DIVISION

[ GR No. 177332, Oct 01, 2014 ]

NATIONAL CORPORATION v. CITY OF CABANATUAN

DECISION

LEONEN, J.:
This is a petition for review[1] under Rule 45, seeking to annul and set aside the
January 15, 2007 decision[2] and April 3, 2007 resolution[3] of the Court of
Appeals in CA-G.R. SP. No. 88377. The questioned decision dismissed petitioner's
petition for certiorari and affirmed the October 25, 2004 order[4] of the Regional
Trial Court of Cabanatuan City (Branch 30) directing the issuance of a writ of
execution against petitioner for the satisfaction of the amount of P11,172,479.55,
representing the balance of petitioner's franchise tax liabilities plus 25% surcharge
from 1992 to 2002. The resolution denied petitioner's motion for reconsideration.

Antecedents

The City of Cabanatuan (the City) assessed the National Power Corporation
(NAPOCOR) a franchise tax amounting to P808,606.41, representing 75% of 1%
of its gross receipts for 1992. NAPOCOR refused to pay, arguing that it is exempt
from paying the franchise tax.[5] Consequently, on November 9, 1993, the City
filed a complaint[6] before the Regional Trial Court of Cabanatuan City,
demanding NAPOCOR to pay the assessed tax due plus 25% surcharge and
interest of 2% per month of the unpaid tax, and costs of suit.

In the order[7] dated January 25, 1996, the trial court declared that the City could
not impose a franchise tax on NAPOCOR and accordingly dismissed the complaint
for lack of merit. In the March 12, 2001 decision[8] of the Court of Appeals
(Eighth Division) in CA-G.R. CV No. 53297, the appellate court reversed the trial
court and found NAPOCOR liable to pay franchise tax, as follows:

IN VIEW OF THE FOREGOING, the decision appealed from is SET

ASIDE and REVERSED. Defendant-appellee National Power Corporation
is hereby ordered to pay the City of Cabanatuan, to wit:
1. The sum of P808,606.41 representing business tax based on gross
receipts for the year 1992, and

2. The tax due every year thereafter based [o]n the gross receipts
earned by NPC,

3. In all cases, to pay a surcharge of 25% of the tax due and unpaid,
and

4. The sum of P10,000.00 as litigation expenses.

SO ORDERED.[9]

In its April 9, 2003 decision,[10] this court affirmed the Court of Appeals' March
12, 2001 decision and July 10, 2001 resolution. In its August 27, 2003 resolution,
[11] this court denied with finality NAPOCOR's motion for reconsideration.

After the court's decision had become final, the City filed with the trial court a
motion for execution[12] dated December 1, 2003 to collect the sum of
P24,030,565.26[13] (inclusive of the 25% surcharge of P13,744,096.69). In its
comment,[14] NAPOCOR prayed that the issuance of the writ be suspended
pending resolution of its protest letter dated December 12, 2003 filed with the
City Treasurer of Cabanatuan City on the computation of the surcharge.
NAPOCOR also informed the court of its payment to the City Treasurer of
P12,868,085.71 in satisfaction of the judgment award.[15]

Subsequently, the City filed a supplemental motion for execution[16] dated

January 29, 2004, claiming that the gross receipts upon which NAPOCOR's
franchise tax liabilities are to be determined should include transactions within
the coverage area of Nueva Ecija Electric Cooperative III and sales from the
different municipalities of the provinces of Tarlac, Pangasinan, Baler, and
Dingalan, Aurora. According to information allegedly gathered by the City, these
were transacted and consummated at NAPOCOR's sub-station in Cabanatuan
City.[17]

NAPOCOR filed its comment/opposition[18] dated March 29, 2004, praying that
the supplemental motion be denied for having raised new factual matters.
NAPOCOR emphasized that "the Court of Appeals Decision limits the franchise
tax payable based on the gross receipts from sales to Cabanatuan City's electric
cooperative."[19]

The City filed an amended motion for execution dated June 29, 2004,[20] praying
that "a writ of execution be issued by [the] Court directing [NAPOCOR] to pay . . .
the amount of P69,751,918.19 without prejudice to the collection of the balance, if
any."[21] NAPOCOR filed its comment[22] again, praying that' the grant of the
amended motion be denied and/or suspended pending final resolution of its
protest.

On October 25, 2004, the trial court issued the order[23] resolving the pending
motions filed by the City and NAPOCOR's corresponding comments. The trial
court agreed with NAPOCOR that "the tenor of the decision [sought to be
executed] limits the franchise tax payable on gross receipts from sales to [the
City's] electric cooperative."[24] However, the trial court sustained the City's
computation of the surcharge totalling P13,744,096.69 over NAPOCOR's claim of
P2,571,617.14 only.[25]

NAPOCOR assailed the trial court's order dated October 25, 2004 through a
petition for certiorari[26] with the Court of Appeals.

On January 15, 2007, the Court of Appeals promulgated the assailed decision
dismissing' NAPOCOR's petition for certiorari and affirming the trial court's
order. It held that since the franchise tax due was computed yearly, the 25%)
surcharge should also be computed yearly based on the total unpaid tax for each
particular year.[27] The appellate court agreed with the City's reasoning that non-
imposition of the surcharge on a cumulative basis would encourage rather than
discourage non-payment of taxes.[28] In its resolution[29] dated April 3, 2007,
the Court of Appeals also denied NAPOCOR's motion for reconsideration.

Hence, the present petition for review[30] was filed.

According to petitioner, the trial court and the Court of Appeals disregarded the
provisions of Section 168 of Republic Act No. 7160 or the Local Government Code
of 1991, which provides:

SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or

Charges. The sanggunian may impose a surcharge not exceeding twenty-
five (25%) of the amount of taxes, fees or charges not paid on time and an
interest at the rate not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such amount is fully paid
but in no case shall the total interest on the unpaid amount or portion
thereof exceed thirty-six (36) months. (Emphasis supplied)

Petitioner submits that from the foregoing provision, the surcharge should only be
P2,571,617.14, computed by applying the 25% surcharge against the total amount
of taxes not paid on time, which is the total amount of tax due from 1992 to 2002,
or P10,286,468.57. In imposing a surcharge of P13,744,096.69 instead of
P2,571,617.14, the trial court allegedly "varied and/or exceeded the terms of the
judgment sought to be executed."[31]
 Issue

The sole issue before the court is the proper interpretation for purposes of
execution of the dispositive portion of the Court of Appeals' decision in CA-G.R.
CV No. 53297, promulgated on March 12, 2001 (which was affirmed by this
court's April 9, 2003 decision in G.R. No. 149110). The dispositive portion reads:

IN VIEW OF THE FOREGOING, the decision appealed from is SET

ASIDE and REVERSED. Defendant-appellee National Power Corporation
is hereby ordered to pay the City of Cabanatuan, to wit:

1. The sum of P808,606.41 representing business tax based on gross

receipts for the year 1992, and
2. The tax due every year thereafter based [o]n the gross receipts earned
by NPC,
3. In all cases, to pay a surcharge of 25% of the tax due and unpaid,
and
4. The sum of P10,000.00 as litigation expenses.[32] (Emphasis
supplied)

In other words, the crucial point to be resolved is what the Court of Appeals meant
by "[i]n all cases, to pay a surcharge of 25% of the tax due and unpaid" in the
dispositive portion.

The trial court resolved the question, as follows:

 [Petitioner] obtained the amount of P2,571,617.14 by getting the 25% of
PI0,256,468.57, the total unpaid tax due. Whereas, the [respondent], by
further studying the data on record, obtained the 25% of the tax due yearly.
The total unpaid tax due for example in year 1992 (P808,606.41) would be
added the tax due for 1993 (P821.401.17), obtaining the sum of
P1,630,007.58 as unpaid tax due. From this amount of P1,630,007.58 is to be
taken the 25% surcharge, giving the amount of P407,501.89 to be added to
the amount of P202.151.60, the 25% of the unpaid amount of P80.8,606.41.
The same computation was made on the succeeding years up to the year
2002 giving the total amount of the surcharge/penalty of P13,744,096.69.

This Court finds the computation of the [respondent] more in accord with
the decision in this case. The [petitioner] was imposed taxes based on the
gross receipts yearly. The tax due was computed yearly and therefore, it can
be interpreted to mean that the 25% surcharge should also be computed
yearly based on the unpaid tax due for each particular year.

Based on these computations, by adding the total tax due for the year 1992 to
2002 (P10,286,468.57), the total surcharge/penalty (P13,744,096.69) and
the litigation expenses (P10,000.00) as contained in the dispositive portion,
the [petitioner] has a total liability of P24,040,565.26. Since the [petitioner]
has already paid the sum of P12,868,085.71; its total liability therefore is
P11,172,479.55.[33] (Emphasis supplied)

The trial court sustained respondent's computation of the surcharge based on the
total unpaid tax for each year [proper tax for the year + unpaid tax of the previous
year/s], which, in effect, resulted in the imposition of the 25% surcharge for every
year of default in the payment of a franchise tax, thereby arriving at the total
amount of P13,744,096.69. Petitioner, on the other hand, insists a one-time
application of the 25% surcharge based on the total franchise tax due and unpaid
(P10,286,468.57 from 1992 to 2002), arriving at the sum of only P2,571,617.14.
 This court's ruling

The petition is meritorious.

The trial court's order of execution,

as affirmed by the Court of Appeals,
exceeded the judgment sought to be
executed

Respondent's computation of the surcharge, as sustained by the trial court and the
Court of Appeals, varies the terms of the judgment sought to be executed and
contravenes Section 168 of the Local Government Code.

To repeat, respondent computed the surcharge based on the total unpaid tax for
each particular year. For example, in 1993, the proper tax due (P821,401.17) was
added the unpaid tax due in year 1992 (P808,606.41), obtaining the sum of
Pl,630,007.58 as total unpaid tax. To this amount of P1,630,007.58 was applied
the 25% surcharge, giving the amount of P407,501.89. In 1994, the proper tax due
(P1,075,855.62) was added the unpaid taxes for 1992 and 1993 (P1,630,007.58),
yielding a total unpaid tax of P2,705,863.20. To this sum of P2,705,863.20 was
applied the 25% surcharge, obtaining the amount of P676,465.80. The same
computation was made on the succeeding years up to the year 2002. The
surcharges from 1992 to 2002 were added, giving the total amount of
P13,744,096.69. Thus:
 Year Tax Due Unpaid Surcharge
1992 P 808,606.41 P 808,606.41 P 202,151.60
1993 821,401.17 1,630,007.58 407,501.89
1994 1,075,855.62 2,705,863.20 676,465.80
1995 1,161,016.63 3,866,879.83 966,719.96
1996 449,599.84 4,316,479.67 1,079,119.92
1997 614,608.97 4,931,088.65 1,232,722.16
1998 519,967.33 5,451,055.97 1,362,763.99
1999 238,439.87 5,689,495.84 1,422,373.96
2000 1,030,108.81 6,719,604.65 1,679,901.16
2001 1,851,231.76 8,570,836.40 2,142,709.10
2002 [Link] 10,286,468.57 2.571,617.14
Total 10,286,468.57 P13,744,096.69[34]

In effect, respondent's computation resulted in the imposition of the 25%o

surcharge for every year of default in the payment of a franchise tax. To illustrate,
the surcharge for the 1992 franchise tax is 25% of P808,606.41 [proper tax due]
multiplied by 11 years [1992 to 2002]; for the 1993 franchise tax, 25% of
P821,401.17 [proper tax due] multiplied by 10 years [1993 to 2002]; for the 1994
franchise tax, 25% of P1,075,855.62 [proper tax due] multiplied by 9 years [1994
to 2002]; and so on, as detailed below:
 Tax Due
Year + Surcharge

(25% x 808,606.41 x
1992 P808,606.41 P2,223,668
11)
1993 821,401.17 2,053,503 (25% x 821,401.17x10)
(25% x
1994 1,075,855.62 2,420,675
1,075,855.62x9)
1995 1,161,016.63 2,322,033(25% x 1,161,016.63x8)
1996 449,599.84 786,799(25% x 449,599.84 x 7)
1997 614,608.97 921,913 (25% x 614,608.97x6)
1998 519,967.33 649,959 (25% x 519,967.33x5)
1999 238,439.87 238,439 (25% x 238,439.87x4)
(25% x 1,030,108.81 x
2000 1,030,108.81 772,581
3)
2001 1,551,231.76 925,615 (25% x 1,851,231.76x2)
(25% x 1,715,632.16 x
2002 1,715,632.16 428,908
1)
Total P10,286,468.57 ~P13,744,093

There is nothing in the Court of Appeals' decision that would justify the
interpretation that the statutory penalty of 25% surcharge should be charged
yearly from due date until full payment. If that was the intention of the Court of
Appeals, it should have so expressly stated in the dispositive portion of its
decision.

Respondent contends that in its complaint before the trial court, it prayed that
petitioner be ordered to pay the franchise tax due, plus 25% surcharge and 2%
monthly interest in accordance with Section 168 of the Local Government Code.
[35] However, the appellate court allegedly did not award the 2% monthly
interest, and the only probable reason why it did not do so notwithstanding the
express provision of law was because of Article 1226[36] of the Civil Code stating
that the "penalty [25% surcharge] shall substitute the indemnity for damages and
the payment of interest in case of non-compliance."[37] Hence, it contended that
sans the payment of monthly interest, the "one time [sic] imposition of the
[surcharge] regardless of the number of years of delay [would] be a great
transgression of [its] right."[38]

Respondent's theory is implausible.

Article 1226 of the Civil Code refers to penalties prescribed in contracts, not to
penalties embodied in a judgment. We must yield to the specific language of the
fallo which is controlling and construe its meaning in the light of the applicable
laws.

For clarity, we reiterate the pertinent portion of the dispositive:

1. The sum of P808,606.41 representing business tax based on gross receipts

for the year 1992, and

2. The tax due every year thereafter based [o]n the gross receipts earned by
NPC,

3. In all cases, to pay a surcharge of 25% of the tax due and unpaid, and.
. . [39] (Emphasis supplied)

The fallo says "tax due and unpaid," which simply means tax owing or owed or
"tax due that was not paid." The "and" is "a conjunction used to denote a joinder
or union, 'binding together,' 'relating the one to the other.'"[40] In the context of
the decision rendered, there is no ambiguity.

As understood from the common and usual meaning of the conjunction "and," the
words "tax due" and "unpaid" are inseparable. Hence, when the taxpayer does not
pay its tax due for a particular year, then a surcharge is applied on the full amount
of the tax due. However, when the taxpayer makes a partial payment of the tax
due, the surcharge is applied only on the balance or the part of the tax due that
remains unpaid. It is in this sense that the fallo of the Court of Appeals decision
should be read, i.e., a 25% surcharge is to be added to the proper franchise tax so
due and unpaid for each year.

The proper franchise tax due each year is computed, with paragraphs 1 and 2 of
the fallo being applied, based on the gross receipts earned by NAPOCOR:

Year Tax Due

1992 P 808,606.41
1993 821,401.17
1994 1,075,855.62
1995 1,161,016.63
1996 449,599.84
1997 614,608.97
1998 519,967.33
1999 238,439.87
2000 1,030,108.81
2001 1,851,231.76
2002 1,715,632.16
Total P10,286,468.57[41]

Since the franchise tax due was not paid on time, a surcharge of 25% is imposed as
an addition to the main tax required to be paid. This is the proper meaning of
paragraph 3 oí the fallo. Thus:
 Year Tax Due + Surcharge
(25% x
1992 P 808,606.41 P 202,151.60
808,606.41)
1993 821,401.17 205,350.29 (25% x 821,401.17)
(25% x
1994 1,075,855.62 268,963.91
1,075,855.62)
(25% x
1995 1,161,016.63 290,254.16
1,161,016.63)
(25% x
1996 449,599.84 112,399.96
449,599.84)
(25% x
1997 614,608.97 153,652.24
614,608.97)
1998 519,967.33 129,991.83 (25% x 519,967.33)
(25% x
1999 238,439.87 59,609.97
238,439.87)
(25% x
2000 1,030,108.81 257,527.20
1,030,108.81)
(25% x
2001 1,851,231.76 462,807.94
1,851,231.76)
(25% x
2002 1.715,632.16 428.908.04
[Link])
Total P 10,286,468.57 P 2,571,617.14

It is a fundamental rule that the execution cannot be wider in scope or exceed the
judgment or decision on which it is based; otherwise, it has no validity.[42] "It is
the final judgment that determines and stands as the source of the rights and
obligations of the parties."[43] In Collector of Internal Revenue v. Gutierrez,[44]
this court did not allow the collection of the 5% surcharge and 1% monthly interest
because the decision sought to be executed did not expressly provide for the
payment of the same.
 It is the final judgment that determines and stands as the source of the rights
and obligations of the parties. The judgment in this case made no
pronouncement as to the payment of surcharge and interest, but specifically
stated the amount for the payment of which respondents were liable. The
Collector by virtue of the writ of execution, may not vary the terms of the
judgment by including in his motion for execution the payment of surcharge
and interest.
"The writ of execution must conform to the judgment which is to be
executed, as it may not vary the terms of the judgment it seeks to
enforce. Nor may it go beyond the terms of the judgment sought to be
executed. Where the execution is not in harmony with the judgment
which gives it life and exceeds it, it has pro tanto no validity." (Moran,
Comments on the Rules of Court, 1957 ed., Vol. I, p. 556, and authorities
cited therein.)[45]

In The Philippine American Accident Insurance Co., Inc. v. Hon. Flores,[46] the
trial court's order directing the issuance of an alias writ of execution for the
satisfaction of the compound interest computed by private respondent was set
aside by this court, ruling that the judgment sought to be executed ordered only
the payment of a simple interest:

The questioned Order cannot be sustained. The judgment which was sought
to be executed ordered the payment of simple "legal interest" only. It said
nothing about the payment of compound interest. Accordingly, when the
respondent judge ordered the payment of compound interest he went beyond
the confines of his own judgment which had been affirmed by the Court of
Appeals and which had become final. Fundamental is the rule that execution
must conform to that ordained or decreed in the dispositive part of the
decision. Likewise, a court can not [sic], except for clerical errors or
omissions, amend a judgment that has become final.[47] (Citation omitted)
Respondent should have filed an appeal from the judgment or at the least sought
clarification insofar as it failed to provide for the payment of the 2% monthly
interest. Instead, it erroneously presumed that the surcharge was to be applied
yearly with the omission of the payment for monthly interest in the judgment.
Hence, respondent alone is to blame and should suffer the consequences of its
neglect. With the finality of the Court of Appeals' judgment, all the issues between
the parties are deemed resolved and laid to rest. Neither the trial court nor even
this court can amend or add to the dispositive portion of a decision that has
attained finality.

The judgment directing the

payment of surcharge on
taxes due and unpaid
should be read in
consonance with Section
168 of the Local
Government Code

Section 168 of the Local Government Code categorically provides that the local
government unit may impose a surcharge not exceeding 25% of the amount of
taxes, fees, or charges not paid on time.

SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or

Charges. The sanggunian may impose a surcharge not exceeding twenty-
five (25%) of the amount of taxes, fees or charges not paid on time and an
interest at the rate not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such amount is fully paid
but in no case shall the total interest on the unpaid amount or portion
thereof exceed thirty-six (36) months. (Emphasis supplied)
The surcharge is a civil penalty imposed once for late payment of a tax.[48]
Contrast this with the succeeding provisions on interest, which was imposable at
the rate not exceeding 2% per month of the unpaid taxes until fully paid. The fact
that the interest charge is made proportionate to the period of delay, whereas the
surcharge is not, clearly reveals the legislative intent for the different modes in
their application.

Indeed, both the surcharge and interest are imposable upon failure of the taxpayer
to pay the tax on the date fixed in the law for its payment. The surcharge is
imposed to hasten tax payments and to punish for evasion or neglect of duty,[49]
while interest is imposed to compensate the State "for the delay in paying the tax
and for the concomitant use by the taxpayer of funds that rightfully should be in
the government's hands."[50]

A surcharge regardless of how it is computed is already a deterrent. While it is

true that imposing a higher amount may be a more effective deterrent, it cannot
be done in violation of law and in such a way as to make it confiscatory. We find
this reasoning not compelling for us to deviate from the express provisions of
Section 168 of the Local Government Code. When a law speaks unequivocally, it is
not the province of this court to scan its wisdom or its policy.

This court has steadfastly adhered to the doctrine that its first and fundamental
duty is the application of the law according to its plain terms, interpretation being
called for only when such literal application is impossible. Neither the court nor
the City has the power to modify the penalty.[51]

If the legislative intent was to make the 25% surcharge proportionate to the period
of delay, the law should have provided for the same in clear terms.

Generally, tax statutes are construed strictly against the government and in favor
of the taxpayer. [52] "[Statutes levying taxes or duties [are] not to extend their
provisions beyond the clear import of the language used";[53] and "tax burdens
are not to be imposed, nor presumed to be imposed beyond what the statute[s]
expressly and clearly [import]. . . ."[54] Similarly, we cannot impose a penalty for
non-payment of a tax greater than what the law provides.[55] To do so would
amount to a deprivation of property without due process of law.

Respondent's computation of the surcharge is oppressive and

unconscionable

The yearly accrual of the 25% surcharge is unconscionable. Respondent's

computation of the total tax due plus surcharge is reproduced below for easy
reference.

Surcharge
Year Tax Due Unpaid Total
(.25 x Unpaid)
1992 P 808,606.41 P 808,606.41 P 202,151.60 P 1,010,758.01
1993 821,401.17 1,630,007.58 407,501.89 1,228,903.06
1994 1,075,855.62 2,705,863.20 676,465.80 1,752,321.42
1995 1,161,016.63 3,866,879.83 966,719.96 2,127,736.59
1996 449,599.84 4,316,479.67 1,079,119.92 1,528,719.76
1997 614,608.97 4,931,088.65 1,232,722.16 1,847,381.13
1998 519,967.33 5,451,055.97 1,362,763.99 1,882,731.32
1999 238,439.87 5,689,495.84 1,422,373.96 1,660,813.83
2000 1,030,108.81 6,719,604.65 1,679,901.16 2,710,009.97
2001 1,851,231.76 8,570,836.40 2,142,709.10 3,993,940.86
2002 1,715,632.16 10,286,468.57 2,571,617.14 4,287,249.31
P P P
Total P 54,976,386.76
10,286,468.57 13,744,096.6924,030,565.26[56]

Respondent's yearly imposition of the 25% surcharge, which was sustained by the
trial court and the Court of Appeals, resulted in an aggregate penalty that is way
higher than petitioner's basic tax liabilities.

Furthermore, it effectively exceeded the prescribed 72% ceiling for interest under
Section 168 of the Local Government Code. The law allows the local government
to collect an interest at the rate not exceeding 2% per month of the unpaid taxes,
fees, or charges including surcharges, until such amount is fully paid. However,
the law provides that the total interest on the unpaid amount or portion thereof
should not exceed thirty-six (36) months or three (3) years. In other words,
respondent cannot collect a total interest on the unpaid tax including surcharge
that is effectively higher than 72%. Here, respondent applied the 25% cumulative
surcharge for more than three years. Its computation undoubtedly exceeded the
72% ceiling imposed under Section 168 of the Local Government Code. Hence,
respondent's computation of the surcharge is oppressive and unconscionable.

We conclude that the trial court committed grave abuse of discretion amounting
to lack or excess of jurisdiction in issuing its order dated October 25, 2004, which
adopted respondent's computation and effectively varied the terms of the
judgment sought to be executed insofar as it imposed a surcharge of
P13,744,096.69 on the total tax due (P10,286,468.57) from 1992 to 2002 instead
of only P2,571,617.14.

Taxes and its surcharges and penalties cannot be construed in such a way as to
become oppressive and confiscatory. Taxes are implied burdens that ensure that
individuals and businesses prosper in a conducive environment assured by good
and effective government. A healthy balance should be maintained such that laws
are interpreted in a way that these burdens do not amount to a confiscatory
outcome. Taxes are not and should not be construed to drive businesses into
insolvency. To a certain extent, a reasonable surcharge will provide incentive to
pay; an unreasonable one delays payment and engages government in
unnecessary litigation and expense.

Since it is undisputed that petitioner had already paid the amount of f

12,868,085.71[57] (including litigation expenses of P10,000.00) to the City
Treasurer of Cabanatuan City, the judgment has accordingly been fully satisfied.

WHEREFORE, the petition is GRANTED and the Court of Appeals decision

and resolution dated January 15, 2007 and April 3, 2007 are REVERSED AND
SET ASIDE. The order dated October 25, 2004 of the Regional Trial Court of
Cabanatuan City, Branch 30, in Civil Case No. 1659 AF granting the writ of
execution for the satisfaction of the amount of P11,172,479.55 is ANNULLED
AND SET ASIDE.

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.

[1] Rollo, pp. 12-46.

[2] Id. at 53-67. The decision was penned by Associate Justice Arturo G. Tayag
and concurred in by Associate Justices Renato C. Dacudao (Chair) and Hakim S.
Abdulwahid.

[3] Id. at 68-69. The resolution was penned by Associate Justice Arturo G. Tayag,
and concurred in by Associate Justices Renato C. Dacudao (Chair) and Hakim S.
Abdulwahid.

[4] Id. at 326-330.

[5] See National Power Corporation v. City of Cabanatuan, G.R. No. 149110,
April 9, 2003, 401 SCRA 259, 262 [Per J. Puno, Third Division].

[6] Rollo, pp. 77-79. The complaint was docketed as Civil Case No. 1659 AF.

[7] Id. at 93-102.

[8] Id. at 126-134.

[9] Id. at 133-134.

[10] Id. at 228-255. The case was docketed as G.R. No. 149110. The decision was
penned by Associate Justice Reynato S. Puno (Chair) and concurred in by
Associate Justices Artemio V. Panganiban, Angelina Sandoval-Gutierrez, Renato
C. Corona, and Conchita Carpio Morales.

[11] Id. at 282.

[12] Id. at 283-285.

[13] Tax due 1992 to 2002 P 10,286,468.57

Surcharge/Penalty 13,744.096.69
Total P24,030,565.26

[14] Rollo, pp. 286-293.

[15] Id. at 286.

[16] Id. at 298-300.

[17] Id. at 299.

[18] Id. at 301-305.

[19] Id. at 303.

[20] Id. at 306-308.

[21] Id. at 307.

[22] Id. at 313-325.

[23] Id. at 326-330.

[24] Id. at 328-329.

[25] Id. at 329.

[26] Id. at 33 1-364.

[27] Id. at 64.

[28] Id.

[29] Id. at 68-69.

[30] The petition was received by the court on May 25, 2007. Respondent filed its
comment on October 5, 2007. Subsequently, pursuant to the court's resolution
dated June 16, 2008, petitioner and respondent filed their memoranda on August
22, 2008 and September 11, 2008, respectively.

[31] Rollo, p. 30.

[32] Id. at 133-134.

[34] Id. at 488.

[35] Id. at 485.

ART. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there is no stipulation to the contrary.

Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.

[37] Rollo, p. 486.

[38] Id.

[39] Id. at 133-134.

[40] Concurring opinion of J. Castro in Phil. Constitution Association, Inc. v.

Mathay, 124 Phil. 890, 924 (1966) [Per J. J.B.L. Reyes, En Banc].

[41] Rollo, p. 488.

[42] Pamantasan ng Lungsod ng Maynila v. Hon. Intermediate Appellate Court,

227 Phil. 289, 292-293 (1986) [Per J. Gutierrez, Jr., Second Division],

[43] Collector of Internal Revenue v. Gutierrez, 108 Phil. 215, 219 (1960) [Per J.
Montemayor, En Banc]

[44] 108 Phil. 215 (1960) [Per J. Montemayor, En Banc].

[45] Id. at 219-220.

[45] 186 Phil. 563 (1980) [Per J. Abad Santos, Second Division].

[47] Id. at 565-566.

[48] See the computation of the 25% surcharge in Commissioner of Internal

Revenue v. Japan Air Lines, Inc., 279 Phil. 499 (1991) [Per J. Paras, En Banc].

[49] Philippine Refining Company v. CA, 326 Phil. 680, 691 (1996) [Per J.
Regalado, Second Division]. In Jamora v. Meer, 74 Phil. 22 (1942) [Per J. Moran,
En Banc], this court ruled: 'Tax laws imposing penalties for delinquencies are
clearly intended to hasten tax payments or to punish evasions or neglect of duty in
respect thereof. If delays in tax payments are to be condoned for light reasons, the
law imposing penalties for delinquencies would be rendered nugatory, and the
maintenance of the government and its multifarious activities would be as
precarious as tax payers are willing or unwilling to pay their obligations to the
state in time. Imperatives of public welfare will not approve of this result."

[50] See Aguinaldo Industries Corporation v. Commissioner of Internal Revenue,

197 Phil. 822, 832 (1982) [Per J. Plana, First Division].

[51] In Republic v. Luzon Industrial Corporation, 102 Phil. 189, 193 (1957) [Per J.
Bengzon, En Banc], the appellant requested that the surcharge be reduced in
accordance with Article 1154 of the Civil Code that gives the judge power to
"equitably modify the penalty when the principal obligation has been partly or
irregularly fulfilled by the debtor" in view of its good faith and efforts to pay its
obligation on time. The court refused, holding that Article 1154 refers to penalties
prescribed in contracts; the law directing the collection of 25% surcharge is
mandatory on the collector who has no discretion in the matter; and the court
cannot equitably modify the penalty.

[52] Commissioner of Internal Revenue v. SM Prime Holdings, Inc., G.R. No.

183505, February 26, 2010, 613 SCRA 774, 800 [Per J. Del Castillo, Second
Division]; Quimpo v. Mendoza, 194 Phil. 66, 76 (1981) [Per J. Guerrero, First
Division].

[53] Manila Railroad Company v. Insular Collector of Customs, 52 Phil. 950, 952
(1929) [Per J. Malcolm, En Banc].

[54] CIR v. Court of Appeals, 363 Phil. 130, 139 (1999) [Per J. Purísima, Third
Division], citing Province of Bulacan v. Court of Appeals, 359 Phil. 779, 796
(1998) [Per J. Romero, Third Division]; Republic v. Intermediate Appellate
Court, 273 Phil. 573, 579 (1991) [Per J. Griflo-Aquino, First Division];
Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 86785,
November 21, 1991, 204 SCRA 182, 189 [Per J. Regalado, Second Division],

[55] In Paper Industries Corporation of the Philippines (PICOP) v. Court of

Appeals, 321 Phil. 1, 29-30 (1995) [Per J. Feliciano, En Banc], this court held that
Picop is not liable for surcharge and interest on unpaid transaction tax. According
to this court, "the authority to impose what the present Tax Code calls (in Section
248) civil penalties consisting of additions to the tax due, must be expressly given
in the enabling statute, in language too clear to be mistaken. The grant of that
authority is not lightly to be assumed to have been made to administrative
officials, even to one as highly placed as the Secretary of Finance." This court
noted that Section 51(c)(l) and (e)(l) and (3) of the 1977 Tax Code authorize the
imposition of surcharge and interest only with respect to a "tax imposed by this
Title" that is to say, Title II on "Income Tax"; while the 35% transaction tax is
imposed by Section 2I0(b) which Section is embraced in Title V on "Taxes on
Business" of that Code. While such omission seemed to this court to be an
"inadvertent error in legislative draftsmanship," it refrained from filling in such a
legislative lacuna.

[56] Rollo, p. 488.

[57] Id. at 295-296.