EN BANC

[G.R. No. 210588. November 29, 2016.]

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 : p

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 1
under Rule 45 of the Rules of Court on a pure question of law. The petition
seeks the reversal of the November 8, 2013 decision 2 of the RTC in SCA
Case No. 12-410. In the assailed decision, the RTC declared Revenue
Regulations (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 3 and upon the recommendation of petitioner
Commissioner of Internal 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). 4 It then allows the credit or refund of any 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 6
against the petitioners to annul and set aside RR 2-2012.
Lazatin posits that Republic Act No. (RA) 9400 7 treats the Clark Special
Economic Zone and Clark Freeport Zone (together hereinafter referred to as
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. CAIHTE

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 9 before the Court of Appeals (CA) assailing
the RTC's order. The CA granted the petition 10 and denied the respondents'
subsequent motion for reconsideration. 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. 12 The RTC admitted the 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 RTC 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 14 Since RA 9400 clearly grants tax and duty-free incentives to
Clark FEZ locators, a revocation of these incentives by an RR directly
contravenes the express intent of the Legislature. 15 In effect, the petitioners
encroached upon the prerogative to 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. 16 To the petitioners, if RR 2-
2012 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. 18 Citing Senate
v. Ermita , 19 the petitioners argue that the rules on standing cannot be
relaxed.
Second, petitioners also argue that EPEC does not have legal standing
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 to intervene. That EPEC will ultimately bear the VAT and excise tax as an
end-user, is misguided. 20 The burden of payment of VAT and excise tax may
be shifted to the buyer 21 and this burden, from the point of view of the
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. 23 RR 2-2012 is an administrative
issuance that enjoys the presumption of validity in the 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 DETACa

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 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. 26 On the other
hand, if they have duly proven the disposition of the 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 28 As a member of Congress, his standing to question executive
issuances that infringe on the right of Congress to enact, amend, or repeal
laws has already been recognized. 29 He suffers substantial injury whenever
the executive 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. 33 RR 2-2012 reverses this process by requiring the
locators to pay "advance" taxes and duties first and to subsequently prove
that they are entitled to a refund, thereafter. 34 RR 2-2012 indeed allows a
refund, but a refund of taxes that were not due in the first 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. 36 Further, the refund process takes a considerable length of
time to secure, thus requiring cash outlay on the part of locators; 37 even
when the claim for refund is granted, the refund will not be in cash, but in
the form of a Tax Credit Certificate (TCC). 38
As the challenged regulation directly contravenes incentives
legitimately granted by a legislative act, the respondents argue that in
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 40 This interest must be material not
merely incidental. It must be an interest that which will 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. 44 He alleged that RR 2-2012 was issued
directly contravening RA 9400, a legislative enactment. Thus, the regulation
encroached upon the Congress' exclusive power to enact, amend, or repeal
laws. 45 According to Lazatin, a member of Congress has standing to
challenge the validity of an executive issuance if it tends to impair his
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 prerogatives as a legislator. 46

We agree with Lazatin. aDSIHc

I n Biraogo v. The Philippine Truth Commission , 47 we ruled that

legislators have the legal standing to 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. 49
Legislative power is exclusively vested in the Legislature. When the
implementing rules and regulations issued by the Executive contradict of
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, 50 so also is a
constitutional violation committed when rules and regulations 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 54 RA 7227
established the Subic Special economic zone and granted such special
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. 55 Subsequently,
the Department of Finance issued Department Order No. 3-2008 56 to
implement RA 9400 (Implementing Rules).
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, 57 which are fully subject to Philippine customs
and tax laws, importations into and establishments located within the Clark
FEZ (FEZ Enterprises) 58 enjoy special incentives, including tax and duty-free
importation. 59 More 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 importation 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 importation of
selected articles into the FEZ.
We have ruled in the past that FEZ enterprises' tax exemptions must
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 be interpreted within the context and in a manner that promotes the
legislative intent of RA 7227 61 and, by extension, RA 9400. Thus, we
recognized that FEZ enterprises are exempt from both direct and indirect
internal revenue taxes . 62 In particular, they are considered VAT-exempt
entities. 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 64 and 148 65 (in relation with Sections 129 66 and 131). 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. ETHIDa

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.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 69 Also, for VAT purposes, 70 an importer refers to any
person who brings goods into the Philippines.
Third, the Philippine VAT system adheres to the cross border doctrine.
71 Under this rule, no VAT shall be imposed to form part of the cost of the
goods destined for consumption outside the Philippine customs territory. 72
Thus, we have already ruled before that an FEZ enterprise cannot 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. 74 In this regard, we
have already held that such jurisdictions, such 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. 76 One such instance is the sale by any 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 79 However, once the goods
are 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 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. 81 To the petitioners, to the extent that a refund is allowable, there
is still 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
b y 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. 83 It is a waiver of
the government's right to collect 84 the amounts that 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.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 85 Indeed, as
entities exempted on taxes on importations, FEZ enterprises are clearly
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. 87 In passing RR 2-2012, petitioners
illegally amended the law — a power solely vested on 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.
Tax exemptions are granted for specific public interests that the
Legislature considers sufficient to offset the monetary loss in the grant of
exemptions. 89 To limit the tax-free importation privilege of FEZ 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. 91 We have since ruled that the power to tax includes the power
to grant tax exemptions. 92 Thus, the imposition of taxes, as well as 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
respondents 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.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Peralta,
Bersamin, Del Castillo, Perez, Mendoza, Reyes, Perlas-Bernabe, Leonen and
Caguioa, JJ. , concur.
Jardeleza, * J., took no part.
Footnotes
* No part due to prior action as Solicitor General.

1. Rollo , pp. 47-85.

2. Penned by RTC Presiding Judge Philbert I. Iturralde; id. at 95-125.

3 . Section 4 of the 1997 National Internal Revenue Code (Tax Code) provides,
"The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance."
4 . SECTION 3. TAX TREATMENT OF ALL PETROLEUM AND PETROLEUM
PRODUCTS IMPORTED AND ITS SUBSEQUENT EXPORTATION OR SALES TO
FREEPORT AND ECONOMIC ZONE LOCATORS OR OTHER
PERSONS/ENTITIES; REFUND OF TAXES PAID; AUTHORITY TO RELEASE
IMPORTED GOODS (ATRIG) AND OTHER ADMINISTRATIVE REQUIREMENTS.
— The Value-Added and Excise taxes which are due on all petroleum and
petroleum products that are imported and/or brought directly from abroad
to the Philippines, including Freeport and Economic zones, shall be paid
by the importer thereof to the Bureau of Customs (BOC).

The subsequent exportation or sale/delivery of these petroleum or petroleum

products to registered enterprises enjoying tax privileges within the
Freeport and Economic zones, as well as the sale of said goods to persons
engaged in international shipping or international air transport operations,
shall be subject to 0% VAT. With respect to the VAT paid on petroleum or
petroleum products by the importer on account of aforesaid 0% VAT
transactions/entities and the Excise taxes paid on account of sales to
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 international carriers of Philippine or Foreign Registry for use or
consumption outside the Philippines or exempt entities or agencies
covered by tax treaties, conventions and international agreements for
their use or consumption (covered by Certification in such entity's favor),
as well as entities which are by law exempt from indirect taxes, the
importer may file a claim for credit or refund with the BOC, which shall
process the claim for refund, subject to the favorable endorsement of the
BIR, in accordance with existing rules and procedures: Provided, that no
claim for refund shall be granted unless it is properly shown to the
satisfaction of the BIR that said petroleum or petroleum products have
been sold to a duly registered locator and have been utilized in the
registered activity/operation of the locator, or that such have been sold
and have been used for international shipping or air transport operations,
or that the entities to which the said goods were sold are statutorily zero-
rated for VAT, and/or exempt from Excise taxes.
In the event that the said Freeport/Economic zone registered enterprise shall
subsequently sell/introduce the petroleum or petroleum products, or part
of the volume thereof, into the customs territory (except sales of fuel for
use in international operations) or another Freeport/Economic zone
registered enterprise not enjoying tax privileges, no refund for excise
taxes shall be granted to the importer for the product sold. In any event,
the possessor of petroleum or petroleum products must be able to present
sufficient evidence that the excise taxes due thereon have been paid,
otherwise the excise taxes due on said goods shall be collected from said
possessor/user.
In case of sale/introduction of petroleum and petroleum products, or part of the
volume thereof, by a Freeport/Economic zone registered enterprise, or
part/volume thereof, into the customs territory or to a Freeport/Economic
zone registered enterprise not enjoying tax privileges, or any sale to an
entity not enjoying 0% VAT rate, the seller shall be liable for 12% VAT. In
this instance, no refund for VAT shall be allowed the importer or an
assessment for VAT shall be issued to the said importer, if the refund has
already been granted, and another assessment for VAT shall be made
against the seller.
For each and every importation of petroleum and petroleum products, the
importer thereof shall secure the prescribed ATRIG from the BIR's Excise
Tax Regulatory Division (ETRD), and pay the Value-Added and excise
taxes, as computed, before the release thereof from the BOC's custody. In
case of subsequent sale/introduction to customs territory by a
Freeport/Economic zone-registered enterprise of petroleum and petroleum
products, the importer shall secure the necessary Withdrawal Certificate.
For excise tax purposes, all importers of petroleum and petroleum products
shall secure a Permit to Operate with the BIR's ETRD. Such permit shall
prescribe the appropriate terms and conditions which shall include,
among others, the issuance of a Withdrawal Certificate and the
submission of liquidation reports, for the Permitee's strict compliance.
5. Id.

6. Rollo , pp. 131-148.

7. Also known as "An Act Amending Republic Act No. 7227, as Amended,
Otherwise Known as the Bases Conversion and Development Act of 1992,
and for Other Purposes," dated March 20, 2007.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 8. On April 2, 2012, EPEC filed its Entry of Appearance with Motion for Leave to
File Petition-in-Intervention (RTC decision, id. at 106).

9. Rollo , pp. 174-205.

10. In CA decision dated February 14, 2013, id. at 207-218.

11. In CA resolution dated July 29, 2013, id. at 220-221.

12. Id. at 223-258.

13. RTC Decision, id. at 116-117.

14. Id. at 112.

15. Id. at 114.

16. Petition, id. at 59-60.

17. Id. at 60.

18. Rollo , p. 62.

19. G.R. No. 169777, April 20, 2006, 488 SCRA 1, 3.

20. Rollo , pp. 63-64.

21. The petitioner points out that VAT and excise tax are indirect taxes.

22. Rollo , p. 67.

23. Id. at 68.

24. Id. at 67-68 citing Eslao v. Commission on Audit , G.R. No. 89745, April 8,
1991, 195 SCRA 730.
25. Id. at 73.

26. Id. at 75.

27. Id. at 76 citing CIR v. A.D. Guerrero, G.R. No. L20812, September 22, 1967, 21
SCRA 180, 183.
28. Id. at 365.

29. Id. at 366 citing Biraogo v. The Philippine Truth Commission , 651 Phil. 374
(2010).
3 0 . Id. at 367 citing Philippine Constitution Association v. Enriquez , G.R. No.
113105, August 19, 1994, 235 SCRA 506-507.

31. Id. at 368.

32. Id. at 369 citing CIR v. Seagate Technology , G.R. No. 153866, February 11,
2005, 451 SCRA 132-133; CIR v. Toshiba, 503 Phil. 823-825 (2005).

33. Id. at 374.

34. Id. at 375.

35. Id. at 378.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 36. Id. at 377.
37. Id.

38. Id.

39. Id. at 381.

4 0 . Commissioner of Customs v. Hypermix Feeds Corp. , G.R. No. 179579,
February 1, 2012, 664 SCRA 666.

41. Galicto v. Aquino , G.R. No. 193978, February 28, 2012, 667 SCRA 150-152,
citing Miñoza v. Lopez., et al., G.R. No. 170914, April 13, 2011, 648 SCRA
684.

42. Jumamil v. Cafe, G.R. No. 144570, September 21, 2005, 70 SCRA 475.

43. Galicto v. Aquino, supra , citing Southern Hemisphere Engagement Network,

Inc. v. Anti Terrorism Council , G.R. Nos. 178552, 178554, 178581,
178890, 179157 and 179461, October 5, 2010, 632 SCRA 146.

44. Rollo , p. 224.

45. Id. at 228.

46. Id. at 229.

47. Supra note 29.

48. Id. citing Senate of the Philippines v. Ermita , G.R. No. 169777, April 20, 2006,
488 SCRA 1, 35; and Francisco v. House of Representatives , 460 Phil. 830,
842 (2003).

49. Id. citing Philippine Constitution Association v. Enriquez , G.R. No. 113105,
August 19, 1994, 235 SCRA 506, 520.
50. Lokin v. Comelec, G.R. Nos. 179431-32, June 22, 2010, 621 SCRA 385.

51. Id. citing Metropolitan Bank and Trust Company, Inc. v. National Wages and
Productivity Commission, G.R. No. 144322, February 6, 2007, 514 SCRA
346, 349-350.

52. Supra note 31.

53. See Section 3, RR 2-2012.

54. Section 2, RA 7227.

55. Hereinafter, we will refer to RA 7227, as amended, when discussing benefits

accorded to FEZs, in general. On the other hand, we will refer to RA 9400
when discussing benefits specifically in relation to the Clark FEZ.
5 6 . Entitled "Rules and Regulations to Implement Republic Act No. 9400"
(Implementing Rules) issued by the Department of Finance, dated
February 13, 2008, and signed by then Secretary of Finance Margarito B.
Teves.
57. Section 2 (oo) of the Implementing Rules defines customs territory as "the
national territory of the Philippines outside of the boundaries of the
Ecozones or Freeport Zones, duly identified or proclaimed in accordance
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 with RA 7227, where the customs and tax laws of the Philippines are in full
force or effect, and outside of those areas specifically declared by other
laws and/or presidential proclamations to have the status of special
economic zones and/or freeports."
58. The parties in this case have liberally used the term "locator" to denote an
entity located within the FEZ. However, we shall hereinafter use "FEZ
enterprise" as explicitly defined and used by the Implementing Rules.

59. Section 2 (aa), Implementing Rules.

60. Section 4 (d), Implementing Rules cf. Section 15, RA 9400.

61. Coconut Oil Refiners Association v. Torres , G.R. No. 132527, July 29, 2005,
465 SCRA 47, 64-65.
62. Supra note 32.

63. Id.

64. SEC. 107. Value-Added Tax on Importation of Goods . — (A) In General. —

There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) [47] based on
the total value used by the Bureau of Customs in determining tariff and
customs duties plus customs duties, excise taxes, if any, and other
charges, such tax to be paid by the importer prior to the release of such
goods from customs custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if any . . .

(B) Transfer of Goods by Tax-exempt Persons. — In the case of tax-free

importation of goods into the Philippines by persons, entities or agencies
exempt from tax where such goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers
thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the
goods superior to all charges or liens on the goods, irrespective of the
possessor thereof.

65. SEC. 148. Manufactured Oils and Other Fuels. — There shall be collected
on refined and manufactured mineral oils and motor fuels, the following
excise taxes which shall attach to the goods hereunder enumerated as
soon as they are in existence as such: (a) Lubricating oils and greases,
including but not limited to, basestock for lube oils and greases, high
vacuum distillates, aromatic extracts, and other similar preparations, and
additives for lubricating oils and greases, whether such additives are
petroleum based or not, per liter and kilogram respectively, of volume
capacity or weight, Four pesos and fifty centavos (P4.50): Provided,
however, That the excise taxes paid on the purchased feedstock (bunker)
used in the manufacture of excisable articles and forming part thereof
shall be credited against the excise tax due therefrom: Provided, further,
That lubricating oils and greases produced from basestocks and additives
on which the excise tax has already been paid shall no longer be subject
to excise tax: Provided, finally, That locally produced or imported oils
previously taxed as such but are subsequently reprocessed, re-refined or
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 recycled shall likewise be subject to the tax imposed under this Section.
(b) Processed gas, per liter of volume capacity, Five centavos (P0.05);
(c) Waxes and petrolatum, per kilogram, Three pesos and fifty centavos
(P3.50);
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, Five centavos (P0.05): Provided. That unless otherwise provided
by special laws, if the denatured alcohol is mixed with gasoline, the excise
tax on which has already been paid, only the alcohol content shall be
subject to the tax herein prescribed. For purposes of this Subsection, the
removal of denatured alcohol of not less than one hundred eighty degrees
(180º) proof (ninety percent (90%) absolute alcohol) shall be deemed to
have been removed for motive power, unless shown otherwise;
(e) Naphtha, regular gasoline and other similar products of distillation, per
liter of volume capacity, Four pesos and thirty five centavos (P4.35):
Provided, however, That naphtha, when used as a raw material in the
production of petrochemical products or as replacement fuel for natural-
gas-fired-combined cycle power plant, in lieu of locally-extracted natural
gas during the non-availability thereof, subject to the rules and
regulations to be promulgated by the Secretary of Energy, in consultation
with the Secretary of Finance, per liter of volume capacity, Zero (P0.00):
Provided, further, That the by-product including fuel oil, diesel fuel,
kerosene, pyrolysis gasoline, liquefied petroleum gases and similar oils
having more or less the same generating power, which are produced in
the processing of naphtha into petrochemical products shall be subject to
the applicable excise tax specified in this Section, except when such by-
products are transferred to any of the local oil refineries through sale,
barter or exchange, for the purpose of further processing or blending into
finished products which are subject to excise tax under this Section;
(f) Leaded premium gasoline, per liter of volume capacity, Five pesos and
thirty-five centavos (P5.35); unleaded premium gasoline, per liter of
volume capacity, Four pesos and thirty-five centavos (P4.35);
(g) Aviation turbo jet fuel, per liter of volume capacity, Three pesos and
sixty-seven centavos (P3.67);
(h) Kerosene, per liter of volume capacity, Zero (P0.00): Provided, That
kerosene, when used as aviation fuel, shall be subject to the same tax on
aviation turbo jet fuel under the preceding paragraph (g), such tax to be
assessed on the user thereof;
(i) Diesel fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, One peso and zero
(P0.00);
(j) Liquefied petroleum gas, per liter, Zero (P0.00): Provided, That liquefied
petroleum gas used for motive power shall be taxed at the equivalent rate
as the excise tax on diesel fuel oil;
(k) Asphalts, per kilogram, Fifty-six centavos (P0.56); and
(l) Bunker fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, zero (P0.00).

66. SEC. 129. Goods subject to Excise Taxes. — Excise taxes apply to goods
manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and to things imported. The
excise tax imposed herein shall be in addition to the value-added tax
imposed under Title IV.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 For purposes of this Title, excise taxes herein imposed and based on weight or
volume capacity or any other physical unit of measurement shall be
referred to as 'specific tax' and an excise tax herein imposed and based
on selling price or other specified value of the good shall be referred to as
'ad valorem tax.'

67. (A) Persons Liable. — Excise taxes on imported articles shall be paid by the
owner or importer to the Custom Officers, conformably with the
regulations of the Department of Finance and before the release of such
articles from the customs house, or by the person who is found in
possession of articles which are exempt from excise taxes other than
those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by

persons, entities, or agencies exempt from tax which are subsequently
sold, transferred or exchanged in the Philippines to non-exempt persons
or entitles, the purchasers or recipients shall be considered the importers
thereof, and shall be liable for the duty and internal revenue tax due on
such importation.

68. General Travel Service, Ltd. v. David , G.R. No. L-19259, 18 SCRA 59,
September 23, 1966, 18 SCRA 59.
69. Section 4.107-1(b), RR 16-2005, otherwise known as the Consolidated VAT
Regulations of 2004, promulgated to Title IV of the Tax Code, as well as
other provisions pertaining to VAT.

70. Section 4.107-1(a), RR 16-2005, id.

71. Supra note 32.

72. Id.
73. Id.

74. RA 7227 with respect to the Subic Special Economic Zone, RA 7916 with
respect to Ecozones as identified by Presidential Proclamations, and RA
9400 with respect to Clark FEZ and Poro Point Freeport Zone.
75. Supra note 32.

76. Section 7 of the Implementing Rules of RA 9400 provides: "Tax Treatment of

Goods Introduced Into and Brought Out of the Ecozones and Freeport
Zones — A. A. Raw materials, capital goods, and consumer items of
domestic origin which are brought out of the Ecozone or Freeport Zone
introduced into the customs territory shall be considered as importations
into the customs territory and the buyer of the goods shall be treated as
importer thereof, hence subject to the VAT on importation. In all
instances, raw materials, capital goods, equipment and consumer items
and foreign articles introduced into the customs territory, unless
authorized under applicable laws, rules and regulations shall be subject to
taxes and duties under the National Internal Revenue Code of 1997, as
amended, and by the Tariff and Customs Code of the Philippines, as
amended."

77. Supra note 69.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 78. Supra note 57.

79. Coconut Oil Refiners Association v. Torres , supra note 61 citing Senator Enrile
from the records of the Senate containing the discussion of the concept of
"special economic zone."
80. Comment, rollo, p. 372.

81. Rollo , pp. 72-73.

82. Id. at 76 citing CIR v. A.D. Guerrero, supra note 27.

83. Greenfield v. Meer, 77 Phil 394 (1946).

84. CIR v. Phil. Ace Lines, Inc. , G.R. Nos. L-20960-61, October 31, 1968, 25 SCRA
912, citing CIR v. Bothelo Shipping Corporation , G.R. No. L-21633, June
29, 1967, 20 SCRA 487.

85. CIR v. Court of Appeals, G.R. No. 115349, April 18, 1997, 271 SCRA 605.

86. Supra note 32. Cf. Section 6, RA 7227, as amended by RA 9400.

87. Rollo , p. 379.

88. Commissioner of Internal Revenue v. Central Luzon Drug , G.R. No. 159647,
April 15, 2005, 456 SCRA 414.
89. Supra note 84.

90. Supra note 61.

9 1 . Film Development Council of the Philippines v. Colon Heritage Realty

Corporation, G.R. No. 203754, June 16, 2015, sc.judiciary.gov.ph.
92. Quezon City v. ABS-CBN Broadcasting Corporation, G.R. No. 166408, October
6, 2008, 568 SCRA 496.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com