion of the HLURB decision reads:

 

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

 

1. Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the mezzanine floor.

 

1. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, and ordering respondent to continue paying the condominium dues for these units, with interest and surcharge.

 

1. 3.           Ordering the Respondent to pay the sum of Php998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

 

1. 4.           Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00, representing the cost of the deep well, with interests and surcharges with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

 

1. Ordering the Respondent to pay the complainants moral and exemplary damages in the amount of ₱10,000.00 and attorney’s fees in the amount of ₱10,000.00.

 

All other claims and counterclaims are hereby dismissed accordingly.

 

          IT IS SO ORDERED.[42][9]

 

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition[43][10] dated August 11, 2009, on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.

 

On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of DPDCI as follows:

 

WHEREFORE, in view of the foregoing, the petition is GRANTED.  Accordingly, the assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE and a new one is entered DISMISSING the Complaint a quo.

 

IT IS SO ORDERED.[44][11]

 

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the controversy did not fall within the scope of the administrative agency’s authority under P.D. No. 957.  The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to support its finding of contractual violation.                                                                                                                                                                                                                                                                                                                                                        

 

The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived by estoppel.  Citing Carandang v. Heirs of De Guzman,[45][12] it held that, in any event, the action should be dismissed because the absence of PHCC, an indispensable party, rendered all subsequent actuations of the court void, for want of authority to act, not only as to the absent parties but even as to those present.

 

Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed.  Appeal was not a speedy and adequate remedy as jurisdictional questions were continuously raised but ignored by the HLURB.  In the present case, however, “[t]he bottom line is that the challenged decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction.”[46][13]

 

Petitioners filed a motion for reconsideration[47][14] of the said decision.  The motion, however, was denied by the CA in its Resolution dated October 7, 2010.

 

Hence, petitioners interpose the present petition before this Court anchored on the following

 

GROUNDS

 

(1)

THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO JURISDICTION OVER THE INSTANT CASE;

(2)

          THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;

 

(3)

THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB;  and

 

(4)

THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR EVEN FINALITY TO THE FINDINGS OF THE HLURB.[48][15]

 

 

Petitioners contend that the HLURB has jurisdiction over the subject matter of this case.  Their complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the latter’s contractual obligation under their individual contracts to provide a back-up water system as part of the amenities provided for in the brochure, together with an administration office, proper gym facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its obligations enumerated in the said complaint squarely put their case within the ambit of Section 1, P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the HLURB.  Likewise, petitioners argue that the case was not a derivative suit as they were not suing for and in behalf of PHCC.  They were suing, in their individual capacities as condominium unit buyers, their developer for breach of contract.  In support of their view that PHCC was not an indispensable party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete relief between or among the existing parties may be obtained without the presence of PHCC as a party to this case.  Petitioners further argue that DPDCI’s petition before the CA should have been dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a decision of a regional officer.

 

DPDCI, in its Comment,[49][16] strongly objects to the arguments of petitioners and insists that the CA did not err in granting its petition.  It posits that the HLURB has no jurisdiction over the complaint filed by petitioners because the controversies raised therein are in the nature of “intra-corporate disputes.” Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and P.D. No. 1344.  According to DPDCI, petitioners sought to address the invalidation of the corporate acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC should have been impleaded as a party to the complaint.  Its non-inclusion as an indispensable party warrants the dismissal of the case.  DPDCI further avers that the doctrine of exhaustion is inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the challenged administrative act is patently illegal; and that the procedure of the HLURB does not provide a plain, speedy and adequate remedy and its application may cause great and irreparable damage.  Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same having been issued without jurisdiction.

 

Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on exhaustion of administrative remedies applies in this case.

 

The petition fails.

 

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.[50][17] Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.[51][18]

 

 Generally, the extent to which an administrative agency may exercise its powers depends largely, if not wholly, on the provisions of the statute creating or empowering such agency.[52][19] With respect to the HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination of the laws defining the HLURB’s jurisdiction and authority becomes imperative.  P.D. No. 957,[53][20] specifically Section 3, granted the National Housing Authority (NHA) the “exclusive jurisdiction to regulate the real estate trade and business.” Then came P.D. No. 1344[54][21] expanding the jurisdiction of the NHA (now HLURB), as follows:

SECTION 1.  In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a)  Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.

 

This provision must be read in light of the law’s preamble, which explains the reasons for enactment of the law or the contextual basis for its interpretation.[55][22]  A statute derives its vitality from the purpose for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[56][23] P.D. No. 957, as amended, aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices.[57][24]

 

The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute unsound business practice or breach of contractual obligations in the real estate trade.  This grant of expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision lots or condominium units automatically fall under its jurisdiction.  The CA aptly quoted the case of Christian General Assembly, Inc. v. Ignacio,[58][25] wherein the Court held that:

 

The mere relationship between the parties, i.e., that of being subdivision owner/developer and subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned administrative agency, the National Housing Authority (NHA) before and now the HLURB, has jurisdiction over complaints aimed at compelling the subdivision developer to comply with its contractual and statutory obligations.[59][26] [Emphases supplied]

 

 

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought.  A perusal of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of  PHCC – the April 29, 2005 Agreement[60][27] entered into by PHCC with DPDCI and its Board Resolution[61][28] which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units from saleable to common areas.  All these were approved by the HLURB.  Specifically, the reliefs sought or prayers are the following:

 

1. Ordering the respondent to restore the gym to its original location;

 

1. Ordering the respondent to restore the hallway at the second floor;

 

1. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, ordering respondent to continue paying the condominium dues for these units, with interest and surcharge;

 

1. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public;

 

1. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00, representing the cost of the deep well, with interests and surcharges;

 

1. Ordering the respondent to pay the complainants moral/exemplary damages in the amount of PHP100,000.00; and

 

1. Ordering the respondent to pay the complainant attorney’s fees in the amount of PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.[62][29] 

 

 

 As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party, PHCC.

 

 An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest.[63][30] In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,[64][31] the Court had the occasion to state that:

 

Under Section 7, Rule 3 of the Rules of Court, “parties in interest without whom no final determination can be had of an action shall be joined as plaintiffs or defendants.” If there is a failure to implead an indispensable party, any judgment rendered would have no effectiveness. It is “precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’ The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even to those present.” The purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between the parties themselves, but also as regards other persons who may be affected by the judgment. A decision valid on its face cannot attain real finality where there is want of indispensable parties.[65][32] (Underscoring supplied)

 

        Similarly, in the case of Plasabas v. Court of Appeals,[66][33] the Court held that a final decree would necessarily affect the rights of indispensable parties so that the Court could not proceed without their presence.  In support thereof, the Court in Plasabas cited the following authorities, thus:

 

“The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme Court has held that when it appears of record that there are other persons interested in the subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in the court, the same should be dismissed. x x x When an indispensable party is not before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)

“Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the whole matter in dispute may be determined once and for all in one litigation. (Palarca v. Baginsi, 38 Phil. 177, 178).

 

From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a defendant,[67][34] in the complaint filed before the HLURB as it would be directly and adversely affected by any determination therein.  To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC as a corporate body.  Note that in the judgment rendered by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC; and (2) to refund to PHCC ₱1,277,500.00, representing the cost of the deep well, with interests and surcharges.  Also, the HLURB declared as illegal the agreement regarding the conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a party.

 

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same except through a derivative suit.  In the complaint, however, there was no allegation that the action was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative suit.[68][35]  In the cited case of Chua v. Court of Appeals,[69][36] the Court ruled:

 

        For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. (Underscoring supplied)

 

 

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment.  The CA was, thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

 

 To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

 

Section 13.  Amendment.  After the corporation shall have been created, organized and operating, this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to the Corporation By Laws and subject to the provisions of the Condominium Act.

 

        This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the MDDR.  It should be stressed that petitioners are not asking for any change or modification in the terms of the MDDR. What they are really praying for is a declaration that the agreement regarding the alteration/conversion is illegal.  Thus, the Court sustains the CA’s finding that:

 

        There was nothing in the records to suggest that DPDCI sought the amendment of a part or the whole of such MDDR.  The cited section is somewhat consistent only with the principle that an amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders holding more than 50% of the shares.  The MDDR does not contemplate, by such provision, that all corporate acts ought to be with the concurrence of a majority of the unit owners.[70][37]

 

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate.  This action, therefore, partakes the nature of an “intra-corporate controversy,” the jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court (RTC), pursuant to Section 5b of P.D. No.  902-A,[71][38] as amended by Section 5.2 of Republic Act (R.A.) No. 8799.[72][39]

 

An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.”[73][40]

 

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners.  In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,[74][41] an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799.

 

    As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court again agrees with the position of the CA that the circumstances prevailing in this case warranted a relaxation of the rule.

 

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust of the rule is that courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence.[75][42]  It has been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules.  In the case of Republic of the Philippines v. Lacap,[76][43] the Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings.[77][44] [Underscoring supplied] 

 

The situations (b) and (e) in the foregoing enumeration obtain in this case. 

 

        The challenged decision of the HLURB is patently illegal having been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction.  Also, the issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law.  As the Court wrote in Vigilar v. Aquino:[78][45]

 

 

        It does not involve an examination of the probative value of the evidence presented by the parties. There is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be resolved only tentatively by the administrative authorities. The final decision on the matter rests not with them but with the courts of justice. Exhaustion of administrative remedies does not apply, because nothing of an administrative nature is to be or can be done. The issue does not require technical knowledge and experience but one that would involve the interpretation and application of law.   

 

        Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the HLURB.  Their reliance on the case of Dangan v. NLRC,[79][46] reiterating the well-settled principles involving decisions of administrative agencies, deserves scant consideration as the decision of the HLURB in this case is manifestly not supported by law and jurisprudence.

 

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a president of DPDCI.  To accord petitioners the right to demand compliance with the commitment under the said brochure is to allow them to profit by their own act.  This, the Court cannot tolerate.

 

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition, however, is without prejudice to any action that the parties may rightfully file in the proper forum.

 

WHEREFORE, the petition is DENIED.

 

SO ORDERED.

 

 

 

                                                                  JOSE CATRAL MENDOZA                                                                           Associate Justice

 

 

 

 

 

 

WE CONCUR:

 

 

 

 

 

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

 

 

 

 

DIOSDADO M. PERALTA                        ROBERTO A. ABAD

            Associate Justice                                  Associate Justice

 

 

 

 

ESTELA M. PERLAS-BERNABE

Associate Justice       

 

 

A T T E S T A T I O N

 

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

        PRESBITERO J. VELASCO, JR.

                      Associate Justice

                                                               Chairperson, Third Division

 

 

C E R T I F I C A T I O N

 

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

                                                           RENATO C. CORONA

                                                                   Chief Justice

 

 

CASE 2012-0054: COMMISSIONER OF INTERNAL REVENUE VS. PILIPINAS SHELL PETROLEUM CORPORATION (G.R. NO. 188497, APRIL 25, 2012, VILLARAMA, JR., J.) SUBJECT/S: WHAT IS EXCISE TAX; WHAT IS INDIRECT TAX?  DIFFERENCE BETWEEN TAX LIABILITY AND TAX BURDEN; WHEN TAX EXEMPTION IS ALLOWED; STRICT INTERPRETATION OF TAX EXEMPTION AGAINST THE TAXPAYER. (BRIEF TITLE: CIR VS. PILIPINAS SHELL)

 

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

 

 

DISPOSITIVE:

 

WHEREFORE, the petition for review on certiorari is GRANTED.  The Decision dated March 25, 2009 and Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby REVERSED and SET ASIDE.   The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum Corporation are DENIED for lack of basis.

No pronouncement as to costs.

SO ORDERED.

 

 

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

 

 

SUBJECTS/DOCTRINES/DIGEST:

 

 

WHO SHALL CLAIM REFUND OF EXCISE TAXES ON PETROLEUM PRODUCTS SOLD TO INTERNATIONAL CARRIERS?

 

 

BASED ON PREVIOUS CASES THE STATUTORY TAXPAYER, THE LOCAL MANUFACTURER OF THE PETROLEUM PRODUCTS WHO IS DIRECTLY LIABLE FOR THE PAYMENT OF EXCISE TAX ON THE SAID GOODS, IS THE PROPER PARTY TO SEEK A TAX REFUND.

 

(NOTE: THE ISSUE RAISED IN THIS CASE IS DIFFERENT: WHETHER PILIPINAS SHELL CAN CLAIM TAX REFUNDS FOR EXCISE TAXES THEY PAY WHICH WERE NOT PASSED ON TO INTERNATIONAL CARRIERS WHO ARE EXEMPT FROM EXCISE TAXES. THE PRICE OF OIL TO THESE INTERNATIONAL CARRIERS DO NOT INCLUDE EXCISE TAXES.)

 

In the previous cases^[1][15]  decided by this Court involving excise taxes on petroleum products sold to international carriers, what was only resolved is the question of who is the proper party to claim the refund of excise taxes paid on petroleum products if such tax was either paid by the international carriers themselves or incorporated into the selling price of the petroleum products sold to them.  We have ruled in the said cases that the statutory taxpayer, the local manufacturer of the petroleum products who is directly liable for the payment of excise tax on the said goods, is the proper party to seek a tax refund. Thus, a foreign airline company who purchased locally manufactured petroleum products for use in its international flights, as well as a foreign oil company who likewise bought petroleum products from local manufacturers and later sold these to international carriers, have no legal personality to file a claim for tax refund or credit of excise taxes previously paid by the local manufacturers even if the latter passed on to the said buyers the tax burden in the form of additional amount in the price.

XXXXXXXXXXXXXXX

 

WHAT ARE EXCISE TAXES?

 

TAXES APPLICABLE TO CERTAIN GOODS PRODUCED IN THE PHILIPPINES AND TO CERTAIN GOODS IMPORTED INTO THE PHILIPPINES. THESE TAXES ARE IN ADDITION TO VAT.

 

Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT).^[2][16]

XXXXXXXXXXXXXXX

 

SEC 148 OF NIRC PROVIDES THAT EXCISE TAXES ATTACH TO PETROLEUM PRODUCTS AS SOON AS THEY ARE IN EXISTENCE. SECTION 135 PROVIDES THAT INTERNATIONAL CARRIERS ARE EXEMPT FROM PAYMENT OF EXCISE TAXES ON PETROLEUM PRODUCTS. PILIPINAS SHELL PAID EXCISE TAXES ON PETROLEUM PRODUCTS SOLD  TO INTERNATIONAL CARRIERS. THE EXCISE TAXES ON THESE PRODUCTS WERE NOT PASSED ON TO INTERNATIONAL CARRIERS DUE TO SUCH EXEMPTION.  IS PILIPINAS SHELL ENTITLED TO TAX REFUND?

 

NO. A TAX EXEMPTION BEING ENJOYED BY THE BUYER CANNOT BE THE BASIS OF A CLAIM FOR TAX EXEMPTION BY THE MANUFACTURER OR SELLER OF THE GOODS FOR ANY TAX DUE TO IT AS THE MANUFACTURER OR SELLER.

 

As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and manufactured mineral oils and motor fuels as soon as they are in existence as such:

(a)    Lubricating oils and greases;

(b)    Processed gas;

(c)    Waxes and petrolatum;

(d)    Denatured alcohol to be used for motive power;

(e)    Naphtha, regular gasoline and other similar products of distillation;

(f)     Leaded premium gasoline;

(g)    Aviation turbo jet fuel;

(h)    Kerosene;

(i)     Diesel fuel oil, and similar fuel oils having more or less the same generating power;

(j)     Liquefied petroleum gas;

(k)    Asphalts; and

(l)     Bunker fuel oil and similar fuel oils having more or less the same generating capacity.  

Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous petroleum are required to be paid before their removal from the place of production.^[3][17]  However, Sec. 135 provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

(c)  Entities which are by law exempt from direct and indirect taxes.

………………………………

        In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue^[4][22] this Court held that petitioner manufacturer who sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax simply because its buyer NPC is exempt from taxation.  The Court explained that the percentage tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer.

        Respondent attempts to distinguish this case from Philippine Acetylene Co., Inc. on grounds that what was involved in the latter is a tax on the transaction (sales) and not excise tax which is a tax on the goods themselves, and that the exemption sought therein was anchored merely on the tax-exempt status of the buyer and not a specific provision of law exempting the goods sold from the excise tax.  But as already stated, the language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified buyers or consumers of the excisable articles or goods (petroleum products).  Unlike Sec. 134 which explicitly exempted the article or goods itself  (domestic denatured alcohol) without due regard to the tax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to international carriers and other tax-exempt agencies and entities. 

Considering that the excise taxes attaches to petroleum products “as soon as they are in existence as such,”^[5][23]  there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers. The sole basis then of respondent’s claim for refund is the express grant of excise tax exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum products.  Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller.   The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are international carriers.

XXXXXXXXXXXXXX

 

BUT EXCISE TAXES ARE BASICALLY AN INDIRECT TAX WHICH MEANS THAT THESE CAN BE PASSED ON TO THE BUYER. IN OTHER WORDS, THE SELLER RECOVERS WHAT IT PAYS FOR EXCISE TAXES. WHY COULD PILIPINAS SHELL NOT RECOVER THE EXCISE TAXES IT PAID FOR THE PETROLEUM PRODUCTS SOLD TO INTERNATIONAL CARRIERS?

 

BECAUSE WHAT PILIPINAS SHELL CAN PASS TO ITS BUYER  IS ONLY THE TAX BURDEN NOT THE TAX LIABILITY. PILIPINAS SHELL HAS THE TAX LIABILITY. SINCE INTERNATIONAL CARRIERS ARE EXEMPT FROM EXCISE TAX SUCH BURDEN CANNOT BE PASSED TO THEM.

In Maceda v. Macaraig, Jr.,^[6][24] the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be shifted to the buyer:

          On the other hand, “indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else”. For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the “cash” and/or “selling price.”

        An excise tax is basically an indirect tax.  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 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, 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.^[7][25]

Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC.  Thus:

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC.  By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold.  Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation.  This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes.   This means also, on the other hand, that the NPC may refuse to pay that part of the “normal” purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR.  If NPC nonetheless purchases such oil from the oil companies – because to do so may be more convenient and ultimately less  costly for NPC than NPC itself importing and hauling and storing the oil from overseas – NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to the BIR.^[8][26]  (Emphasis supplied.)

…………………………….

Contrary to respondent’s assertion that the above amendment to the former provision of the 1977 Tax Code supports its position that it was not liable for excise tax on the petroleum products sold to international carriers, we find that no such inference can be drawn from the words used in the amended provision or its introductory part.  Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted exemption from payment of excise tax but only to foreign international carriers who are allowed to purchase petroleum products free of specific tax provided the country of said carrier also grants tax exemption to Philippine carriers.   Both the earlier amendment in the 1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies from the payment of excise tax on petroleum products manufactured and sold by them to international carriers.

        Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers, and  absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden  of the excise tax to the international carriers who buys petroleum products from the local manufacturers.  Said provision thus merely allows the international carriers to purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers or distributors/sellers.  Consequently, the oil companies which sold such petroleum products to international carriers are not entitled to a refund of excise taxes previously paid on the goods.

XXXXXXXXXXXXXXXXXXXX

 

BUT CAN PILIPINAS SHELL NOT INVOKE THE PRINCIPLE OF EQUITY?

 

NO. THE TAX REFUND IT SEEKS IS IN THE NATURE OF TAX EXEMPTION. IT CANNOT BE PRESUMED NOR ALLOWED SOLELY ON GROUND OF EQUITY. IT MUST BE JUSTIFIED BY WORDS TOO PLAIN TO BE MISTAKEN AND TOO CATEGORICAL TO BE MISINTERPRETED. TAX EXEMPTION SHOULD BE GRANTED ONLY BY A CLEAR AND UNEQUIVOCAL PROVISION OF LAW ON THE BASIS OF LANGUAGE TOO PLAIN TO BE MISTAKEN.

XXXXXXXXXXXXX

 

WHY SHOULD TAX EXEMPTIONS BE STRICTLY CONSTRUED AGAINST THE TAX PAYER?

 

BECAUSE TAXES ARE THE LIFEBLOOD OF THE GOVERNMENT.

 

Time and again, we have held that tax refunds are in the nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted,^[9][29] it is never presumed^[10][30] nor be allowed solely on the ground of equity.^[11][31]  These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government.^[12][32]

 

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

 

FIRST DIVISION

 

COMMISSIONER  OF INTERNAL REVENUE,                            Petitioner,                       – versus –	G.R. No. 188497          Present:          CORONA, C.J.,                 Chairperson,        LEONARDO-DE CASTRO,        BERSAMIN,       DELCASTILLO, and        VILLARAMA, JR., JJ.
PILIPINAS SHELL PETROLEUM CORPORATION,                         Respondent.	Promulgated:          April 25, 2012

  x- – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

 

DECISION

 

VILLARAMA, JR., J.:

        Petitioner Commissioner of Internal Revenue appeals the Decision^[13][1] dated March 25, 2009 and Resolution^[14][2] dated June 24, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 415.  The CTA dismissed the petition for review filed by petitioner assailing the CTA First Division’s Decision^[15][3] dated April 25, 2008 and Resolution^[16][4] dated July 10, 2008 which ordered petitioner to refund the excise taxes paid by respondent Pilipinas Shell Petroleum Corporation on petroleum products it sold to international carriers.

        The facts are not disputed.

        Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of producing marketable products and the subsequent sale thereof.^[17][5]

        On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to December 2001.  Subsequently, on October 21, 2002, a similar claim for refund or tax credit was filed by respondent with the BIR covering the period January to March 2002 in the amount of P41,614,827.99.  Again, on July 3, 2003, respondent filed another formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002.^[18][6]  

        Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the CTA on September 19, 2003 and December 23, 2003, docketed as CTA Case Nos. 6775 and 6839, respectively. 

        In its decision on the consolidated cases, the CTA’s First Division ruled that respondent is entitled to the refund of excise taxes in the reduced amount of P95,014,283.00.  The CTA First Division relied on a previous ruling rendered by the CTA En Banc in the case of “Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue”^[19][7] where the CTA also granted respondent’s claim for refund on the basis of excise tax exemption for petroleum products sold to international carriers of foreign registry for their use or consumption outside the Philippines.  Petitioner’s motion for reconsideration was denied by the CTA First Division.

        Petitioner elevated the case to the CTA En Banc which upheld the ruling of the First Division.  The CTA pointed out the specific exemption mentioned under Section 135 of the National Internal Revenue Code of 1997 (NIRC) of petroleum products sold to international carriers such as respondent’s clients.  It said that this Court’s ruling in Maceda v. Macaraig, Jr.^[20][8] is inapplicable because said case only put to rest the issue of whether or not the National Power Corporation (NPC) is subject to tax considering that NPC is a tax-exempt entity mentioned in Sec. 135 (c) of the NIRC (1997), whereas the present case involves the tax exemption of the sale of petroleum under Sec. 135 (a) of the same Code.  Further, the CTA said that the ruling in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue^[21][9] likewise finds no application because the party asking for the refund in said case was the seller-producer based on the exemption granted under the law to the tax-exempt buyers, NPC and Voice of America (VOA), whereas in this case it is the article or product which is exempt from tax and not the international carrier. 

        Petitioner filed a motion for reconsideration which the CTA likewise denied.

        Hence, this petition anchored on the following grounds:

I

SECTION 148 OF THE NATIONAL INTERNAL REVENUE CODE EXPRESSLY SUBJECTS THE PETROLEUM PRODUCTS TO AN EXCISE TAX BEFORE THEY ARE REMOVED FROM THE PLACE OF PRODUCTION.

II

THE ONLY SPECIFIC PROVISION OF THE LAW WHICH GRANTS TAX CREDIT OR TAX REFUND OF THE EXCISE TAXES PAID REFERS TO THOSE CASES WHERE GOODS LOCALLY PRODUCED OR MANUFACTURED ARE ACTUALLY EXPORTED WHICH IS NOT SO IN THIS CASE.

 

III

THE PRINCIPLES LAID DOWN IN MACEDA VS. MACARAIG, JR. AND PHILIPPINE ACETYLENE CO. VS. CIR ARE APPLICABLE TO THIS CASE.^[22][10]

        The Solicitor General argues that the obvious intent of the law is to grant excise tax exemption to international carriers and exempt entities as buyers of petroleum products and not to the manufacturers or producers of said goods.  Since the excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production, respondent paid the subject excise taxes as manufacturer or producer of the petroleum products pursuant to Sec. 148 of the NIRC.  Thus, regardless of who the buyer/purchaser is, the excise tax on petroleum products attached to the said goods before their sale or delivery to international carriers, as in fact respondent averred that it paid the excise tax on its petroleum products when it “withdrew petroleum products from its place of production for eventual sale and delivery to various international carriers as well as to other customers.”^[23][11]  Sec. 135 (a) and (c) granting exemption from the payment of excise tax on petroleum products can only be interpreted to mean that the respondent cannot pass on to international carriers and exempt agencies the excise taxes it paid as a manufacturer or producer.

        As to whether respondent has the right to file a claim for refund or tax credit for the excise taxes it paid for the petroleum products sold to international carriers, the Solicitor General contends that Sec. 130 (D) is explicit on the circumstances under which a taxpayer may claim for a refund of excise taxes paid on manufactured products, which express enumeration did not include those excise taxes paid on petroleum products which were eventually sold to international carriers (expressio unius est exclusio alterius). Further, the Solicitor General asserts that contrary to the conclusion made by the CTA, the principles laid down by this Court in  Maceda v. Macaraig, Jr.^[24][12] and Philippine Acetylene Co. v. Commissioner of Internal Revenue^[25][13] are applicable to this case.  Respondent must shoulder the excise taxes it previously paid on petroleum products which it later sold to international carriers because it cannot pass on the tax burden to the said international carriers which have been granted exemption under Sec. 135 (a) of the NIRC.  Considering that respondent failed to prove an express grant of a right to a tax refund, such claim cannot be implied; hence, it must be denied.   

        On the other hand, respondent maintains that since petroleum products sold to qualified international carriers are exempt from excise tax, no taxes should be imposed on the article, to which goods the tax attaches, whether in the hands of the said international carriers or the petroleum manufacturer or producer.  As these excise taxes have been erroneously paid taxes, they can be recovered under Sec. 229 of the NIRC.  Respondent contends that contrary to petitioner’s assertion, Sections 204 and 229 authorizes respondent to maintain a suit or proceeding to recover such erroneously paid taxes on the petroleum products sold to tax-exempt international carriers.

        As to the jurisprudence cited by the petitioner, respondent argues that they are not applicable to the case at bar.  It points out that Maceda v. Macaraig, Jr. is an adjudication on the issue of tax exemption of NPC from direct and indirect taxes given the passage of various laws relating thereto.  What was put in issue in said case was NPC’s right to claim for refund of indirect taxes.  Here, respondent’s claim for refund is not anchored on the exemption of the buyer from direct and indirect taxes but on the tax exemption of the goods themselves under Sec. 135.  Respondent further stressed that in Maceda v. Macaraig, Jr., this Court recognized that if NPC purchases oil from oil companies, NPC is entitled to claim reimbursement from the BIR for that part of the purchase price that represents excise taxes paid by the oil company to the BIR.  Philippine Acetylene Co. v. CIR, on the other hand, involved sales tax, which is a tax on the transaction, which this Court held as due from the seller even if such tax cannot be passed on to the buyers who are tax-exempt entities.  In this case, the excise tax is a tax on the goods themselves.  While indeed it is the manufacturer who has the duty to pay the said tax, by specific provision of law, Sec. 135, the goods are stripped of such tax under the circumstances provided therein.  Philippine Acetylene Co., Inc. v. CIR was thus not anchored on an exempting provision of law but merely on the argument that the tax burden cannot be passed on to someone.  

Respondent further contends that requiring it to shoulder the burden of excise taxes on petroleum products sold to international carriers would effectively defeat the principle of international comity upon which the grant of tax exemption on aviation fuel used in international flights was founded.  If the excise taxes paid by respondent are not allowed to be refunded or credited based on the exemption provided in Sec. 135 (a), respondent avers that the manufacturers or oil companies would then be constrained to shift the tax burden to international carriers in the form of addition to the selling price. 

Respondent cites as an analogous case Commissioner of International Revenue v. Tours Specialists, Inc.^[26][14] which involved the inclusion of hotel room charges remitted by partner foreign tour agents in respondent TSI’s gross receipts for purposes of computing the 3% contractor’s tax.  TSI opposed the deficiency assessment invoking, among others, Presidential Decree No. 31, which exempts foreign tourists from paying hotel room tax.  This Court upheld the CTA in ruling that while CIR may claim that the 3% contractor’s tax is imposed upon a different incidence, i.e., the gross receipts of the tourist agency which he asserts includes the hotel room charges entrusted to it, the effect would be to impose a tax, and though different, it nonetheless imposes a tax actually on room charges.  One way or the other, said the CTA, it would not have the effect of promoting tourism in thePhilippines as that would increase the costs or expenses by the addition of a hotel room tax in the overall expenses of said tourists.

The instant petition squarely raised the issue of whether respondent as manufacturer or producer of petroleum products is exempt from the payment of excise tax on such petroleum products it sold to international carriers. 

In the previous cases^[27][15]  decided by this Court involving excise taxes on petroleum products sold to international carriers, what was only resolved is the question of who is the proper party to claim the refund of excise taxes paid on petroleum products if such tax was either paid by the international carriers themselves or incorporated into the selling price of the petroleum products sold to them.  We have ruled in the said cases that the statutory taxpayer, the local manufacturer of the petroleum products who is directly liable for the payment of excise tax on the said goods, is the proper party to seek a tax refund. Thus, a foreign airline company who purchased locally manufactured petroleum products for use in its international flights, as well as a foreign oil company who likewise bought petroleum products from local manufacturers and later sold these to international carriers, have no legal personality to file a claim for tax refund or credit of excise taxes previously paid by the local manufacturers even if the latter passed on to the said buyers the tax burden in the form of additional amount in the price.

Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT).^[28][16]

As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and manufactured mineral oils and motor fuels as soon as they are in existence as such:

(a)    Lubricating oils and greases;

(b)    Processed gas;

(c)    Waxes and petrolatum;

(d)    Denatured alcohol to be used for motive power;

(e)    Naphtha, regular gasoline and other similar products of distillation;

(f)     Leaded premium gasoline;

(g)    Aviation turbo jet fuel;

(h)    Kerosene;

(i)     Diesel fuel oil, and similar fuel oils having more or less the same generating power;

(j)     Liquefied petroleum gas;

(k)    Asphalts; and

(l)     Bunker fuel oil and similar fuel oils having more or less the same generating capacity.  

Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous petroleum are required to be paid before their removal from the place of production.^[29][17]  However, Sec. 135 provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

(c)  Entities which are by law exempt from direct and indirect taxes.

        Respondent claims it is entitled to a tax refund because those petroleum products it sold to international carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal of those products were erroneously or illegally collected and should not have been paid in the first place.  Since the excise tax exemption attached to the petroleum products themselves, the manufacturer or producer is under no duty to pay the excise tax thereon.

        We disagree.

        Under Chapter II “Exemption or Conditional Tax-Free Removal of Certain Goods” of Title VI, Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax exemptions.  While the exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer.  Respondent’s failure to make this important distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) “attaches to the goods themselves” such that the excise tax should not have been paid in the first place.

On July 26, 1996, petitioner Commissioner issued Revenue Regulations 8-96^[30][18] (“Excise Taxation of Petroleum Products”) which provides:

SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, Non-Metallic Minerals and Indigenous Petroleum –

I.  Petroleum Products

                   x x x x

a)           On locally manufactured petroleum products

      The specific tax on petroleum products locally manufactured or produced in the Philippinesshall be paid by the manufacturer, producer, owner or person having possession of the same, and such tax shall be paid within fifteen (15) days from date of removal from the place of production. (Underscoring supplied.)              

Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of payment of specific tax, the company is liable to pay the specific tax on the date of purchase.^[31][19]  Since the excise tax must be paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund on the theory that the excise taxes due thereon should not have been collected or paid in the first place.

        Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected.  An “erroneous or illegal tax” is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal.^[32][20]

        Respondent’s locally manufactured petroleum products are clearly subject to excise tax under Sec. 148.  Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. Respondent’s claim is premised on what it determined as a tax exemption “attaching to the goods themselves,” which must be based on a statute granting tax exemption, or “the result of legislative grace.” Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute.^[33][21]

The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on international carriers who purchased the same for their use or consumption outside thePhilippines.  The only condition set by law is for these petroleum products to be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

        On January 22, 2008, or five years after the sale by respondent of the subject petroleum products, then Secretary of Finance Margarito B. Teves  issued Revenue Regulations No. 3-2008  “Amending Certain Provisions of Existing Revenue Regulations on the Granting of Outright Excise Tax Exemption on Removal of Excisable Articles Intended for Export or Sale/Delivery to International Carriers or to Tax-Exempt Entities/Agencies and Prescribing the Provisions for Availing Claims for Product Replenishment.”   Said issuance recognized the “tax relief to which the taxpayers are entitled” by availing of  the following remedies: (a) a claim for excise tax exemption pursuant to Sections 204 and 229 of the NIRC; or (2) a product replenishment.

SEC. 2. IMPOSITION OF EXCISE TAX ON REMOVAL OF EXCISABLE ARTICLES FOR EXPORT OR SALE/DELIVERY TO INTERNATIONAL CARRIERS AND OTHER TAX-EXEMPT ENTITIES/AGENCIES. – Subject to the subsequent filing of a claim for excise tax credit/refund or product replenishment, all manufacturers of articles subject to excise tax under Title VI of the NIRC of 1997, as amended, shall pay the excise tax that is otherwise due on every removal thereof from the place of production that is intended for exportation or sale/delivery to international carriers or to tax-exempt entities/agencies: Provided, That in case the said articles are likewise being sold in the domestic market, the applicable excise tax rate shall be the same as the excise tax rate imposed on the domestically sold articles.

In the absence of a similar article that is being sold in the domestic market, the  applicable excise tax shall be computed based on the value appearing in the manufacturer’s sworn statement converted to Philippine currency, as may be applicable.

x x x x (Emphasis supplied.)

          In this case, however, the Solicitor General has adopted a position contrary to existing BIR regulations and rulings recognizing the right of oil companies to seek a refund of excise taxes paid on petroleum products they sold to international carriers.  It is argued that there is nothing in Sec. 135 (a) which explicitly grants exemption from the payment of excise tax in favor of oil companies selling their petroleum products to international carriers and that the only claim for refund of excise taxes authorized by the NIRC is the payment of excise tax on exported goods, as explicitly provided in Sec. 130 (D), Chapter I under the same Title VI:

(D)  Credit for Excise Tax on Goods Actually Exported.  —  When goods locally produced or manufactured are removed and actually exported without returning to the Philippines, whether so exported in their original state or as ingredients or parts of any manufactured goods or products, any excise  tax paid thereon shall be credited or refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are actually exported.

        According to the Solicitor General, Sec. 135 (a) in relation to the other provisions on excise tax and from the nature of indirect taxation, may only be construed as prohibiting the manufacturers-sellers of petroleum products from passing on the tax to international carriers by incorporating previously paid excise taxes into the selling price.  In other words, respondent cannot shift the tax burden to international carriers who are allowed to purchase its petroleum products without having to pay the added cost of the excise tax.

        We agree with the Solicitor General.

        In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue^[34][22] this Court held that petitioner manufacturer who sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax simply because its buyer NPC is exempt from taxation.  The Court explained that the percentage tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer.

        Respondent attempts to distinguish this case from Philippine Acetylene Co., Inc. on grounds that what was involved in the latter is a tax on the transaction (sales) and not excise tax which is a tax on the goods themselves, and that the exemption sought therein was anchored merely on the tax-exempt status of the buyer and not a specific provision of law exempting the goods sold from the excise tax.  But as already stated, the language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified buyers or consumers of the excisable articles or goods (petroleum products).  Unlike Sec. 134 which explicitly exempted the article or goods itself  (domestic denatured alcohol) without due regard to the tax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to international carriers and other tax-exempt agencies and entities. 

Considering that the excise taxes attaches to petroleum products “as soon as they are in existence as such,”^[35][23]  there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers. The sole basis then of respondent’s claim for refund is the express grant of excise tax exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum products.  Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller.   The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are international carriers.

In Maceda v. Macaraig, Jr.,^[36][24] the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be shifted to the buyer:

          On the other hand, “indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else”. For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the “cash” and/or “selling price.”

        An excise tax is basically an indirect tax.  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 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, 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.^[37][25]

Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC.  Thus:

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC.  By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold.  Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation.  This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes.   This means also, on the other hand, that the NPC may refuse to pay that part of the “normal” purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR.  If NPC nonetheless purchases such oil from the oil companies – because to do so may be more convenient and ultimately less  costly for NPC than NPC itself importing and hauling and storing the oil from overseas – NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to the BIR.^[38][26]  (Emphasis supplied.)

        In the case of international air carriers, the tax exemption granted under Sec. 135 (a) is based on “a long-standing international consensus that fuel used for international air services should be tax-exempt.”  The provisions of the 1944 Convention of International Civil Aviation or the “Chicago Convention”,  which form binding international law, requires the contracting parties not to charge duty on aviation fuel already on board any aircraft that has arrived in their territory from another contracting state.  Between individual countries, the exemption of airlines from national taxes and customs duties on a range of aviation-related goods, including parts, stores and fuel is a standard element of the network of bilateral “Air Service Agreements.”^[39][27] Later, a Resolution issued by the International Civil Aviation Organization (ICAO) expanded the provision as to similarly exempt from taxes all kinds of fuel taken on board for consumption by an aircraft from a contracting state in the territory of another contracting State departing for the territory of any other State.^[40][28]  Though initially aimed at establishing uniformity of taxation among parties to the treaty to prevent double taxation, the tax exemption now generally applies to fuel used in international travel by both domestic and foreign carriers.

        On April 21, 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 1359:

PRESIDENTIAL DECREE No. 1359

AMENDING SECTION 134 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977.

WHEREAS, under the present law oil products sold to international carriers are subject to the specific tax;

WHEREAS, some countries allow the sale of petroleum products to Philippine Carriers without payment of taxes thereon;

WHEREAS, to foster goodwill and better relationship with foreign countries, there is a need to grant similar tax exemption in favor of foreign international carriers;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of thePhilippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree the following:

Section 1. Section 134 of the National Internal Revenue Code of 1977 is hereby amended to read as follows:

“Sec. 134. Articles subject to specific tax. Specific internal revenue taxes apply to things manufactured or produced in the Philippines for domestic sale or consumption and to things imported, but not to anything produced or manufactured here which shall be removed for exportation and is actually exported without returning to the Philippines, whether so exported in its original state or as an ingredient or part of any manufactured article or product.

“HOWEVER, PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL CARRIER FOR ITS USE OR CONSUMPTION OUTSIDE OF THEPHILIPPINESSHALL NOT BE SUBJECT TO SPECIFIC TAX, PROVIDED, THAT THE COUNTRY OF SAID CARRIER EXEMPTS FROM TAX PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIERS.

“In case of importations the internal revenue tax shall be in addition to the customs duties, if any.”

Section 2. This Decree shall take effect immediately.

Contrary to respondent’s assertion that the above amendment to the former provision of the 1977 Tax Code supports its position that it was not liable for excise tax on the petroleum products sold to international carriers, we find that no such inference can be drawn from the words used in the amended provision or its introductory part.  Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted exemption from payment of excise tax but only to foreign international carriers who are allowed to purchase petroleum products free of specific tax provided the country of said carrier also grants tax exemption to Philippine carriers.   Both the earlier amendment in the 1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies from the payment of excise tax on petroleum products manufactured and sold by them to international carriers.

        Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers, and  absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden  of the excise tax to the international carriers who buys petroleum products from the local manufacturers.  Said provision thus merely allows the international carriers to purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers or distributors/sellers.  Consequently, the oil companies which sold such petroleum products to international carriers are not entitled to a refund of excise taxes previously paid on the goods.

Time and again, we have held that tax refunds are in the nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted,^[41][29] it is never presumed^[42][30] nor be allowed solely on the ground of equity.^[43][31]  These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government.^[44][32]

WHEREFORE, the petition for review on certiorari is GRANTED.  The Decision dated March 25, 2009 and Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby REVERSED and SET ASIDE.   The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum Corporation are DENIED for lack of basis.

No pronouncement as to costs.

SO ORDERED.

	MARTIN S. VILLARAMA, JR. Associate Justice
WE CONCUR: RENATO C. CORONA Chief Justice Chairperson
TERESITA  J. LEONARDO-DE CASTRO Associate Justice		LUCAS P. BERSAMIN Associate Justice
MARIANO C. DEL CASTILLO Associate Justice

 

 

C E R T I F I C A T I O N

        Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

RENATO C. CORONA Chief Justice