G.R. No.

210588

SECRETARY OF FINANCE CESAR B. PURISIMA AND COMMISSIONER OF INTERNAL

REVENUE KIM S. JACINTO-HENARES, Petitioners
vs.
REPRESENTATIVE CARMELO F. LAZATIN AND ECOZONE PLASTIC ENTERPRISES
CORPORATION, Respondents

DECISION

BRION, J.:

This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 58, Angeles City,
through a petition for review on certiorari  under Rule 45 of the Rules of Court on a pure question of
1

law. The petition seeks the reversal of the November 8, 2013 decision  of the RTC in SCA Case No.
2

12-410. In the assailed decision, the RTC declared Revenue Regulation (RR) No. 2-2012
unconstitutional and without force and effect.

The Facts

In response to reports of smuggling of petroleum and petroleum products and to ensure the correct
taxes are paid and collected, petitioner Secretary of Finance Cesar V. Purisima - pursuant to his
authority to interpret tax laws  and upon the recommendation of petitioner Commissioner of Internal
3

Revenue (CIR) Kim S. Jacinto-Henares signed RR 2-2012 on February 17, 2012.

The RR requires the payment of value-added tax (VAT) and excise tax on the importation of all
petroleum and petroleum products coming directly from abroad and brought into the
Philippines, including Freeport and economic zones (FEZs).  It then allows the credit or refund of any
4

VAT or excise tax paid if the taxpayer proves that the petroleum previously brought in has been sold
to a duly registered FEZ locator and used pursuant to the registered activity of such locator.5

In other words, an FEZ locator must first pay the required taxes upon entry into the FEZ of a
petroleum product, and must thereafter prove the use of the petroleum product for the locator's
registered activity in order to secure a credit for the taxes paid.

On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District Representative,
filed a petition for prohibition and injunction  against the petitioners to annul and set aside RR 2-
6

2012.

Lazatin posits that Republic Act No. (RA) 9400  treats the Clark Special Economic Zone and Clark
7

Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate customs territory and
allows tax and duty-free importations of raw materials, capital and equipment into the zone. Thus,
the imposition of VAT and excise tax, even on the importation of petroleum products into FEZs
(like Clark FEZ), directly contravenes the law.

The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in the

proceedings as a co-petitioner and accordingly entered its appearance and moved for leave of court
to file its petition-in- intervention.
8

EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is implemented. EPEC
insists that RR 2-2012's mechanism of requiring even locators to pay the tax first and to
subsequently claim a credit or to refund the taxes paid effectively removes the locators' tax-exempt
status.

The RTC initially issued a temporary restraining order to stay the implementation of RR 2-2012. It
eventually issued a writ of preliminary injunction in its order dated April 4, 2012.

The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a petition
for certiorari  before the Court of Appeals (CA) assailing the RTC's order. The CA granted the
9

petition  and denied the respondents' subsequent motion for reconsideration.

10 11

The respondents stood their ground by filing a petition for review on certiorari before this Court (G.R.
No. 208387) to reinstate the RTC's injunction against the implementation of RR 2-2012, and by
moving for the issuance of a temporary restraining order and/or writ of preliminary injunction. We
denied the motion but nevertheless required the petitioners to comment on the petition.

The proceedings before the RTC in the meanwhile continued. On April 18, 2012, petitioner Lazatin
amended his original petition, converting it to a petition for declaratory relief.  The RTC admitted the
12

amended petition and allowed EPEC to intervene.

In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC.

First, on the procedural aspect, the RTC held that the original petition's amendment is allowed by
the rules and that amendments are largely preferred; it allowed the amendment in the exercise of its
sound judicial discretion to avoid multiplicity of suits and to give the parties an opportunity to thresh
out the issues and finally reach a conclusion. 13

Second, the R TC held that Lazatin and EPEC had legal standing to question the validity of RR 2-
2012. Lazatin's allegation that RR 2-2012 effectively amends and modifies RA 9400 gave him
standing as a legislator: the amendment of a tax law is a power that belongs exclusively to
Congress. Lazatin's allegation, according to the RTC, sufficiently shows how his rights, privileges,
and prerogatives as a member of Congress were impaired by the issuance of RR 2-2012.

The RTC also ruled that the case warrants a relaxation on the rules on legal standing because the
issues touched upon are of transcendental importance. The trial court considered the encompassing
effect that RR 2- 2012 may have in the numerous freeport and economic zones in the Philippines, as
well as its potential impact on hundreds of investors operating within the zones.

The RTC then held that even if Lazatin does not have legal standing, EPEC' s intervention cured this
defect: EPEC, as a locator within the Clark FEZ, would be adversely affected by the implementation
of RR 2-2012.

Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400 because it

imposes taxes that, by law, are not due in the first place.  Since RA 9400 clearly grants tax and duty-
14

free incentives to Clark FEZ locators, a revocation of these incentives by an RR directly contravenes
the express intent of the Legislature.  In effect, the petitioners encroached upon the prerogative to
15

enact, amend, or repeal laws, which the Constitution exclusively granted to Congress.

The Petition

The petitioners anchor their present petition on two arguments: 1) respondents have no legal
standing, and 2) RR 2-2012 is valid and constitutional.
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail the validity of
RR 2-2012.

First, the petitioners claim that Lazatin does not have the requisite legal standing as he failed to
exactly show how the implementation of RR 2-2012 would impair the exercise his official functions.
Respondent Lazatin merely generally alleged that his constitutional prerogatives to pass or amend
laws were gravely impaired or were about to be impaired by the issuance of RR 2-2012. He did not
specify the power that he, as a legislator, would be encroached upon.

While the Clark FEZ is within the district that respondent Lazatin represents, the petitioners
emphasize that Lazatin failed to show that he is authorized to file a case on behalf of the locators in
the FEZ, the local government unit, or his constituents in general.  To the petitioners, if RR 2- 2012
16

ever caused injury to the locators or to any of Lazatin's constituents, only these injured parties
possess the personality to question the petitioners' actions; respondent Lazatin cannot claim this
right on their behalf.
17

The petitioners claim, too, that the RTC should not have brushed aside the rules on standing on
account of transcendental importance. To them, this case does not involve public funds, only a
speculative loss of profits upon the implementation of RR 2-2012; nor is Lazatin a party with more
direct and specific interest to raise the issues in his petition.  Citing Senate v. Ermita,  the
18 19

petitioners argue that the rules on standing cannot be relaxed.

Second, petitioners also argue that EPEC does not have legal standing to intervene. That EPEC will
ultimately bear the VAT and excise tax as an end-user, is misguided.  The burden of payment of
20

VAT and excise tax may be shifted to the buyer  and this burden, from the point of view of the
21

transferee, is no longer a tax but merely a component of the cost of goods purchased. The statutory
liability for the tax remains with the seller. Thus, EPEC cannot say that when the burden is passed
on to it, RR 2-2012 effectively imposes tax on it as a Clark FEZ locator.

The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers of petroleum
products. If EPEC is indeed a locator, then it enjoys tax and duty exemptions granted by RA 9400 so
long as it does not bring the petroleum or petroleum products to the Philippine customs territory. 22

The petitioners legally argue that RR 2-2012 is valid and constitutional.

First, petitioners submit that RR 2-2012's issuance and implementation are within their powers to
undertake.  RR 2-2012 is an administrative issuance that enjoys the presumption of validity in the
23

manner that statutes enjoy this presumption; thus, it cannot be nullified without clear and convincing
evidence to the contrary.24

Second, petitioners contend that while RA 9400 does grant tax and customs duty incentives to Clark
FEZ locators, there are conditions before these benefits may be availed of. The locators cannot
invoke outright exemption from VAT and excise tax on its importations without first satisfying the
conditions set by RA 9400, that is, the importation must not be removed from the FEZ and
introduced into the Philippine customs territory.
25

These locators enjoy what petitioners call a qualified tax exemption. They must first pay the
corresponding taxes on its imported petroleum. Then, they must submit the documents required
under RR 2-2012. If they have sufficiently shown that the imported products have not been removed
from the FEZ, their earlier payment shall be subject to a refund.
The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax exemption
privilege.  The regulation simply requires proof that a locator has complied with the conditions for tax
1âwphi1

exemption. If the locator cannot show that the goods were retained and/or consumed within the FEZ,
such failure creates the presumption that the goods have been introduced into the customs territory
without the appropriate permits.  On the other hand, if they have duly proven the disposition of the
26

goods within the FEZ, their "advance payment" is subject to a refund. Thus, to the petitioners, to the
extent that a refund is allowable, there is in reality a tax exemption.
27

Counter-arguments

Respondents Lazatin and EPEC, maintaining that they have standing to question its validity, insist
that RR 2-2012 is unconstitutional.

Respondents have standing as

lawmaker and FEZ locator.

The respondents argue that a member of Congress has standing to protect the prerogatives,
powers, and privileges vested by the Constitution in his office.  As a member of Congress, his
28

standing to question executive issuances that infringe on the right of Congress to enact, amend, or
repeal laws has already been recognized.  He suffers substantial injury whenever the executive
29

oversteps and intrudes into his power as a lawmaker. 30

On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs. Thus, being a
Clark FEZ locator, EPEC is among the many businesses that would have been directly affected by
its implementation. 31

RR 2-2012 illegally imposes taxes

on Clark FEZs.

The respondents underscore that RA 9400 provides FEZ locators certain incentives, such as tax-
and duty-free importations of raw materials and capital equipment. These provisions of the law must
be interpreted in a way that will give full effect to law's policy and objective, which is to maximize the
benefits derived from the FEZs in promoting economic and social development. 32

They admit that the law subjects to taxes and duties the goods that were brought into the FEZ and
subsequently introduced to the Philippine customs territory. However, contrary to petitioners' position
that locators' tax and duty exemptions are qualified, their incentives apply automatically.

According to the respondents, petitioners' interpretation of the law contravenes the policy laid down
by RA 9400, because it makes the incentives subject to a suspensive condition. They claim that the
condition - the removal of the goods from the FEZ and their subsequent introduction to the customs
territory - is resolutory; locators enjoy the granted incentives upon bringing the goods into the FEZ. It
is only when the goods are shown to have been brought into the customs territory will the proper
taxes and duties have to be paid.  RR 2-2012 reverses this process by requiring the locators to pay
33

"advance" taxes and duties first and to subsequently prove that they are entitled to a refund,
thereafter.  RR 2-2012 indeed allows a refund, but a refund of taxes that were not due in the first
34

place.35

The respondents add that even the refund mechanism under RR 2-2012 is problematic. They claim
that RR 2-2012 only allows a refund when the petroleum products brought into the FEZ are
subsequently sold to FEZ locators or to entities that similarly enjoy exemption from direct and
indirect taxes. The issuance does not envision a situation where the petroleum products are directly
brought into the FEZ and are consumed by the same entity/locator.  Further, the refund process
36

takes a considerable length of time to secure, thus requiring cash outlay on the part of
locators;  even when the claim for refund is granted, the refund will not be in cash, but in the form of
37

a Tax Credit Certificate (TCC). 38

As the challenged regulation directly contravenes incentives legitimately granted by a legislative act,
the respondents argue that in issuing RR 2-2012, the petitioners not only encroached upon
congressional prerogatives and arrogated powers unto themselves; they also effectively violated,
brushed aside, and rendered nugatory the rigorous process required in enacting or amending laws. 39

Issues

We shall decide the following issues:

I. Whether respondents Lazatin and EPEC have legal standing to bring the action of declaratory
relief; and

II. Whether RR 2-2012 is valid and constitutional.

The Court's Ruling

We do not find the petition meritorious.

I. Respondents have legal

standing to file petition for
declaratory relief.

The party seeking declaratory relief must have a legal interest in the controversy for the action to
prosper.  This interest must be material not merely incidental. It must be an interest that which will
40

be affected by the challenged decree, law or regulation. It must be a present substantial interest, as
opposed to a mere expectancy or a future, contingent, subordinate, or consequential interest. 41

Moreover, in case the petition for declaratory relief specifically involves a question of
constitutionality, the courts will not assume jurisdiction over the case unless the person challenging
the validity of the act possesses the requisite legal standing to pose the challenge.42

Locus standi is a personal and substantial interest in a case such that the party has sustained or will
sustain direct injury as a result of the challenged governmental act. The question is whether the
challenging party alleges such personal stake in the outcome of the controversy so as to assure the
existence of concrete adverseness that would sharpen the presentation of issues and illuminate the
court in ruling on the constitutional question posed.43

We rule that the respondents satisfy these standards.

Lazatin has legal standing as

a legislator.

Lazatin filed the petition for declaratory relief before the RTC in his capacity as a member of
Congress.  He alleged that RR 2-2012 was issued directly contravening RA 9400, a legislative
44

enactment. Thus, the regulation encroached upon the Congress' exclusive power to enact, amend,
or repeal laws.  According to Lazatin, a member of Congress has standing to challenge the validity
45

of an executive issuance if it tends to impair his prerogatives as a legislator.

46

We agree with Lazatin.

In Biraogo v. The Philippine Truth Commission,  we ruled that legislators have the legal standing to
47

ensure that the prerogatives, powers, and privileges vested by the Constitution in their office remain
inviolate. To this end, members of Congress are allowed to question the validity of any official action
that infringes on their prerogatives as legislators. 48

Thus, members of Congress possess the legal standing to question acts that amount to a usurpation
of the legislative power of Congress.  Legislative power is exclusively vested in the Legislature.
49

When the implementing rules and regulations issued by the Executive contradict or add to what
Congress has provided by legislation, the issuance of these rules amounts to an undue exercise of
legislative power and an encroachment of Congress' prerogatives.

To the same extent that the Legislature cannot surrender or abdicate its legislative power without
violating the Constitution,  so also is a constitutional violation committed when rules and regulations
50

implementing legislative enactments are contrary to existing statutes. No law can be amended by a
mere administrative rule issued for its implementation; administrative or executive acts are invalid if
they contravene the laws or to the Constitution. 51

Thus, the allegation that RR 2-2012 - an executive issuance purporting to implement the provisions
of the Tax Code - directly contravenes RA 9400 clothes a member of Congress with legal standing
to question the issuance to prevent undue encroachment of legislative power by the executive.

EPEC has legal standing as a

Clark FEZ locator.

EPEC intervened in the proceedings before the RTC based on the allegation that, as a Clark FEZ
locator, it will be directly affected by the implementation of RR 2-2012.52

We agree with EPEC.

It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and applies to all
petroleum and petroleum products that are imported directly from abroad to the
Philippines, including FEZs. 53

As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum products will
be directly affected by RR 2-2012. Thus, its interest in the subject matter - a personal and
substantial one - gives it legal standing to question the issuance's validity.

In sum, the respondents' respective interests in this case are sufficiently substantial to be directly
affected by the implementation of RR 2-2012. The RTC therefore did not err when it gave due
course to Lazatin's petition for declaratory relief as well as EPEC's petition-in-intervention.

In light of this ruling, we see no need to rule on the claimed transcendental importance of the issues
raised.

II. RR 2-2012 is invalid and

unconstitutional.
On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional because: a) it
illegally imposes taxes upon FEZ enterprises, which, by law, enjoy tax-exempt status, and b) it
effectively amends the law (i.e., RA 7227, as amended by RA 9400) and thereby encroaches upon
the legislative authority reserved exclusively by the Constitution for Congress.

FEZ enterprises enjoy tax- and

duty-free incentives on its
importations.

In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and Development
Act of 1992" to enhance the benefits to be derived from the Subic and Clark military
reservations.  RA 7227 established the Subic Special economic zone and granted such special
54

territory various tax and duty incentives.

To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the legislature enacted
RA 9400 to amend RA 7227.  Subsequently, the Department of Finance issued Department Order
55

No. 3-2008  to implement RA 9400 (Implementing Rules).

56

Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs
territory separate and distinct from the Philippines customs territory. Thus, as opposed
to importations into and establishments in the Philippines customs territory,  which are fully subject
57

to Philippine customs and tax laws, importations into and establishments located within the Clark

FEZ (FEZ Enterprises )  enjoy special incentives, including tax and duty-free importation.  More
58 59

specifically, Clark FEZ enterprises shall be entitled to the freeport status of the zone and a 5%
preferential income tax rate on its gross income, in lieu of national and local taxes.60

RA 9400 and its Implementing Rules grant the following:

First, the law provides that importations of raw materials and capital equipment into the FEZs shall
be tax- and duty-free. It is the specific transaction (i.e., importation) that is exempt from taxes and
duties.

Second, the law also grants FEZ enterprises tax- and duty-free importation and a preferential rate in
the payment of income tax, in lieu of all national and local taxes. These incentives exempt
the establishment itself from taxation.

Thus, the Legislature intended FEZs to enjoy tax incentives in general - whether with respect to
the transactions that take place within its special jurisdiction, or the persons/establishments within
the jurisdiction. From this perspective, the tax incentives enjoyed by FEZ enterprises must be
understood to necessarily include the tax exemption of importations of selected articles into the
FEZ.

We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted within the
context and in a manner that promotes the legislative intent of RA 7227  and, by extension, RA
61

9400. Thus, we recognized that FEZ enterprises are exempt from both direct and indirect internal
revenue taxes.  In particular, they are considered VAT-exempt entities.
62 63

In line with this comprehensive interpretation, we rule that the tax exemption enjoyed by FEZ
enterprises covers internal revenue taxes imposed on goods brought into the FEZ, including the
Clark FEZ, such as VAT and excise tax.
RR 2-2012 illegally imposes VAT and excise
tax on goods brought into the FEZs.

Section 3 of RR 2-2012 provides the following:

First, whenever petroleum and petroleum products are imported and/or brought directly to the

Philippines, the importer of these goods is required to pay the corresponding VAT and excise
tax due on the importation.

Second, the importer, as the payor of the taxes, may subsequently seek a refund of the amount
previously paid by filing a corresponding claim with the Bureau of Customs (BOC).

Third, the claim shall only be granted upon showing that the necessary condition has been fulfilled.

At first glance, this imposition - a mere tax administration measure according to the petitioners -
appears to be consistent with the taxation of similar imported articles under the Tax Code,
specifically under its Sections 107  and 148  (in relation with Sections 129  and 131 ).
64 65 66 67

However, RR 2-2012 explicitly covers even petroleum and petroleum products imported and/or
brought into the various FEZs in the Philippines. Hence, when an FEZ enterprise brings petroleum
and petroleum products into the FEZ, under RR 2-2012, it shall be considered an importer liable for
the taxes due on these products.

The crux of the controversy can be found in this feature of the challenged regulation.

The petitioners assert that RR 2-2012 simply implements the provisions of the Tax Code on
collection of internal revenue taxes, more specifically VAT and excise tax, on the importation of
petroleum and petroleum products. To them, FEZ enterprises enjoy a qualified tax exemption such
that they have to pay the tax due on the importation first, and thereafter claim a refund, which shall
be allowed only upon showing that the goods were not introduced to the Philippine customs territory.

On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises,
which in the first place are not liable for taxes. They emphasize that the tax incentives under RA
9400 apply automatically upon the importation of the goods. The proper taxes on the importation
shall only be due if the enterprises can later show that the goods were subsequently introduced to
the Philippine customs territory.

Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise
tax, as we discussed above, it follows and we accordingly rule that the taxes imposed by Section 3
of RR 2-2012 directly contravene these exemptions. First, the regulation erroneously considers
petroleum and petroleum products brought into a FEZ as taxable importations. Second, it
unreasonably burdens FEZ enterprises by making them pay the corresponding taxes - an obligation
from which the law specifically exempts them - even if there is a subsequent opportunity to refund
the payments made.

Petroleum and petroleum products brought

into the FEZ and which remain therein are
not taxable importations.
RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and petroleum
products into FEZs. Strictly speaking, however, articles brought into these FEZs are not taxable
importations under the law based on the following considerations:

First, importation refers to bringing goods from abroad into the Philippine customs jurisdiction. It
begins from the time the goods enter the Philippine jurisdiction and is deemed terminated when the
applicable taxes and duties have been paid or the goods have left the jurisdiction of the BOC. 68

Second, under the Tax Code, imported goods are subject to VAT and excise tax. These taxes shall
be paid prior to the release of the goods from customs custody.  Also, for VAT
69

purposes,  an importer refers to any person who brings goods into the Philippines.

70

Third, the Philippine VAT system adheres to the cross border doctrine.  Under this rule, no VAT
71

shall be imposed to form part of the cost of the goods destined for consumption outside the
Philippine customs territory.  Thus, we have already ruled before that an FEZ enterprise cannot
72

be directly charged for the VAT on its sales, nor can VAT be passed on to them indirectly as added
cost to their purchases.73

Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special areas
as separate customs territories .  In this regard, we have already held that such jurisdictions, such
74

as the Clark FEZ, are, by legal fiction, foreign territories.

75

Fifth, the Implementing Rules provides that goods initially introduced into the FEZs

and subsequently brought out therefrom and introduced into the Philippine customs territory shall be
considered as importations and thereby subject to the VAT.  One such instance is the sale by any
76

FEZ enterprise to a customer located in the customs territory, which the VAT regulations refer to as
a technical importation.77

We find it clear from all these that when goods (e.g., petroleum and petroleum products) are brought
into an FEZ, the goods remain to be in foreign territory and are not therefore goods introduced into
Philippine customs territory subject to Philippine customs and tax laws.78

Stated differently, goods brought into and traded within an FEZ are generally beyond the reach of
national internal revenue taxes and customs duties enforced in the Philippine customs territory. This
is consistent with the incentive granted to FEZs exempting the importation itself from taxes and
duties.

Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As long as the
goods remain (e.g., sale and/or consumption of the article within the FEZ) in the FEZ or re-exported
to another foreign jurisdiction, they shall continue to be tax-free.  However, once the goods are
79

introduced into the Philippine customs territory, it ceases to enjoy the tax privileges accorded to
FEZs. It shall then be considered as an importation subject to all applicable national internal revenue
taxes and customs duties.

The tax exemption granted to FEZ

enterprises is an immunity from tax liability
and from the payment of the tax.

The respondents claim that when RR 2-2012 was issued, petroleum and petroleum products brought
into the FEZ by FEZ enterprises suddenly became subject to VAT and excise tax, in direct
contravention of RA 9400 (with respect to Clark FEZ enterprises). Such imposition is not authorized
under any law, including the Tax Code. 80

On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax exemption
privileges of FEZ enterprises.  As their tax exemption is merely qualified, they cannot invoke outright
1âwphi1

exemption. Thus, FEZ enterprises are required to pay internal revenue taxes first on their imported
petroleum under RR 2-2012. They may then refund their previous payment upon showing that the
condition under RA 9400 has been satisfied - that is, the goods have not been introduced to the
Philippines customs territory.  To the petitioners, to the extent that a refund is allowable, there is still
81

in reality a tax exemption.82

We disagree with this contention.

First, FEZ enterprises bringing goods into the FEZ should not be considered as importers subject to
tax in the same manner that the very act of bringing goods into these special territories does not
make them taxable importations. We emphasize that the exemption from taxes and duties under RA
9400 are granted not only to importations into the FEZ, but also specifically to each FEZ
enterprise. As discussed, the tax exemption enjoyed by FEZ enterprises necessarily includes the tax
exemption of the importations of selected articles into the FEZ.

Second, the essence of a tax exemption is the immunity or freedom from a charge or burden to

which others are subjected.  It is a waiver of the government's right to collect  the amounts that
83 84

would have been collectible under our tax laws. Thus, when the law speaks of a tax exemption, it
should be understood as freedom from the imposition and payment of a particular tax.

Based on this premise, we rule that the refund mechanism provided by RR 2-2012 does not amount
to a tax exemption. Even if the possibility of a subsequent refund exists, the fact remains that FEZ
enterprises must still spend money and other resources to pay for something they should be immune
to in the first place. This completely contradicts the essence of their tax exemption.

In the same vein, we cannot agree with the view that FEZ enterprises have the duty to prove their
entitlement to tax exemption first before fully enjoying the same; we find it illogical to determine
whether a person is exempted from tax without first determining if he is subject to the tax being
imposed. We have reminded the tax authorities to determine first if a person is liable for a particular
tax, applying the rule of strict interpretation of tax laws, before asking him to prove his exemption
therefrom.  Indeed, as entities exempted on taxes on importations, FEZ enterprises are clearly
85

beyond the coverage of any law imposing those very charges. There is no justifiable reason to
require them to prove that they are exempted from it.

More importantly, we have also recognized that the exemption from local and national taxes granted
under RA 7227, as amended by RA 9400, are ipso facto accorded to FEZs. In case of doubt,
conflicts with respect to such tax exemption privilege shall be resolved in favor of these special
territories.
86

RR 2-2012 is unconstitutional.

According to the respondents, the power to enact, amend, or repeal laws belong exclusively to
Congress.  In passing RR 2-2012, petitioners illegally amended the law - a power solely vested on
87

the Legislature.

We agree with the respondents.

The power of the petitioners to interpret tax laws is not absolute. The rule is that regulations may not
enlarge, alter, restrict, or otherwise go beyond the provisions of the law they administer;
administrators and implementors cannot engraft additional requirements not contemplated by the
legislature.
88

It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision it wishes to
implement. While it purportedly establishes mere administration measures for the collection of VAT
and excise tax on the importation of petroleum and petroleum products, not once did it mention the
pertinent chapters of the Tax Code on VAT and excise tax.

While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures proposed
by the issuance cannot be implemented at the expense of entities that have been clearly granted
statutory tax immunity.

REVISED PAGE

Tax exemptions are granted for specific public interests that the Legislature considers sufficient to
offset the monetary loss in the grant of exemptions.  To limit the tax-free importation privilege of FEZ
89

enterprises by requiring them to pay subject to a refund clearly runs counter to the Legislature's
intent to create a free port where the "free flow of goods or capital within, into, and out of the zones"
is ensured.90

FINALLY, THE STATE'S INHERENT POWER TO TAX IS VESTED EXCLUSIVELY IN THE

LEGISLATURE.  WE HAVE SINCE RULED THAT THE POWER TO TAX INCLUDES THE
91

POWER TO GRANT TAX EXEMPTIONS.  THUS, THE IMPOSITION OF TAXES, AS WELL AS

92

THE GRANT AND  WITHDRAWAL OF TAX EXEMPTIONS, SHALL ONLY BE VALID PURSUANT

TO A LEGISLATIVE ENACTMENT.

As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly

accorded by the legislative to FEZ enterprises, the  petitioners have arrogated upon
*

themselves a power reserved exclusively to Congress, in violation of the doctrine of

separation of powers.

In these lights, we hereby rule and declare that RR 2-2012 is null and void.

WHEREFORE, we hereby DISMISS the petition for lack of merit, and accordingly AFFIRM decision

of the Regional Trial Court dated November 8, 2013 2001 in SCA Case No. 12-410.

SO ORDERED.