Philippine Telegraph and Telephone Corporation v. Commission on Audit
REITERATIONFacts
The Antecedents: Petitioner Philippine Telegraph and Telephone Corporation (PT & T) was granted a franchise under Republic Act No. 4161 to operate telecommunication systems, requiring a franchise tax of 1.5% on gross receipts. Republic Act No. 5048 amended this franchise, stating that any competing entity receiving a more favorable franchise would automatically extend those terms to PT & T. On June 17, 1976, Domestic Satellite Philippines, Inc. (DOMSAT) was granted a franchise under Presidential Decree No. 947 to operate as a 'carrier's carrier' with a franchise tax of only 0.5% on its gross receipts. Procedural History: The Commission on Audit (COA), in examining PT & T's books, found a franchise tax deficiency of P387,370.50 for 1979, computed at 1.5%. COA informed PT & T of this liability. PT & T excepted, arguing that under the 'most favored treatment clause,' its tax rate should be 0.5%, and that it had fully settled its liability based on this lower rate. COA, in a subsequent letter, found PT & T's contention without merit and reiterated its stand for the 1.5% rate. The Petition: PT & T filed the instant petition seeking review of COA's letters dated June 4, 1980, and August 26, 1980.
Issue(s)
Whether the letters from the Commission on Audit are proper subjects of appeal and review by the Supreme Court. Whether PT & T is entitled to the 0.5% franchise tax rate based on the 'most favored treatment clause' in light of DOMSAT's franchise.
Ruling
The petition is dismissed for lack of merit. The letters from the Commission on Audit are not proper subjects of appeal and/or review by the Supreme Court as they merely express an opinion and do not constitute a final award, order, or decision. Even if considered, the COA's opinion that PT & T's franchise tax should be computed at 1.5% is in accordance with law because PT & T and DOMSAT are not competitors.
Ratio Decidendi
On the issue of whether the letters from the Commission on Audit are proper subjects of appeal and review by the Supreme Court: The Supreme Court held that the letters dated June 4, 1980, and August 26, 1980, from the Commission on Audit are not proper subjects of appeal and/or review. Section 1 of Rule 44 of the Rules of Court specifies that appeals are taken from a "final award, order or decision." A cursory examination of the letters revealed that they did not decide the issue but merely expressed an opinion. This was evident from the recommendation to bring the matter to the Bureau of Internal Revenue for assessment and collection, and the reiteration of an "opinion" that PT & T's franchise tax rate should be 1.5% due to the lack of business competition. The Court emphasized that the Commission on Audit cannot render a final order, decision, or award on the question of tax rates, as this falls under the jurisdiction of the Bureau of Internal Revenue, whose decisions are appealable to the Court of Tax Appeals. On the issue of whether PT & T is entitled to the 0.5% franchise tax rate based on the 'most favored treatment clause': Even assuming the COA's opinion was reviewable, the Supreme Court found it to be in accordance with the law. The Court reiterated the principle behind the 'most favored treatment clause,' which is 'fair play' to place competing entities on equal footing. An examination of the franchises of PT & T and DOMSAT showed that while both are in telecommunications, they are not necessarily in competition. DOMSAT operates as a 'carrier's carrier,' providing services to other communication entities and acting as a middleman for the communications satellite system. PT & T, on the other hand, was granted a franchise to render services directly to end users, not as a 'carrier's carrier.' Therefore, since DOMSAT caters to other carriers and PT & T caters to end users, their customers are not the same, and there is no business rivalry. Furthermore, DOMSAT principally uses the communications-satellite system, while PT & T uses its own facilities. Consequently, PT & T cannot avail itself of the privilege of paying a lower franchise tax rate. The Court also stressed that any reduction or diminution of the government's power of taxation must be strictly construed and couched in clear and unmistakable terms, which was not the case here.
Main Doctrine
Letters from the Commission on Audit merely expressing an opinion on tax liabilities, without rendering a final award, order, or decision, are not proper subjects of appeal or review by the Supreme Court. Furthermore, the 'most favored treatment clause' in a franchise applies only when competing entities are in actual business rivalry, not when their services cater to different market segments.