G.R. No. 210588 - Purisima vs. Lazatin

Case Summary (G.R. No. 210588)

Procedural Posture Before the RTC

Representative Lazatin filed a petition for prohibition and injunction to annul RR No. 2-2012, asserting that RA 9400 treats Clark FEZ as a separate customs territory and grants tax- and duty-free importations; therefore RR No. 2-2012 unlawfully imposed VAT and excise taxes on FEZ importations. EPEC intervened alleging direct injury as a Clark FEZ locator. The RTC initially issued temporary relief and a writ of preliminary injunction, and subsequently allowed Lazatin to amend his petition to one for declaratory relief and admitted EPEC’s intervention.

RTC Findings and Relief

The RTC: (1) accepted the amendment to declaratory relief as proper to prevent multiplicity of suits and to adjudicate the substantive issues; (2) found both Lazatin and EPEC to have legal standing—Lazatin as a legislator asserting impairment of congressional prerogative, and EPEC as a directly affected FEZ locator; and (3) declared RR No. 2-2012 unconstitutional and void for violating RA 9400 by imposing taxes that the statute exempts and for usurping Congress’ legislative power.

Petitioners’ Main Arguments to the Supreme Court

Petitioners (Finance Secretary and CIR) argued: (1) lack of legal standing by Lazatin — he did not demonstrate concrete impairment of his legislative functions or authorization to sue on behalf of locators or constituents; rules on standing should not be relaxed merely because issues may be important; (2) EPEC lacked standing because VAT and excise are indirect taxes whose economic burden can be shifted, and statutory liability remains with sellers/importers, not necessarily locators who enjoy FEZ exemptions; and (3) RR No. 2-2012 is a valid administrative measure within tax administration powers, presumptively valid, and its mechanism merely requires payment first and refund later as an administrative condition to ensure compliance; FEZ exemptions are qualified and conditioned on non-introduction into customs territory.

Respondents’ Main Arguments to the Supreme Court

Respondents (Lazatin and EPEC) contended: (1) Lazatin has legislative standing to protect prerogatives when executive issuances encroach on Congress’ exclusive power to enact/amend laws; (2) EPEC, as a Clark FEZ locator, is directly and substantially affected by RR No. 2-2012; (3) RA 9400 grants automatic tax- and duty-free incentives upon importation into the FEZ and treats the FEZ as a separate customs territory; RR No. 2-2012 reverses this by requiring “advance” payment and only later permitting refund, thereby effectively revoking statutory exemptions and obstructing the free flow of goods within the FEZ; and (4) the refund mechanism is inadequate in practice (delay, non-cash Tax Credit Certificates, restrictive refund conditions) and cannot cure the constitutional defects.

Issues Presented to the Supreme Court

Whether Lazatin and EPEC have legal standing to seek declaratory relief on the constitutionality and validity of RR No. 2-2012; and 2) Whether RR No. 2-2012 is valid and constitutional, particularly insofar as it imposes VAT and excise taxes on petroleum products imported into FEZs and whether it usurps legislative authority by effectively amending RA 7227 as amended by RA 9400.

Supreme Court Holding on Standing

The Court held both respondents had standing. For Lazatin, a member of Congress has legal standing to challenge executive acts that impair legislative prerogatives—especially where a regulation is alleged to contravene a legislative enactment and thereby encroach upon Congress’ exclusive legislative power. For EPEC, as a Clark FEZ enterprise, its importations and operations fall squarely within the regulatory scope of RR No. 2-2012, giving it a personal and substantial interest sufficient to challenge the rule’s validity. Given these holdings, the Court found no error in the RTC’s allowance of the amended petition and intervention.

Supreme Court Holding on the Merits — Overview

The Court ruled RR No. 2-2012 invalid and unconstitutional on two principal grounds: (a) it illegally imposed VAT and excise taxes on FEZ enterprises and importations that statutory law exempts, and (b) it effectively amended the statute (RA 7227 as amended by RA 9400) and thereby encroached on Congress’ exclusive legislative authority, violating the separation of powers.

Statutory and Doctrinal Basis for FEZ Tax Exemptions

The Court reviewed RA 7227 (as amended by RA 9400) and its Implementing Rules: Clark FEZ is treated as a customs territory separate and distinct from the Philippines customs territory, and FEZ enterprises are granted tax- and duty-free importation privileges and preferential tax treatment (including being exempt from national and local taxes and entitlement to a preferential income tax in lieu of such taxes). Prior jurisprudence recognizes FEZ enterprises as exempt from both direct and indirect internal revenue taxes, including VAT, and treats FEZ jurisdictions as, by legal fiction, foreign territories for cross-border VAT doctrine purposes.

Analysis of RR No. 2-2012’s Tax Imposition on FEZ Importations

The Court analyzed the legal meaning of “importation,” the cross-border doctrine applied in VAT law, and the statutory scheme establishing FEZs as separate customs territories. It concluded that goods brought into an FEZ remain outside the reach of Philippine internal revenue taxes and customs duties while they remain within the FEZ; they become taxable only if and when introduced into the Philippine customs territory. RR No. 2-2012, by treating petroleum and petroleum products brought into FEZs as taxable importations requiring advance payment of VAT and excise taxes (subject to later refund upon proof of entitlement), erroneously collapsed the statutory distinction and imposed an administrative burden contrary to the statutory exemption.

Reasoning on Why a Refund Mechanism Does Not Cure the Constitutional Defect

The Court rejected the petitioners’ claim that the refund mechanism transforms the advance payment requirement into a mere administrative safeguard consistent with statutory exemptions. The Court emphasized that tax exemption means immunity from tax liability and payment; requiring upfront payment and later refund forces FEZ enterprises to bear burdens and cash outlays that a true exemption would not impose. The regulatory approach improperly places the initial onus on the taxpayer to prove exemption and effectively converts an ipso facto statutory privilege into a sus

Case Syllabus (G.R. No. 210588)

Procedural Posture and Relief Sought

Direct recourse to the Supreme Court from the Regional Trial Court (RTC), Branch 58, Angeles City, via a petition for review on certiorari under Rule 45 seeking reversal of the RTC decision of November 8, 2013 in SCA Case No. 12-410.
The RTC had declared Revenue Regulation (RR) No. 2-2012 unconstitutional and without force and effect.
The petitioners are the Secretary of Finance Cesar B. Purisima and Commissioner of Internal Revenue Kim S. Jacinto-Ahenares; respondents are Representative Carmelo F. Lazatin and Ecozone Plastic Enterprises Corporation (EPEC), the latter having intervened as a co-petitioner in the RTC.
The Supreme Court dismissed the petition for lack of merit and affirmed the RTC decision dated November 8, 2013.

Factual Background

RR No. 2-2012 was signed on February 17, 2012 by Secretary of Finance Purisima, upon recommendation of the Commissioner of Internal Revenue, to address reports of smuggling of petroleum and petroleum products and to ensure correct tax collection.
RR 2-2012 required the payment of value-added tax (VAT) and excise tax on the importation of all petroleum and petroleum products brought into the Philippines, explicitly including Freeport and Economic Zones (FEZs).
The regulation provided for credit or refund of any VAT or excise tax paid if the importer could prove that the petroleum previously brought in had been sold to a duly registered FEZ locator and used pursuant to the locator’s registered activity.
In practical effect under the regulation, an FEZ locator bringing petroleum into the FEZ would first pay the taxes upon entry and thereafter prove use within registered activity to secure a credit or refund.
On March 7, 2012 Representative Carmelo F. Lazatin filed a petition for prohibition and injunction to annul RR 2-2012, contending that RA 9400 treats Clark FEZ as a separate customs territory and grants tax- and duty-free importations that the RR unlawfully revokes.
EPEC moved to intervene (filed April 2, 2012) asserting that as a Clark FEZ locator it would suffer from RR 2-2012’s mechanism requiring advance payment and later proof to claim refund, effectively removing tax-exempt status.
The RTC initially issued a temporary restraining order and later a writ of preliminary injunction (order dated April 4, 2012) staying implementation; petitioners sought relief from the Court of Appeals (CA) by petition for certiorari on May 17, 2012, and the CA granted the petition.
Respondents filed a petition for review on certiorari before the Supreme Court in G.R. No. 208387 to reinstate the RTC injunction and sought injunctive relief there; that motion was denied but the petitioners were required to comment.
Lazatin amended his petition on April 18, 2012, converting it to a petition for declaratory relief; the RTC admitted the amendment and allowed EPEC to intervene.
On November 8, 2013 the RTC ruled for Lazatin and EPEC, permitting amendment, finding standing, and declaring RR 2-2012 unconstitutional for contravening RA 9400 and encroaching on Congress’s law-making prerogative.

Text and Mechanism of RR No. 2-2012 (Section 3) — Key Provisions

Section 3 required that VAT 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, be paid by the importer to the Bureau of Customs (BOC).
It provided that subsequent exportation or sale/delivery of these petroleum products to registered enterprises enjoying tax privileges within FEZs or to persons engaged in international shipping/air transport shall be subject to 0% VAT.
The importer who paid VAT/excise on account of these transactions could file for credit or refund with the BOC, subject to favorable endorsement by the BIR and existing rules, but no refund would be granted unless it was properly shown to the satisfaction of the BIR that the products were sold to a duly registered locator and utilized in the locator’s registered activity or were sold to entities entitled to 0% VAT or exempt from excise.
RR 2-2012 provided that in cases where FEZ enterprises subsequently sell or introduce petroleum into the customs territory or to non-privileged FEZ enterprises, VAT or excise consequences and penalties would follow; if refund had been granted and later sale/introductory facts emerged, an assessment could issue against importer and seller.
RR 2-2012 required the importer to secure ATRIG (Authority to Release Imported Goods) from the BIR’s Excise Tax Regulatory Division (ETRD), pay VAT and excise before release from BOC custody, and, if necessary upon subsequent sale into customs territory, secure a Withdrawal Certificate; importers of petroleum had to secure a Permit to Operate with the BIR’s ETRD with required terms (e.g., issuance of Withdrawal Certificate, submission of liquidation reports).

Petitioners’ Arguments (Summary)

Two principal contentions: lack of legal standing by respondents; and RR 2-2012 is valid and constitutional.
On standing:
- Lazatin purportedly failed to show how RR 2-2012 would specifically impair his exercise of official legislative functions; his allegation of general impairment of constitutional prerogatives was not sufficiently specific.
- Lazatin is not authorized to file on behalf of FEZ locators, the local government unit, or constituents; injured parties themselves should sue.
- The petitioners argued rules on standing should not be relaxed for speculative losses or non-public-fund issues, invoking Senate v. Ermita.
- EPEC allegedly lacks standing because VAT and excise are indirect taxes; the economic burden can be shifted to buyers and becomes a component of cost rather than a tax liability of the purchaser; statutory liability remains with the seller.
- RR 2-2012 imposes an “advance tax” on importers only; if EPEC is a locator it enjoys exemptions under RA 9400 so long as it does not bring goods into Philippine customs territory.
On validity:
- RR 2-2012 is an administrative issuance within petitioners’ interpretive authority over tax laws and enjoys the presumption of validity; it cannot be nullified without clear and convincing evidence.
- RA 9400’s incentives are “qualified”: locators must satisfy conditions (goods not removed from FEZ) before availing tax/duty-free benefits; RR 2-2012 merely requires payment first and allows refund upon substantiation.
- The regulation does not withdraw exemptions but provides a procedural safeguard to ensure conditions are met; to the extent refund is allowed, there remains a tax exemption substantively.

Respondents’ Counter-Arguments (Summary)

On standing:
- Lazatin asserted his status as a member of Congress gives him standing to protect prerogatives, powers, and privileges vested by the Constitution and to challenge executive actions that infringe on legislative powers (citing Biraogo and related authorities).
- EPEC, as a Clark FEZ locator, claims direct adverse effect because RR 2-2012 explicitly covers FEZs.
On merits:
- RA 9400 treats Clark FEZ as a separate customs territory granting tax- and duty-free im
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