AMERICAN MACHINERY & PARTS MANUFACTURING, INC., INTERNATIONAL CHEMICAL INDUSTRIES, INC., AND YUPANGCO COTTON MILLS, INC., PETITIONERS, VS. ISMAEL MATHAY, SR., AS AUDITOR GENERAL…

Petitions for review, certiorari and mandamus, to
annul and set aside the decisions of the Auditor General, dated 4 September
1969, and of the Executive Secretary, dated 27 August 1969, as well as
the Memorandum of the Auditor of the Central Bank, dated 10 September 1969, which served as the
bases for the denial of the petitioners’ claims for refund of margin fees paid
on purchases of foreign exchange used in payment of machinery, spare parts and
equipment, and to order the respondents to approve said claims for refund.  These cases, although separate and distinct
from each other, are considered and decided jointly in view of identical issues therein raised.

Petitioners claim that respondents committed grave abuse of
discretion in denying their requests for refund of margin fees paid to the
Central Bank of the Philippines
on foreign exchange they had purchased to liquidate drafts drawn against
letters of credit earlier opened at their respective instances.

1.  G.R. NO. L-30998,
AMERICAN MACHINERY & PARTS MANUFACTURING, INC. VS. MATHAY, ET AL.

On various dates in 1961, the Philippine Trust
Company, Manila, opened letters of credit for the account of the petitioner
American Machinery & Parts Manufacturing, Inc., (Amparts,
for short).  One of these was
Letter of Credit No. 27497 in the amount of U.S. $17,006.00 against which the
beneficiary drew a draft which was negotiated abroad on 9 May 1961. 
For the sale of the foreign exchange to cover the importation, a foreign
exchange margin fee of P5,304.81 was assessed by the
Central Bank, which Amparts paid on 19 January 1962.  On 2
October 1961, Amparts filed an
application for tax exemption pursuant to the provisions of Republic Act No.
3127 and was issued Board of Industries Certificate of Tax Exemption No. 36
dated 15 June 1964^[1].  On the basis thereof, it filed a claim on 12 December 1964, for the refund of
the foreign exchange margin fee collected^[2].  The application was approved and Amparts was refunded the foreign exchange margin fee.

However, on 12 August 1966, the Auditor of the Central Bank made a demand on Amparts for the payment of the
amount refunded representing margin fees on foreign exchange
purchased before 17 June 1961, the date of effectivity
of the Basic Industries Law (Rep Act No. 3127).  Amparts complied
but again requested for its refund.  The
Central Bank Auditor recommended the approval of the request for refund in line
with the decision of the Office of the President in a similar claim for refund
of foreign exchange margin fees filed by the Bautista Brothers, Lumber
Company^[3].  The
Auditor General, however, instead of affirming the recommendation, asked the
Office of the President whether or not the ruling in the Bautista case
may be applied to and invoked in
the claim of Amparts^[4].

The Office of the
President, through the Assistant Executive Secretary, in an Indorsement,
answered that the ruling in the Bautista case applies with equal
appositeness and force to the claim of Amparts^[5].  This
decision, however, was not enforced because on 27 August 1969, the
respondent Executive Secretary, in another Indorsement,
reversed the said decision, holding instead that the ruling in the Bautista
case cannot be applied to the claim of Amparts, since
the shipment for which a refund
was requested by Amparts had arrived in the Philippines before the
Basic Industries Law took effect^[6].  In
view thereof, the Auditor General denied the claim of Amparts ^[7].

Then, on 10
September 1969, the
Auditor of the Central Bank, in
a memorandum, notified the Central Bank Accountant of the denial of Amparts‘ claim and directed that, henceforth,
“all margin refund vouchers covering similar claims are to be acted upon
accordingly and disallowed in audit”^[8].  Whereupon, Amparts filed the instant
petition.

2.  G.R. NO. L-31021, INTERNATIONAL CHEMICAL INDUSTRIES, INC. VS. MATHAY,
ET AL.

On 8 April 1960, the Security Bank and Trust Co., Manila, opened letters of credit
for the account of International Chemical Industries, Inc. (Inchem,
for short).  Against such letters of credit the
beneficiaries thereof drew and negotiated drafts abroad, for which Inchem paid margin fees to the Central Bank totalling P128,260.28.  On 2 October 1961, Inchem applied
for tax exemption under the Basic Industries Act and was subsequently issued
Board of Industries Certificate of Tax Exemption No. 110 dated 2 July
1965^[9]. 
Thereafter, on 8 July 1965^[10].  Inchem asked for a refund of P342,304.01.  On 28 September 1965, the Central Bank
informed Inchem that of the amount of P128,260.28 approved by the Accounting department for refund,
only the amount of P123,773.96 had been allowed in audit, the difference of
P4,486.32 being the margin fee corresponding to foreign exchange negotiated
prior to 2 October 1961, the date of the filing of its application for tax
exemption privilege under the Basic Industries Law^[11].

Inchem asked for reconsideration of the
disallowance of certain items amounting to P90,270.47
but only a portion thereof, amounting to P49,368.35, was approved for payment^[12].  All told,
the Central Bank refunded P73,704.05 but disallowed
the refund of P48,094.76 representing margin fees on foreign exchange purchased
prior to the date of  effectivity
of the Basic Industries Law.  Hence, this petition.

3.  G.R. NO. L-31022,
YUPANGCO COTTON MILLS, INC. VS. MATHAY, ET AL.

On various dates in 1960,
the Philippine Banking Corporation, Manila, opened various letters of credit
for the account of Yupangco Cotton Mills, Inc. (Yupangco, for short) against which the beneficiaries
thereof drew and negotiated drafts abroad. 
For said negotiations, Yupangco for was
assessed by the Central Bank margin fees of P220,847.66^[13], of which the sum of P38,843.36 corresponded
to margin fees on foreign exchange purchased to finance importations which
arrived in the Philippines before the date of effectivity
of the Basic Industries Law^[14].  On 9
October 1961, Yupangco filed an application for tax exemption and was
issued Board of Industries Certificate of Tax Exemption No. 98, dated 8
September 1965^[15]. 
Thereafter, Yupangco filed for refund of the
margin fees paid but its request was denied in line with the ruling in Amparts^[16]. 
Hence, Yupangco joined in the filing of these
petitions.

Petitioners, domestic
corporations, all engaged in basic industries as defined in Rep. Act No. 3127,
the Basic Industries Law, claim that the margin fees
paid by them are refundable as these were paid for importations that were
removed from customs custody when the Basic Industries Law was already in
force.  They further assert that these fees accrued only when the goods for which they purchased foreign exchange
had already been released from customs custody, in line with the ruling of the
Office of the President in Bautista
Brothers Lumber Co.

On the other hand, the
respondents claim that the benefits of exemption from the margin fees, granted
by the Basic Industries Law, cannot be availed of by petitioners as their
importations were made during the effectivity of Rep.
Act No. 2609, the Margin Fee Law, and before the enactment of the Basic
Industries Law, and, in view of the final ruling of the Office of the
President, through the Executive Secretary, that the Bautista decision “cannot
be invoked as an applicable and controlling precedent vis-avis
the claim of American Machinery & Parts Manufacturing Corporation”^[17].

The main issue in these
cases is whether or not the sale of foreign exchange made before the effectivity of Republic Act No. 3127, for importations
landed before but released after such effectivity, is
exempted from the payment of foreign exchange margin fees; stated
differently, when did the margin fees levied upon and paid by petitioners on
their purchases of foreign exchange become legally due?

Petitioners base their
claims for exemption from foreign exchange margin fees on Republic Act No. 3127
approved 17 June 1961, and entitled “An Act Authorizing the Exemption of
Basic Industries from the Payment of Certain Taxes and For Other
Purposes”, the pertinent provisions of which are as follows:

Exemption from taxes and period of exemption of basic  industries.  – Any person partnership, company or
corporation who or which is now engaged or shall engage in a basic industry
shall be exempted from payment of special import tax, compensating tax, foreign
exchange margin fee and tariff duties in respect of the importation of
machinery, spare parts and equipment as follows:

(a)  One hundred per centum
of the taxes due during the period from the date of approval of this Act to
December thirty-first, nineteen hundred sixty-six;

(b) 
Seventy-five per centum of the taxes due during the period from January
first to December thirty-first, nineteen hundred sixty-seven;

(c)  Fifty per centum of the
taxes due during the period from January first to December thirty-first
nineteen hundred sixty-eight, after which such person, partnership, company or
corporation shall be liable in full to all taxes:  Provided, That packaging and assembly
plants shall not be entitled to the benefits granted in this Act:  Provided, further, That exemptions
from taxes for spare parts as mentioned in this section shall only apply to
spare parts imported at the time of the original importation of the machinery
and equipment^[18].

Determination of period of exemption.  – For the purpose of determining the
commencement of exemption, provided for in Section six of this Act, the
benefits of exemption of basic industries from the payment of taxes under this
Act shall, upon approval of the application for exemption by the Board,
retroact as of the date of the filing of the application for exemption”^[19].

It is not denied that
when petitioners purchased foreign exchange for the importation of machineries
needed for their respective enterprises, and involved in the instant petitions, the Basic Industries Law, which
grants exemption from margin fees on foreign exchange purchased, still had not
come into effect.  However, petitioners
would base their exemption from such fees not as of the time of purchase of
foreign exchange but as of the time of landing and release from customs custody
of their importations.  In consonance with the Bautista ruling of the Office of the
President.

In the Bautista case, the Bautista Brothers Lumber Company was exempted from the
payment of margin fees on foreign exchange purchased before the effectivity of the Basic Industries Law for machineries
which were landed and withdrawn from customs custody after the effectivity
of said law.  In approving such
exemption, the Office of the President held that since the machineries were
still in the process of importation when the Basic Industries Law was already
in force, Bautista Brothers Lumber Co. could rightfully ask for exemption from
margin fees.  The ruling used as its
basis the definition of “importation” in the Tariff and Customs Code
which provides:

“When Importation Begins and Deemed Terminated – Importation
begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines
with intent to unload therein. 
Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the
legal permit for withdrawal shall have been granted, or in case said articles
are free of duties, taxes and other charges, until they have legally left the
jurisdiction of the customs”^[20].

As importation is
completed only when the imported goods
are legally removed from customs
custody, and since the removal of the imported goods took place when the Basic
Industries Law was already in force, the Bautista Brothers Lumber Co. could,
according to the Office of the President, be validly exempted from payment of
taxes, customs duties and margin fees. 
Importation was consummated already under the aegis of the Basic
Industries Law.

The Office of the
President, however, held in its 27 August 1969 Indorsement in the
Amparts case, now questioned, that its ruling in the Bautista
case involved a factual setting different from that in
petitioners’ cases.  In Bautista,
according to the Office of the
President, the importation commenced on 26 June 1961 when the imported goods
landed in the Philippines — that is, some nine (9) days after the effectivity of the Basic Industries Law — and
terminated on 10 January 1962 when the goods were released from the customs
zone.  On the other hand, in Amparts, the importations landed on 21 May 1961, when the Basic Industries law had not yet
been approved, although released from customs after the approval of said law.

We hold, however, that
both rulings of the Office of the President (Bautista and Amparts) lost sight of the essential act
which is at the base of the issue in said cases:  the purchase of foreign exchange which, by
provision of law, gave rise to the obligation
to pay the margin fee.  The Margin Fee Law states:

“The provisions of any law to the contrary notwithstanding,
when and as long as the Central Bank of the Philippines subjects all transactions
in gold and foreign exchange to licensing xxx the Central Bank, in respect of
all sales of foreign exchange by the Central Bank and its authorized agent
banks, shall have the authority to establish a uniform margin of not more than
forty per cent over the Banks’ selling rates stipulated by the Monetary Board x
x x which margin shall not
be changed oftener than once a year except upon the recommendation of the
National Economic Council and the approval of the President.  The Monetary Board shall fix the margin at
such rate as it may deem necessary to effectively curtail any excessive
demand upon the international reserve“ ^[21].  (Emphasis supplied)

It is clear from the
above-quoted provision of Rep. Act No. 2609 that margin fees are imposed on the
sale of foreign exchange by the Central Bank or its agent banks, as a form of
regulation to curb excessive demands on the international reserve.  As held in Caltex
(Phil.), Inc. vs. Acting Commissioner of Customs:

“A margin levy on foreign exchange is a form of exchange control or
restriction designed to discourage imports and encourage exports, and
ultimately “curtail any excessive demand upon the international reserve”
in order to stabilize the currency”^[22].

Thus, it is the act
of selling and the correlative purchasing of foreign exchange which the Margin
Fee Law sought to regulate through the imposition of the margin fee, regardless of the period when such foreign
exchange was utilized.  In Pacific Oxygen & Acetylene Co. vs. Central Bank^[23], where petitioners sought a refund of margin
fees, this Court held that as plaintiff company had purchased its forward
exchange on 17 January 1962, when the Margin Fee Law was still in force,
although subsequently suspended on 21 January 1962, it was liable for the payment of margin
fees.  The Court said:

“xxx The language of the law is
clear.  A margin fee may be collected
from “all sales of foreign exchange
by the Central Bank and its authorized agent banks xxx.” It was expressly
found by the lower court:  ‘On January
17, 1962, the Philippine Trust Co. applied for the purchase of forward exchange
with the Central Bank in the amount of $71,617.02, of which $67,874.50 [was] to
cover its U.S. dollar commitments against the letter of credit opened under the
free market rate for the plaintiff,
and on the next day the Central Bank executed the corresponding forward
exchange contract (No. 12145) for the same amount to be delivered on March 17,
1962 x x x.

It is well-settled in our law that a contract of sale exists from
the moment ‘one of the contracting parties obligate
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefore a price certain in money or its equivalent’.  There is a perfection of such a contract ‘at
the moment there is a meeting of minds upon
the thing, which is the object of the contract and upon the price’ from which
moment, ‘the parties may reciprocally demand
performance, subject to the provisions of law governing the form of contracts.’
It is a fair restatement of the prevailing principle in American law that an agreement by one party to sell and deliver, and by the other to purchase at
a mentioned price and terms certain personal property on or before a specified future date
is a contract of sale and not an option.

With the categorical finding in
the decision appealed from that the purchase of the forward exchange by
the Central Bank occurred on January 17, 1962, prior to the suspension of the
margin levy on January 21, 1962, it cannot be denied that deference must be
paid to the legal provision calling for a margin fee “in respect of all
sales of foreign exchange of the Central Bank and its authorized agents
xxx.” From Lizaraga Hermanos
vs. Yap Tico, this Court has steadfastly adhered to
the doctrine that its first and fundamental duty is the application of the law according to its express terms,
interpretation being called for only when such literal application is imposssible.

As thus viewed, the
fact that it was not until February
9 and 12, 1962 that the Continental Illinois National Bank & Trust Co.
honored the above drafts cannot therefore be controlling.  The plain and explicit command of the law is
too categorical to be misinterpreted^[24]“.

Petitioners may not
invoke the benefit of exemption from margin fees granted by Rep. Act No. 3127,
because when they purchased the foreign exchange to finance their importations,
there was as yet no Basic Industries Law granting them such exemption.  Laws are prospective in operation, unless there is clear provision
therein to the contrary^[25].  Thus,
even if a tax law is repealed, taxes
assessed before repeal of the
law may still be collected unless the repealing law is made retroactive^[26]. 
Moreover, exemption provisions are strictly construed against one who
claims exemption^[27].

Petitioners have likewise raised as an issue the nature
of the Auditor General’s power
to review their application for refund.  They
argue that it was the Auditor General’s ministerial duty to follow the
initial recommendation of the Central Bank Auditor granting exemption based on
the Bautista ruling
instead of seeking a review from the Office of the President of Bautista
and even apparently moving for reconsideration with the Executive Secretary, when the
Assistant Executive Secretary’s earlier ruling already upheld the applicability
of Bautista to petitioners’ cases.

A perusal of the
constitutional provision in force at the time of the dispute would, however, show that petitioners’ contentions are
untenable.

The relevant provision in
the 1935 Constitution then in force states:

“Sec. 2.  The Auditor General shall examine,
audit and settle all accounts pertaining to the revenues and receipts from
whatever source, including trust funds derived from bond issues; and audit in
accordance with law and administrative regulations, all expenditures of funds and property pertaining to or held in trust by the government
or the provinces or municipalities thereof. 
He shall keep the general accounts of the goverment
and preserve the vouchers pertaining thereto. 
It shall be the duty of the Auditor General to bring to the attention
of the proper administrative officials expenditures of funds or property which, in his opinion, are irregular, unnecessary,
excessive or extravagant.  He shall also
perform such other functions as may be prescribed by law”^[28].  (Emphasis supplied.)

To enforce such power of the Auditor
General, the Revised Administrative Code provides:

“The authority and powers of the General Auditing Office extend to
and comprehend all matters relating to accounting procedures, including the
keeping of the accounts of the Government, the preservation of vouchers, the
methods of accounting, the examination and inspection of the books, records and
papers relating to such accounts of all persons respecting funds or property
received or held by them as well
as to the examination and audit of all debts and claims of any sort due
from or coming to the government of the Philippines in any of its branches, xxx”^[29].

Under
the aforecited provisions, it is clear that the
Auditor General may scrutinize and bring to the attention of proper
administrative officials expenditures which may be irregular or unnecessary and
rule on claims due from or against the government.  As has been noted:

“The Constitution makes the Auditor General not merely an
examiner of the receipts, expenditures, and accounts of the government to
determine their correctness and legality, but also a critic of the wisdom and
propriety of the expenditures of public funds and property by administrative
officers.  It is in this role of
commentator and critic that the Auditor General may become an active, not
merely a passive, constructive force. 
The constitutional provision that permits him to act as such runs as
follows:  “It shall be the duty of the
Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular,
unnecessary, excessive, or extravagant”^[30].

Certainly,
the refund of a fee which properly belongs to the
government is a matter which the Auditor General, in his discretion, may
disallow^[31] as he has correctly done in these cases.

WHEREFORE, the petitions should be, as they are, hereby DISMISSED.  No costs.

SO ORDERED.

Yap, (Chairman), Melencio-Herrera,
Paras, and Sarmiento, JJ., concur.

^[1]
Rollo at 15

^[2]
Id. at 76

^[3]
Id. at 16-a

^[4]
Id. at 17-a

^[5]
Id. at 19

^[6]
Id. at 20

^[7]
Id. at 25

^[8]
Id. at 78

^[9]
Id. at 82

^[10]
Id. at 79-a

^[11]
Id. at 67

^[12]
Id. at 68

^[13]
Id. at 69

^[14]
Id. at 29-a

^[15]
Id. at 52

^[16]
Id. at 95

^[17]
Id. at 25

^[18]
Rep. Act No. 3127 (1961), Sec. 6

^[19]
Id., Sec. 7

^[20]
Tariff Code, Sec. 1202 (Rep. Act No. 1937 [1957])

^[21]
Rep. Act No. 2609 (1959), Sec. 1.

^[22]
G.R. No. L-24619, 26 February 1968, 22 SCRA 779, 783

^[23]
G.R. No. L-21881, 1 March 1968, 22 SCRA 917, 920

^[24]
Id., at 920-922

^[25]
Lorenzo v. Posadas,
64 Phil. 353 [1937]; Castro v. Collector, 6 SCRA 886 (1962); Cebu Portland Cement Co. vs. Collector of Internal
Revenue, 25 SCRA 789 (1968)

^[26]
Co v. Collector, 100 Phil. 465 [1956]

^[27]
Union Garment Co., Inc. vs. Court of Appeals, 114 Phil. 245 [1962];
Manila Electric Co. v. Vera, 67 SCRA
353 (1975)

^[28]
Const. (1935), Art. XI, Sec. 2, Cf:  Const. (1987), Art. IX (D),
Sec. 2 (1) (2).

^[29]
Revised Adm. Code (1917), Sec. 584, as amended.

^[30]
Sinco, PHILIPPINE POLITICAL LAW (11th ed.) 403-404 (1962)

^[31]
“The right to allow or disallow a claim against the government or any of
its branches is within the discretion of the Auditor General”. Tanada and
Fernando, THE CONSTITUTION OF THE PHILIPPINES 1191 (1953).