Clark Investors and Locators Association, Inc. vs. Secretary of Finance and Commissioner of Internal Revenue

A petition for certiorari under Rule 65 cannot be used to assail a revenue regulation issued by the Secretary of Finance in the exercise of quasi-legislative or rule-making powers under Section 244 of the NIRC; such a challenge is in the nature of declaratory relief, over which the Supreme Court has only appellate, not original, jurisdiction, and direct resort to the Court is barred absent exceptional and compelling circumstances clearly set out in the petition.

Petitioner Clark Investors and Locators Association, Inc. represents businesses and enterprises within the Clark Freeport Zone. Respondents are the Secretary of Finance and the Commissioner of Internal Revenue. Republic Act No. 7227, the Bases Conversion and Development Act of 1992, mandated the accelerated conversion of the Clark and Subic military reservations into special economic zones and created the Subic Special Economic Zone, which was to be operated as a separate customs territory with tax and duty-free importation of raw materials, capital, and equipment and no national or local taxes in lieu of a five percent (5%) gross income tax. Republic Act No. 9400 extended the tax and fiscal incentives under RA No. 7227 to the Clark Freeport Zone, providing that no national and local taxes shall be imposed on registered business enterprises within the CFZ and that a five percent (5%) tax on gross income earned shall be paid in lieu thereof.

On March 13, 1992, Congress enacted Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, which mandated the accelerated conversion of the Clark and Subic military reservations into special economic zones. Section 12 thereof created the Subic Special Economic Zone and provided that it shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital, with incentives such as tax and duty-free importations of raw materials, capital, and equipment; that exportation or removal of goods from the zone to other parts of Philippine territory shall be subject to customs duties and taxes; and that, notwithstanding existing laws, no taxes, local and national, shall be imposed within the zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the zone shall be remitted to the National Government, one percent (1%) each to the local government units affected, and one percent (1%) to a development fund, which the decision described as a preferential gross income tax rate of five percent (5%).

On March 20, 2007, Congress enacted Republic Act No. 9400, which extended the tax and fiscal incentives under RA No. 7227 to the Clark Freeport Zone. By amending Section 15 of RA No. 7227, RA No. 9400 provided that the CFZ shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital equipment, with incentives such as tax and duty-free importation of raw materials and capital equipment; that exportation or removal of goods from the CFZ to other parts of Philippine territory shall be subject to customs duties and taxes under the Tariff and Customs Code, the National Internal Revenue Code of 1997, and other relevant tax laws; and that, notwithstanding existing laws, no national and local taxes shall be imposed on registered business enterprises within the CFZ. In lieu of said taxes, a five percent (5%) tax on gross income earned shall be paid by all registered business enterprises within the CFZ, three percent (3%) to the National Government and two percent (2%) to the treasurer's office of the municipality or city where they are located.

On February 17, 2012, the Department of Finance, upon recommendation of the Bureau of Internal Revenue, issued Revenue Regulations No. 2-2012. Section 3 thereof provided that the value-added and excise taxes due on all petroleum and petroleum products imported and/or brought directly from abroad to the Philippines, including Freeport and Economic zones, shall be paid by the importer to the Bureau of Customs. 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 the aforesaid 0% VAT transactions/entities and the excise taxes paid on account of sales to 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, as well as entities which are by law exempt from indirect taxes, the importer may file a claim for credit or refund with the Bureau of Customs, subject to favorable endorsement of the BIR and existing rules and procedures. 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 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.

On March 8, 2012, petitioner Clark Investors and Locators Association, Inc., representing the businesses and enterprises within the Clark Freeport Zone, filed the instant petition alleging that respondents acted with grave abuse of discretion in issuing RR 2-2012. Petitioner argued that by imposing the VAT and excise tax on the importation of petroleum and petroleum products from abroad and into the Freeport or Economic Zones, RR 2-2012 unilaterally revoked the tax exemption granted by RA No. 7227 and RA No. 9400 to the businesses and enterprises operating within the Subic Special Economic Zone and Clark Freeport Zone.

Respondents, through the Office of the Solicitor General, contended that the petition must be denied outright because the special civil action for certiorari cannot be used to assail RR 2-2012, which was issued in the exercise of their quasi-legislative or rule-making powers, and because certiorari can only be used against a public officer exercising judicial or quasi-judicial powers. They also invoked the doctrine of hierarchy of courts and claimed that a petition for certiorari cannot be filed directly with the Supreme Court absent highly exceptional reasons, which petitioner failed to adduce. On the substantive claim, respondents opposed petitioner's argument by referring to the tax refund under Section 3 of RR 2-2012, pointing out that it allows businesses and enterprises operating within the Subic Special Economic Zone and Clark Freeport Zone to claim a tax refund upon submission of competent proof that they used the imported fuel exclusively within those zones, and thus RR 2-2012 is consistent with RA No. 7227 and RA No. 9400.

• Grave Abuse of Discretion: Petitioner alleged that respondents acted with grave abuse of discretion in issuing RR 2-2012.
• Revocation of Tax Exemptions: Petitioner argued that by imposing VAT and excise tax on the importation of petroleum and petroleum products from abroad into the Freeport or Economic Zones, RR 2-2012 unilaterally revoked the tax exemption granted by RA No. 7227 and RA No. 9400 to businesses and enterprises operating within the Subic Special Economic Zone and Clark Freeport Zone.

• Improper Remedy: Respondents contended that the petition must be denied outright because the special civil action for certiorari cannot be used to assail RR 2-2012, which was issued in the exercise of quasi-legislative or rule-making powers, and because certiorari can only be used against a public officer exercising judicial or quasi-judicial powers.
• Hierarchy of Courts: Respondents invoked the doctrine of hierarchy of courts and claimed that a petition for certiorari cannot be filed directly with the Supreme Court absent highly exceptional reasons, which petitioner failed to adduce.
• Consistency with Tax Exemptions: Respondents opposed petitioner's argument that RR 2-2012 unilaterally revoked the tax exemption by referring to the tax refund under Section 3 of RR 2-2012, which allows businesses and enterprises operating within the Subic Special Economic Zone and Clark Freeport Zone to claim a tax refund upon submission of competent proof that they used the imported fuel exclusively within those zones; thus, RR 2-2012 is consistent with RA No. 7227 and RA No. 9400.

• Propriety of Certiorari: Whether a petition for certiorari under Rule 65 may be used to assail RR 2-2012, which was issued by the Secretary of Finance and Commissioner of Internal Revenue in the exercise of quasi-legislative or rule-making powers.
• Nature of the Petition and Jurisdiction: Whether the petition, though styled as certiorari, is in essence an action for declaratory relief over which the Supreme Court has only appellate, not original, jurisdiction.
• Hierarchy of Courts: Whether direct resort to the Supreme Court may be allowed absent exceptional and compelling circumstances clearly set out in the petition.
• Validity of RR 2-2012: Whether RR 2-2012 unilaterally revoked the tax exemptions granted by RA No. 7227 and RA No. 9400 to businesses and enterprises within the Subic Special Economic Zone and Clark Freeport Zone.

• Propriety of Certiorari: No. Certiorari under Rule 65 lies only against a tribunal, board, or officer exercising judicial or quasi-judicial functions; respondents issued RR 2-2012 in the exercise of quasi-legislative or rule-making powers under Section 244 of the NIRC.
• Nature of the Petition and Jurisdiction: No. The petition, though styled as certiorari, in essence seeks a declaration of unconstitutionality and illegality of RR 2-2012, partaking of declaratory relief over which the Supreme Court has only appellate, not original, jurisdiction; such action falls under the exclusive jurisdiction of the Regional Trial Court.
• Hierarchy of Courts: No. Direct resort to the Supreme Court is not allowed absent special and important reasons or exceptional and compelling circumstances, which petitioner failed to allege.
• Validity of RR 2-2012: Not resolved. The Court dismissed the petition on procedural grounds and found no need to resolve the other issues raised.

• Propriety of Certiorari: Rule 65, Section 1 of the 1997 Rules of Civil Procedure, as amended, provides that certiorari may be invoked only against a tribunal, board, or officer exercising judicial or quasi-judicial functions. The requisites are: (1) the petition must be directed against such a tribunal, board, or officer; (2) the tribunal, board, or officer must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. A respondent exercises judicial function when he has the power to determine what the law is and what the legal rights of the parties are, and then adjudicates upon those rights. Quasi-judicial function applies to the action or discretion of public administrative officers or bodies required to investigate facts, ascertain the existence of facts, hold hearings, draw conclusions from them as a basis for official action, and exercise discretion of a judicial nature. Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, there must be a law that gives rise to specific rights of persons or property under which adverse claims are made, and the controversy ensuing therefrom is brought before a tribunal clothed with power to determine the law and adjudicate the rights of the contending parties. Respondents do not fall within this ambit. They issued RR 2-2012 in the exercise of quasi-legislative or rule-making powers, not judicial or quasi-judicial functions, and did not adjudicate or determine the rights of the parties. To determine whether a revenue regulation is quasi-legislative, the legal basis for its issuance must be examined. In BPI Leasing Corporation vs. Court of Appeals, Revenue Regulation 19-86 was held quasi-legislative because it was issued by the Secretary of Finance under Section 244 of the NIRC, an express grant of authority to promulgate all needful rules and regulations for the effective enforcement of the NIRC. RR 2-2012 was likewise issued by the Secretary of Finance based on Section 244, in relation to Section 245, of the NIRC. Since RR 2-2012 was issued under Section 244, it is quasi-legislative in nature and outside the scope of a petition for certiorari.
• Nature of the Petition and Jurisdiction: Although the case is styled as a petition for certiorari, it in essence seeks a declaration by the Supreme Court of the unconstitutionality and illegality of RR 2-2012, thus partaking of the nature of an action for declaratory relief. Section 5, Article VIII of the 1987 Philippine Constitution grants the Supreme Court original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus. It grants appellate jurisdiction over cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. The Supreme Court does not have original jurisdiction over a petition for declaratory relief even if only questions of law are involved. Declaratory relief falls under the exclusive jurisdiction of the Regional Trial Courts. Section 1, Rule 63 of the Rules of Court provides that any person interested under a deed, will, contract or other written instrument, whose rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties thereunder. Accordingly, the petition must fail.
• Hierarchy of Courts: Although the Supreme Court, the Court of Appeals, and the Regional Trial Courts have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus, and injunction, such concurrence does not give the petitioner unrestricted freedom of choice of court forum. The hierarchy of courts is determinative of the venue of appeals and serves as a general determinant of the appropriate forum for petitions for extraordinary writs. A direct invocation of the Supreme Court's original jurisdiction to issue these writs should be allowed only when there are special and important reasons therefor, clearly and specifically set out in the petition. The rationale is two-fold: it would impose upon the precious time of the Court, and it would cause inevitable and resultant delay, in some instances requiring remand or referral to the lower court as the proper forum or as better equipped to resolve the issues because the Supreme Court is not a trier of facts. The Court thus affirmed the judicial policy of not entertaining direct resort unless the remedy cannot be obtained in the appropriate courts and exceptional and compelling circumstances, such as cases of national interest and serious implications, justify the extraordinary remedy. In Chamber of Real Estate and Builders Association, Inc. (CREBA) vs. Secretary of Agrarian Reform, examples of exceptional and compelling circumstances were provided, but petitioner failed to allege such exceptional and compelling circumstances justifying direct resort to the Supreme Court.
• Validity of RR 2-2012: In view of the serious procedural and technical defects of the petition, the Court saw no need to resolve the other issues raised by petitioner, including the substantive challenge to RR 2-2012.

• Certiorari under Rule 65 — A special civil action available only against a tribunal, board, or officer exercising judicial or quasi-judicial functions. Its requisites are: (1) the petition must be directed against such a tribunal, board, or officer; (2) the tribunal, board, or officer must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Applied here, the first requisite was absent because respondents issued RR 2-2012 in the exercise of quasi-legislative or rule-making powers, not judicial or quasi-judicial functions.
• Judicial and quasi-judicial functions — Judicial function exists where the officer has the power to determine what the law is and what the legal rights of the parties are, and then adjudicates upon those rights. Quasi-judicial function applies to the action or discretion of public administrative officers or bodies required to investigate facts, ascertain the existence of facts, hold hearings, draw conclusions from them as a basis for official action, and exercise discretion of a judicial nature. Before such functions may be exercised, there must be a law giving rise to specific rights of persons or property under which adverse claims are made, and the controversy must be brought before a tribunal clothed with power to determine the law and adjudicate the rights of the contending parties. Respondents did not adjudicate or determine the rights of the parties; they issued RR 2-2012 under rule-making authority.
• Quasi-legislative nature of revenue regulations under Section 244, NIRC — Revenue regulations issued by the Secretary of Finance pursuant to Section 244 of the NIRC are quasi-legislative, not interpretative, because Section 244 is an express grant of authority to promulgate all needful rules and regulations for the effective enforcement of the NIRC. RR 2-2012 was issued by the Secretary of Finance based on Section 244, in relation to Section 245, of the NIRC; thus, it is quasi-legislative and outside the scope of a petition for certiorari.
• Declaratory relief and original jurisdiction — A petition seeking a declaration of the unconstitutionality and illegality of a rule partakes of the nature of declaratory relief. The Supreme Court has original jurisdiction over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus, but only appellate jurisdiction over cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. Declaratory relief falls under the exclusive jurisdiction of the Regional Trial Courts under Rule 63. The Supreme Court does not have original jurisdiction over a petition for declaratory relief even if only questions of law are involved.
• Hierarchy of courts — The concurrent jurisdiction of the Supreme Court, the Court of Appeals, and the Regional Trial Courts to issue extraordinary writs does not give a party unrestricted freedom of choice of court forum. Direct invocation of the Supreme Court's original jurisdiction should be allowed only when there are special and important reasons clearly and specifically set out in the petition, or exceptional and compelling circumstances such as cases of national interest and serious implications. The rationale is to prevent inordinate demands on the Court's time, avoid overcrowding of its docket, prevent delay, and recognize that the Court is not a trier of facts. Petitioner failed to allege such circumstances.

• "A respondent is said to be exercising judicial function where he has the power to determine what the law is and what the legal rights of the parties are, and then undertakes to determine these questions and adjudicate upon the rights of the parties." — Defines judicial function for purposes of Rule 65 and supports the conclusion that respondents did not exercise such function.
• "Respondents do not fall within the ambit of a tribunal, board, or officer exercising judicial or quasi-judicial functions. They issued RR 2-2012 in the exercise of their quasi-legislative or rule-making powers, and not judicial or quasi-judicial functions." — States the ratio for dismissing the certiorari petition as an improper remedy.
• "Accordingly, this petition must fail because this Court does not have original jurisdiction over a petition for declaratory relief even if only questions of law are involved." — States the jurisdictional ground that the petition, though styled as certiorari, was essentially one for declaratory relief.
• "A direct invocation of the Supreme Court's original jurisdiction to issue these writs should be allowed only when there are special and important reasons therefor, clearly and specifically set out in the petition." — States the hierarchy-of-courts rule applied against petitioner's direct resort to the Supreme Court.

• BPI Leasing Corporation vs. Court of Appeals, 461 Phil. 451, 459 (2003) — Controlling precedent holding that a revenue regulation issued by the Secretary of Finance under Section 244 of the NIRC is quasi-legislative in nature; applied to RR 2-2012.
• Heirs of Bertuldo Hinog vs. Hon. Melicor, 495 Phil. 422, 432 (2005) — Followed for the hierarchy-of-courts rule that direct invocation of the Supreme Court's original jurisdiction is allowed only for special and important reasons clearly set out in the petition.
• People vs. Cuaresma, 254 Phil. 418, 426-427 (1989) — Cited in Heirs of Bertuldo Hinog vs. Hon. Melicor for the same hierarchy-of-courts rule.
• Chamber of Real Estate and Builders Association, Inc. (CREBA) vs. Secretary of Agrarian Reform, 635 Phil. 283 (2010) — Cited for examples of exceptional and compelling circumstances that justify direct resort to the Supreme Court; petitioner failed to allege such circumstances.
• Philnabank Employees Association vs. Estanislao, G.R. No. 104209, November 16, 1993, 227 SCRA 804, 811 — Cited for the proposition that a petition styled as certiorari but seeking a declaration of unconstitutionality and illegality of a rule partakes of the nature of declaratory relief.
• Liga ng mga Barangay National vs. City Mayor of Manila, 465 Phil. 529, 542 (2004) — Cited for the rule that the Supreme Court does not have original jurisdiction over a petition for declaratory relief.
• Office of the Ombudsman vs. Hon. Ibay, 416 Phil. 659, 665-666 (2001) — Cited for the rule that declaratory relief falls under the exclusive jurisdiction of the Regional Trial Courts.
• Mendoza, et al. vs. Mayor Villas, et al., 659 Phil. 409, 414 (2011) — Cited for the rule that concurrent jurisdiction over extraordinary writs does not give a party unrestricted freedom of choice of court forum.

• Section 1, Rule 65, 1997 Rules of Civil Procedure, as amended — Defines certiorari and limits it to a tribunal, board, or officer exercising judicial or quasi-judicial functions; applied to deny the petition because respondents exercised quasi-legislative or rule-making powers.
• Section 244, National Internal Revenue Code of 1997, as amended — Authority of the Secretary of Finance, upon recommendation of the Commissioner, to promulgate all needful rules and regulations for the effective enforcement of the NIRC; this was the legal basis for RR 2-2012 and the reason it is quasi-legislative.
• Section 245, National Internal Revenue Code of 1997, as amended — Cited in Section 1 of RR 2-2012 in relation to Section 244 as part of the legal basis for the regulation.
• Section 5, Article VIII, 1987 Philippine Constitution — Grants the Supreme Court original jurisdiction over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus, and appellate jurisdiction over cases in which the constitutionality or validity of any regulation is in question; applied to hold that the Court had no original jurisdiction over the declaratory-relief aspect of the petition.
• Section 1, Rule 63, Rules of Court — Allows a person whose rights are affected by a statute, executive order or regulation, ordinance, or other governmental regulation to bring an action in the appropriate Regional Trial Court to determine any question of construction or validity; applied to hold that declaratory relief falls under the exclusive jurisdiction of the Regional Trial Courts.
• Republic Act No. 7227, Bases Conversion and Development Act of 1992 — Created the Subic Special Economic Zone and provided tax and duty-free importations and no national or local taxes in lieu of a five percent (5%) gross income tax; statutory backdrop for the claimed tax exemptions.
• Republic Act No. 9400 — Amended RA No. 7227 and extended the tax and fiscal incentives to the Clark Freeport Zone, providing no national and local taxes on registered business enterprises and a five percent (5%) gross income tax in lieu thereof; statutory backdrop for the claimed tax exemptions.
• Revenue Regulations No. 2-2012 — Issued by the Department of Finance upon recommendation of the Bureau of Internal Revenue; imposed VAT and excise tax on petroleum and petroleum products imported into Freeport or Economic Zones; the subject of the petition.

Justices Peralta (Acting Chairperson), Bersamin, Perez, and Perlas-Bernabe concurred.