G.R. No. 168584 October 15, 2007
Republic of the Philippines, et al. vs. Hon. Ramon S. Caguioa, et al.

FACTS

The petitioners, represented by various government revenue officials, assailed the Order and Writ of Preliminary Injunction issued by the Regional Trial Court (RTC) of Olongapo City. The injunction stayed the implementation of Republic Act No. 9334, which increased excise tax rates on alcohol and tobacco products. The private respondents are domestic corporations operating within the Subic Special Economic and Freeport Zone (SBF). They were granted Certificates of Registration and Tax Exemption by the Subic Bay Metropolitan Authority (SBMA) pursuant to Republic Act No. 7227 (the Bases Conversion and Development Act). This law designates the SBF as a separate customs territory and provides, under Section 12(c), that “no taxes, local and national, shall be imposed within” the zone, with businesses instead remitting a percentage of gross income.
The private respondents filed a complaint before the RTC, arguing that RA 9334’s increased excise taxes could not be applied to their importations and subsequent local sales within the SBF, as such application would violate their vested right to tax exemption under RA 7227. They claimed this would cause them grave and irreparable injury. The RTC granted their application for a preliminary injunction, prompting the petitioners to file the instant petition for certiorari and prohibition.

ISSUE

Whether the RTC committed grave abuse of discretion in issuing the writ of preliminary injunction to enjoin the implementation of RA 9334 within the Subic Special Economic and Freeport Zone.

RULING

Yes, the Supreme Court ruled that the RTC committed grave abuse of discretion. The legal logic is anchored on the principle that a preliminary injunction is a preservative remedy for the protection of substantive rights. For its issuance, the applicant must establish a clear and unmistakable right that is presently existing, and that the act sought to be enjoined is violative of that right. The Court found that the private respondents failed to prove such a clear legal right.
The Court clarified that the tax exemption under Section 12(c) of RA 7227 applies only to taxes directly imposed on business activities within the SBF. However, excise taxes under the National Internal Revenue Code are indirect taxes levied on the manufacture or production of specific goods, not on the business of importing or selling them. The liability for the excise tax attaches to the goods themselves upon their removal from the place of production. Therefore, when these goods are imported into the SBF, they are brought into Philippine territory and the excise tax liability, which is a charge on the goods, has already accrued. The subsequent local sale of these goods within the SBF is a separate transaction. The exemption under RA 7227 does not extend to excise taxes, which are taxes on the goods, not on the business operations of the SBF locators. Consequently, the private respondents did not possess a clear legal right to be exempt from the increased excise taxes, making the injunction improper. The Court made the injunction permanent and directed the RTC to dismiss the main case.