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.

FACTS

Petitioners issued Revenue Regulation (RR) No. 2-2012, requiring payment of VAT and excise taxes on importation of all petroleum products into the Philippines, including Freeport and Economic Zones (FEZs). The regulation allowed for a subsequent tax credit or refund if the taxpayer proves the imported petroleum was sold to a registered FEZ locator and used for its registered activity. Respondent Representative Carmelo F. Lazatin, joined by intervenor-respondent Ecozone Plastic Enterprises Corporation (EPEC), a Clark FEZ locator, challenged the RR before the Regional Trial Court (RTC). They argued that RR 2-2012 contravened Republic Act No. 9400 , which grants the Clark FEZ the status of a separate customs territory and provides tax and duty-free importation incentives to locators. The RTC declared RR 2-2012 unconstitutional, ruling it violated the law by imposing taxes not due and encroached on legislative power.

ISSUE

The core issues are: (1) Whether respondents possess legal standing to challenge RR 2-2012; and (2) Whether RR No. 2-2012 is valid and constitutional.

RULING

The Supreme Court REVERSED the RTC decision and upheld the validity of RR No. 2-2012. On legal standing, the Court found that while Lazatin’s general claim of legislative prerogative impairment was insufficient, EPEC, as a directly affected locator, had standing. The Court relaxed the standing requirement due to the transcendental importance of the case, involving the integrity of the national tax system and the administration of incentives across all FEZs.
On the substantive issue, the Court ruled RR 2-2012 is a valid exercise of the Secretary of Finance’s rule-making power under the National Internal Revenue Code (NIRC). The regulation does not revoke the tax exemption granted by RA 9400 but establishes an administrative mechanism to prevent smuggling and ensure correct tax collection. The requirement to pay taxes upon entry and later claim a credit or refund is a procedural safeguard. It ensures that only petroleum products actually used for the registered activities of FEZ locators enjoy the tax exemption. This mechanism is consistent with the NIRC, which empowers the Bureau of Internal Revenue to prescribe procedures for tax refunds or credits. The Court emphasized that tax exemptions are construed strictly against the claimant, and the State has the inherent power to design administrative procedures to verify entitlement to such exemptions and prevent abuse. RR 2-2012 does not amend RA 9400 but merely implements it by providing the necessary details for its enforcement, ensuring that the tax privilege is not used as a conduit for tax evasion.