EN BANC

[G.R. Nos. L-21633-34. June 29, 1967.]

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF

CUSTOMS, petitioners, vs. BOTELHO SHIPPING CORPORATION and
GENERAL SHIPPING CO., INC., respondents.

Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R .

Rosete and F . Malate, Jr. for petitioners.
Claudio Teehankee and Leocadio de Asis for respondents.

SYLLABUS

1. TAXATION; COMPENSATION TAXES; PURCHASE OF GOODS UNDER

THE REPARATIONS ACT; NATURE AND PURPOSE OF TAX EXEMPTIONS;
RETROACTIVITY OF FAVORABLE PROVISIONS OF SECTION 20. REPUBLIC ACT
NO. 3079. — Every tax exemption implies a waiver of the right to collect what otherwise
would be due to the Government, and, in this sense, is prejudicial thereto. No tax
exemption, however, is given without any reason therefor. In much the same way as
other statutory commands, its avowed purpose is some public benefit or interest, which
the law-making body considers sufficient to offset the monetary loss entailed in the
grant of exemption Thus, section 20, Republic Act No. 3079, exacts a valuable
consideration for the retroactivity of its favorable provisions, namely the voluntary
assumption, by the end-user who bought reparations goods prior to June 17, 1961, of
"all the new obligations provided for in" said Act.
2. ID.; ID.; ID.; GRANT OF TAX EXEMPTIONS TO PARTICULAR PERSONS
NOT PROHIBITED UNDER THE CONSTITUTION; PERSONS EXEMPTED UNDER
SECTION 14 OF THE REPARATIONS ACT. — There is no constitutional injunction
against granting tax exemptions to particular persons. What the fundamental law forbids
is the denial of equal protection such as through unreasonable discrimination or
classification. Insofar, however, as section 14 of the law on Reparations, as amended,
is concerned, it exempts from the compensating tag, not particular persons, but persons
belonging to a particular class.
3. ID.; ID.; ID.; ID.; ID.; GRANT OF EXEMPTION TO END-USERS WHO
PURCHASED REPARATIONS GOODS AFTER THE APPROVAL OF REPUBLIC ACT
NO. 3079 AND EXTENSION OF GRANT TO PURCHASERS UNDER REPUBLIC ACT
NO. 1789. — From the point of view of Constitutional Law, especially the equal
protection clause, there is no difference between the grant of exemption to end-users
who, after the approval of Republic of Act No. 3079, on June 17, 1961, purchased
reparations goods procured by the Reparations Commission, and the extension of the
grant to those whose contracts of purchase and sale were made under Republic Act
No. 1789.
4. ID; ID.; ID.; OBJECT OF SECTION 20, REPUBLIC ACT NO. 3079. —
Republic Act No. 3079 does not explicitly declare that those who purchased reparation
goods prior to June 17, 1961. are exempt from the compensating tax because they do
CD Technologies Asia, Inc. 2025 cdasiaonline.com
 not really enjoy such exemption, unless they comply with the proviso in Section 20 of
said Act, by applying for the renovation of their respective utilization contracts, "in order
to avail of any provision of the Amendatory Act which i more favorable" to the applicant.
The said Section 20 intended to give such buyers the opportunity to be treated "in like
manner and to the same extent as an end-user filing his application after the approval
of this Amendatory Act." The said Section thus seeks, not to discriminate or to create
an exemption or exception, but to abolish the discrimination, exemption or exception
that would otherwise result, in favor of the end user who bought after June 17, 1961 and
against one who bought prior thereto.

DECISION

CONCEPCION, C .J : p

Appeal by the Government from a decision of the Court of Tax Appeals,

reversing of the decisions of the Commissioner of Internal Revenue and the
Commissioner of Customs, in Cases Nos. 956 and 957 of said Court, holding Botelho
Shipping Corporation and General Shipping Co., Inc. — hereinafter referred to
collectively as the Buyers — liable for the payment of the sums of P483,433.00 and
P494,824.00, respectively, as compensating taxes on the vessels "M/S Maria Rosello"
and "M/S General Lim."
On August 30, 1960, the Reparations Commission of the Philippines —
hereinafter referred to as the Commission — and Botelho Shipping Corporation —
hereinafter referred to as Botelho — entered into a "Contract of Conditional Purchase
and Sale of Reparations Goods," whereby the former agreed to sell to Botelho for
P6,798,888.88 the vessel "M/S Maria Rosello." procured by the Commission from
Japan, pursuant to the provisions of the Philippine-Japanese Reparations Agreement of
May 9, 1956. On September 19, 1960 the Commission signed a similar contract with
General Shipping Co., Inc. — hereinafter referred to as General Shipping — for the sale
thereto of "M/S General Lim" at the price of P6,951,666.66. Both agreements, couched
in identical terms, except as to price, stipulated that:
"a) The Reparations Commission retains title to and ownership of the
above described vessel until the same is fully paid for." (Exh. 'A', p. 2, both
cases)
"b) The stipulated purchase price of the M/S MARIA ROSELLO was to
be paid by Botelho to the Commission under a deferred payment plan in 10 equal
yearly installments of P17,333.49, bearing 3% interest per annum beginning
August 31, 1962 and August 31 of every year thereafter until the year 1972,
while the purchase price of the M/S GENERAL LIM was to be paid by General
Shipping to the Commission under a deferred payment plan in 10 equal yearly
installments of P723,132.68, bearing 3% interest per annum beginning
September 30, 1962 and September 30 of every year until the year 1972. (Exhs.
9, p. 4 and A-2, both cases (see respondent's brief, p. 4,)"
Delivered in Japan to its respective buyers, acting on behalf of the Commission,
the vessels, upon their departure from Tokyo, on the maiden trip thereof to the
Philippines, were issued, by the Philippine Vice-Consul in said city, provisional
certificates of Philippine registry, in the name of the Commission, so that the vessels
CD Technologies Asia, Inc. 2025 cdasiaonline.com
 could proceed to the Philippines and secure therein the respective final registration
documents.
Upon arrival at the port of Manila, the Buyers filed the corresponding applications
for registration of the vessels, but, the Bureau of Customs placed the same under
custody and refused to give due course to said applications, unless the aforementioned
sums of P483,433 and P494,824 were paid as compensating tax. As the Commissioner
of Customs refused to reconsider the stand taken by his office, the Buyers
simultaneously filed, with the Court of Tax Appeals, their respective petitions, for
review, against the Commissioner of Customs and the Commissioner of Internal
Revenue — hereinafter referred to Collectively as appellants - with urgent motion for
suspension of the collection of said tax. After a joint hearing on this motion, the same
was, on October 31, 1960, granted by the Tax Court, upon the filing of a P500,000.00
bond by each one of the Buyers.
On June 17, 1961, while these cases were pending trial in said Court, Republic
Act No. 3079 amended Republic Act No. 1789 - the Original Reparations Act, under
which the aforementioned contracts with the Buyers had been executed - by exempting
buyers of reparations goods acquired from the Commission, from liability for the
compensating tax. Moreover, Section 20 of Republic Act No. 3079, provides:
". . . This Act shall take effect upon its approval, except that the
amendment contained in Section seven hereof relating to the requirements of
procurement orders including the requirement of down payment by private
applicant end-users shall not apply to procurement orders already duly issued
and verified at the time of the passage of this amendatory Act, and except further
that the amendment contained in Section ten relating to the insurance of the
reparations goods by the end-users upon delivery shall apply also to goods
covered by contracts already entered into by the commission and the end-user
prior to the approval of this amendatory Act as well as goods already delivered to
the end-user, and except further that the amendments contained in Sections
eleven and twelve hereof relating to the terms of installment payments on capital
goods disposed of to private parties, and the execution of a performance bond
before delivery of reparations goods, shall not apply to contracts for the utilization
of reparations goods already entered into by the Commission and the end- users
prior to the approval of this amendatory Act. Provided, That any end-user may
apply for the renovation of his utilization contract with the Commission in order to
avail of any provision of this amendatory Act which is more favorable to an
applicant end-user than has heretofore been granted in like manner and to the
same extent as an end-user filing his application after the approval of this
amendatory Act, and the Commission may agree to such renovation on condition
that the end-user shall voluntarily assume all new obligations provided for in this
amendatory Act."

Invoking the provisions of this Section 20, the Buyers applied, therefore, for the
renovation of their utilization contracts with the Commission, which granted the
application, and, then, filed, with the Tax Court, their supplemental petitions for review.
Subsequently, the parties submitted Stipulations of Fact and, after a joint trial, at which
they introduced additional evidence, said Court rendered the appealed decision,
reversing the decisions of herein Appellants, and declared said Buyers exempt from the
compensating tax sought to be assessed against the vessels aforementioned. Hence,
these appeals by the Government. G. R. No. L-21633 refers to the case as regards
"M/S Maria Rosello", whereas "M/S General Lim" is the subject-matter of G. R. No. L-
21634.
CD Technologies Asia, Inc. 2025 cdasiaonline.com
 It seems clear that, under Republic Act No. 1789 — pursuant to which the
contracts of Conditional Purchase and Sale in question had been executed — the
vessels "M/S Maria Rosello" and "M/S General Lim" were subject to compensating tax.
Indeed Section 14 of said Act provides that "reparations goods obtained by private
parties shall be exempt only from the payment of customs duties, consular fees and the
special import tax." Although this Section was amended by R. A. No. 3079, to include
the "compensating tax" among the exemptions enumerated therein, such amendment
took place, not only after the contracts involved in these appeals had been perfected
and partly consummated, but also, after the corresponding compensating tax had
become due and payment thereof demanded by Appellants herein. It is, moreover,
obvious that said additional exemption should not and cannot be given retroactive
operation, in the absence of a manifest intent of Congress to do this effect. The issue in
the cases at bar hinges on whether or not such intent is clear.
Appellants maintain the negative, upon the ground that a tax exemption must be
clear and explicit; that there is no express provision for the retroactivity of the
exemption, established by Republic Act No. 3079, from the compensating tax; that the
favorable provisions, which are referred to in Section 20 thereof, cannot include the
exemption from compensating tax; and, that Congress could not have intended any
retroactive exemption considering that the result thereof would be prejudicial to the
Government.
The inherent weakness of the last ground becomes manifest when we consider
that, if true, there could be no tax exemption of any kind whatsoever, even if Congress
should wish to create one, because every such exemption implies a waiver of the right
to collect what otherwise would be due to the Government, and, in this sense, is
prejudicial thereto. In fact, however, tax exemptions may and do exist, such as the one
prescribed in Section 14 of Republic Act No. 1789, as amended by Republic Act No.
3079, which, by the way, is "clear and explicit," thus, meeting the first ground of
appellant's contention. It may not be amiss to add that no tax exemption — like any
other legal exemption or exception — is given without any reason therefor. In much the
same way as other statutory commands, its avowed purpose is some public benefit or
interest, which the law-making body considers sufficient to offset the monetary loss
entailed in the grant of the exemption. Indeed, Section 20 of Republic Act No. 3079
exacts a valuable consideration for the retroactivity of its favorable provisions, namely,
the voluntary assumption, by the end-user who bought reparations goods prior to June
17, 1961, of "all the new obligations provided for in" said Act.
The argument adduced in support of the third ground is that the view adopted by
the Tax Court would operate to grant exemption to particular persons, the Buyers
herein. It should be noted, however, that there is no constitutional injunction against
granting tax exemptions to particular persons. In fact, it is not unusual to grant
legislative franchises to specific individuals or entities, conferring tax exemptions
thereto. What the fundamental law forbids is the denial of equal protection, such as
through unreasonable discrimination or classification.
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from
the compensating tax, not particular persons but persons belonging to a particular
class. Indeed, appellants do not assail the Constitutionality of said Section 14, insofar
as it grants exemptions to end-users who, after the approval of Republic Act No. 3079,
on June 17, 1961, purchased reparations goods procured by the Commission. From the
view point of Constitutional Law, especially the equal protection clause, there is no
CD Technologies Asia, Inc. 2025 cdasiaonline.com
 difference between the grant of exemption to said end-users, and the extension of the
grant to those whose contracts of purchase and sale were made before said date,
under Republic Act No. 1789.
It is true that Republic Act No. 3079 does not explicitly declare that those who
purchased reparations goods prior to June 17, 1961, are exempt from the
compensating tax. It does not say so, because they do not really enjoy such exemption,
unless they comply with the proviso in Section 20 of said Act, by applying for the
renovation of their respective utilization contracts, "in order to avail of any provision of
the Amendatory Act which is more favorable" to the applicant. In other words, it is
manifest, from the language of said Section 20, that the same intended to give such
buyers the opportunity to be treated "in like manner and to the same extent as an end-
user filing his application after the approval of this Amendatory Act." Like the "most-
favored-nation-clause" in international agreements, the aforementioned Section 20 thus
seeks, not to discriminate or to create an exemption or exception, but to abolish the
discrimination, exemption or exception that would otherwise result, in favor of the end-
user who bought after June 17, 1961 and against one who bought prior thereto. Indeed,
it is difficult to find a substantial justification for the distinction between the one and the
other. As correctly held by the Tax Court in Philippine Ace Lines, Inc., vs.
Commissioner of Internal Revenue (C. T. A. Nos. 964 and 984, January 25, 1963), and
reiterated in the cases under consideration:
". . . In providing that the favorable provision of Republic Act No. 3079
shall be available to applicants for renovation of their utilization contracts, on
condition that said shall voluntarily assume all the new obligations provided in the
new law, the law intends to place persons who acquired reparations goods
before the enactment of the amendatory Act on the same footing as those who
acquire reparations goods after its enactment. This is so because of the provision
that once an application for renovation of a utilization contract has been
approved, the favorable provisions of said Act shall be available to the applicant
'in like manner and to the same extent, as an end-user filing his application after
the approval of this amendatory Act.' To deny exemption from compensating tax
to one whose utilization contract has been renovated, while granting the
exemption to one who files an application for acquisition of reparations goods
after the approval of the new law, would be contrary to the express mandate of
the new law, that they both be subject to the same privileges in like manner, and
to the same extent. It would be manifest distortion of the literal meaning and
purpose of the new law."

Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed
in toto, without any pronouncement as to costs. It is so ordered.
Reyes, J .B.L., Makalintal, Bengzon, J .P., Zaldivar, Sanchez and Castro, JJ .,
concur.

CD Technologies Asia, Inc. 2025 cdasiaonline.com