G.R. No. L-22734 September 15, 1967 Add: 5% surcharge 88.

98
1% monthly interest
COMMISSIONER OF INTERNAL REVENUE, petitioner, from November 30,
vs. 1953 to April 15, 1957 720.77
MANUEL B. PINEDA, as one of the heirs of deceased
Compromise for late
ATANASIO PINEDA, respondent.
filing 80.00
Compromise for late
Office of the Solicitor General for petitioner.
payment 40.00
Manuel B. Pineda for and in his own behalf as respondent.

Total amount due P2,707.44

===========
BENGZON, J.P., J.: Additional residence tax for P14.50
2.
1945 ===========
On May 23, 1945 Atanasio Pineda died, survived by his wife, 3. Real Estate dealer's tax for
Felicisima Bagtas, and 15 children, the eldest of whom is Manuel the fourth quarter of 1946 P207.50
B. Pineda, a lawyer. Estate proceedings were had in the Court of and the whole year of 1947 ===========
First Instance of Manila (Case No. 71129) wherein the surviving
widow was appointed administratrix. The estate was divided Manuel B. Pineda, who received the assessment, contested the
among and awarded to the heirs and the proceedings terminated same. Subsequently, he appealed to the Court of Tax Appeals
on June 8, 1948. Manuel B. Pineda's share amounted to about alleging that he was appealing "only that proportionate part or
P2,500.00. portion pertaining to him as one of the heirs."

After the estate proceedings were closed, the Bureau of Internal After hearing the parties, the Court of Tax Appeals rendered
Revenue investigated the income tax liability of the estate for the judgment reversing the decision of the Commissioner on the
years 1945, 1946, 1947 and 1948 and it found that the ground that his right to assess and collect the tax has prescribed.
corresponding income tax returns were not filed. Thereupon, the The Commissioner appealed and this Court affirmed the findings
representative of the Collector of Internal Revenue filed said of the Tax Court in respect to the assessment for income tax for
returns for the estate on the basis of information and data the year 1947 but held that the right to assess and collect the
obtained from the aforesaid estate proceedings and issued an taxes for 1945 and 1946 has not prescribed. For 1945 and 1946
assessment for the following: the returns were filed on August 24, 1953; assessments for both
taxable years were made within five years therefrom or on
1. Deficiency income tax October 19, 1953; and the action to collect the tax was filed within
1945 P135.83 five years from the latter date, on August 7, 1957. For taxable
year 1947, however, the return was filed on March 1, 1948; the
1946 436.95 assessment was made on October 19, 1953, more than five
1947 1,206.91 P1,779.69 years from the date the return was filed; hence, the right to
assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate
proceedings.1
In the Tax Court, the parties submitted the case for decision
without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered
judgment holding Manuel B. Pineda liable for the payment
corresponding to his share of the following taxes:
Deficiency income tax
P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50
The Commissioner of Internal Revenue has appealed to Us and
has proposed to hold Manuel B. Pineda liable for the payment of
all the taxes found by the Tax Court to be due from the estate in
the total amount of P760.28 instead of only for the amount of
taxes corresponding to his share in the estate. 1aw phîl .nèt
Manuel B. Pineda opposes the proposition on the ground that as
an heir he is liable for unpaid income tax due the estate only up to
the extent of and in proportion to any share he received. He relies
on Government of the Philippine Islands v. Pamintuan2 where We
held that "after the partition of an estate, heirs and distributees
are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of
the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to
pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-
transferee of property belonging to the estate/taxpayer. As an heir
he is individually answerable for the part of the tax proportionate
to the share he received from the inheritance.3 His liability,
however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable
for he tax up to the amount of the property in his possession. The
reason is that the Government has a lien on the P2,500.00
received by him from the estate as his share in the inheritance,
for unpaid income taxes4a for which said estate is liable, pursuant
to the last paragraph of Section 315 of the Tax Code, which we
quote hereunder:
If any person, corporation, partnership, joint-account
(cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or refuses
to pay the same after demand, the amount shall be a lien
in favor of the Government of the Philippines from the
time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest,
penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging to the
taxpayer: . . .
By virtue of such lien, the Government has the right to subject the
property in Pineda's possession, i.e., the P2,500.00, to satisfy the
income tax assessment in the sum of P760.28. After such
payment, Pineda will have a right of contribution from his co-
heirs,5 to achieve an adjustment of the proper share of each heir
in the distributable estate.
All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the
inheritance received. This remedy was adopted in Government of
the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection
of the tax. This action rests on the concept that hereditary
property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve thereby
two results: first, payment of the tax; and second, adjustment of
the shares of each heir in the distributed estate as lessened by
the tax.

Another remedy, pursuant to the lien created by Section 315 of

the Tax Code upon all property and rights to property belonging
to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate. This second
remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given,
in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of government and their
prompt and certain availability is an imperious need.7 And as
afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened by the
tax, is left to await the suit for contribution by the heir from whom
the Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel

B. Pineda is hereby ordered to pay to the Commissioner of
Internal Revenue the sum of P760.28 as deficiency income tax
for 1945 and 1946, and real estate dealer's fixed tax for the fourth
quarter of 1946 and for the whole year 1947, without prejudice to
his right of contribution for his co-heirs. No costs. So ordered.
G.R. No. 106611 July 21, 1994
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION
and COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.
REGALADO, J.:
The judicial proceedings over the present controversy
commenced with CTA Case No. 4099, wherein the Court of Tax
Appeals ordered herein petitioner Commissioner of Internal
Revenue to grant a refund to herein private respondent Citytrust
Banking Corporation (Citytrust) in the amount of P13,314,506.14,
representing its overpaid income taxes for 1984 and 1985, but
denied its claim for the alleged refundable amount reflected in its
1983 income tax return on the ground of prescription. 1 That
judgment of the tax court was affirmed by respondent Court of
Appeals in its judgment in CA-G.R. SP
No. 26839. 2 The case was then elevated to us in the present petition
for review on certiorari wherein the latter judgment is impugned and
sought to be nullified and/or set aside.
It appears that in a letter dated August 26, 1986, herein private
respondent corporation filed a claim for refund with the Bureau of
Internal Revenue (BIR) in the amount of P19,971,745.00
representing the alleged aggregate of the excess of its carried-
over total quarterly payments over the actual income tax due,
plus carried-over withholding tax payments on government
securities and rental income, as computed in its final income tax
return for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the
running of the prescriptive period, Citytrust filed a petition with the
Court of Tax Appeals, docketed therein as CTA Case No. 4099,
claiming the refund of its income tax overpayments for the years
1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and
in behalf of therein respondent commissioner, it was asserted that
the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00,
P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983
income tax overpayment, taxes withheld on proceeds of
government securities investments, as well as on rental income,
respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to
claim the same has prescribed
with respect to income tax payments prior to August 28, 1984,
pursuant to Sections 292 and 295 of the National Internal
Revenue Code of 1977, as amended, since the petition was filed
only on August 28, 1986. 5
On February 20, 1991, the case was submitted for decision
based solely on the pleadings and evidence submitted by herein
private respondent Citytrust. Herein petitioner could not present
any evidence by reason of the repeated failure of the Tax
Credit/Refund Division of the BIR to transmit the records of the
case, as well as the investigation report thereon, to the Solicitor
General. 6
However, on June 24, 1991, herein petitioner filed with the tax
court a manifestation and motion praying for the suspension of
the proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was
already being processed by the Tax Credit/Refund Division of the
BIR, and that said bureau was only awaiting the submission by
Citytrust of the required confirmation receipts which would show
whether or not the aforestated amount was actually paid and
remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Less: FCDU payable 150,252.00
———————
Court of Tax Appeals already acquired jurisdiction over the case, Amount refundable for 1984 P (13,296,663.67)
it could no longer be divested of the same; and, further, that the
1985 Income tax due (loss) P — 0 —
proceedings therein could not be suspended by the mere fact that Less: W/T on rentals 36,716.47*
the claim for refund was being administratively processed, ———————
especially where the case had already been submitted for Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00
decision. ———————
It also argued that the BIR had already conducted an audit, citing Amount Refundable for 1985 P (17,842.47)
therefor Exhibits Y, Y-1, Y-2 and Y-3 adduced in the case, which
clearly showed that there was an overpayment of income taxes * Note:
and for which a tax credit or refund was due to Citytrust. The
Foregoing exhibits are allegedly conclusive proof of and an These credits are smaller than the
admission by herein petitioner that there had been an claimed amount because only the
overpayment of income taxes. 8 above figures are well supported
by the various exhibits presented
The tax court denied the motion to suspend proceedings on the during the hearing.
ground that the case had already been submitted for decision
since February 20, 1991. 9 No pronouncement as to costs.

Thereafter, said court rendered its decision in the case, the
decretal portion of which declares:
WHEREFORE, in view of the foregoing, petitioner
is entitled to a refund but only for the overpaid
taxes incurred in 1984 and 1985. The refundable
amount as shown in its 1983 income tax return is
hereby denied on the ground of prescription.
Respondent is hereby ordered to grant a refund to
petitioner Citytrust Banking Corp. in the amount of
P13,314,506.14 representing the overpaid income
taxes for 1984 and 1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits —
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67
——————— ———————
Tax Overpayment (13,446,915.67)
SO ORDERED. 10
The order for refund was based on the following findings of the
Court of Tax Appeals: (1) the fact of withholding has been
established by the statements and certificates of withholding
taxes accomplished by herein private respondent's withholding
agents, the authenticity of which were neither disputed nor
controverted by herein petitioner; (2) no evidence was presented
which could effectively dispute the correctness of the income tax
return filed by herein respondent corporation and other material
facts stated therein; (3) no deficiency assessment was issued by
herein petitioner; and (4) there was an audit report submitted by
the BIR Assessment Branch, recommending the refund of
overpaid taxes for the years concerned (Exhibits Y to Y-3), which
enjoys the presumption of regularity in the performance of official
duty. 11
A motion for the reconsideration of said decision was initially filed
by the Solicitor General on the sole ground that the statements
and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld
to the BIR. 12 A supplemental motion for reconsideration was
thereafter filed, wherein it was contended for the first time that herein
private respondent had outstanding unpaid deficiency income taxes.
Petitioner alleged that through an inter-office memorandum of the
Tax Credit/Refund Division, dated August 8, 1991, he came to know
only lately that Citytrust had outstanding tax liabilities for 1984 in the
amount of P56,588,740.91 representing deficiency income and
business taxes covered by Demand/Assessment Notice No. FAS-1-
84-003291-003296. 13
Oppositions to both the basic and supplemental motions for
reconsideration were filed by private respondent
Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of the Tax
Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show
that the income received was declared as part of the gross income,
and that the fact of withholding was duly established. Moreover, with
regard to the argument raised in the supplemental motion for
reconsideration anent the deficiency tax assessment against herein
petitioner, the tax court ruled that since that matter was not raised in
the pleadings, the same cannot be considered, invoking therefor the
salutary purpose of the omnibus motion rule which is to obviate
multiplicity of motions and to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein
petitioner with respondent Court of Appeals which in due course
promulgated its decision affirming the judgment of the Court of
Tax Appeals. Petitioner eventually elevated the case to this
Court, maintaining that said respondent court erred in affirming
the grant of the claim for refund of Citytrust, considering that,
firstly, said private respondent failed to prove and substantiate its
claim for such refund; and, secondly, the bureau's findings of
deficiency income and business tax liabilities against private
respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the
peculiar circumstances of this case, the ends of substantial
justice and public interest would be better subserved by the
remand of this case to the Court of Tax Appeals for further
proceedings.
It is the sense of this Court that the BIR, represented herein by
petitioner Commissioner of Internal Revenue, was denied its day
in court by reason of the mistakes and/or negligence of its
officials and employees. It can readily be gleaned from the
records that when it was herein petitioner's turn to present
evidence, several postponements were sought by its counsel, the
Solicitor General, due to the unavailability of the necessary
records which were not transmitted by the Refund Audit Division
of the BIR to said counsel, as well as the investigation report
made by the Banks/Financing and Insurance Division of the said
bureau/ despite repeated requests. 17 It was under such a
predicament and in deference to the tax court that ultimately, said
records being still unavailable, herein petitioner's counsel was
constrained to submit the case for decision on February 20, 1991
without presenting any evidence.
For that matter, the BIR officials and/or employees concerned
also failed to heed the order of the Court of Tax Appeals to
remand the records to it pursuant to Section 2, Rule 7 of the
Rules of the Court of Tax Appeals which provides that the
Commissioner of Internal Revenue and the Commissioner of
Customs shall certify and forward to the Court of Tax Appeals,
within ten days after filing his answer, all the records of the case
in his possession, with the pages duly numbered, and if the
records are in separate folders, then the folders shall also be
numbered.
The aforestated impassé came about due to the fact that, despite
the filing of the aforementioned initiatory petition in CTA Case No.
4099 with the Court of Tax Appeals, the Tax Refund Division of
the BIR still continued to act administratively on the claim for
refund previously filed therein, instead of forwarding the records
of the case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is
not bound by the errors committed by its agents.19 In the
performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. Although the
Government may generally be estopped through the affirmative acts
of public officers acting within their authority, their neglect or
omission of public duties as exemplified in this case will not and
should not produce that effect.
Nowhere is the aforestated rule more true than in the field of
taxation. 20 It is axiomatic that the Government cannot and must not
be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for
the welfare of its constituents. 21The errors of certain administrative
officers should never be allowed to jeopardize the Government's
financial position, 22especially in the case at bar where the amount
involves millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals
erred in denying petitioner's supplemental motion for
reconsideration alleging bringing to said court's attention the
existence of the deficiency income and business tax assessment
against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of
respondent bank to claim for a tax refund for the same year. To
award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects.
Herein private respondent cannot be entitled to refund and at the
same time be liable for a tax deficiency assessment for the same
year.
The grant of a refund is founded on the assumption that the tax
return is valid, that is, the facts stated therein are true and correct.
The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and
accuracy of the facts stated in said return which, by itself and
without unquestionable evidence, cannot be the basis for the
grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of
1977, which was the applicable law when the claim of Citytrust
was filed, provides that "(w)hen an assessment is made in case
of any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected
under such assessment shall be recovered by any suits unless it
is proved that the said list, statement, or return was not false nor
fraudulent and did not contain any understatement or
undervaluation; but this provision shall not apply to statements or
returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the proper
assessment and the tax due would inevitably result in multiplicity
of proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to
institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the
prescriptive period of ten years after discovery of the falsity, fraud
or omission in the false or fraudulent return involved. 23 This would
necessarily require and entail additional efforts and expenses on the
part of the Government, impose a burden on and a drain of
government funds, and impede or delay the collection of much-
needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or
expenses, it is both logically necessary and legally appropriate
that the issue of the deficiency tax assessment against Citytrust
be resolved jointly with its claim for tax refund, to determine once
and for all in a single proceeding the true and correct amount of
tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore SO ORDERED.
conceded, 24 it would be only just and fair that the taxpayer and the
Government alike be given equal opportunities to avail of remedies
under the law to defeat each other's claim and to determine all
matters of dispute between them in one single case. It is important to
note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how
much the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute
res judicata on both parties as to all the matters subject thereof or
necessarily involved therein.

The Court cannot end this adjudication without observing that

what caused the Government to lose its case in the tax court may
hopefully be ascribed merely to the ennui or ineptitude of
officialdom, and not to syndicated intent or corruption. The
evidential cul-de-sac in which the Solicitor General found himself
once again gives substance to the public perception and
suspicion that it is another proverbial tip in the iceberg of venality
in a government bureau which is pejoratively rated over the
years. What is so distressing, aside from the financial losses to
the Government, is the erosion of trust in a vital institution
wherein the reputations of so many honest and dedicated
workers are besmirched by the acts or omissions of a few.
Hence, the liberal view we have here taken pro hac vice, which
may give some degree of assurance that this Court will
unhesitatingly react to any bane in the government service, with a
replication of such response being likewise expected by the
people from the executive authorities.

WHEREFORE, the judgment of respondent Court of Appeals in

CA-G.R. SP No. 26839 is hereby SET ASIDE and the case at bar
is REMANDED to the Court of Tax Appeals for further
proceedings and appropriate action, more particularly, the
reception of evidence for petitioner and the corresponding
disposition of CTA Case No. 4099 not otherwise inconsistent with
our adjudgment herein.
G.R. No. 117359 July 23, 1998
DAVAO GULF LUMBER CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
PANGANIBAN, J.:
Because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally
in favor of the government. Otherwise stated, any exemption from
the payment of a tax must be clearly stated in the language of the
law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for
review under Rule 45 of the Rules of Court, assailing the
Decision 1 of Respondent Court of Appeals 2 in CA-GR SP No.
34581 dated September 26, 1994, which affirmed the June 21, 1994
Decision 3 of the Court of Tax Appeals 4 in CTA Case No. 3574. The
dispositive portion of the CTA Decision affirmed by Respondent
Court reads:
WHEREFORE, judgment is hereby rendered
ordering the respondent to refund to the petitioner
the amount of P2,923.15 representing the partial
refund of specific taxes paid on manufactured oils
and fuels. 5
The Antecedent Facts
The facts are undisputed. 6 Petitioner is a licensed forest
concessionaire possessing a Timber License Agreement granted by
the Ministry of Natural Resources (now Department of Environment
and Natural Resources). From July 1, 1980 to January 31, 1982
petitioner purchased, from various oil companies, refined and
manufactured mineral oils as well as motor and diesel fuels, which it
used exclusively for the exploitation and operation of its forest
concession. Said oil companies paid the specific taxes imposed,
under Sections 153 and 156 7 of the 1977 National Internal Revenue
Code (NIRC), on the sale of said products. Being included in the
purchase price of the oil products, the specific taxes paid by the oil
companies were eventually passed on to the user, the petitioner in
this case.
On December 13, 1982, petitioner filed before Respondent
Commissioner of Internal Revenue (CIR) a claim for refund in the
amount of P120,825.11, representing 25% of the specific taxes
actually paid on the above-mentioned fuels and oils that were
used by petitioner in its operations as forest concessionaire. The
claim was based on Insular Lumber Co. vs. Court of Tax
Appeals 8 and Section 5 of RA 1435 which reads:
Sec. 5. The proceeds of the additional tax on
manufactured oils shall accrue to the road and
bridge funds of the political subdivision for whose
benefit the tax is collected: Provided, however,
That whenever any oils mentioned above are
used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific
tax paid thereon shall be refunded by the
Collector of Internal Revenue upon submission of
proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and
two of section one hereof, amending section one
hundred forty-two of the Internal Revenue
Code: Provided, further, That no new road shall
be constructed unless the routes or location
thereof shall have been approved by the
Commissioner of Public Highways after a
 determination that such road can be made part of
an integral and articulated route in the Philippine
Highway System, as required in section twenty-six
of the Philippine Highway Act of 1953.
It is an unquestioned fact that petitioner complied with the
procedure for refund, including the submission of proof of the
actual use of the aforementioned oils in its forest concession as
required by the above-quoted law. Petitioner, in support of its
claim for refund, submitted to the CIR the affidavits of its general
manager, the president of the Philippine Wood Products
Association, and three disinterested persons, all attesting that the
said manufactured diesel and fuel oils were actually used in the
exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for
review docketed as CTA Case No. 3574. On June 21, 1994, the
CTA rendered its decision finding petitioner entitled to a partial
refund of specific taxes the latter had paid in the reduced amount
of P2,923.15. The CTA ruled that the claim on purchases of
lubricating oil (from July 1, 1980 to January 19, 1981) and on
manufactured oils other than lubricating oils (from July 1, 1980 to
January 4, 1981) had prescribed. Disallowed on the ground that
they were not included in the original claim filed before the CIR
were the claims for refund on purchases of manufactured oils
from January 1, 1980 to June 30, 1980 and from February 1,
1982 to June 30, 1982. In regard to the other purchases, the CTA
granted the claim, but it computed the refund based on rates
deemed paid under RA 1435, and not on the higher rates
actualhy paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the
increased rates prescribed by Sections 153 and 156 of the NIRC,
petitioner elevated the matter to the Court of Appeals. As noted
earlier, the Court of Appeals affirmed the CTA Decision. Hence,
this petition for review. 9
Public Respondent's Ruling
In its petition before the Court of Appeals, petitioner raised the
following arguments:
I. The respondent Court of Tax Appeals failed to
apply the Supreme Court's Decision in Insular
Lumber Co. v. Court of Tax Appeals which
granted the claim for partial refund of specific
taxes paid by the claimant, without qualification or
limitation.
II. The respondent Court of Tax Appeals ignored
the increase in rates imposed by succeeding
amendatory laws,under which the petitioner paid
the specific taxes on manufactured and diesel
fuels.
III. In its decision, the respondent Court of Tax
Appeals ruled contrary to established tenets of
law when it lent itself to interpreting Section 5 of
R.A. 1435, when the construction of said law is
not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the
operative provisions to be applied but rather,
Sections 153 and 156 of the National Internal
Revenue Code, as amended.
V. To rule that the basis for computation of the
refunded taxes should be Sections 1 and 2 of
R.A. 1435 rather than Section 153 and 156 of the
National Internal Revenue Code is unfair,
erroneous, arbitrary, inequitable and
oppressive. 10
The Court of Appeals held that the claim for refund should indeed
be computed on the basis of the amounts deemed paid under
Sections 1 and 2 of RA 1435. In so ruling, it cited our
pronouncement in Commissioner of Internal Revenue v. Rio Tuba
Nickel Mining Corporation 11 and subsequent Resolution dated
June 15, 1992 clarifying the said Decision. Respondent Court further
ruled that the claims for refund which prescribed and those which
were not filed at the administrative level must be excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under
Republic Act No. 1435 to the refund of 25% of the
amount of specific taxes it actually paid on various
refined and manufactured mineral oils and other
oil products taxed under Sec. 153 and Sec. 156 of
the 1977 (Sec. 142 and Sec. 145 of the 1939)
National Internal Revenue Code. 12
In the main, the question before us pertains only to the
computation of the tax refund. Petitioner argues that the refund
should be based on the increased rates of specific taxes which it
actually paid, as prescribed in Sections 153 and 156 of the NIRC.
Public respondent, on the other hand, contends that it should be
based on specific taxes deemed paid under Sections 1 and 2 of
RA 1435.
The Court's Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to a
partial refund under Section 5 of RA 1435, which was enacted to
provide means for increasing the Highway Special Fund.
The rationale for this grant of partial refund of specific taxes paid
on purchases of manufactured diesel and fuel oils rests on the
character of the Highway Special Fund. The specific taxes
collected on gasoline and fuel accrue to the Fund, which is to be
used for the construction and maintenance of the highway
system. But because the gasoline and fuel purchased by mining
and lumber concessionaires are used within their own
compounds and roads, and their vehicles seldom use the national
highways, they do not directly benefit from the Fund and its use.
Hence, the tax refund gives the mining and the logging
companies a measure of relief in light of their peculiar
situation. 13 When the Highway Special Fund was abolished in 1985,
the reason for the refund likewise ceased to exist. 14Since petitioner
purchased the subject manufactured diesel and fuel oils from July 1,
1980 to January 31, 1982 and submitted the required proof that
these were actually used in operating its forest concession, it is
entitled to claim the refund under Section 5 of RA 1435.
Tax Refund Strictly Constrtued
Against the Grantee
Petitioner submits that it is entitled to the refund of 25 percent of
the specific taxes it had actually paid for the petroleum products
used in its operations. In other words, it claims a refund based on
the increased rates under Sections 153 and 156 of the
NIRC. 15 Petitioner argues that the statutory grant of the refund
privilege, specifically the phrase "twenty-five per centum of the
specific tax paid thereon shall be refunded by the Collector of
Internal Revenue," is "clear and unambiguous" enough to require
construction or qualification thereof. 16 In addition, it cites our
pronouncement in Insular Lumber vs. Court of Tax Appeals: 17
. . . Sec. 5 [of RA 1435] makes reference to
subparagraphs 1 and 2 of Section 1 only for the
purpose of prescribing the procedure for refund.
This express reference cannot be expanded in
scope to include the limitation of the period of
 refund. If the limitation of the period of refund of
specific taxes paid on oils used in aviation and
agriculture is intended to cover similar taxes paid
on oil used by miners and forest concessionaires,
there would have been no need of dealing with oil
used by miners and forest concessions separately
and Section 5 would very well have been included
in Section 1 of Republic Act No. 1435,
notwithstanding the different rate of exemption.
Petitioner then reasons that "the express mention of Section 1 of
RA 1435 in Section 5 cannot be expanded to include a limitation
on the tax rates to be applied . . . [otherwise,] Section 5 should
very well have been included in Section 1 . . . ." 18
The Court is nor persuaded. The relevant statutory provisions do
not clearly support petitioner's claim for refund. RA 1435
provides:
Sec. 1 Section one hundred and forty-two of the
National Internal Revenue Code, as amended, is
further amended to read as follows:
Sec. 142. Specific tax on manufactured oils and
other fuels. — On refined and manufactured
mineral oils and motor fuels, there shall be
collected the following taxes:
(a) Kerosene or petroleum, per liter of volume
capacity, two and one-half centavos;
(b) Lubricating oils, per liter of volume capacity,
seven centavos;
(c) Naptha, gasoline, and all other similar
products of distillation, per liter of volume
capacity, eight centavos; and
(d) On denatured alcohol to be used for motive
power, per liter of volume capacity, one
centavo: Provided, That if the denatured alcohol is
mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the
purpose of this subsection, the removal of
denatured alcohol of not less than one hundred
eighty degrees proof (ninety per centum absolute
alcohol) shall be deemed to have been removed
for motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are,
during the five years from June eighteen, nineteen
hundred and fifty two, used in agriculture and
aviation, fifty per centum of the specific tax paid
thereon shall be refunded by the Collector of
Internal Revenue upon the submission of the
following:
(1) A sworn affidavit of the producer and two
disinterested persons proving that the said oils
were actually used in agriculture, or in lieu
thereof.
(2) Should the producer belong to any producers'
association or federation, duly registered with the
Securities and Exchange Commission, the
affidavit of the president of the association or
federation, attesting to the fact that the oils were
actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate
satisfactory to the Collector proving that the said
oils were actually used in aviation: Provided, That
no such refunds shall be granted in respect to the
oils used in aviation by citizens and corporations
of foreign countries which do not grant equivalent
refunds or exemptions in respect to similar oils
used in aviation by citizens and corporations of
the Philippines.
Sec. 2 Section one hundred and forty-five of the
National Internal Revenue Code, as amended, is
further amended to read as follows:
Sec. 145. Specific Tax on Diesel fuel oil. — On
fuel oil, commercially known as diesel fuel oil, and
on all similar fuel oils, having more or less the
same generating power, there shall be collected,
per metric ton, one peso.
xxx xxx xxx
Sec. 5. The proceeds of the additional tax on
manufactured oils shall accrue to the road and
bridge funds of the political subdivision for whose
benefit the tax is collected: Provided, however,
That whenever any oils mentioned above are
used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific
tax paid thereon shall be refunded by the
Collector of Internal Revenue upon submission of
proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and
two of section one hereof, amending section one
hundred forty-two of the Internal Revenue
Code: Provided, further, That no new road shall
be constructed unless the route or location thereof
shall have been approved by the Commissioner of
Public Highways after a determination that such
road can be made part of an integral and
articulated route in the Philippine Highway
System, as required in section twenty-six of the
Philippine Highway Act of 1953.
Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the
first two provisions, renumbering them and prescribing higher
rates. Accordingly, petitioner paid specific taxes on petroleum
products purchased from July 1, 1980 to January 31, 1982 under
the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156
provided as follows:
Sec. 153. Specific tax on manufactured oils and
other fuels. — On refined and manufactured
mineral oils and motor fuels, there shall be
collected the following taxes which shall attach to
the articles hereunder enumerated as soon as
they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven
centavos;
(b) Lubricating oils, per liter of volume capacity,
eighty centavos;
(c) Naphtha, gasoline and all other similar
products of distillation, per liter of volume
capacity, ninety-one centavos: Provided, That on
premium and aviation gasoline, the tax shall be
one peso per liter of volume capacity;
(d) On denatured alcohol to be used for motive
power, per liter of volume capacity, one
centavo: Provided, That unless otherwise
provided for by special laws, if the denatured
alcohol is mixed with gasoline, the specific tax on
which has already been paid, only the alcohol
content shall be subject to the tax herein
prescribed. For the purposes of this subsection,
the removal of denatured alcohol of not less than
one hundred eighty degrees proof (ninety per
centum absolute alcohol) shall be deemed to
have been removed for motive power, unless
shown to the contrary;
(e) Processed gas, per liter of volume capacity,
three centavos;
(f) Thinners and solvents, per liter of volume
capacity, fifty-seven centavos;
(g) Liquefied petroleum gas, per kilogram,
fourteen centavos: Provided, That liquefied
petroleum gas used for motive power shall be
taxed at the equivalent rate as the specific tax on
diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram,
fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume
capacity, fifty-five centavos. (As amended by Sec.
1, P.D. No. 1672.)
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. — On fuel
oil, commercially known as diesel fuel oil, and on
all similar fuel oils, having more or less the same
generating power, per liter of volume capacity,
seventeen and one-half centavos, which tax shall
attach to this fuel oil as soon as it is in existence
as such.
Then on March 21, 1981, these provisions were amended by EO
672 to read:
Sec. 153. Specific tax on manufactured oils and
other fuels. — On refined and manufactured
mineral oils and motor fuels, there shall be
collected the following taxes which shall attach to
the articles hereunder enumerated as soon as
they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine
centavos;
(b) Lubricating oils, per liter of volume capacity,
eighty centavos;
(c) Naphtha, gasoline and all other similar
products of distillation, per liter of volume
capacity, one peso and six centavos: Provided,
That on premium and aviation gasoline, the tax
shall be one peso and ten centavos and one
peso, respectively, per liter of volume capacity;
(d) On denatured alcohol to be used for motive
power, per liter of volume capacity, one
centavo; Provided, That unless otherwise
provided for by special laws, if the denatured
alcohol is mixed with gasoline, the specific tax on
which has already been paid, only the alcohol
content shall be subject to the tax herein
prescribed. For the purpose of this subsection, the
removal of denatured alcohol of not less than one
hundred eighty degrees proof (ninety per
centum absolute alcohol) shall be deemed to
have been removed for motive power, unless
shown to the contrary;
 (e) Processed gas, per liter of volume capacity,
three centavos;
(f) Thinners and solvents, per liter of volume
capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-
one centavos: Provided, That, liquified petroleum
gas used for motive power shall be taxed at the
equivalent rate as the specific tax on diesel fuel
oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram,
fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume
capacity, sixty-four centavos.
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. — On fuel
oil, commercially known as diesel fuel oil, and all
similar fuel oils, having more or less the same
generating power, per liter of volume capacity,
twenty-five and one-half centavos, which tax shall
attach to this fuel oil as soon as it is in existence
as such.
A tax cannot be imposed unless it is supported by the clear and
express language of a statute; 19 on the other hand, once the tax is
unquestionably imposed, "[a] claim of exemption from tax payments
must be clearly shown and based on language in the law too plain to
be mistaken." 20 Since the partial refund authorized under Section 5,
RA 1435, is in the nature of a tax exemption, 21 it must be
construed strictissimi Juris against the grantee. Hence, petitioner's
claim of refund on the basis of the specific taxes it actually paid must
expressly be granted in a statute stated in a language too clear to be
mistaken.
We have carefully scrutinized RA 1435 and the subsequent
pertinent statutes and found no expression of a legislative will
authorizing a refund based on the higher rates claimed by
petitioner. The mere fact that the privilege of refund was included
in Section 5, and not in Section 1, is insufficient to support
petitioner's claim. When the law itself does not explicitly provide
that a refund under RA 1435 may be based on higher rates which
were nonexistent at the time of its enactment, this Coure cannot
presume otherwise. A legislative lacuna cannot be filled by
judicial fiat. 22
The issue is not really novel. In Commissioner of Internal
Revenue vs. Court of Appeals and Atlas Consolidated Mining and
Development
Corporation 23 (the second Atlas case), the CIR contended that the
refund should be based on Sections 1 and 2 of RA 1435, not
Sections 153 and 156 of the NIRC of 1977. In categorically ruling
that Private Respondent Atlas Consolidated Mining and
Development Corporation was entitled to a refund based on Sections
1 and 2 of RA 1435, the Court, through Mr. Justice Hilario G. Davide,
Jr., reiterated our pronouncement in Commissioner of Internal
Revenue vs. Rio Tuba Nickel and Mining Corporation:
Our Resolution of 25 March 1992 modifying our
30 September 1991 Decision in the Rio
Tuba case sets forth the controlling doctrine. In
that Resolution, we stated:
Since the private respondent's claim for refund
covers specific taxes paid from 1980 to July 1983
then we find that the private respondent is entitled
to a refund. It should be made clear, however,
that Rio Tuba is not entitled to the whole amount it
claims as refund.
The specific taxes on oils which Rio Tuba paid for
the aforesaid period were no longer based on the
rates specified by Sections 1 and 2 of R.A. No.
1435 but on the increased rates mandated under
Sections 153 and 156 of the National Internal
Revenue Code of 1977. We note however, that
the latter law does not specifically provide for a
refund to these mining and lumber companies of
specific taxes paid on manufactured and diesel
fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals,
(104 SCRA 710 [1981]), the Court held that the
authorized partial refund under Section 5 of R.A.
No. 1435 partakes of the nature of a tax
exemption and therefore cannot be allowed
unless granted in the most explicit and categorical
language. Since the grant of refund privileges
must be strictly construed against the taxpayer,
the basis for the refund shall be the amounts
deemed paid under Sections 1 and 2 of R.A. No.
1435.
ACCORDINGLY, the decision in G.R. Nos.
83583-84 is hereby MODIFIED. The private
respondent's CLAIM for REFUND is GRANTED,
computed on the basis of the amounts deemed
paid under Sections 1 and 2 of R.A. No. 1435,
without interest. 24
We rule, therefore, that since Atlas's claims for
refund cover specific taxes paid before 1985, it
should be granted the refund based on the rates
specified by Sections 1 and 2 of R.A. No. 1435 and
not on the increased rates under Sections 153 and
156 of the Tax Code of 1977, provided the claims
are not yet barred by prescription. (Emphasis
supplied.)
Insular Lumber Co. and First Atlas Case
Not Inconsistent With Rio Tuba
and Second Atlas Case
Petitioner argues that the applicable jurisprudence in this case
should be Commissioner of Internal Revenue vs. Atlas
Consolidated and Mining Corp. (the first Atlas case), an unsigned
resolution, and Insular Lumber Co. vs. Court of Tax Appeals,
an en banc decision. 25 Petitioner also asks the Court to take a
"second look" at Rio Tuba and the second Atlas case, both decided
by Divisions, in view of Insular which was decided en banc.
Petitioner posits that "[I]n view of the similarity of the situation of
herein petitioner with Insular Lumber Company (claimant in Insular
Lumber) and Rio Tuba Nickel Mining Corporation (claimant in Rio
Tuba), a dilemma has been created as to whether or not Insular
Lumber, which has been decided by the Honorable Court en banc,
or Rio Tuba, which was decided only [by] the Third Division of the
Honorable Court, should
apply." 26
We find no conflict between these two pairs of cases.
Neither Insular Lumber Co. nor the first Atlas case ruled on the
issue of whether the refund privilege under Section 5 should be
computed based on the specific tax deemed paid under Sections
1 and 2 of RA 1435, regardless of what was actually paid under
the increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid
on petroleum products purchased in the year 1963, when the
increased rates under the NIRC of 1977 were nor yet in effect.
Thus, the issue now before us did not exist at the time, since the
applicable rates were still those prescribed under Sections 1 and
2 of RA 1435.
On the other hand, the issue raised in the first Atlas case was
whether the claimant was entitled to the refund under Section 5,
notwithstanding its failure to pay any additional tax under a
municipal or city ordinance. Although Atlas purchased petroleum
products in the years, 1976 to 1978 when the rates had already
been changed, the Court did not decide or make any
pronouncement on the issue in that case.

Clearly, it is impossible for these two decisions to clash with our

pronouncement in Rio Tuba and second Atlas case, in which we
ruled that the refund granted be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In this
light, we find no basis for petitioner's invocation of the
constitutional proscription that "no doctrine or principle of law laid
down by the Court in a decision rendered en banc or in division
may be modified or reversed except by the Court sitting en
banc. 27

Finally, petitioner asserts that "equity and justice demand that the
computation of the tax refunds be based on actual amounts paid
under Sections 153 and 156 of the NIRC." 28 We disagree.
According to an eminent authority on taxation, "there is no tax
exemption solely on the, ground of equity." 29

WHEREFORE, the petition is hereby DENIED and the assailed

Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
G.R. No. 134062 April 17, 2007 Deficiency percentage tax P93,723,372.40

COMMISSIONER OF INTERNAL REVENUE, Petitioner, Add: 25% surcharge 23,430,843.10

vs. 15,000.00
BANK OF THE PHILIPPINE ISLANDS, Respondent. Compromise penalty

DECISION TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.5

CORONA, J.: Both notices of assessment contained the following note:

This is a petition for review on certiorari1 of a decision2 of the Please be informed that your [percentage and documentary
Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. stamp taxes have] been assessed as shown above. Said
41025 which reversed and set aside the decision3 and assessment has been based on return – (filed by you) – (as
resolution4 of the Court of Tax Appeals (CTA) dated November verified) – (made by this Office) – (pending investigation) – (after
16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715. investigation). You are requested to pay the above amount to this
Office or to our Collection Agent in the Office of the City or
In two notices dated October 28, 1988, petitioner Commissioner Deputy Provincial Treasurer of xxx6
of Internal Revenue (CIR) assessed respondent Bank of the
Philippine Islands’ (BPI’s) deficiency percentage and In a letter dated December 10, 1988, BPI, through counsel,
documentary stamp taxes for the year 1986 in the total amount replied as follows:
of P129,488,656.63:
1. Your "deficiency assessments" are no assessments at
1986 – Deficiency Percentage Tax all. The taxpayer is not informed, even in the vaguest
terms, why it is being assessed a deficiency. The very
Deficiency percentage tax P 7, 270,892.88 purpose of a deficiency assessment is to inform taxpayer
why he has incurred a deficiency so that he can make an
Add: 25% surcharge 1,817,723.22 intelligent decision on whether to pay or to protest the
assessment. This is all the more so when the assessment
20% interest from 1-21-87 to 10-28-88 3,215,825.03
involves astronomical amounts, as in this case.
15,000.00
Compromise penalty
We therefore request that the examiner concerned be
required to state, even in the briefest form, why he
TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13 believes the taxpayer has a deficiency documentary and
percentage taxes, and as to the percentage tax, it is
1986 – Deficiency Documentary Stamp Tax important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.
 2. As to the alleged deficiency documentary stamp tax,
you are aware of the compromise forged between your
office and the Bankers Association of the Philippines
[BAP] on this issue and of BPI’s submission of its
computations under this compromise. There is therefore
no basis whatsoever for this assessment, assuming it is
on the subject of the BAP compromise. On the other
hand, if it relates to documentary stamp tax on some
other issue, we should like to be informed about what
those issues are.
3. As to the alleged deficiency percentage tax, we are
completely at a loss on how such assessment may be
protested since your letter does not even tell the taxpayer
what particular percentage tax is involved and how your
examiner arrived at the deficiency. As soon as this is
explained and clarified in a proper letter of assessment,
we shall inform you of the taxpayer’s decision on whether
to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8,
1991 stating that:
… although in all respects, your letter failed to qualify as a protest
under Revenue Regulations No. 12-85 and therefore not
deserving of any rejoinder by this office as no valid issue was
raised against the validity of our assessment… still we obliged to
explain the basis of the assessments.
xxx xxx xxx
… this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the
assessments stated in the CIR’s May 8, 1991 letter.9 This was
denied in a letter dated December 12, 1991, received by BPI on
January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the
CTA.11 In a decision dated November 16, 1995, the CTA
dismissed the case for lack of jurisdiction since the subject
assessments had become final and unappealable. The CTA ruled
that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in
relation to Section 11 of RA 1125.12 It denied reconsideration in a
resolution dated May 27, 1996.13
On appeal, the CA reversed the tax court’s decision and
resolution and remanded the case to the CTA14 for a decision on
the merits.15 It ruled that the October 28, 1988 notices were not
valid assessments because they did not inform the taxpayer of
the legal and factual bases therefor. It declared that the proper
assessments were those contained in the May 8, 1991 letter
which provided the reasons for the claimed deficiencies.16 Thus, it
held that BPI filed the petition for review in the CTA on time.17 The
CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for
deficiency percentage and documentary stamp taxes for
1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of
the NIRC stated:
Sec. 270. Protesting of assessment. — When the [CIR] or his
duly authorized representative finds that proper taxes should
be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the [CIR] shall issue an
assessment based on his findings.
 xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28,
1988 notices19 were valid assessments. If they were not, as held
by the CA, then the correct assessments were in the May 8, 1991
letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991
letter, seasonably asked for a reconsideration of the findings
which the CIR denied in his December 12, 1991 letter, received
by BPI on January 21, 1992. Consequently, the petition for review
filed by BPI in the CTA on February 18, 1992 would be well within
the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28,
1988 notices were invalid assessments. He asserts that he used
BIR Form No. 17.08 (as revised in November 1964) which was
designed for the precise purpose of notifying taxpayers of the
assessed amounts due and demanding payment thereof.21 He
contends that there was no law or jurisprudence then that
required notices to state the reasons for assessing deficiency tax
liabilities.22
BPI counters that due process demanded that the facts, data and
law upon which the assessments were based be provided to the
taxpayer. It insists that the NIRC, as worded now (referring to
Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment
shall be void."
According to BPI, this is declaratory of what sound tax procedure
is and a confirmation of what due process requires even under
the former Section 270.
BPI’s contention has no merit. The present Section 228 of the
NIRC provides:
Sec. 228. Protesting of Assessment. — When the [CIR] or his
duly authorized representative finds that proper taxes should
be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall
not be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and
facts on which the assessments of the deficiency taxes were
made. He merely notified BPI of his findings, consisting only of
the computation of the tax liabilities and a demand for payment
thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the
provisions of the former Section 270 prior to its amendment by
RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law
and the facts on which the assessment of estate taxes had been
made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior
to its amendment by [RA] 8424, otherwise known as the Tax
Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229
on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to informing the taxpayer of not only the law,
but also of the facts on which an assessment would be made;
otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment
notice was issued against the estate. On April 22, 1998, the final
estate tax assessment notice, as well as demand letter, was also
issued. During those dates, RA 8424 was already in effect. The
notice required under the old law was no longer sufficient
under the new law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the
former Section 270, the only requirement was for the CIR to
"notify" or inform the taxpayer of his "findings." Nothing in the old
law required a written statement to the taxpayer of the law and
facts on which the assessments were based. The Court cannot
read into the law what obviously was not intended by Congress.
That would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the amount
the taxpayer was to pay and a demand for payment within a
prescribed period.26 Everything considered, there was no doubt
the October 28, 1988 notices sufficiently met the requirements of
a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void
was not in the old Section 270 but was only later on inserted in
the renumbered Section 228 in 1997. Evidently, the legislature
saw the need to modify the former Section 270 by inserting the
aforequoted sentence.27 The fact that the amendment was
necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the
renumbered Section 228 was not an affirmation of what the law
required under the former Section 270. The amendment
introduced by RA 8424 was an innovation and could not be
reasonably inferred from the old law.29 Clearly, the legislature
intended to insert a new provision regarding the form and
substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid
assessments, the CA explained:
xxx. Elementary concerns of due process of law should have
prompted the [CIR] to inform [BPI] of the legal and factual basis of
the former’s decision to charge the latter for deficiency
documentary stamp and gross receipts taxes.31
In other words, the CA’s theory was that BPI was deprived of due
process when the CIR failed to inform it in writing of the factual
and legal bases of the assessments —even if these were not
called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic
constitutional requirement that "no person shall be deprived of his
property without due process of law."32 We note, however, what
the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not
only was [BPI] given the opportunity to discuss with the [CIR]
when the latter issued the former a Pre-Assessment Notice
(which [BPI] ignored) but that the examiners themselves went to
[BPI] and "we talk to them and we try to [thresh] out the issues,
present evidences as to what they need." Now, how can [BPI]
and/or its counsel honestly tell this Court that they did not know
anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew
beforehand the assessments[,] contrary to the allegations of its
counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant
Manager of the Accounting Department of [BPI]. He testified to
the fact that he prepared worksheets which contain his analysis
regarding the findings of the [CIR’s] examiner, Mr. San Pedro and
that the same worksheets were presented to Mr. Carlos Tan,
Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that
[BPI] was indeed aware of the nature and basis of the
assessments, and was given all the opportunity to contest the
same but ignored it despite the notice conspicuously written on
the assessments which states that "this ASSESSMENT becomes
final and unappealable if not protested within 30 days after
receipt." Counsel resorted to dilatory tactics and dangerously
played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature
of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject,
and its conclusions will not be overturned unless there has been
an abuse or improvident exercise of authority. Such findings can
only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse
on the part of the [CTA].34
Under the former Section 270, there were two instances when an
assessment became final and unappealable: (1) when it was not
protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30
days from receipt of the final decision:35
Sec. 270. Protesting of assessment. 1a\^ /phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation in such form and
manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual,
association or corporation adversely affected by the decision on
the protest may appeal to the [CTA] within thirty (30) days from
receipt of the said decision; otherwise, the decision shall become
final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid
assessments, BPI should have protested the same within 30 days
from receipt thereof. The December 10, 1988 reply it sent to the
CIR did not qualify as a protest since the letter itself stated that
"[a]s soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayer’s decision
on whether to pay or protest the assessment."36 Hence, by its
own declaration, BPI did not regard this letter as a protest against
the assessments. As a matter of fact, BPI never deemed this a
protest since it did not even consider the October 28, 1988
notices as valid or proper assessments.
The inevitable conclusion is that BPI’s failure to protest the
assessments within the 30-day period provided in the former
Section 270 meant that they became final and unappealable.
Thus, the CTA correctly dismissed BPI’s appeal for lack of
jurisdiction. BPI was, from then on, barred from disputing the
correctness of the assessments or invoking any defense that
would reopen the question of its liability on the merits.37 Not only
that. There arose a presumption of correctness when BPI failed to
protest the assessments:
Tax assessments by tax examiners are presumed correct and
made in good faith. The taxpayer has the duty to prove otherwise.
In the absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior officers will not
be disturbed. All presumptions are in favor of the correctness of
tax assessments.38
Even if we considered the December 10, 1988 letter as a protest,
BPI must nevertheless be deemed to have failed to appeal the
CIR’s final decision regarding the disputed assessments within
the 30-day period provided by law. The CIR, in his May 8, 1991
response, stated that it was his "final decision … on the matter."
BPI therefore had 30 days from the time it received the decision
on June 27, 1991 to appeal but it did not. Instead it filed a request
for reconsideration and lodged its appeal in the CTA only on
February 18, 1992, way beyond the reglementary period. BPI
must now suffer the repercussions of its omission. We have
already declared that:
… the [CIR] should always indicate to the taxpayer in clear and
unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on
the disputed assessment, as contemplated by Sections 7 and 11
of [RA 1125], as amended. On the basis of his statement
indubitably showing that the Commissioner's communicated
action is his final decision on the contested assessment, the
aggrieved taxpayer would then be able to take recourse to
the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his
right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually delay
the finality of the assessment — and, consequently, the
collection of the amount demanded as taxes — by repeated
requests for recomputation and reconsideration. On the part
of the [CIR], this would encourage his office to conduct a careful
and thorough study of every questioned assessment and render a
correct and definite decision thereon in the first instance. This
would also deter the [CIR] from unfairly making the taxpayer
grope in the dark and speculate as to which action constitutes the
decision appealable to the tax court. Of greater import, this rule of
conduct would meet a pressing need for fair play, regularity, and
orderliness in administrative action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot
absolve BPI of its liability under the subject tax assessments.
We realize that these assessments (which have been pending for
almost 20 years) involve a considerable amount of money. Be
that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of
the taxes validly due it and the public will suffer if taxpayers will
not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from
the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the
people.40
WHEREFORE, the petition is hereby GRANTED. The May 29,
1998 decision of the Court of Appeals in CA-G.R. SP No. 41025
is REVERSED and SET ASIDE.

SO ORDERED.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX
APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.
The main issue in this case is whether or not the Collector of
Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business
expenses in its income tax returns. The corollary issue is whether
or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in
accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private
respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959. 1 On
January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in
the office of the petitioner. 2 On March 12, 1965, a warrant of distraint
and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the
dockets of the case proved fruitless. Atty. Guevara produced his file
copy and gave a photostat to BIR agent Ramon Reyes, who deferred
service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally
informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy
earlier sought to be served. 5 Sixteen days later, on April 23, 1965,
Algue filed a petition for review of the decision of the Commissioner
of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling
challenged. 7 It is true that as a rule the warrant of distraint and levy
is "proof of the finality of the assessment" 8 and renders hopeless a
request for reconsideration," 9being "tantamount to an outright denial
thereof and makes the said request deemed rejected." 10 But there is
a special circumstance in the case at bar that prevents application of
this accepted doctrine.
The proven fact is that four days after the private respondent
received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only after
Atty. Guevara gave the BIR a copy of the protest that it was, if at
all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be
served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by
private respondent was not pro forma and was based on strong legal
considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the
date the assessment was received, viz., January 14, 1965. The
period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the
said protest and the warrant was finally served on it. Hence, when
the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00
was properly disallowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that
the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for
their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had
Originally claimed these promotional fees to be personal holding
company income 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 In fact, as the said court
found, the amount was earned through the joint efforts of the
persons among whom it was distributed It has been established that
the Philippine Sugar Estate Development Company had earlier
appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in
it. 14 Ultimately, after its incorporation largely through the promotion of
the said persons, this new corporation purchased the PSEDC
properties. 15 For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective
shares of the fees in their income tax returns and paid the
corresponding taxes thereon. 17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of dividends
was involved. 18
The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is
not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different
amounts as each payee's need arose. 19 It should be remembered
that this was a family corporation where strict business procedures
were not applied and immediate issuance of receipts was not
required. Even so, at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received
by him or her, to make up the total of P75,000.00. 20 Admittedly,
everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among
the persons in the family corporation.
We agree with the respondent court that the amount of the
promotional fees was not excessive. The total commission paid
by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation of
the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties. This finding of the respondent court is
in accord with the following provision of the Tax Code:
 SEC. 30. Deductions from gross income.--In
computing net income there shall be allowed as
deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary
expenses paid or incurred during the taxable year
in carrying on any trade or business, including a
reasonable allowance for salaries or other
compensation for personal services actually
rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as
follows:
SEC. 70. Compensation for personal services.--
Among the ordinary and necessary expenses paid
or incurred in carrying on any trade or business
may be included a reasonable allowance for
salaries or other compensation for personal
services actually rendered. The test of
deductibility in the case of compensation
payments is whether they are reasonable and are,
in fact, payments purely for service. This test and
deductibility in the case of compensation
payments is whether they are reasonable and are,
in fact, payments purely for service. This test and
its practical application may be further stated and
illustrated as follows:
Any amount paid in the form of compensation, but
not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a
corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a
corporation having few stockholders, Practically
all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for
similar services, and the excessive payment
correspond or bear a close relationship to the
stockholdings of the officers of employees, it
would seem likely that the salaries are not paid
wholly for services rendered, but the excessive
payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)
It is worth noting at this point that most of the payees were not in
the regular employ of Algue nor were they its controlling
stockholders. 23
The Solicitor General is correct when he says that the burden is
on the taxpayer to prove the validity of the claimed deduction. In
the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that
the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society.
Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned income
to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The
government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not
been observed.

We hold that the appeal of the private respondent from the

decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that
the claimed deduction by the private respondent was permitted
under the Internal Revenue Code and should therefore not have
been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax

Appeals is AFFIRMED in toto, without costs.

SO ORDERED.
G.R. No. L-22074 April 30, 1965 on insurance premiums not recovered from the original assured
were to be paid for by the foreign reinsurers. The foreign
THE PHILIPPINE GUARANTY CO., INC., petitioner, reinsurers further agreed, in consideration for managing or
vs. administering their affairs in the Philippines, to compensate the
THE COMMISSIONER OF INTERNAL REVENUE and THE Philippine Guaranty Co., Inc., in an amount equal to 5% of the
COURT OF TAX APPEALS, respondents. reinsurance premiums. Conflicts and/or differences between the
parties under the reinsurance contracts were to be arbitrated in
Josue H. Gustilo and Ramirez and Ortigas for petitioner. Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance
Office of the Solicitor General and Attorney V.G. Saldajena for Company stipulated that their contract shall be construed by the
respondents. laws of the Philippines.

BENGZON, J.P., J.: Pursuant to the aforesaid reinsurance contracts, Philippine

Guaranty Co., Inc. ceded to the foreign reinsurers the following
premiums:
The Philippine Guaranty Co., Inc., a domestic insurance
company, entered into reinsurance contracts, on various dates,
with foreign insurance companies not doing business in the 1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
Philippines namely: Imperio Compañia de Seguros, La Union y El
Fenix Español, Overseas Assurance Corp., Ltd., Socieded 1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance
Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance
Said premiums were excluded by Philippine Guaranty Co., Inc.
Company and Tariff Reinsurance Limited. Philippine Guaranty
from its gross income when it file its income tax returns for 1953
Co., Inc., thereby agreed to cede to the foreign reinsurers a
and 1954. Furthermore, it did not withhold or pay tax on them.
portion of the premiums on insurance it has originally
Consequently, per letter dated April 13, 1959, the Commissioner
underwritten in the Philippines, in consideration for the
of Internal Revenue assessed against Philippine Guaranty Co.,
assumption by the latter of liability on an equivalent portion of the
Inc. withholding tax on the ceded reinsurance premiums, thus:
risks insured. Said reinsurrance contracts were signed by
Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss 1953
Reinsurance Company, which was signed by both parties in
Switzerland. Gross premium per investigation . . . . . . . . . . P768,580.00

Withholding tax due thereon at 24% . . . . . . . . P184,459.00

The reinsurance contracts made the commencement of the
reinsurers' liability simultaneous with that of Philippine Guaranty 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
Co., Inc. under the original insurance. Philippine Guaranty Co.,
Inc. was required to keep a register in Manila where the risks Compromise for non-filing of withholding
100.00
ceded to the foreign reinsurers where entered, and entry therein income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
was binding upon the reinsurers. A proportionate amount of taxes

TOTAL AMOUNT DUE & COLLECTIBLE . . . .
1954
Gross premium per investigation . . . . . . . . . .
Withholding tax due thereon at 24% . . . . . . . .
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
Compromise for non-filing of withholding
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
Philippine Guaranty Co., Inc., protested the assessment on the
ground that reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are not subject to withholding
tax. Its protest was denied and it appealed to the Court of Tax
Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment
with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS,
petitioner Philippine Guaranty Co., Inc. is hereby ordered
to pay to the Commissioner of Internal Revenue the
respective sums of P202,192.00 and P173,153.00 or the
total sum of P375,345.00 as withholding income taxes for
the years 1953 and 1954, plus the statutory delinquency
penalties thereon. With costs against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the
legality of the Commissioner of Internal Revenue's assessment
for withholding tax on the reinsurance premiums ceded in 1953
P230,673.00 and 1954 to the foreign reinsurers.
==========
Petitioner maintain that the reinsurance premiums in question did
not constitute income from sources within the Philippines
because the foreign reinsurers did not engage in business in the
P780.880.68 Philippines, nor did they have office here.
P184,411.00
The reinsurance contracts, however, show that the transactions
P184,411.00 or activities that constituted the undertaking to reinsure Philippine
Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines.
100.00
The liability of the foreign reinsurers commenced simultaneously
with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register
P234,364.00
of the risks ceded to the foreign reinsurers. Entries made in such
==========
register bound the foreign resinsurers, localizing in the Philippines
the actual cession of the risks and premiums and assumption of
the reinsurance undertaking by the foreign reinsurers. Taxes on
premiums imposed by Section 259 of the Tax Code for the
privilege of doing insurance business in the Philippines were
payable by the foreign reinsurers when the same were not
recoverable from the original assured. The foreign reinsurers paid
Philippine Guaranty Co., Inc. an amount equivalent to 5% of the
ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the
Philippines in regard to their reinsurance activities here. Disputes
and differences between the parties were subject to arbitration in
the City of Manila. All the reinsurance contracts, except that with
Swiss Reinsurance Company, were signed by Philippine
Guaranty Co., Inc. in the Philippines and later signed by the
foreign reinsurers abroad. Although the contract between
Philippine Guaranty Co., Inc. and Swiss Reinsurance Company
was signed by both parties in Switzerland, the same specifically
provided that its provision shall be construed according to the
laws of the Philippines, thereby manifesting a clear intention of
the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax
on their income from sources within the Philippines. The word
"sources" has been interpreted as the activity, property or service
giving rise to the income.1 The reinsurance premiums were
income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against
liability for loss under original insurances. Such undertaking, as
explained above, took place in the Philippines. These insurance
premiums, therefore, came from sources within the Philippines
and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused
with their place of activity. Business should not be continuity and
progression of transactions 2 while activity may consist of only a
single transaction. An activity may occur outside the place of
business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting
its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling,
therefore, is not the place of business but the place of activity that
created an income.
Petitioner further contends that the reinsurance premiums are not
income from sources within the Philippines because they are not
specifically mentioned in Section 37 of the Tax Code. Section 37
is not an all-inclusive enumeration, for it merely directs that the
kinds of income mentioned therein should be treated as income
from sources within the Philippines but it does not require that
other kinds of income should not be considered likewise. 1äwphï1.ñët
The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve
the State's sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion,
a corps of civil servants to serve, public improvement designed
for the enjoyment of the citizenry and those which come within
the State's territory, and facilities and protection which a
government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance
premiums and reinsurers should share the burden of maintaining
the state.
Petitioner would wish to stress that its reliance in good faith on
the rulings of the Commissioner of Internal Revenue requiring no
withholding of the tax due on the reinsurance premiums in
question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if
from the payment of surcharges or penalties imposed for failure
to pay the corresponding withholding tax, but it certainly would
not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the
mistakes or errors of its agents.3
In respect to the question of whether or not reinsurance
premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to withholding tax under Section 53 and
54 of the Tax Code, suffice it to state that this question has
already been answered in the affirmative in Alexander Howden &
Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14,
1965.
Finally, petitioner contends that the withholding tax should be
computed from the amount actually remitted to the foreign
reinsurers instead of from the total amount ceded. And since it did
not remit any amount to its foreign insurers in 1953 and 1954, no
withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. —
In the case of foreign corporations subject to taxation
under this Title not engaged in trade or business within
the Philippines and not having any office or place of
 business therein, there shall be deducted and withheld at the Collector of Internal Revenue may authorize such tax
the source in the same manner and upon the same items to be deducted and withheld from the interest upon any
as is provided in Section fifty-three a tax equal to twenty- securities the owners of which are not known to the
four per centum thereof, and such tax shall be returned withholding agent.
and paid in the same manner and subject to the same
conditions as provided in that section. The above-quoted provisions allow no deduction from the income
therein enumerated in determining the amount to be withheld.
The applicable portion of Section 53 provides: According, in computing the withholding tax due on the
reinsurance premium in question, no deduction shall be
(b) Nonresident aliens. — All persons, corporations and recognized.
general copartnerships (compañias colectivas), in what
ever capacity acting, including lessees or mortgagors of WHEREFORE, in affirming the decision appealed from, the
real or personal property, trustees acting in any trust Philippine Guaranty Co., Inc. is hereby ordered to pay to the
capacity, executors, administrators, receivers, Commissioner of Internal Revenue the sums of P202,192.00 and
conservators, fiduciaries, employers, and all officers and P173,153.00, or a total amount of P375,345.00, as withholding
employees of the Government of the Philippines having tax for the years 1953 and 1954, respectively. If the amount of
the control, receipt, custody, disposal, or payment of P375,345.00 is not paid within 30 days from the date this
interest, dividends, rents, salaries, wages, premiums, judgement becomes final, there shall be collected a surcharged of
annuities, compensation, remunerations, emoluments, or 5% on the amount unpaid, plus interest at the rate of 1% a month
other fixed or determinable annual or periodical gains, from the date of delinquency to the date of payment, provided
profits, and income of any nonresident alien individual, that the maximum amount that may be collected as interest shall
not engaged in trade or business within the Philippines not exceed the amount corresponding to a period of three (3)
and not having any office or place of business therein, years. With costs againsts petitioner.
shall (except in the case provided for in subsection [a] of
this section) deduct and withhold from such annual or
periodical gains, profits, and income a tax equal to
twelve per centum thereof: Provided That no deductions
or withholding shall be required in the case of dividends
paid by a foreign corporation unless (1) such corporation
is engaged in trade or business within the Philippines or
has an office or place of business therein, and (2) more
than eighty-five per centum of the gross income of such
corporation for the three-year period ending with the close
of its taxable year preceding the declaration of such
dividends (or for such part of such period as the
corporation has been in existence)was derived from
sources within the Philippines as determined under the
provisions of section thirty-seven: Provided, further, That
G.R. No. 160756 March 9, 2010
CHAMBER OF REAL ESTATE AND BUILDERS'
ASSOCIATIONS, INC., Petitioner,
vs.
THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO,
THE HON. ACTING SECRETARY OF FINANCE JUANITA D.
AMATONG, and THE HON. COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR., Respondents.
DECISION
CORONA, J.:
In this original petition for certiorari and mandamus,1 petitioner
Chamber of Real Estate and Builders’ Associations, Inc. is
questioning the constitutionality of Section 27 (E) of Republic Act
(RA) 84242 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision
and those involving creditable withholding taxes.3
Petitioner is an association of real estate developers and builders
in the Philippines. It impleaded former Executive Secretary
Alberto Romulo, then acting Secretary of Finance Juanita D.
Amatong and then Commissioner of Internal Revenue Guillermo
Parayno, Jr. as respondents.
Petitioner assails the validity of the imposition of minimum
corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as
ordinary assets.
Section 27(E) of RA 8424 provides for MCIT on domestic
corporations and is implemented by RR 9-98. Petitioner argues
that the MCIT violates the due process clause because it levies
income tax even if there is no realized gain.
Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by
RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii)
of RR 7-2003, all of which prescribe the rules and procedures for
the collection of CWT on the sale of real properties categorized
as ordinary assets. Petitioner contends that these revenue
regulations are contrary to law for two reasons: first, they ignore
the different treatment by RA 8424 of ordinary assets and capital
assets and second, respondent Secretary of Finance has no
authority to collect CWT, much less, to base the CWT on the
gross selling price or fair market value of the real properties
classified as ordinary assets.
Petitioner also asserts that the enumerated provisions of the
subject revenue regulations violate the due process clause
because, like the MCIT, the government collects income tax even
when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT
is being levied upon real estate enterprises but not on other
business enterprises, more particularly those in the
manufacturing sector.
The issues to be resolved are as follows:
(1) whether or not this Court should take cognizance of
the present case;
(2) whether or not the imposition of the MCIT on domestic
corporations is unconstitutional and
(3) whether or not the imposition of CWT on income from
sales of real properties classified as ordinary assets
under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.
Overview of the Assailed Provisions
Under the MCIT scheme, a corporation, beginning on its fourth
year of operation, is assessed an MCIT of 2% of its gross income
when such MCIT is greater than the normal corporate income tax
imposed under Section 27(A).4If the regular income tax is higher
than the MCIT, the corporation does not pay the MCIT. Any
excess of the MCIT over the normal tax shall be carried forward
and credited against the normal income tax for the three
immediately succeeding taxable years. Section 27(E) of RA 8424
provides:
Section 27 (E). [MCIT] on Domestic Corporations. -
(1) Imposition of Tax. – A [MCIT] of two percent (2%) of
the gross income as of the end of the taxable year, as
defined herein, is hereby imposed on a corporation
taxable under this Title, beginning on the fourth taxable
year immediately following the year in which such
corporation commenced its business operations, when
the minimum income tax is greater than the tax computed
under Subsection (A) of this Section for the taxable year.
(2) Carry Forward of Excess Minimum Tax. – Any excess
of the [MCIT] over the normal income tax as computed
under Subsection (A) of this Section shall be carried
forward and credited against the normal income tax for
the three (3) immediately succeeding taxable years.
(3) Relief from the [MCIT] under certain conditions. – The
Secretary of Finance is hereby authorized to suspend the
imposition of the [MCIT] on any corporation which suffers
losses on account of prolonged labor dispute, or because
of force majeure, or because of legitimate business
reverses.
The Secretary of Finance is hereby authorized to
promulgate, upon recommendation of the Commissioner,
the necessary rules and regulations that shall define the
terms and conditions under which he may suspend the
imposition of the [MCIT] in a meritorious case.
(4) Gross Income Defined. – For purposes of applying the
[MCIT] provided under Subsection (E) hereof, the term
‘gross income’ shall mean gross sales less sales returns,
discounts and allowances and cost of goods sold. "Cost
of goods sold" shall include all business expenses directly
incurred to produce the merchandise to bring them to
their present location and use.
For trading or merchandising concern, "cost of goods sold" shall
include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are
actually sold including insurance while the goods are in transit.
For a manufacturing concern, "cost of goods manufactured and
sold" shall include all costs of production of finished goods, such
as raw materials used, direct labor and manufacturing overhead,
freight cost, insurance premiums and other costs incurred to bring
the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, "gross
income" means gross receipts less sales returns, allowances,
discounts and cost of services. "Cost of services" shall mean all
direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (A)
salaries and employee benefits of personnel, consultants and
specialists directly rendering the service and (B) cost of facilities
directly utilized in providing the service such as depreciation or
rental of equipment used and cost of supplies: Provided,
however, that in the case of banks, "cost of services" shall include
interest expense.
On August 25, 1998, respondent Secretary of Finance
(Secretary), on the recommendation of the Commissioner of
Internal Revenue (CIR), promulgated RR 9-98 implementing
Section 27(E).5 The pertinent portions thereof read:
Sec. 2.27(E) [MCIT] on Domestic Corporations. –
(1) Imposition of the Tax. – A [MCIT] of two percent (2%) of the xxx xxx xxx
gross income as of the end of the taxable year (whether calendar
or fiscal year, depending on the accounting period employed) is (J) Gross selling price or total amount of consideration or its
hereby imposed upon any domestic corporation beginning the equivalent paid to the seller/owner for the sale, exchange or
fourth (4th) taxable year immediately following the taxable year in transfer of. – Real property, other than capital assets, sold by an
which such corporation commenced its business operations. The individual, corporation, estate, trust, trust fund or pension fund
MCIT shall be imposed whenever such corporation has zero or and the seller/transferor is habitually engaged in the real estate
negative taxable income or whenever the amount of minimum business in accordance with the following schedule –
corporate income tax is greater than the normal income tax due
from such corporation.
Those which are exempt from a Exempt
For purposes of these Regulations, the term, "normal income tax" withholding tax at source as
means the income tax rates prescribed under Sec. 27(A) and prescribed in Sec. 2.57.5 of these
Sec. 28(A)(1) of the Code xxx at 32% effective January 1, 2000 regulations.
and thereafter.
With a selling price of five hundred 1.5%
xxx xxx xxx thousand pesos (P500,000.00) or
less.
(2) Carry forward of excess [MCIT]. – Any excess of the [MCIT]
over the normal income tax as computed under Sec. 27(A) of the With a selling price of more than five 3.0%
Code shall be carried forward on an annual basis and credited hundred thousand pesos
against the normal income tax for the three (3) immediately (P500,000.00) but not more than two
succeeding taxable years. million pesos (P2,000,000.00).

xxx xxx xxx With selling price of more than two 5.0%
million pesos (P2,000,000.00)
Meanwhile, on April 17, 1998, respondent Secretary, upon
recommendation of respondent CIR, promulgated RR 2-98
implementing certain provisions of RA 8424 involving the xxx xxx xxx
withholding of taxes.6 Under Section 2.57.2(J) of RR No. 2-98,
income payments from the sale, exchange or transfer of real Gross selling price shall mean the consideration stated in the
property, other than capital assets, by persons residing in the sales document or the fair market value determined in
Philippines and habitually engaged in the real estate business accordance with Section 6 (E) of the Code, as amended,
were subjected to CWT: whichever is higher. In an exchange, the fair market value of the
property received in exchange, as determined in the Income Tax
Sec. 2.57.2. Income payment subject to [CWT] and rates Regulations shall be used.
prescribed thereon:
Where the consideration or part thereof is payable on installment,
no withholding tax is required to be made on the periodic
installment payments where the buyer is an individual not
engaged in trade or business. In such a case, the applicable rate
of tax based on the entire consideration shall be withheld on the
last installment or installments to be paid to the seller.
However, if the buyer is engaged in trade or business, whether a
corporation or otherwise, the tax shall be deducted and withheld
by the buyer on every installment.
This provision was amended by RR 6-2001 on July 31, 2001:
Sec. 2.57.2. Income payment subject to [CWT] and rates
prescribed thereon:
xxx xxx xxx
(J) Gross selling price or total amount of consideration or its
equivalent paid to the seller/owner for the sale, exchange or
transfer of real property classified as ordinary asset. - A [CWT]
based on the gross selling price/total amount of consideration or
the fair market value determined in accordance with Section 6(E)
of the Code, whichever is higher, paid to the seller/owner for the
sale, transfer or exchange of real property, other than capital
asset, shall be imposed upon the withholding agent,/buyer, in
accordance with the following schedule:
Where the seller/transferor is exempt from [CWT] in
accordance with Sec. 2.57.5 of these regulations.
Upon the following values of real property, where the
seller/transferor is habitually engaged in the real estate
business.
With a selling price of Five Hundred Thousand Pesos
(P500,000.00) or less.
With a selling price of more than Five Hundred Thousand
Pesos (P500,000.00) but not more than Two Million Pesos
(P2,000,000.00).
With a selling price of more than two Million Pesos 5.0%
(P2,000,000.00).
xxx xxx xxx
Gross selling price shall remain the consideration stated in the
sales document or the fair market value determined in
accordance with Section 6 (E) of the Code, as amended,
whichever is higher. In an exchange, the fair market value of the
property received in exchange shall be considered as the
consideration.
xxx xxx xxx
However, if the buyer is engaged in trade or business, whether a
corporation or otherwise, these rules shall apply:
(i) If the sale is a sale of property on the installment plan (that is,
payments in the year of sale do not exceed 25% of the selling
price), the tax shall be deducted and withheld by the buyer on
every installment.
(ii) If, on the other hand, the sale is on a "cash basis" or is a
"deferred-payment sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price), the
buyer shall withhold the tax based on the gross selling price or
fair market value of the property, whichever is higher, on the first
Exempt
installment.
In any case, no Certificate Authorizing Registration (CAR) shall
be issued to the buyer unless the [CWT] due on the sale, transfer
or exchange of real property other than capital asset has been
1.5%
fully paid. (Underlined amendments in the original)
3.0% 2.58.2 of RR 2-98 implementing Section 58(E) of RA
Section
8424 provides that any sale, barter or exchange subject to the
CWT will not be recorded by the Registry of Deeds until the CIR
has certified that such transfers and conveyances have been
reported and the taxes thereof have been duly paid:7
Sec. 2.58.2. Registration with the Register of Deeds. – Deeds of
conveyances of land or land and building/improvement thereon
arising from sales, barters, or exchanges subject to the creditable
expanded withholding tax shall not be recorded by the Register of
Deeds unless the [CIR] or his duly authorized representative has
certified that such transfers and conveyances have been reported
and the expanded withholding tax, inclusive of the documentary
stamp tax, due thereon have been fully paid xxxx.
On February 11, 2003, RR No. 7-20038 was promulgated,
providing for the guidelines in determining whether a particular
real property is a capital or an ordinary asset for purposes of
imposing the MCIT, among others. The pertinent portions thereof
state:
Section 4. Applicable taxes on sale, exchange or other disposition
of real property. - Gains/Income derived from sale, exchange, or
other disposition of real properties shall, unless otherwise
exempt, be subject to applicable taxes imposed under the Code,
depending on whether the subject properties are classified as
capital assets or ordinary assets;
a. In the case of individual citizen (including estates and trusts),
resident aliens, and non-resident aliens engaged in trade or
business in the Philippines;
xxx xxx xxx
(ii) The sale of real property located in the Philippines, classified
as ordinary assets, shall be subject to the [CWT] (expanded)
under Sec. 2.57..2(J) of [RR 2-98], as amended, based on the
gross selling price or current fair market value as determined in
accordance with Section 6(E) of the Code, whichever is higher,
and consequently, to the ordinary income tax imposed under Sec.
24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based
on net taxable income.
xxx xxx xxx
c. In the case of domestic corporations. –
xxx xxx xxx
(ii) The sale of land and/or building classified as ordinary asset
and other real property (other than land and/or building treated as
capital asset), regardless of the classification thereof, all of which
are located in the Philippines, shall be subject to the [CWT]
(expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and
consequently, to the ordinary income tax under Sec. 27(A) of the
Code. In lieu of the ordinary income tax, however, domestic
corporations may become subject to the [MCIT] under Sec. 27(E)
of the Code, whichever is applicable.
xxx xxx xxx
We shall now tackle the issues raised.
Existence of a Justiciable Controversy
Courts will not assume jurisdiction over a constitutional question
unless the following requisites are satisfied: (1) there must be an
actual case calling for the exercise of judicial review; (2) the
question before the court must be ripe for adjudication; (3) the
person challenging the validity of the act must have standing to
do so; (4) the question of constitutionality must have been raised
at the earliest opportunity and (5) the issue of constitutionality
must be the very lis mota of the case.9
Respondents aver that the first three requisites are absent in this
case. According to them, there is no actual case calling for the
exercise of judicial power and it is not yet ripe for adjudication
because
[petitioner] did not allege that CREBA, as a corporate entity, or
any of its members, has been assessed by the BIR for the
payment of [MCIT] or [CWT] on sales of real property. Neither did
petitioner allege that its members have shut down their
businesses as a result of the payment of the MCIT or CWT.
Petitioner has raised concerns in mere abstract and hypothetical
form without any actual, specific and concrete instances cited that
the assailed law and revenue regulations have actually and
adversely affected it. Lacking empirical data on which to base any
conclusion, any discussion on the constitutionality of the MCIT or
CWT on sales of real property is essentially an academic
exercise.
Perceived or alleged hardship to taxpayers alone is not an
adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory
opinion that does not really settle legal issues.10
An actual case or controversy involves a conflict of legal rights or
an assertion of opposite legal claims which is susceptible of
judicial resolution as distinguished from a hypothetical or abstract
difference or dispute.11 On the other hand, a question is
considered ripe for adjudication when the act being challenged
has a direct adverse effect on the individual challenging it.12
Contrary to respondents’ assertion, we do not have to wait until
petitioner’s members have shut down their operations as a result
of the MCIT or CWT. The assailed provisions are already being
implemented. As we stated in Didipio Earth-Savers’ Multi-
Purpose Association, Incorporated (DESAMA) v. Gozun:13
By the mere enactment of the questioned law or the approval of
the challenged act, the dispute is said to have ripened into a
judicial controversy even without any other overt act. Indeed,
even a singular violation of the Constitution and/or the law is
enough to awaken judicial duty.14
If the assailed provisions are indeed unconstitutional, there is no
better time than the present to settle such question once and for
all.
Respondents next argue that petitioner has no legal standing to
sue:
Petitioner is an association of some of the real estate developers
and builders in the Philippines. Petitioners did not allege that [it]
itself is in the real estate business. It did not allege any material
interest or any wrong that it may suffer from the enforcement of
[the assailed provisions].15
Legal standing or locus standi is a party’s personal and
substantial interest in a case such that it has sustained or will
sustain direct injury as a result of the governmental act being
challenged.16 In Holy Spirit Homeowners Association, Inc. v.
Defensor,17 we held that the association had legal standing
because its members stood to be injured by the enforcement of
the assailed provisions:
Petitioner association has the legal standing to institute the
instant petition xxx. There is no dispute that the individual
members of petitioner association are residents of the NGC. As
such they are covered and stand to be either benefited or injured
by the enforcement of the IRR, particularly as regards the
selection process of beneficiaries and lot allocation to qualified
beneficiaries. Thus, petitioner association may assail those
provisions in the IRR which it believes to be unfavorable to the
rights of its members. xxx Certainly, petitioner and its members
have sustained direct injury arising from the enforcement of the
IRR in that they have been disqualified and eliminated from the
selection process.18
In any event, this Court has the discretion to take cognizance of a
suit which does not satisfy the requirements of an actual case,
ripeness or legal standing when paramount public interest is
involved.19 The questioned MCIT and CWT affect not only
petitioners but practically all domestic corporate taxpayers in our
country. The transcendental importance of the issues raised and
their overreaching significance to society make it proper for us to
take cognizance of this petition.20
Concept and Rationale of the MCIT
The MCIT on domestic corporations is a new concept introduced
by RA 8424 to the Philippine taxation system. It came about as a
result of the perceived inadequacy of the self-assessment system
in capturing the true income of corporations.21 It was devised as a
relatively simple and effective revenue-raising instrument
compared to the normal income tax which is more difficult to
control and enforce. It is a means to ensure that everyone will
make some minimum contribution to the support of the public
sector. The congressional deliberations on this are illuminating:
Senator Enrile. Mr. President, we are not unmindful of the
practice of certain corporations of reporting constantly a loss in
their operations to avoid the payment of taxes, and thus avoid
sharing in the cost of government. In this regard, the Tax Reform
Act introduces for the first time a new concept called the [MCIT]
so as to minimize tax evasion, tax avoidance, tax manipulation in
the country and for administrative convenience. … This will go a
long way in ensuring that corporations will pay their just share in
supporting our public life and our economic advancement.22
Domestic corporations owe their corporate existence and their
privilege to do business to the government. They also benefit
from the efforts of the government to improve the financial market
and to ensure a favorable business climate. It is therefore fair for
the government to require them to make a reasonable
contribution to the public expenses.
Congress intended to put a stop to the practice of corporations
which, while having large turn-overs, report minimal or negative
net income resulting in minimal or zero income taxes year in and
year out, through under-declaration of income or over-deduction
of expenses otherwise called tax shelters.23
Mr. Javier (E.) … [This] is what the Finance Dept. is trying to
remedy, that is why they have proposed the [MCIT]. Because
from experience too, you have corporations which have been
losing year in and year out and paid no tax. So, if the corporation
has been losing for the past five years to ten years, then that
corporation has no business to be in business. It is dead. Why
continue if you are losing year in and year out? So, we have this
provision to avoid this type of tax shelters, Your Honor.24
The primary purpose of any legitimate business is to earn a profit.
Continued and repeated losses after operations of a corporation
or consistent reports of minimal net income render its financial
statements and its tax payments suspect. For sure, certain tax
avoidance schemes resorted to by corporations are allowed in
our jurisdiction. The MCIT serves to put a cap on such tax
shelters. As a tax on gross income, it prevents tax evasion and
minimizes tax avoidance schemes achieved through
sophisticated and artful manipulations of deductions and other
stratagems. Since the tax base was broader, the tax rate was
lowered.
To further emphasize the corrective nature of the MCIT, the
following safeguards were incorporated into the law:
First, recognizing the birth pangs of businesses and the reality of
the need to recoup initial major capital expenditures, the
imposition of the MCIT commences only on the fourth taxable
year immediately following the year in which the corporation
commenced its operations.25 This grace period allows a new
business to stabilize first and make its ventures viable before it is
subjected to the MCIT.26
Second, the law allows the carrying forward of any excess of the
MCIT paid over the normal income tax which shall be credited
against the normal income tax for the three immediately
succeeding years.27
Third, since certain businesses may be incurring genuine
repeated losses, the law authorizes the Secretary of Finance to
suspend the imposition of MCIT if a corporation suffers losses
due to prolonged labor dispute, force majeure and legitimate
business reverses.28
Even before the legislature introduced the MCIT to the Philippine
taxation system, several other countries already had their own
system of minimum corporate income taxation. Our lawmakers
noted that most developing countries, particularly Latin American
and Asian countries, have the same form of safeguards as we do.
As pointed out during the committee hearings:
[Mr. Medalla:] Note that most developing countries where you
have of course quite a bit of room for underdeclaration of gross
receipts have this same form of safeguards.
In the case of Thailand, half a percent (0.5%), there’s a minimum
of income tax of half a percent (0.5%) of gross assessable
income. In Korea a 25% of taxable income before deductions and
exemptions. Of course the different countries have different basis
for that minimum income tax.
The other thing you’ll notice is the preponderance of Latin
American countries that employed this method. Okay, those are
additional Latin American countries.29
At present, the United States of America, Mexico, Argentina,
Tunisia, Panama and Hungary have their own versions of the
MCIT.30
MCIT Is Not Violative of Due Process
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is
unconstitutional because it is highly oppressive, arbitrary and
confiscatory which amounts to deprivation of property without due
process of law. It explains that gross income as defined under
said provision only considers the cost of goods sold and other
direct expenses; other major expenditures, such as administrative
and interest expenses which are equally necessary to produce
gross income, were not taken into account.31 Thus, pegging the
tax base of the MCIT to a corporation’s gross income is
tantamount to a confiscation of capital because gross income,
unlike net income, is not "realized gain."32
We disagree.
Taxes are the lifeblood of the government. Without taxes, the
government can neither exist nor endure. The exercise of taxing
power derives its source from the very existence of the State
whose social contract with its citizens obliges it to promote public
interest and the common good.33
Taxation is an inherent attribute of sovereignty.34 It is a power that
is purely legislative.35 Essentially, this means that in the
legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and
situs (place) of taxation.36 It has the authority to prescribe a
certain tax at a specific rate for a particular public purpose on
persons or things within its jurisdiction. In other words, the
legislature wields the power to define what tax shall be imposed,
why it should be imposed, how much tax shall be imposed,
against whom (or what) it shall be imposed and where it shall be
imposed.
As a general rule, the power to tax is plenary and unlimited in its
range, acknowledging in its very nature no limits, so that the
principal check against its abuse is to be found only in the
responsibility of the legislature (which imposes the tax) to its
constituency who are to pay it.37 Nevertheless, it is circumscribed
by constitutional limitations. At the same time, like any other
statute, tax legislation carries a presumption of constitutionality.
The constitutional safeguard of due process is embodied in the
fiat "[no] person shall be deprived of life, liberty or property
without due process of law." In Sison, Jr. v. Ancheta, et al.,38 we
held that the due process clause may properly be invoked to
invalidate, in appropriate cases, a revenue measure39 when it
amounts to a confiscation of property.40 But in the same case, we
also explained that we will not strike down a revenue measure as
unconstitutional (for being violative of the due process clause) on
the mere allegation of arbitrariness by the taxpayer.41 There must
be a factual foundation to such an unconstitutional taint.42 This
merely adheres to the authoritative doctrine that, where the due
process clause is invoked, considering that it is not a fixed rule
but rather a broad standard, there is a need for proof of such
persuasive character.43
Petitioner is correct in saying that income is distinct from
capital.44 Income means all the wealth which flows into the
taxpayer other than a mere return on capital. Capital is a fund or
property existing at one distinct point in time while income
denotes a flow of wealth during a definite period of time.45 Income
is gain derived and severed from capital.46 For income to be
taxable, the following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty from
taxation.47
Certainly, an income tax is arbitrary and confiscatory if it taxes
capital because capital is not income. In other words, it is income,
not capital, which is subject to income tax. However, the MCIT is
not a tax on capital.
The MCIT is imposed on gross income which is arrived at by
deducting the capital spent by a corporation in the sale of its
goods, i.e., the cost of goods48 and other direct expenses from
gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is
imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low. The MCIT merely
approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and
uses as the base the corporation’s gross income.
Besides, there is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate.49
Statutes taxing the gross "receipts," "earnings," or "income" of
particular corporations are found in many jurisdictions. Tax
thereon is generally held to be within the power of a state to
impose; or constitutional, unless it interferes with interstate
commerce or violates the requirement as to uniformity of
taxation.50
The United States has a similar alternative minimum tax (AMT)
system which is generally characterized by a lower tax rate but a
broader tax base.51 Since our income tax laws are of American
origin, interpretations by American courts of our parallel tax laws
have persuasive effect on the interpretation of these
laws.52 Although our MCIT is not exactly the same as the AMT,
the policy behind them and the procedure of their implementation
are comparable. On the question of the AMT’s constitutionality,
the United States Court of Appeals for the Ninth Circuit stated
in Okin v. Commissioner:53
In enacting the minimum tax, Congress attempted to remedy
general taxpayer distrust of the system growing from large
numbers of taxpayers with large incomes who were yet paying no
taxes.
xxx xxx xxx
We thus join a number of other courts in upholding the
constitutionality of the [AMT]. xxx [It] is a rational means of
obtaining a broad-based tax, and therefore is constitutional.54
The U.S. Court declared that the congressional intent to ensure
that corporate taxpayers would contribute a minimum amount of
taxes was a legitimate governmental end to which the AMT bore
a reasonable relation.55
American courts have also emphasized that Congress has the
power to condition, limit or deny deductions from gross income in
order to arrive at the net that it chooses to tax.56 This is because
deductions are a matter of legislative grace.57
Absent any other valid objection, the assignment of gross income,
instead of net income, as the tax base of the MCIT, taken with the
reduction of the tax rate from 32% to 2%, is not constitutionally
objectionable.
Moreover, petitioner does not cite any actual, specific and
concrete negative experiences of its members nor does it present
empirical data to show that the implementation of the MCIT
resulted in the confiscation of their property.
In sum, petitioner failed to support, by any factual or legal basis,
its allegation that the MCIT is arbitrary and confiscatory. The
Court cannot strike down a law as unconstitutional simply
because of its yokes.58 Taxation is necessarily burdensome
because, by its nature, it adversely affects property rights.59 The
party alleging the law’s unconstitutionality has the burden to
demonstrate the supposed violations in understandable terms.60
RR 9-98 Merely Clarifies Section 27(E) of RA 8424
Petitioner alleges that RR 9-98 is a deprivation of property without
due process of law because the MCIT is being imposed and
collected even when there is actually a loss, or a zero or negative
taxable income:
Sec. 2.27(E) [MCIT] on Domestic Corporations. —
(1) Imposition of the Tax. — xxx The MCIT shall be imposed
whenever such corporation has zero or negative taxable
income or whenever the amount of [MCIT] is greater than the
normal income tax due from such corporation. (Emphasis
supplied)
RR 9-98, in declaring that MCIT should be imposed whenever
such corporation has zero or negative taxable income, merely
defines the coverage of Section 27(E). This means that even if a
corporation incurs a net loss in its business operations or reports
zero income after deducting its expenses, it is still subject to an
MCIT of 2% of its gross income. This is consistent with the law
which imposes the MCIT on gross income notwithstanding the
amount of the net income. But the law also states that the MCIT
is to be paid only if it is greater than the normal net income.
Obviously, it may well be the case that the MCIT would be less
than the net income of the corporation which posts a zero or
negative taxable income.
We now proceed to the issues involving the CWT.
The withholding tax system is a procedure through which taxes
(including income taxes) are collected.61 Under Section 57 of RA
8424, the types of income subject to withholding tax are divided
into three categories: (a) withholding of final tax on certain
incomes; (b) withholding of creditable tax at source and (c) tax-
free covenant bonds. Petitioner is concerned with the second
category (CWT) and maintains that the revenue regulations on
the collection of CWT on sale of real estate categorized as
ordinary assets are unconstitutional.
Petitioner, after enumerating the distinctions between capital and
ordinary assets under RA 8424, contends that Sections 2.57.2(J)
and 2.58.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-
2003 were promulgated "with grave abuse of discretion
amounting to lack of jurisdiction" and "patently in contravention of
law"62 because they ignore such distinctions. Petitioner’s
conclusion is based on the following premises: (a) the revenue
regulations use gross selling price (GSP) or fair market value
(FMV) of the real estate as basis for determining the income tax
for the sale of real estate classified as ordinary assets and (b)
they mandate the collection of income tax on a per transaction
basis, i.e., upon consummation of the sale via the CWT, contrary
to RA 8424 which calls for the payment of the net income at the
end of the taxable period.63
Petitioner theorizes that since RA 8424 treats capital assets and
ordinary assets differently, respondents cannot disregard the
distinctions set by the legislators as regards the tax base, modes
of collection and payment of taxes on income from the sale of
capital and ordinary assets.
Petitioner’s arguments have no merit.
Authority of the Secretary of Finance to Order the Collection
of CWT on Sales of Real Property Considered as Ordinary
Assets
The Secretary of Finance is granted, under Section 244 of RA
8424, the authority to promulgate the necessary rules and
regulations for the effective enforcement of the provisions of the
law. Such authority is subject to the limitation that the rules and
regulations must not override, but must remain consistent and in
harmony with, the law they seek to apply and implement.64 It is
well-settled that an administrative agency cannot amend an act of
Congress.65
We have long recognized that the method of withholding tax at
source is a procedure of collecting income tax which is
sanctioned by our tax laws.66 The withholding tax system was
devised for three primary reasons: first, to provide the taxpayer a
convenient manner to meet his probable income tax liability;
second, to ensure the collection of income tax which can
otherwise be lost or substantially reduced through failure to file
the corresponding returns and third, to improve the government’s
cash flow.67 This results in administrative savings, prompt and
efficient collection of taxes, prevention of delinquencies and
reduction of governmental effort to collect taxes through more
complicated means and remedies.68
Respondent Secretary has the authority to require the withholding
of a tax on items of income payable to any person, national or
juridical, residing in the Philippines. Such authority is derived from
Section 57(B) of RA 8424 which provides:
SEC. 57. Withholding of Tax at Source. –
xxx xxx xxx
(B) Withholding of Creditable Tax at Source. The [Secretary] may,
upon the recommendation of the [CIR], require the withholding of
a tax on the items of income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation/persons
as provided for by law, at the rate of not less than one percent
(1%) but not more than thirty-two percent (32%) thereof, which
shall be credited against the income tax liability of the taxpayer
for the taxable year.
The questioned provisions of RR 2-98, as amended, are well
within the authority given by Section 57(B) to the Secretary, i.e.,
the graduated rate of 1.5%-5% is between the 1%-32% range;
the withholding tax is imposed on the income payable and the tax
is creditable against the income tax liability of the taxpayer for the
taxable year.
Effect of RRs on the Tax Base for the Income Tax of
Individuals or Corporations Engaged in the Real Estate
Business
Petitioner maintains that RR 2-98, as amended, arbitrarily shifted
the tax base of a real estate business’ income tax from net
income to GSP or FMV of the property sold.
Petitioner is wrong.
The taxes withheld are in the nature of advance tax payments by
a taxpayer in order to extinguish its possible tax
obligation. 69 They are installments on the annual tax which may
be due at the end of the taxable year.70
Under RR 2-98, the tax base of the income tax from the sale of
real property classified as ordinary assets remains to be the
entity’s net income imposed under Section 24 (resident
individuals) or Section 27 (domestic corporations) in relation to
Section 31 of RA 8424, i.e. gross income less allowable
deductions. The CWT is to be deducted from the net income tax
payable by the taxpayer at the end of the taxable
year.71 Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-2003 reiterate
that the tax base for the sale of real property classified as
ordinary assets remains to be the net taxable income:
Section 4. – Applicable taxes on sale, exchange or other
disposition of real property. - Gains/Income derived from sale,
exchange, or other disposition of real properties shall unless
otherwise exempt, be subject to applicable taxes imposed under
the Code, depending on whether the subject properties are
classified as capital assets or ordinary assets;
xxx xxx xxx
a. In the case of individual citizens (including estates and trusts),
resident aliens, and non-resident aliens engaged in trade or
business in the Philippines;
xxx xxx xxx
(ii) The sale of real property located in the Philippines, classified
as ordinary assets, shall be subject to the [CWT] (expanded)
under Sec. 2.57.2(j) of [RR 2-98], as amended, based on the
[GSP] or current [FMV] as determined in accordance with Section
6(E) of the Code, whichever is higher, and consequently,
to the ordinary income tax imposed under Sec. 24(A)(1)(c) or
25(A)(1) of the Code, as the case may be, based on net
taxable income.
xxx xxx xxx
c. In the case of domestic corporations.
The sale of land and/or building classified as ordinary asset and
other real property (other than land and/or building treated as
capital asset), regardless of the classification thereof, all of which
are located in the Philippines, shall be subject to the [CWT]
(expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and
consequently, to the ordinary income tax under Sec. 27(A) of
the Code. In lieu of the ordinary income tax, however, domestic
corporations may become subject to the [MCIT] under Sec. 27(E)
of the same Code, whichever is applicable. (Emphasis supplied)
Accordingly, at the end of the year, the taxpayer/seller shall file its
income tax return and credit the taxes withheld (by the
withholding agent/buyer) against its tax due. If the tax due is
greater than the tax withheld, then the taxpayer shall pay the
difference. If, on the other hand, the tax due is less than the tax
withheld, the taxpayer will be entitled to a refund or tax credit.
Undoubtedly, the taxpayer is taxed on its net income.
The use of the GSP/FMV as basis to determine the withholding
taxes is evidently for purposes of practicality and convenience.
Obviously, the withholding agent/buyer who is obligated to
withhold the tax does not know, nor is he privy to, how much the
taxpayer/seller will have as its net income at the end of the
taxable year. Instead, said withholding agent’s knowledge and
privity are limited only to the particular transaction in which he is a
party. In such a case, his basis can only be the GSP or FMV as
these are the only factors reasonably known or knowable by him
in connection with the performance of his duties as a withholding
agent.
No Blurring of Distinctions Between Ordinary Assets and
Capital Assets
RR 2-98 imposes a graduated CWT on income based on the
GSP or FMV of the real property categorized as ordinary assets.
On the other hand, Section 27(D)(5) of RA 8424 imposes a final
tax and flat rate of 6% on the gain presumed to be realized from
the sale of a capital asset based on its GSP or FMV. This final tax
is also withheld at source.72
The differences between the two forms of withholding tax, i.e.,
creditable and final, show that ordinary assets are not treated in
the same manner as capital assets. Final withholding tax (FWT)
and CWT are distinguished as follows:
FWT
a) The amount of income tax withheld by a) Taxes withheld on certain
the withholding agent is constituted as a payments are intended to equal o
full and final payment of the income tax least approximate the tax due of t
due from the payee on the said income. payee on said income.
b)The liability for payment of the tax rests b) Payee of income is required to
primarily on the payor as a withholding the income and/or pay the differe
agent. between the tax withheld and the
on the income. The payee also ha
right to ask for a refund if the tax
is more than the tax due.
c) The payee is not required to file an c) The income recipient is still req
income tax return for the particular file an income tax return, as presc
income.73 Sec. 51 and Sec. 52 of the NIRC,
amended.74
As previously stated, FWT is imposed on the sale of capital
assets. On the other hand, CWT is imposed on the sale of
ordinary assets. The inherent and substantial differences
between FWT and CWT disprove petitioner’s contention that
ordinary assets are being lumped together with, and treated
similarly as, capital assets in contravention of the pertinent
provisions of RA 8424.
Petitioner insists that the levy, collection and payment of CWT at
the time of transaction are contrary to the provisions of RA 8424
CWT on the manner and time of filing of the return, payment and
assessment of income tax involving ordinary assets.75
The fact that the tax is withheld at source does not automatically
meanincome
that it is treated exactly the same way as capital gains. As
aforementioned, the mechanics of the FWT are distinct from
those of the CWT. The withholding agent/buyer’s act of collecting
the tax at the time of the transaction by withholding the tax due
from the income payable is the essence of the withholding tax
method of tax collection.
No Rule that Only Passive
Incomes Can Be Subject to CWT
Petitioner submits that only passive income can be subjected to
withholding tax, whether final or creditable. According to
petitioner, the whole of Section 57 governs the withholding of
income tax on passive income. The enumeration in Section 57(A)
refers to passive income being subjected to FWT. It follows that
Section 57(B) on CWT should also be limited to passive income:
SEC. 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. —
Subject to rules and regulations, the [Secretary] may
promulgate, upon the recommendation of the [CIR],
requiring the filing of income tax return by certain income
payees, the tax imposed or prescribed by Sections
24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3),
25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3),
27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b),
28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4),
28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this
Code on specified items of income shall be withheld by
payor-corporation and/or person and paid in the same
manner and subject to the same conditions as provided in
Section 58 of this Code.
(B) Withholding of Creditable Tax at Source. — The
[Secretary] may, upon the recommendation of the [CIR],
require the withholding of a tax on the items of income
payable to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as provided
for by law, at the rate of not less than one percent (1%)
but not more than thirty-two percent (32%) thereof, which
shall be credited against the income tax liability of the
taxpayer for the taxable year. (Emphasis supplied)
This line of reasoning is non sequitur.
Section 57(A) expressly states that final tax can be imposed on
certain kinds of income and enumerates these as passive
income. The BIR defines passive income by stating what it is not:
…if the income is generated in the active pursuit and
performance of the corporation’s primary purposes, the same is
not passive income…76
It is income generated by the taxpayer’s assets. These assets
can be in the form of real properties that return rental income,
shares of stock in a corporation that earn dividends or interest
income received from savings.
On the other hand, Section 57(B) provides that the Secretary can
require a CWT on "income payable to natural or juridical persons,
residing in the Philippines." There is no requirement that this
income be passive income. If that were the intent of Congress, it
could have easily said so.
Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to
FWT while Section 57(B) pertains to CWT. The former covers the
kinds of passive income enumerated therein and the latter
encompasses any income other than those listed in 57(A). Since
the law itself makes distinctions, it is wrong to regard 57(A) and
57(B) in the same way.
To repeat, the assailed provisions of RR 2-98, as amended, do
not modify or deviate from the text of Section 57(B). RR 2-98
merely implements the law by specifying what income is subject
to CWT. It has been held that, where a statute does not require
any particular procedure to be followed by an administrative
agency, the agency may adopt any reasonable method to carry
out its functions.77 Similarly, considering that the law uses the
general term "income," the Secretary and CIR may specify the
kinds of income the rules will apply to based on what is feasible.
In addition, administrative rules and regulations ordinarily deserve
to be given weight and respect by the courts78 in view of the rule-
making authority given to those who formulate them and their
specific expertise in their respective fields.
No Deprivation of Property Without Due Process
Petitioner avers that the imposition of CWT on GSP/FMV of real
estate classified as ordinary assets deprives its members of their
property without due process of law because, in their line of
business, gain is never assured by mere receipt of the selling
price. As a result, the government is collecting tax from net
income not yet gained or earned.
Again, it is stressed that the CWT is creditable against the tax
due from the seller of the property at the end of the taxable year.
The seller will be able to claim a tax refund if its net income is
less than the taxes withheld. Nothing is taken that is not due so
there is no confiscation of property repugnant to the constitutional
guarantee of due process. More importantly, the due process
requirement applies to the power to tax.79 The CWT does not
impose new taxes nor does it increase taxes.80 It relates entirely
to the method and time of payment.
Petitioner protests that the refund remedy does not make the
CWT less burdensome because taxpayers have to wait years and
may even resort to litigation before they are granted a
refund.81 This argument is misleading. The practical problems
encountered in claiming a tax refund do not affect the
constitutionality and validity of the CWT as a method of collecting
the tax.
1av vphi1
Petitioner complains that the amount withheld would have
otherwise been used by the enterprise to pay labor wages,
materials, cost of money and other expenses which can then
save the entity from having to obtain loans entailing considerable
interest expense. Petitioner also lists the expenses and pitfalls of
the trade which add to the burden of the realty industry: huge
investments and borrowings; long gestation period; sudden and
unpredictable interest rate surges; continually spiraling
development/construction costs; heavy taxes and prohibitive "up-
front" regulatory fees from at least 20 government agencies.82
Petitioner’s lamentations will not support its attack on the
constitutionality of the CWT. Petitioner’s complaints are
essentially matters of policy best addressed to the executive and
legislative branches of the government. Besides, the CWT is
applied only on the amounts actually received or receivable by
the real estate entity. Sales on installment are taxed on a per-
installment basis.83 Petitioner’s desire to utilize for its operational
and capital expenses money earmarked for the payment of taxes
may be a practical business option but it is not a fundamental
right which can be demanded from the court or from the
government.
No Violation of Equal Protection
Petitioner claims that the revenue regulations are violative of the
equal protection clause because the CWT is being levied only on
real estate enterprises. Specifically, petitioner points out that
manufacturing enterprises are not similarly imposed a CWT on
their sales, even if their manner of doing business is not much
different from that of a real estate enterprise. Like a
manufacturing concern, a real estate business is involved in a
continuous process of production and it incurs costs and
expenditures on a regular basis. The only difference is that
"goods" produced by the real estate business are house and lot
units.84
Again, we disagree.
The equal protection clause under the Constitution means that
"no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances."85 Stated
differently, all persons belonging to the same class shall be taxed
alike. It follows that the guaranty of the equal protection of the
laws is not violated by legislation based on a reasonable
classification. Classification, to be valid, must (1) rest on
substantial distinctions; (2) be germane to the purpose of the law;
(3) not be limited to existing conditions only and (4) apply equally
to all members of the same class.86
The taxing power has the authority to make reasonable
classifications for purposes of taxation.87 Inequalities which result
from a singling out of one particular class for taxation, or
exemption, infringe no constitutional limitation.88 The real estate
industry is, by itself, a class and can be validly treated differently
from other business enterprises.
Petitioner, in insisting that its industry should be treated similarly
as manufacturing enterprises, fails to realize that what
distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the
number of transactions involved. The income from the sale of a
real property is bigger and its frequency of transaction limited,
making it less cumbersome for the parties to comply with the
withholding tax scheme.
On the other hand, each manufacturing enterprise may have tens
of thousands of transactions with several thousand customers
every month involving both minimal and substantial amounts. To
require the customers of manufacturing enterprises, at present, to
withhold the taxes on each of their transactions with their tens or
hundreds of suppliers may result in an inefficient and
unmanageable system of taxation and may well defeat the
purpose of the withholding tax system.
Petitioner counters that there are other businesses wherein
expensive items are also sold infrequently, e.g. heavy equipment,
jewelry, furniture, appliance and other capital goods yet these are
not similarly subjected to the CWT.89 As already discussed, the
Secretary may adopt any reasonable method to carry out its
functions.90Under Section 57(B), it may choose what to subject to
CWT.
A reading of Section 2.57.2 (M) of RR 2-98 will also show that
petitioner’s argument is not accurate. The sales of manufacturers
who have clients within the top 5,000 corporations, as specified
by the BIR, are also subject to CWT for their transactions with
said 5,000 corporations.91
Section 2.58.2 of RR No. 2-98 Merely Implements Section 58
of RA 8424
Lastly, petitioner assails Section 2.58.2 of RR 2-98, which
provides that the Registry of Deeds should not effect the
regisration of any document transferring real property unless a
certification is issued by the CIR that the withholding tax has been
paid. Petitioner proffers hardly any reason to strike down this rule
except to rely on its contention that the CWT is unconstitutional.
We have ruled that it is not. Furthermore, this provision uses
almost exactly the same wording as Section 58(E) of RA 8424
and is unquestionably in accordance with it:
Sec. 58. Returns and Payment of Taxes Withheld at Source. –
(E) Registration with Register of Deeds. - No registration of any
document transferring real property shall be effected by the
Register of Deeds unless the [CIR] or his duly authorized
representative has certified that such transfer has been
reported, and the capital gains or [CWT], if any, has been
paid: xxxx any violation of this provision by the Register of Deeds
shall be subject to the penalties imposed under Section 269 of
this Code. (Emphasis supplied)
Conclusion

The renowned genius Albert Einstein was once quoted as saying

"[the] hardest thing in the world to understand is the income
tax."92 When a party questions the constitutionality of an income
tax measure, it has to contend not only with Einstein’s
observation but also with the vast and well-established
jurisprudence in support of the plenary powers of Congress to
impose taxes. Petitioner has miserably failed to discharge its
burden of convincing the Court that the imposition of MCIT and
CWT is unconstitutional.

WHEREFORE, the petition is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
G.R. Nos. 167274-75 July 21, 2008 Brand Tax Rate
COMMISSIONER OF INTERNAL REVENUE, Petitioner, Champion M 100 P1.00
vs.
FORTUNE TOBACCO CORPORATION, Respondent. Salem M 100 P1.00
Salem M King P1.00
DECISION
Camel F King P1.00
TINGA, J.:
Camel Lights Box 20’s P1.00
Simple and uncomplicated is the central issue involved, yet Camel Filters Box 20’s P1.00
whopping is the amount at stake in this case.
Winston F Kings P5.00
After much wrangling in the Court of Tax Appeals (CTA) and the
Court of Appeals, Fortune Tobacco Corporation (Fortune Winston Lights P5.00
Tobacco) was granted a tax refund or tax credit representing
specific taxes erroneously collected from its tobacco products. Immediately prior to January 1, 1997, the above-mentioned
The tax refund is being re-claimed by the Commissioner of cigarette brands were subject to ad valorem tax pursuant to then
Internal Revenue (Commissioner) in this petition. Section 142 of the Tax Code of 1977, as amended. However, on
January 1, 1997, R.A. No. 8240 took effect whereby a shift from
The following undisputed facts, summarized by the Court of the ad valorem tax (AVT) system to the specific tax system was
Appeals, are quoted in the assailed Decision1 dated 28 made and subjecting the aforesaid cigarette brands to specific tax
September 2004: under [S]ection 142 thereof, now renumbered as Sec. 145 of the
Tax Code of 1997, pertinent provisions of which are quoted thus:
CAG.R. SP No. 80675
Section 145. Cigars and Cigarettes-
xxxx
(A) Cigars. – There shall be levied, assessed and
Petitioner is a domestic corporation duly organized and existing
2 collected on cigars a tax of One peso (P1.00) per cigar.
under and by virtue of the laws of the Republic of the Philippines,
with principal address at Fortune Avenue, Parang, Marikina City. "(B) Cigarettes packed by hand. – There shall be levied,
assessesed and collected on cigarettes packed by hand a
Petitioner is the manufacturer/producer of, among others, the tax of Forty centavos (P0.40) per pack.
following cigarette brands, with tax rate classification based on
net retail price prescribed by Annex "D" to R.A. No. 4280, to wit: (C) Cigarettes packed by machine. – There shall be
levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:
 (1) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Twelve
(P12.00) per pack;
(2) If the net retail price (excluding the excise tax
and the value added tax) exceeds Six pesos and
Fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be Eight
Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six Pesos and fifty centavos
(P6.50) per pack, the tax shall be Five pesos
(P5.00) per pack;
(4) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso
(P1.00) per pack;
"Variants of existing brands of cigarettes which are introduced in
the domestic market after the effectivity of R.A. No. 8240 shall be
taxed under the highest classification of any variant of that brand.
The excise tax from any brand of cigarettes within the next three
(3) years from the effectivity of R.A. No. 8240 shall not be lower
than the tax, which is due from each brand on October 1, 1996.
Provided, however, that in cases were (sic) the excise tax rate
imposed in paragraphs (1), (2), (3) and (4) hereinabove will result
in an increase in excise tax of more than seventy percent (70%),
for a brand of cigarette, the increase shall take effect in two
tranches: fifty percent (50%) of the increase shall be effective in
1997 and one hundred percent (100%) of the increase shall be
effective in 1998.
Duly registered or existing brands of cigarettes or new brands
thereof packed by machine shall only be packed in twenties.
The rates of excise tax on cigars and cigarettes under
paragraphs (1), (2) (3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000. (Emphasis supplied)
New brands shall be classified according to their current net retail
price.
For the above purpose, ‘net retail price’ shall mean the price at
which the cigarette is sold on retail in twenty (20) major
supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable
excise tax and value-added tax. For brands which are marketed
only outside Metro [M]anila, the ‘net retail price’ shall mean the
price at which the cigarette is sold in five (5) major supermarkets
in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its
average retail price as of October 1, 1996, as set forth in Annex
"D," shall remain in force until revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is
prefixed and/or suffixed to the root name of the brand and/or a
different brand which carries the same logo or design of the
existing brand.
To implement the provisions for a twelve percent (12%) increase
of excise tax on, among others, cigars and cigarettes packed by
machines by January 1, 2000, the Secretary of Finance, upon
recommendation of the respondent Commissioner of Internal
Revenue, issued Revenue Regulations No. 17-99, dated
December 16, 1999, which provides the increase on the
applicable tax rates on cigar and cigarettes as follows:
 NEW not be lower than the excise tax that is actually being paid
PRESENT prior to January 1, 2000."
SPECIFIC
SPECIFIC
TAX RATE
SECTION ARTICLES TAX RATE For the period covering January 1-31, 2000, petitioner allegedly
EFFECTIVE
PRIOR TO paid specific taxes on all brands manufactured and removed in
JAN. 1,
JAN. 1, 2000 the total amounts of P585,705,250.00.
2000
145 (A) P1.00/cigar P1.12/cigar On February 7, 2000, petitioner filed with respondent’s Appellate
(B)Cigarettes Division a claim for refund or tax credit of its purportedly overpaid
packed by excise tax for the month of January 2000 in the amount
machine of P35,651,410.00

(1) Net retail P12.00/pack P13.44/ On June 21, 2001, petitioner filed with respondent’s Legal Service
price (excluding pack a letter dated June 20, 2001 reiterating all the claims for
VAT and excise) refund/tax credit of its overpaid excise taxes filed on various
exceeds P10.00 dates, including the present claim for the month of January 2000
per pack in the amount of P35,651,410.00.
(2) P8.00/pack P8.96/pack
Exceeds P10.00 As there was no action on the part of the respondent, petitioner
per pack filed the instant petition for review with this Court on December
11, 2001, in order to comply with the two-year period for filing a
(3) Net retail P5.00/pack P5.60/pack claim for refund.
price (excluding
VAT and excise) In his answer filed on January 16, 2002, respondent raised the
is P5.00 following Special and Affirmative Defenses;
to P6.50 per
pack
4. Petitioner’s alleged claim for refund is subject to
(4) Net Retail P1.00/pack P1.12/pack administrative routinary investigation/examination by the
Price (excluding Bureau;
VAT and excise)
is below P5.00 5. The amount of P35,651,410 being claimed by petitioner
per pack as alleged overpaid excise tax for the month of January
2000 was not properly documented.
Revenue Regulations No. 17-99 likewise provides in the last
paragraph of Section 1 thereof, "(t)hat the new specific tax rate 6. In an action for tax refund, the burden of proof is on the
for any existing brand of cigars, cigarettes packed by taxpayer to establish its right to refund, and failure to
machine, distilled spirits, wines and fermented liquor shall sustain the burden is fatal to its claim for refund/credit.
 7. Petitioner must show that it has complied with the
provisions of Section 204(C) in relation [to] Section 229 of
the Tax Code on the prescriptive period for claiming tax
refund/credit;
8. Claims for refund are construed strictly against the
claimant for the same partake of tax exemption from
taxation; and
9. The last paragraph of Section 1 of Revenue
Regulation[s] [No.]17-99 is a valid implementing
regulation which has the force and effect of law."
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said
case questions the CTA’s December 4, 2003 decision in CTA
Case No. 6612 granting respondent’s3 claim for refund of the
amount of P355,385,920.00 representing erroneously or illegally
collected specific taxes covering the period January 1, 2002 to
December 31, 2002, as well as its March 17, 2004 Resolution
denying a reconsideration thereof.
xxxx
In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the
Court of Tax Appeals reduced the issues to be resolved into two
as stipulated by the parties, to wit: (1) Whether or not the last
paragraph of Section 1 of Revenue Regulation[s] [No.] 17-99 is in
accordance with the pertinent provisions of Republic Act [No.]
8240, now incorporated in Section 145 of the Tax Code of 1997;
and (2) Whether or not petitioner is entitled to a refund
of P35,651,410.00 as alleged overpaid excise tax for the month of
January 2000.
xxxx
Hence, the respondent CTA in its assailed October 21, 2002
[twin] Decisions[s] disposed in CTA Case Nos. 6365 & 6383:
WHEREFORE, in view of the foregoing, the court finds the instant
petition meritorious and in accordance with law. Accordingly,
respondent is hereby ORDERED to REFUND to petitioner the
amount of P35,651.410.00 representing erroneously paid excise
taxes for the period January 1 to January 31, 2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted
decision. In [twin] resolution[s] [both] dated July 15, 2003, the Tax
Court, in an apparent change of heart, granted the petitioner’s
consolidated motions for reconsideration, thereby denying the
respondent’s claim for refund.
However, on consolidated motions for reconsideration filed by the
respondent in CTA Case Nos. 6363 and 6383, the July 15, 2002
resolution was set aside, and the Tax Court ruled, this time with a
semblance of finality, that the respondent is entitled to the refund
claimed. Hence, in a resolution dated November 4, 2003, the tax
court reinstated its December 21, 2002 Decision and disposed as
follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383
are hereby REINSTATED. Accordingly, respondent is hereby
ORDERED to REFUND petitioner the total amount
of P680,387,025.00 representing erroneously paid excise taxes
for the period January 1, 2000 to January 31, 2000 and February
1, 2000 to December 31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals
rendered decision in CTA Case No. 6612 granting the prayer for
the refund of the amount of P355,385,920.00 representing
overpaid excise tax for the period covering January 1, 2002 to
December 31, 2002. The tax court disposed of the case as
follows:
IN VIEW OF THE FOREGOING, the Petition for Review is
GRANTED. Accordingly, respondent is hereby ORDERED to
REFUND to petitioner the amount of P355,385,920.00
representing overpaid excise tax for the period covering January
1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same
was denied in a Resolution dated March 17, 2004.4 (Emphasis
supplied) (Citations omitted)
The Commissioner appealed the aforesaid decisions of the CTA.
The petition questioning the grant of refund in the amount
of P680,387,025.00 was docketed as CA-G.R. SP No. 80675,
whereas that assailing the grant of refund in the amount
of P355,385,920.00 was docketed as CA-G.R. SP No. 83165.
The petitions were consolidated and eventually denied by the
Court of Appeals. The appellate court also denied reconsideration
in its Resolution5 dated 1 March 2005.
In its Memorandum6 22 dated November 2006, filed on behalf of
the Commissioner, the Office of the Solicitor General (OSG)
seeks to convince the Court that the literal interpretation given by
the CTA and the Court of Appeals of Section 145 of the Tax Code
of 1997 (Tax Code) would lead to a lower tax imposable on 1
January 2000 than that imposable during the transition period.
Instead of an increase of 12% in the tax rate effective on 1
January 2000 as allegedly mandated by the Tax Code, the
appellate court’s ruling would result in a significant decrease in
the tax rate by as much as 66%.
The OSG argues that Section 145 of the Tax Code admits of
several interpretations, such as:
1. That by January 1, 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax
system and the tax imposed under the ad valorem tax
system plus the 12% increase imposed by par. 5, Sec.
145 of the Tax Code;
2. The increase of 12% starting on January 1, 2000 does
not apply to the brands of cigarettes listed under Annex
"D" referred to in par. 8, Sec. 145 of the Tax Code;
3. The 12% increment shall be computed based on the
net retail price as indicated in par. C, sub-par. (1)-(4),
Sec. 145 of the Tax Code even if the resulting figure will
be lower than the amount already being paid at the end of
the transition period. This is the interpretation followed by
both the CTA and the Court of Appeals.7
This being so, the interpretation which will give life to the
legislative intent to raise revenue should govern, the OSG
stresses.
Finally, the OSG asserts that a tax refund is in the nature of a tax
exemption and must, therefore, be construed strictly against the
taxpayer, such as Fortune Tobacco.
In its Memorandum8 dated 10 November 2006, Fortune Tobacco
argues that the CTA and the Court of Appeals merely followed
the letter of the law when they ruled that the basis for the 12%
increase in the tax rate should be the net retail price of the
cigarettes in the market as outlined in paragraph C, sub
paragraphs (1)-(4), Section 145 of the Tax Code. The
Commissioner allegedly has gone beyond his delegated rule-
making power when he promulgated, enforced and implemented
Revenue Regulation No. 17-99, which effectively created a
separate classification for cigarettes based on the excise tax
"actually being paid prior to January 1, 2000."9
It should be mentioned at the outset that there is no dispute
between the fact of payment of the taxes sought to be refunded
and the receipt thereof by the Bureau of Internal Revenue (BIR).
There is also no question about the mathematical accuracy of
Fortune Tobacco’s claim since the documentary evidence in
support of the refund has not been controverted by the revenue
agency. Likewise, the claims have been made and the actions
have been filed within the two (2)-year prescriptive period
provided under Section 229 of the Tax Code.
The power to tax is inherent in the State, such power being
inherently legislative, based on the principle that taxes are a grant
of the people who are taxed, and the grant must be made by the
immediate representatives of the people; and where the people
have laid the power, there it must remain and be exercised.10
This entire controversy revolves around the interplay between
Section 145 of the Tax Code and Revenue Regulation 17-99. The
main issue is an inquiry into whether the revenue regulation has
exceeded the allowable limits of legislative delegation.
For ease of reference, Section 145 of the Tax Code is again
reproduced in full as follows:
Section 145. Cigars and Cigarettes-
(A) Cigars.—There shall be levied, assessed and
collected on cigars a tax of One peso (P1.00) per cigar.
(B). Cigarettes packed by hand.—There shall be levied,
assessed and collected on cigarettes packed by hand a
tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine.—There shall be
levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Twelve pesos
(P12.00) per pack;
(2) If the net retail price (excluding the excise tax
and the value added tax) exceeds Six pesos and
Fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be Eight
Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six Pesos and fifty centavos
(P6.50) per pack, the tax shall be Five pesos
(P5.00) per pack;
(4) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso
(P1.00) per pack;
Variants of existing brands of cigarettes which are introduced in
the domestic market after the effectivity of R.A. No. 8240 shall be
taxed under the highest classification of any variant of that brand.
The excise tax from any brand of cigarettes within the next three
(3) years from the effectivity of R.A. No. 8240 shall not be lower
than the tax, which is due from each brand on October 1, 1996.
Provided, however, That in cases where the excise tax rates
imposed in paragraphs (1), (2), (3) and (4) hereinabove will result
in an increase in excise tax of more than seventy percent (70%),
for a brand of cigarette, the increase shall take effect in two
tranches: fifty percent (50%) of the increase shall be effective in NEW
1997 and one hundred percent (100%) of the increase shall be PRESENT
SPECIFIC
effective in 1998. SPECIFIC
DESCRIPTION TAX RATE
SECTION TAX RATES
OF ARTICLES Effective
Duly registered or existing brands of cigarettes or new brands PRIOR TO
Jan.. 1,
thereof packed by machine shall only be packed in twenties. JAN. 1, 2000
2000

The rates of excise tax on cigars and cigarettes under 145 (A) P1.00/cigar P1.12/cigar
paragraphs (1), (2) (3) and (4) hereof, shall be increased by (B)Cigarettes
twelve percent (12%) on January 1, 2000. packed by
Machine
New brands shall be classified according to their current net retail
price. (1) Net Retail P12.00/pack P13.44/pack
Price (excluding
VAT and Excise)
For the above purpose, ‘net retail price’ shall mean the price at
exceeds P10.00
which the cigarette is sold on retail in twenty (20) major
per pack
supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable (2) Net Retail P8.00/pack P8.96/pack
excise tax and value-added tax. For brands which are marketed Price (excluding
only outside Metro Manila, the ‘net retail price’ shall mean the VAT and Excise)
price at which the cigarette is sold in five (5) major intended to is P6.51 up
cover the applicable excise tax and the value-added tax. to P10.00 per
pack
The classification of each brand of cigarettes based on its
average retail price as of October 1, 1996, as set forth in Annex (3) Net Retail P5.00/pack P5.60/pack
"D," shall remain in force until revised by Congress. Price (excluding
VAT and excise)
is P5.00
Variant of a brand’ shall refer to a brand on which a modifier is
to P6.50 per
prefixed and/or suffixed to the root name of the brand and/or a
pack
different brand which carries the same logo or design of the
existing brand.11 (Emphasis supplied) (4) Net Retail P1.00/pack P1.12/pack
Price (excluding
Revenue Regulation 17-99, which was issued pursuant to the VAT and excise)
unquestioned authority of the Secretary of Finance to promulgate is below P5.00
rules and regulations for the effective implementation of the Tax per pack)
Code,12 interprets the above-quoted provision and reflects the
12% increase in excise taxes in the following manner:
This table reflects Section 145 of the Tax Code insofar as it
mandates a 12% increase effective on 1 January 2000 based on
the taxes indicated under paragraph C, sub-paragraph (1)-(4).
However, Revenue Regulation No. 17-99 went further and added
that "[T]he new specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000."13
Parenthetically, Section 145 states that during the transition
period, i.e., within the next three (3) years from the effectivity of
the Tax Code, the excise tax from any brand of cigarettes shall
not be lower than the tax due from each brand on 1 October
1996. This qualification, however, is conspicuously absent as
regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1
January 2000. Clearly and unmistakably, Section 145 mandates a
new rate of excise tax for cigarettes packed by machine due to
the 12% increase effective on 1 January 2000 without regard to
whether the revenue collection starting from this period may turn
out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase
becomes effective shall not be lower than the tax actually paid
prior to 1 January 2000, Revenue Regulation No. 17-99
effectively imposes a tax which is the higher amount between
the ad valorem tax being paid at the end of the three (3)-year
transition period and the specific tax under paragraph C, sub-
paragraph (1)-(4), as increased by 12%—a situation not
supported by the plain wording of Section 145 of the Tax Code.
This is not the first time that national revenue officials had
ventured in the area of unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes,14 respondent was
not informed in writing of the law and the facts on which the
assessment of estate taxes was made pursuant to Section 228 of
the 1997 Tax Code, as amended by Republic Act (R.A.) No.
8424. She was merely notified of the findings by the
Commissioner, who had simply relied upon the old provisions of
the law and Revenue Regulation No. 12-85 which was based on
the old provision of the law. The Court held that in case of
discrepancy between the law as amended and the implementing
regulation based on the old law, the former necessarily prevails.
The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure.15
In Commissioner of Internal Revenue v. Central Luzon Drug
Corporation,16 the tax authorities gave the term "tax credit" in
Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation
muddled up the intent of Congress to grant a mere discount
privilege and not a sales discount. The Court, striking down the
revenue regulation, held that an administrative agency issuing
regulations may not enlarge, alter or restrict the provisions of the
law it administers, and it cannot engraft additional requirements
not contemplated by the legislature. The Court emphasized that
tax administrators are not allowed to expand or contract the
legislative mandate and that the "plain meaning rule" or verba
legis in statutory construction should be applied such that where
the words of a statute are clear, plain and free from ambiguity, it
must be given its literal meaning and applied without attempted
interpretation.
As we have previously declared, rule-making power must be
confined to details for regulating the mode or proceedings in
order to carry into effect the law as it has been enacted, and it
cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute.
Administrative regulations must always be in harmony with the
provisions of the law because any resulting discrepancy between
the two will always be resolved in favor of the basic law.17
In Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc.,18 Commissioner Jose Ong issued Revenue
Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5%
lending investor’s tax under the 1977 Tax Code, as amended by
Executive Order (E.O.) No. 273, on pawnshops. The
Commissioner anchored the imposition on the definition of
lending investors provided in the 1977 Tax Code which,
according to him, was broad enough to include pawnshop
operators. However, the Court noted that pawnshops and lending
investors were subjected to different tax treatments under the Tax
Code prior to its amendment by the executive order; that
Congress never intended to treat pawnshops in the same way as
lending investors; and that the particularly involved section of the
Tax Code explicitly subjected lending investors and dealers in
securities only to percentage tax. And so the Court affirmed the
invalidity of the challenged circulars, stressing that "administrative
issuances must not override, supplant or modify the law, but must
remain consistent with the law they intend to carry out."19
In Philippine Bank of Communications v. Commissioner of
Internal Revenue,20 the then acting Commissioner issued RMC 7-
85, changing the prescriptive period of two years to ten years for
claims of excess quarterly income tax payments, thereby creating
a clear inconsistency with the provision of Section 230 of the
1977 Tax Code. The Court nullified the circular, ruling that the
BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress. The Court held:
It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more specific
and less general interpretations of tax laws) which are issued
from time to time by the Commissioner of Internal Revenue. It is
widely accepted that the interpretation placed upon a statute by
the executive officers, whose duty is to enforce it, is entitled to
great respect by the courts. Nevertheless, such interpretation is
not conclusive and will be ignored if judicially found to be
erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in
harmony with, the law they seek to apply and implement.21
In Commissioner of Internal Revenue v. CA, et al.,22 the central
issue was the validity of RMO 4-87 which had construed the
amnesty coverage under E.O. No. 41 (1986) to include only
assessments issued by the BIR after the promulgation of the
executive order on 22 August 1986 and not assessments made to
that date. Resolving the issue in the negative, the Court held:
x x x all such issuances must not override, but must remain
consistent and in harmony with, the law they seek to apply and
implement. Administrative rules and regulations are intended to
carry out, neither to supplant nor to modify, the law.23
xxx
If, as the Commissioner argues, Executive Order No. 41 had not
been intended to include 1981-1985 tax liabilities already
assessed (administratively) prior to 22 August 1986, the law could
have simply so provided in its exclusionary clauses. It did not.
The conclusion is unavoidable, and it is that the executive order
has been designed to be in the nature of a general grant of tax
amnesty subject only to the cases specifically excepted by it.24
In the case at bar, the OSG’s argument that by 1 January 2000,
the excise tax on cigarettes should be the higher tax imposed
under the specific tax system and the tax imposed under the ad
valorem tax system plus the 12% increase imposed by paragraph
5, Section 145 of the Tax Code, is an unsuccessful attempt to
justify what is clearly an impermissible incursion into the limits of
administrative legislation. Such an interpretation is not supported
by the clear language of the law and is obviously only meant to
validate the OSG’s thesis that Section 145 of the Tax Code is
ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January
2000 does not apply to the brands of cigarettes listed under
Annex "D" is likewise unmeritorious, absurd even. Paragraph 8,
Section 145 of the Tax Code simply states that, "[T]he
classification of each brand of cigarettes based on its average net
retail price as of October 1, 1996, as set forth in Annex ‘D’, shall
remain in force until revised by Congress." This declaration
certainly does not lend itself to the interpretation given to it by the
OSG. As plainly worded, the average net retail prices of the listed
brands under Annex "D," which classify cigarettes according to
their net retail price into low, medium or high, obviously remain
the bases for the application of the increase in excise tax rates
effective on 1 January 2000.
The foregoing leads us to conclude that Revenue Regulation No.
17-99 is indeed indefensibly flawed. The Commissioner cannot
seek refuge in his claim that the purpose behind the passage of
the Tax Code is to generate additional revenues for the
government. Revenue generation has undoubtedly been a major
consideration in the passage of the Tax Code. However, as borne
by the legislative record,25 the shift from the ad valorem system to
the specific tax system is likewise meant to promote fair
competition among the players in the industries concerned, to
ensure an equitable distribution of the tax burden and to simplify
tax administration by classifying cigarettes, among others, into
high, medium and low-priced based on their net retail price and
accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely
gratuitous because, as we have held, the meaning of the law is
clear on its face and free from the ambiguities that the
Commissioner imputes. We simply cannot disregard the letter of
the law on the pretext of pursuing its spirit.26
Finally, the Commissioner’s contention that a tax refund partakes
the nature of a tax exemption does not apply to the tax refund to
which Fortune Tobacco is entitled. There is parity between tax
refund and tax exemption only when the former is based either on
a tax exemption statute or a tax refund statute. Obviously, that is
not the situation here. Quite the contrary, Fortune Tobaccos claim
for refund is premised on its erroneous payment of the tax, or
better still the government’s exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims
an exemption from the burden of taxation must justify his claim by
showing that the legislature intended to exempt him by words too
plain to be mistaken.27 The rule is that tax exemptions must be
strictly construed such that the exemption will not be held to be
conferred unless the terms under which it is granted clearly and
distinctly show that such was the intention.28
A claim for tax refund may be based on statutes granting tax
exemption or tax refund. In such case, the rule of strict
interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, a legislative grace,
which cannot be allowed unless granted in the most explicit and
categorical language. The taxpayer must show that the legislature
intended to exempt him from the tax by words too plain to be
mistaken.29
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a person’s unjust
enrichment at the expense of another.30The dynamic of erroneous
payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in
law.31
The Government is not exempt from the application of solutio
indebiti.32 Indeed, the taxpayer expects fair dealing from the
Government, and the latter has the duty to refund without any
unreasonable delay what it has erroneously collected.33 If the
State expects its taxpayers to observe fairness and honesty in
paying their taxes, it must hold itself against the same standard in
refunding excess (or erroneous) payments of such taxes. It
should not unjustly enrich itself at the expense of
taxpayers.34 And so, given its essence, a claim for tax refund
necessitates only preponderance of evidence for its approbation
like in any other ordinary civil case.
Under the Tax Code itself, apparently in recognition of the
pervasive quasi-contract principle, a claim for tax refund may be
based on the following: (a) erroneously or illegally assessed or
collected internal revenue taxes; (b) penalties imposed without
authority; and (c) any sum alleged to have been excessive or in
any manner wrongfully collected.35

What is controlling in this case is the well-settled doctrine of strict

interpretation in the imposition of taxes, not the similar doctrine as
applied to tax exemptions. The rule in the interpretation of tax
laws is that a statute will not be construed as imposing a tax
unless it does so clearly, expressly, and unambiguously. A tax
cannot be imposed without clear and express words for that
purpose. Accordingly, the general rule of requiring adherence to
the letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be extended
by implication. In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes are to be
construed most strongly against the government and in favor of
the subjects or citizens because burdens are not to be imposed
nor presumed to be imposed beyond what statutes expressly and
clearly import.36 As burdens, taxes should not be unduly exacted
nor assumed beyond the plain meaning of the tax laws.37

WHEREFORE, the petition is DENIED. The Decision of the Court

of Appeals in CA G.R. SP No. 80675, dated 28 September 2004,
and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE
& JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES,
CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C.
JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY
OF FINANCE and JOSE U. ONG, in his capacity as
COMMISSIONER OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in
G.R. 109446.
VITUG, J.:
These two consolidated special civil actions for prohibition
challenge, in G.R. No. 109289, the constitutionality of Republic
Act No. 7496, also commonly known as the Simplified Net
Income Taxation Scheme ("SNIT"), amending certain provisions
of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations
No. 2-93, promulgated by public respondents pursuant to said
law.
Petitioners claim to be taxpayers adversely affected by the
continued implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic
Act
No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) — Every bill passed by
the Congress shall embrace only one subject
which shall be expressed in the title thereof.
Article VI, Section 28(1) — The rule of taxation
shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
Article III, Section 1 — No person shall be
deprived of . . . property without due process of
law, nor shall any person be denied the equal
protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue
Regulations No. 2-93, argue that public respondents have
exceeded their rule-making authority in applying SNIT to general
professional partnerships.
The Solicitor General espouses the position taken by public
respondents.
The Court has given due course to both petitions. The parties, in
compliance with the Court's directive, have filed their respective
memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314,
progenitor of Republic Act No. 7496, is a misnomer or, at least,
deficient for being merely entitled, "Simplified Net Income
Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession"
(Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income
Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their
Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of
the National Internal Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents. —
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-
Employed and/or Professionals Engaged in the
Practice of Profession. — A tax is hereby imposed
upon the taxable net income as determined in
Section 27 received during each taxable year
from all sources, other than income covered by
paragraphs (b), (c), (d) and (e) of this section by
every individual whether
a citizen of the Philippines or an alien residing in
the Philippines who is self-employed or practices
his profession herein, determined in accordance
with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. — In
computing taxable income subject to tax under
Sections 21(a), 24(a), (b) and (c); and 25 (a)(1),
there shall be allowed as deductions the items
specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing
taxable income subject to tax under Section 21 (f)
in the case of individuals engaged in business or
practice of profession, only the following direct
costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in
activities in the course of or pursuant to the
business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and
water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and
accredited relief organizations for the
rehabilitation of calamity stricken areas declared
by the President; and
 (g) Interest paid or accrued within a taxable year
on loans contracted from accredited financial
institutions which must be proven to have been
incurred in connection with the conduct of a
taxpayer's profession, trade or business.
For individuals whose cost of goods sold and
direct costs are difficult to determine, a maximum
of forty per cent (40%) of their gross receipts shall
be allowed as deductions to answer for business
or professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult
to accept petitioner's view that the amendatory law should be
considered as having now adopted a gross income, instead of as
having still retained the net income, taxation scheme. The
allowance for deductible items, it is true, may have significantly
been reduced by the questioned law in comparison with that
which has prevailed prior to the amendment; limiting, however,
allowable deductions from gross income is neither discordant
with, nor opposed to, the net income tax concept. The fact of the
matter is still that various deductions, which are by no means
inconsequential, continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned
so as (a) to prevent log-rolling legislation intended to unite the
members of the legislature who favor any one of unrelated
subjects in support of the whole act, (b) to avoid surprises or even
fraud upon the legislature, and (c) to fairly apprise the people,
through such publications of its proceedings as are usually made,
of the subjects of legislation. 1 The above objectives of the
fundamental law appear to us to have been sufficiently met. Anything
else would be to require a virtual compendium of the law which could
not have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the
constitutional requirement that taxation "shall be uniform and
equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. The contention
clearly forgets, however, that such a system of income taxation
has long been the prevailing rule even prior to Republic Act No.
7496.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371).
Uniformity does not forfend classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification applies
equally well to all those belonging to the same class (Pepsi Cola
vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA
52).
What may instead be perceived to be apparent from the
amendatory law is the legislative intent to increasingly shift the
income tax system towards the schedular approach 2 in the
income taxation of individual taxpayers and to maintain, by and
large, the present global treatment 3 on taxable corporations. We
certainly do not view this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the
law, illustrating, in the process, what he believes to be an
imbalance between the tax liabilities of those covered by the
amendatory law and those who are not. With the legislature
primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which,
by constitutional fiat, rightly rest on legislative judgment. Of
course, where a tax measure becomes so unconscionable and
unjust as to amount to confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power
to tax cannot override constitutional proscriptions. This stage, Republic Act No. 7496, also quoted by the Honorable Hernando
however, has not been demonstrated to have been reached B. Perez, minority floor leader of the House of Representatives, in
within any appreciable distance in this controversy before us. the latter's privilege speech by way of commenting on the
questioned implementing regulation of public respondents
Having arrived at this conclusion, the plea of petitioner to have following the effectivity of the law, thusly:
the law declared unconstitutional for being violative of due
process must perforce fail. The due process clause may correctly MR. ALBANO, Now Mr. Speaker, I
be invoked only when there is a clear contravention of inherent or would like to get the correct
constitutional limitations in the exercise of the tax power. No such impression of this bill. Do we
transgression is so evident to us. speak here of individuals who are
earning, I mean, who earn through
G.R. No. 109446 business enterprises and
therefore, should file an income
The several propositions advanced by petitioners revolve around tax return?
the question of whether or not public respondents have exceeded
their authority in promulgating Section 6, Revenue Regulations MR. PEREZ. That is correct, Mr.
No. 2-93, to carry out Republic Act No. 7496. Speaker. This does not apply to
corporations. It applies only to
The questioned regulation reads: individuals.

Sec. 6. General Professional Partnership — The (See Deliberations on H. B. No. 34314, August 6,
general professional partnership (GPP) and the 1991, 6:15 P.M.; Emphasis ours).
partners comprising the GPP are covered by R. A.
No. 7496. Thus, in determining the net profit of Other deliberations support this
the partnership, only the direct costs mentioned in position, to wit:
said law are to be deducted from partnership
income. Also, the expenses paid or incurred by MR. ABAYA . . . Now, Mr.
partners in their individual capacities in the Speaker, did I hear the Gentleman
practice of their profession which are not from Batangas say that this bill is
reimbursed or paid by the partnership but are not intended to increase collections as
considered as direct cost, are not deductible from far as individuals are concerned
his gross income. and to make collection of taxes
equitable?
The real objection of petitioners is focused on the administrative
interpretation of public respondents that would apply SNIT to MR. PEREZ. That is correct, Mr.
partners in general professional partnerships. Petitioners cite the Speaker.
pertinent deliberations in Congress during its enactment of
 (Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator
Mamintal Tamano on the Senate version of the
SNITS, it is categorically stated, thus:
This bill, Mr. President, is not
applicable to business
corporations or to partnerships; it
is only with respect to individuals
and professionals. (Emphasis
ours)
The Court, first of all, should like to correct the apparent
misconception that general professional partnerships are subject
to the payment of income tax or that there is a difference in the
tax treatment between individuals engaged in business or in the
practice of their respective professions and partners in general
professional partnerships. The fact of the matter is that a general
professional partnership, unlike an ordinary business partnership
(which is treated as a corporation for income tax purposes and so
subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional
partnership, which is tax exempt, but on the partners themselves
in their individual capacity computed on their distributive shares of
partnership profits. Section 23 of the Tax Code, which has not
been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general
professional partnerships. — (a) Persons
exercising a common profession in general
partnership shall be liable for income tax only in
their individual capacity, and the share in the net
profits of the general professional partnership to
which any taxable partner would be entitled
whether distributed or otherwise, shall be returned
for taxation and the tax paid in accordance with
the provisions of this Title.
(b) In determining his distributive share in the net
income of the partnership, each partner —
(1) Shall take into account
separately his distributive share of
the partnership's income, gain,
loss, deduction, or credit to the
extent provided by the pertinent
provisions of this Code, and
(2) Shall be deemed to have
elected the itemized deductions,
unless he declares his distributive
share of the gross income
undiminished by his share of the
deductions.
There is, then and now, no distinction in income tax liability
between a person who practices his profession alone or
individually and one who does it through partnership (whether
registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income tax
and the final tax on passive investment income, under the present
income tax system all individuals deriving income from any
source whatsoever are treated in almost invariably the same
manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if
perhaps we were to consider Republic Act No. 7496 as an
entirely independent, not merely as an amendatory, piece of
legislation. The view can easily become myopic, however, when
the law is understood, as it should be, as only forming part of, and
subject to, the whole income tax concept and precepts long
obtaining under the National Internal Revenue Code. To
elaborate a little, the phrase "income taxpayers" is an all
embracing term used in the Tax Code, and it practically covers all
persons who derive taxable income. The law, in levying the tax,
adopts the most comprehensive tax situs of nationality and
residence of the taxpayer (that renders citizens, regardless of
residence, and resident aliens subject to income tax liability on
their income from all sources) and of the generally accepted and
internationally recognized income taxable base (that can subject
non-resident aliens and foreign corporations to income tax on
their income from Philippine sources). In the process, the Code
classifies taxpayers into four main groups, namely: (1)
Individuals, (2) Corporations, (3) Estates under Judicial
Settlement and (4) Irrevocable Trusts (irrevocable both as
to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships" or
"exempt partnerships." Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded
to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of,
and so legally contemplated as, corporations. Except for few
variances, such as in the application of the "constructive receipt
rule" in the derivation of income, the income tax approach is alike
to both juridical persons. Obviously, SNIT is not intended or
envisioned, as so correctly pointed out in the discussions in
Congress during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and partnerships which are
independently subject to the payment of income tax.
generation of income by, and the ultimate distribution of such income
to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but
merely confirmed, the above standing rule as now so modified by
Republic Act
No. 7496 on basically the extent of allowable deductions
applicable to all individual income taxpayers on their non-
compensation income. There is no evident intention of the law,
either before or after the amendatory legislation, to place in an
unequal footing or in significant variance the income tax treatment
of professionals who practice their respective professions
individually and of those who do it through a general professional
partnership.
WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
SO ORDERED.

"Exempt partnerships," upon the other hand, are not similarly

identified as corporations nor even considered as independent
taxable entities for income tax purposes. A
general professional partnership is such an example. 4Here, the
partners themselves, not the partnership (although it is still obligated
to file an income tax return [mainly for administration and data]), are
liable for the payment of income tax in their individual capacity
computed on their respective and distributive shares of profits. In the
determination of the tax liability, a partner does so as an individual,
and there is no choice on the matter. In fine, under the Tax Code on
income taxation, the general professional partnership is deemed to
be no more than a mere mechanism or a flow-through entity in the
G.R. No. 148512 June 26, 2006 shall be deducted by the establishment from its gross sales for
value-added tax and other percentage tax purposes, respondent
COMMISSIONER OF INTERNAL REVENUE, Petitioner, deducted the total amount of P219,778 from its gross income for
vs. the taxable year 1995. For said taxable period, respondent
CENTRAL LUZON DRUG CORPORATION, Respondent. reported a net loss of P20,963 in its corporate income tax return.
As a consequence, respondent did not pay income tax for 1995.
DECISION
Subsequently, on December 27, 1996, claiming that according to
AZCUNA, J.: Sec. 4(a) of R.A. No. 7432, the amount of P219,778 should be
applied as a tax credit, respondent filed a claim for refund in the
amount of P150,193, thus:
This is a petition for review under Rule 45 of the Rules of Court
seeking the nullification of the Decision, dated May 31, 2001, of
the Court of Appeals (CA) in CA-G.R. SP No. 60057, entitled Net Sales P 37,014,807.00
"Central Luzon Drug Corporation v. Commissioner of Internal
Revenue," granting herein respondent Central Luzon Drug Add: Cost of 20% Discount to Senior 219,778.00
Corporation’s claim for tax credit equal to the amount of the 20% Citizens
discount that it extended to senior citizens on the latter’s
purchase of medicines pursuant to Section 4(a) of Republic Act Gross Sales P 37,234,585.00
(R.A.) No. 7432, entitled "An Act to Maximize the Contribution of Less: Cost of Sales
Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for other Purposes" otherwise known as the Senior Merchandise
Citizens Act. P 1,232,740.00
Inventory, beg

The antecedents are as follows: Purchases 41,145,138.00

Merchandise 8,521,557.00 33,856,621.00
Central Luzon Drug Corporation has been a retailer of medicines Inventory, end
and other pharmaceutical products since December 19, 1994. In
1995, it opened three (3) drugstores as a franchisee under the Gross Profit P 3,377,964.00
business name and style of "Mercury Drug."
Miscellaneous Income 39,014.00
For the period January 1995 to December 1995, in conformity to
the mandate of Sec. 4(a) of R.A. No. 7432, petitioner granted a Total Income 3,416,978.00
20% discount on the sale of medicines to qualified senior citizens
amounting to P219,778. Operating Expenses 3,199,230.00

Pursuant to Revenue Regulations No. 2-941 implementing R.A.

No. 7432, which states that the discount given to senior citizens Net Income Before Tax P 217,748.00
 Income Tax (35%) 69,585.00
Less: Tax Credit
(Cost of 20% Discount to Senior 219,778.00
Citizens)
Income Tax Payable (P 150,193.00)
Income Tax Actually Paid -0-
Tax Refundable/Overpaid Income
(P 150,193.00)
Tax
As shown above, the amount of P150,193 claimed as a refund
represents the tax credit allegedly due to respondent under R.A.
No. 7432. Since the Commissioner of Internal Revenue "was not
able to decide the claim for refund on time,"2 respondent filed a
Petition for Review with the Court of Tax Appeals (CTA) on March
18, 1998.
On April 24, 2000, the CTA dismissed the petition, declaring that
even if the law treats the 20% sales discounts granted to senior
citizens as a tax credit, the same cannot apply when there is no
tax liability or the amount of the tax credit is greater than the tax
due. In the latter case, the tax credit will only be to the extent of
the tax liability.3Also, no refund can be granted as no tax was
erroneously, illegally and actually collected based on the
provisions of Section 230, now Section 229, of the Tax Code.
Furthermore, the law does not state that a refund can be claimed
by the private establishment concerned as an alternative to the
tax credit.
Thus, respondent filed with the CA a Petition for Review on
August 3, 2000.
On May 31, 2001, the CA rendered a Decision stating that
Section 229 of the Tax Code does not apply in this case. It
concluded that the 20% discount given to senior citizens which is
treated as a tax credit pursuant to Sec. 4(a) of R.A. No. 7432 is
considered just compensation and, as such, may be carried over
to the next taxable period if there is no current tax liability. In view
of this, the CA held:
WHEREFORE, the instant petition is hereby GRANTED and the
decision of the CTA dated 24 April 2000 and its resolution dated
06 July 2000 are SET ASIDE. A new one is entered granting
petitioner’s claim for tax credit in the amount of Php: 150,193.00.
No costs.
SO ORDERED.4
Hence, this petition raising the sole issue of whether the 20%
sales discount granted by respondent to qualified senior citizens
pursuant to Sec. 4(a) of R.A. No. 7432 may be claimed as a tax
credit or as a deduction from gross sales in accordance with Sec.
2(1) of Revenue Regulations No. 2-94.
Sec. 4(a) of R.A. No. 7432 provides:
Sec. 4. Privileges for the Senior citizens. – The senior citizens
shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all
establishments relative to utilization of transportations services,
hotels and similar lodging establishments, restaurants and
recreation centers and purchase of medicines anywhere in the
country: Provided, That private establishments may claim the cost
as tax credit.
The CA and the CTA correctly ruled that based on the plain
wording of the law discounts given under R.A. No. 7432 should
be treated as tax credits, not deductions from income.
It is a fundamental rule in statutory construction that the
legislative intent must be determined from the language of the
statute itself especially when the words and phrases therein are
clear and unequivocal. The statute in such a case must be taken
to mean exactly what it says.5 Its literal meaning should be
followed;6 to depart from the meaning expressed by the words is
to alter the statute.7
The above provision explicitly employed the word "tax credit."
Nothing in the provision suggests for it to mean a "deduction"
from gross sales. To construe it otherwise would be a departure
from the clear mandate of the law.
Thus, the 20% discount required by the Act to be given to senior
citizens is a tax credit, not a deduction from the gross sales of the
establishment concerned. As a corollary to this, the definition of
‘tax credit’ found in Section 2(1) of Revenue Regulations No. 2-94
is erroneous as it refers to tax credit as the amount representing
the 20% discount that "shall be deducted by the said
establishment from their gross sales for value added tax and
other percentage tax purposes." This definition is contrary to what
our lawmakers had envisioned with regard to the treatment of the
discount granted to senior citizens.
Accordingly, when the law says that the cost of the discount may
be claimed as a tax credit, it means that the amount -- when
claimed – shall be treated as a reduction from any tax
liability.8 The law cannot be amended by a mere regulation. The
administrative agencies issuing these regulations may not
enlarge, alter or restrict the provisions of the law they
administer.9 In fact, a regulation that "operates to create a rule out
of harmony with the statute is a mere nullity."10
the latter extends the tax credit benefit to the private
establishments concerned even before tax payments have been
made. The tax credit that is contemplated under the Act is a form
of just compensation, not a remedy for taxes that were
erroneously or illegally assessed and collected. In the same vein,
prior payment of any tax liability is not a precondition before a
taxable entity can benefit from the tax credit. The credit may be
availed of upon payment of the tax due, if any. Where there is no
tax liability or where a private establishment reports a net loss for
the period, the tax credit can be availed of and carried over to the
next taxable year.
It must also be stressed that unlike in Sec. 229 of the Tax Code
wherein the remedy of refund is available to the taxpayer, Sec. 4
of the law speaks only of a tax credit, not a refund.
As earlier mentioned, the tax credit benefit granted to the
establishments can be deemed as their just compensation for
private property taken by the State for public use. The privilege
enjoyed by the senior citizens does not come directly from the
State, but rather from the private establishments concerned.12
WHEREFORE, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. SP No. 60057, dated May 31, 2001,
is AFFIRMED.

Finally, for purposes of clarity, Sec. 22911 of the Tax Code does
not apply to cases that fall under Sec. 4 of R.A. No. 7432
because the former provision governs exclusively all kinds of
refund or credit of internal revenue taxes that were erroneously or
illegally imposed and collected pursuant to the Tax Code while
G.R. No. 92585 May 8, 1992 still pending resolution at the OEA level, and (b) "grave abuse of
discretion and completely without jurisdiction" 5 in declaring that
CALTEX PHILIPPINES, INC., petitioner, petitioner cannot avail of the right to offset any amount that it may be
vs. required under the law to remit to the OPSF against any amount that
THE HONORABLE COMMISSION ON AUDIT, HONORABLE it may receive by way of reimbursement therefrom are sufficient to
COMMISSIONER BARTOLOME C. FERNANDEZ and bring this petition within Rule 65 of the Rules of Court, and,
HONORABLE COMMISSIONER ALBERTO P. considering further the importance of the issues raised, the error in
the designation of the remedy pursued will, in this instance, be
CRUZ, respondents.
excused.

The issues raised revolve around the OPSF created under

Section 8 of Presidential Decree (P.D.) No. 1956, as amended by
DAVIDE, JR., J.: Executive Order (E.O.) No. 137. As amended, said Section 8
reads as follows:
This is a petition erroneously brought under Rule 44 of the Rules
of Court 1 questioning the authority of the Commission on Audit Sec. 8 . There is hereby created a Trust Account
(COA) in disallowing petitioner's claims for reimbursement from the in the books of accounts of the Ministry of Energy
Oil Price Stabilization Fund (OPSF) and seeking the reversal of said
to be designated as Oil Price Stabilization Fund
Commission's decision denying its claims for recovery of financing
(OPSF) for the purpose of minimizing frequent
charges from the Fund and reimbursement of underrecovery arising
price changes brought about by exchange rate
from sales to the National Power Corporation, Atlas Consolidated
Mining and Development Corporation (ATLAS) and Marcopper adjustments and/or changes in world market
Mining Corporation (MAR-COPPER), preventing it from exercising prices of crude oil and imported petroleum
the right to offset its remittances against its reimbursement vis-a- products. The Oil Price Stabilization Fund may be
vis the OPSF and disallowing its claims which are still pending sourced from any of the following:
resolution before the Office of Energy Affairs (OEA) and the
Department of Finance (DOF). a) Any increase in the tax
collection from ad valorem tax or
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of customs duty imposed on
the Constitutional Commissions 3 may be brought to this Court petroleum products subject to tax
on certiorari by the aggrieved party within thirty (30) days from under this Decree arising from
receipt of a copy thereof. The certiorari referred to is the special civil exchange rate adjustment, as may
action for certiorari under Rule 65 of the Rules of Court. 4 be determined by the Minister of
Finance in consultation with the
Considering, however, that the allegations that the COA acted Board of Energy;
with:
(a) total lack of jurisdiction in completely ignoring and showing b) Any increase in the tax
absolutely no respect for the findings and rulings of the collection as a result of the lifting
administrator of the fund itself and in disallowing a claim which is of tax exemptions of government
 corporations, as may be 2) To reimburse the oil companies
determined by the Minister of for possible cost under-recovery
Finance in consultation with the incurred as a result of the
Board of Energy; reduction of domestic prices of
petroleum products. The
c) Any additional amount to be magnitude of the underrecovery, if
imposed on petroleum products to any, shall be determined by the
augment the resources of the Ministry of Finance. "Cost
Fund through an appropriate underrecovery" shall include the
Order that may be issued by the following:
Board of Energy requiring
payment by persons or companies i. Reduction in oil
engaged in the business of company take as
importing, manufacturing and/or directed by the
marketing petroleum products; Board of Energy
without the
d) Any resulting peso cost corresponding
differentials in case the actual reduction in the
peso costs paid by oil companies landed cost of oil
in the importation of crude oil and inventories in the
petroleum products is less than possession of the
the peso costs computed using oil companies at
the reference foreign exchange the time of the
rate as fixed by the Board of price change;
Energy.
ii. Reduction in
The Fund herein created shall be used for the internal ad
following: valorem taxes as a
result of foregoing
1) To reimburse the oil companies government
for cost increases in crude oil and mandated price
imported petroleum products reductions;
resulting from exchange rate
adjustment and/or increase in iii. Other factors as
world market prices of crude oil; may be determined
by the Ministry of
Finance to result in
 cost
underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be
administered by the Ministry of Energy.
The material operative facts of this case, as gathered from the
pleadings of the parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines,
Inc. (CPI), hereinafter referred to as Petitioner, directing the latter
to remit to the OPSF its collection, excluding that unremitted for
the years 1986 and 1988, of the additional tax on petroleum
products authorized under the aforesaid Section 8 of P.D. No.
1956 which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending such remittance,
all of its claims for reimbursement from the OPSF shall be held in
abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner
informing it that partial verification with the OEA showed that the
grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
1986 —
P233,190,9
16.00
1987 —
335,065,65
0.00
1988 —
719,412,25
4.00;
directing it to remit the same, with interest and surcharges
thereon, within sixty (60) days from receipt of the letter; advising it
that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from
further offsetting the taxes collected against outstanding claims in
1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an
early release of its reimbursement certificates from the OPSF
covering claims with the Office of Energy Affairs since June 1987
up to March 1989, invoking in support thereof COA Circular No.
89-299 on the lifting of pre-audit of government transactions of
national government agencies and government-owned or
controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's
request for the early release of the reimbursement certificates
from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the
OPSF to facilitate COA's audit action on the reimbursement
claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989,
submitted to the COA a proposal for the payment of the
collections and the recovery of claims, since the outright payment
of the sum of P1.287 billion to the OEA as a prerequisite for the
processing of said claims against the OPSF will cause a very
serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the
following:
(1) Any procedural arrangement
acceptable to COA to facilitate
monitoring of payments and
reimbursements will be
administered by the ERB/Finance
Dept./OEA, as agencies
designated by law to
administer/regulate OPSF.
 (2) For the retroactive period,
Caltex will deliver to OEA, P1.287
billion as payment to OPSF,
similarly OEA will deliver to Caltex
the same amount in cash
reimbursement from OPSF.
(3) The COA audit will commence
immediately and will be conducted
expeditiously.
(4) The review of current claims
(1989) will be conducted
expeditiously to preclude further
accumulation of reimbursement
from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part,
handed down Decision No. 921 accepting the above-stated
proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing
years. 11 Decision No. 921 reads:
This pertains to the within separate requests of
Mr. Manuel A. Estrella, President, Petron
Corporation, and Mr. Francis Ablan, President
and Managing Director, Caltex (Philippines) Inc.,
for reconsideration of this Commission's adverse
action embodied in its letters dated February 2,
1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price Stabilization
Fund of collections made by the firms pursuant to
P.D. 1956, as amended by E.O. No. 137, S. 1987,
and the latter reiterating the same directive but
further advising the firms to desist from offsetting
collections against their claims with the notice that
"this Commission will hold in abeyance the audit
of all . . . claims for reimbursement from the
OPSF."
It appears that under letters of authority issued by
the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to offset
the amounts due to the Oil Price Stabilization
Fund against their outstanding claims from the
said Fund for the calendar years 1987 and 1988,
pending with the then Ministry of Energy, the
government entity charged with administering the
OPSF. This Commission, however, expressing
serious doubts as to the propriety of the offsetting
of all types of reimbursements from the OPSF
against all categories of remittances, advised
these oil companies that such offsetting was
bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in
support thereof clearly manifest their intent to
make arrangements for the remittance to the
Office of Energy Affairs of the amount of
collections equivalent to what has been previously
offset, provided that this Commission authorizes
the Office of Energy Affairs to prepare the
corresponding checks representing
reimbursement from the OPSF. It is alleged that
the implementation of such an arrangement,
whereby the remittance of collections due to the
OPSF and the reimbursement of claims from the
Fund shall be made within a period of not more
than one week from each other, will benefit the
Fund and not unduly jeopardize the continuing
daily cash requirements of these firms.
Upon a circumspect evaluation of the
circumstances herein obtaining, this Commission
perceives no further objectionable feature in the
proposed arrangement, provided that 15% of
 whatever amount is due from the Fund is retained included P130,420,235 representing those claims
by the Office of Energy Affairs, the same to be disallowed by OEA, details of which is (sic) shown
answerable for suspensions or disallowances, in Schedule 1 as summarized as follows:
errors or discrepancies which may be noted in the
course of audit and surcharges for late Disallowance of COA
remittances without prejudice to similar future Particulars Amount
retentions to answer for any deficiency in such
surcharges, and provided further that no offsetting Recovery of financing charges
of remittances and reimbursements for the current P162,728,475 /a
and ensuing years shall be allowed. Product sales 48,402,398 /b
Inventory losses
Pursuant to this decision, the COA, on 18 August 1989, sent the Borrow loan arrangement
following letter to Executive Director Wenceslao R. De la Paz of 14,034,786 /c
the Office of Energy Affairs: 12 Sales to Atlas/Marcopper
32,097,083 /d
Dear Atty. dela Paz: Sales to NPC 558
——————
Pursuant to the Commission on Audit Decision P257,263,300
No. 921 dated June 7, 1989, and based on our
initial verification of documents submitted to us by Disallowances of OEA
your Office in support of Caltex (Philippines), Inc. 130,420,235
offsets (sic) for the year 1986 to May 31, 1989, as ————————— ——————
well as its outstanding claims against the Oil Price Total P387,683,535
Stabilization Fund (OPSF) as of May 31, 1989, we
are pleased to inform your Office that Caltex The reasons for the disallowances are discussed
(Philippines), Inc. shall be required to remit to hereunder:
OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which were a. Recovery of Financing Charges
offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission
Review of the provisions of P.D. 1596 as
hereby authorize (sic) the Office of Energy Affairs
amended by E.O. 137 seems to indicate that
(OEA) to cause payment of P1,959,182,612 to
recovery of financing charges by oil companies is
Caltex, representing claims initially allowed in
not among the items for which the OPSF may be
audit, the details of which are presented
utilized. Therefore, it is our view that recovery of
hereunder: . . .
financing charges has no legal basis. The
mechanism for such claims is provided in DOF
As presented in the foregoing computation the Circular 1-87.
disallowances totalled P387,683,535, which
b. Product Sales –– Sales to International
Vessels/Airlines
BOE Resolution No. 87-01 dated February 7,
1987 as implemented by OEA Order No. 87-03-
095 indicating that (sic) February 7, 1987 as the
effectivity date that (sic) oil companies should pay
OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to
international vessels/airlines should not be
included as part of its domestic sales. Changing
the effectivity date of the resolution from February
7, 1987 to October 20, 1987 as covered by
subsequent ERB Resolution No. 88-12 dated
November 18, 1988 has allowed Caltex to include
in their domestic sales volumes to international
vessels/airlines and claim the corresponding
reimbursements from OPSF during the period. It
is our opinion that the effectivity of the said
resolution should be February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and
Loan (BLA) transactions including the related BLA
agreement, as they affect the claims for
reimbursements of ad valorem taxes. We
observed that oil companies immediately settle ad
valorem taxes for BLA transaction (sic). Loan
balances therefore are not tax paid inventories of
Caltex subject to reimbursements but those of the
borrower. Hence, we recommend reduction of the
claim for July, August, and November, 1987
amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I
hereby order and direct the suspension of
payment of all taxes, duties, fees, imposts and
other charges whether direct or indirect due and
payable by the copper mining companies in
distress to the national and local governments." It
is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as
effected by OEA has no legal basis.
Furthermore, we wish to emphasize that payment
to Caltex (Phil.) Inc., of the amount as herein
authorized shall be subject to availability of funds
of OPSF as of May 31, 1989 and applicable
auditing rules and regulations. With regard to the
disallowances, it is further informed that the
aggrieved party has 30 days within which to
appeal the decision of the Commission in
accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for
the Reconsideration of the decision based on the following
grounds: 13
A) COA-DISALLOWED CLAIMS ARE
AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS
ISSUED BY THE DEPARTMENT OF FINANCE
AND THE ENERGY REGULATORY BOARD
PURSUANT TO EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN
THE COURSE OF EXERCISE OF EXECUTIVE
POWER BY DEPARTMENT OF FINANCE AND
ENERGY REGULATORY BOARD ARE LEGAL
 AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY
COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE
EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a
Supplemental Omnibus Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking
no part and with Commissioner Fernandez dissenting in part,
handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to
MARCOPPER and ATLAS, while allowing the recovery of product
sales or those arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you
contend that Caltex Phil. Inc. has the .authority to
recover financing charges from the OPSF on the
basis of Department of Finance (DOF) Circular 1-
87, dated February 18, 1987, which allowed oil
companies to "recover cost of financing working
capital associated with crude oil shipments,"
and provided a schedule of reimbursement in
terms of peso per barrel. It appears that on
November 6, 1989, the DOF issued a
memorandum to the President of the Philippines
explaining the nature of these financing charges
and justifying their reimbursement as follows:
As part of your program to
promote economic recovery, . . .
oil companies (were authorized) to
refinance their imports of crude oil
and petroleum products from the
normal trade credit of 30 days up
to 360 days from date of loading . .
. Conformably . . ., the oil
companies deferred their foreign
exchange remittances for
purchases by refinancing their
import bills from the normal 30-day
payment term up to the desired
360 days. This refinancing of
importations carried additional
costs (financing charges) which
then became, due to government
mandate, an inherent part of the
cost of the purchases of our
country's oil requirement.
We beg to disagree with such contention. The
justification that financing charges increased oil
costs and the schedule of reimbursement rate in
peso per barrel (Exhibit 1) used to support alleged
increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2,
using the same formula which the DOF used in
arriving at the reimbursement rate but using
comparable percentages instead of pesos, the
ineluctable conclusion is that the oil companies
are actually gaining rather than losing from the
extension of credit because such extension
enables them to invest the collections in
marketable securities which have much higher
rates than those they incur due to the extension.
The Data we used were obtained from CPI
(CALTEX) Management and can easily be verified
from our records.
With respect to product sales or those arising
from sales to international vessels or airlines, . . .,
it is believed that export sales (product sales) are
entitled to claim refund from the OPSF.
As regard your claim for underrecovery arising
from inventory losses, . . . It is the considered
view of this Commission that the OPSF is not
liable to refund such surtax on inventory losses
because these are paid to BIR and not OPSF, in
view of which CPI (CALTEX) should seek refund
from BIR. . . .
Finally, as regards the sales to Atlas and
Marcopper, it is represented that you are entitled
to claim recovery from the OPSF pursuant to LOI
1416 issued on July 17, 1984, since these copper
mining companies did not pay CPI (CALTEX) and
OPSF imposts which were added to the selling
price.
Upon a circumspect evaluation, this Commission
believes and so holds that the CPI (CALTEX) has
no authority to claim reimbursement for this
uncollected OPSF impost because LOI 1416
dated July 17, 1984, which exempts distressed
mining companies from "all taxes, duties, import
fees and other charges" was issued when OPSF
was not yet in existence and could not have
contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF
was not created to aid distressed mining
companies but rather to help the domestic oil
industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990
the present petition wherein it imputes to the COA the
commission of the following errors: 16
I
RESPONDENT COMMISSION ERRED IN
DISALLOWING RECOVERY OF FINANCING
CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN
DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF
UNDERRECOVERY ARISING FROM SALES TO
NPC.
III
RESPONDENT COMMISSION ERRED IN
DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON SALES TO ATLAS AND
MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN
PREVENTING CPI FROM EXERCISING ITS
LEGAL RIGHT TO OFFSET ITS REMITTANCES
AGAINST ITS REIMBURSEMENT VIS-A-
VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN
DISALLOWING CPI's CLAIMS WHICH ARE
 STILL PENDING RESOLUTION BY (SIC) THE
OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the
respondents to comment on the petition within ten (10) days from
notice. 18
On 6 September 1990, respondents COA and Commissioners
Fernandez and Cruz, assisted by the Office of the Solicitor
General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May
1991 and required the parties to file their respective Memoranda
within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor
General prays that the Comment filed on 6 September 1990 be
considered as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14
August 1991.
I. Petitioner dwells lengthily on its first assigned error contending,
in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to
Executive Order No. 137, which added a second purpose, to wit:
2) To reimburse the oil companies for possible
cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if
any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the
following:
i. Reduction in oil company take
as directed by the Board of Energy
without the corresponding
reduction in the landed cost of oil
inventories in the possession of
the oil companies at the time of
the price change;
ii. Reduction in internal ad
valorem taxes as a result of
foregoing government mandated
price reductions;
iii. Other factors as may be
determined by the Ministry of
Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by
the Ministry (now Department) of Finance may include financing
charges for "in essence, financing charges constitute
unrecovered cost of acquisition of crude oil incurred by the oil
companies," as explained in the 6 November 1989 Memorandum
to the President of the Department of Finance; they "directly
translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest
income increases. The relationship is such that the presence of
underrecovery or overrecovery is directly dependent on the
amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal
and factual basis; it was filed on the basis of Department of
Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of
financing working capital associated with crude oil
shipments, the following guidelines on the
utilization of the Oil Price Stabilization Fund
pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing
charges will be implemented:

1. The OPSF foreign exchange

premium shall be reduced to a flat
rate of one (1) percent for the first
(6) months and 1/32 of one
percent per month thereafter up to
a maximum period of one year, to
be applied on crude oil' shipments
from January 1, 1987. Shipments
with outstanding financing as of
January 1, 1987 shall be charged
on the basis of the fee applicable
to the remaining period of
financing.

2. In addition, for shipments

loaded after January 1987, oil
companies shall be allowed to
recover financing charges directly
from the OPSF per barrel of crude
oil based on the following
schedule:

F
i
n
a
n
c
i
n
g

Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject
to review every sixty
days. 22
Pursuant to this circular, the Department of Finance, in its letter of
18 February 1987, advised the Office of Energy Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
This refers to the letters of the Oil Industry dated
December 4, 1986 and February 5, 1987 and
subsequent discussions held by the Price Review
committee on February 6, 1987.
On the basis of the representations made, the
Department of Finance recognizes the necessity
to reduce the foreign exchange risk premium
accruing to the Oil Price Stabilization Fund
(OPSF). Such a reduction would allow the
industry to recover partly associated financing
charges on rcrude oil imports. Accordingly, the
OPSF foreign r exchange risk fee shall be reduced
to a flat charge
e of 1% for the first six (6) months
plus 1/32% lof 1% per month thereafter up to a
maximum period of one year, effective January 1,
1987. In addition, since the prevailing company
take would still leave unrecovered financing
charges, reimbursement may be secured from the
OPSF in accordance with the provisions of the
attached Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No.
87-05-096 which contains the guidelines for the computation of
the foreign exchange risk fee and the recovery of financing
charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed
to recover financing charges
directly from the OPSF for both
crude and product shipments
loaded after January 1, 1987
based on the following rates:
 i 2. The above rates shall be
o subject to review every sixty
d days. 24

Then on 22 November 1988, R the Department of Finance issued

Circular No. 4-88 imposing efurther guidelines on the recoverability
of financing charges, to wit:i
m
Following areb the supplemental rules to
Departmentuof Finance Circular No. 1-87 dated
February 18, r 1987 which allowed the recovery of
s
financing charges directly from the Oil Price
StabilizationeFund. (OPSF):
m
e
1. The Claim for reimbursement
n
shall be on a per shipment basis.
t

R 2. The claim shall be filed with the

a Office of Energy Affairs together
t with the claim on peso cost
e differential for a particular
shipment and duly certified
( supporting documents provided for
P under Ministry of Finance No. 11-
B 85.
b
l 3. The reimbursement shall be on
. the form of reimbursement
) certificate (Annex A) to be issued
by the Office of Energy Affairs.
Less than 180 days None The said certificate may be used
180 days to 239 days 1.90 to offset against amounts payable
240 days to 229 (sic) days 4.02 to the OPSF. The oil companies
300 days to 359 days 6.16 may also redeem said certificates
360 days to more 8.28 in cash if not utilized, subject to
availability of funds. 25
The OEA disseminated this Circular to all oil companies in its
Memorandum Circular No. 88-12-017. 26
The COA can neither ignore these issuances nor formulate its
own interpretation of the laws in the light of the determination of
executive agencies. The determination by the Department of
Finance and the OEA that financing charges are recoverable from
the OPSF is entitled to great weight and consideration. 27 The
function of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the promulgation of
accounting and auditing rules for, among others, the disallowance of
irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be
inequitable. Additionally, COA's claim that petitioner is gaining,
instead of losing, from the extension of credit, is belatedly raised
and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the
respondents argue that:
1. The Constitution gives the COA discretionary
power to disapprove irregular or unnecessary
government expenditures and as the monetary
claims of petitioner are not allowed by law, the
COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the
OPSF;
3. Under the principle of ejusdem generis, the
"other factors" mentioned in the second purpose
of the OPSF pursuant to E.O. No. 137 can only
include "factors which are of the same nature or
analogous to those enumerated;"
4. In allowing reimbursement of financing charges
from OPSF, Circular No. 1-87 of the Department
of Finance violates P.D. No. 1956 and E.O. No.
137; and
5. Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise allow
reimbursement of financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view
of its primacy, We find the theory of petitioner –– that such does
not extend to the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures, or use
of government funds and properties, but only to the promulgation
of accounting and auditing rules for, among others, such
disallowance –– to be untenable in the light of the provisions of
the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution
expressly provides:
Sec. 2(l). The Commission on Audit shall have the
power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining
to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including
government-owned and controlled corporations
with original charters, and on a post-audit basis:
(a) constitutional bodies, commissions and offices
that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or
 controlled corporations and their subsidiaries; and
(d) such non-governmental entities receiving
subsidy or equity, directly or indirectly, from or
through the government, which are required by
law or the granting institution to submit to such
audit as a condition of subsidy or equity.
However, where the internal control system of the
audited agencies is inadequate, the Commission
may adopt such measures, including temporary or
special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall
keep the general accounts, of the Government
and, for such period as may be provided by law,
preserve the vouchers and other supporting
papers pertaining thereto.
(2) The Commission shall have exclusive
authority, subject to the limitations in this Article,
to define the scope of its audit and examination,
establish the techniques and methods required
therefor, and promulgate accounting and auditing
rules and regulations, including those for the
prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of
government funds and properties.
These present powers, consistent with the declared
independence of the Commission, 30 are broader and more
extensive than that conferred by the 1973 Constitution. Under the
latter, the Commission was empowered to:
Examine, audit, and settle, in accordance with law
and regulations, all accounts pertaining to the
revenues, and receipts of, and expenditures or
uses of funds and property, owned or held in trust
by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities
including government-owned or controlled
corporations, keep the general accounts of the
Government and, for such period as may
be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting
and auditing rules and regulations including those
for the prevention of irregular, unnecessary,
excessive, or extravagant expenditures or uses of
funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and
authority of the COA's precursor, the General Auditing Office,
were, unfortunately, limited; its very role was markedly passive.
Section 2 of Article XI thereofprovided:
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 or property
pertaining to or held in trust by the Government or
the provinces or municipalities thereof. He shall
keep the general accounts of the Government and
the preserve the vouchers pertaining thereto. 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. He shall also perform such other
functions as may be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary,
excessive or extravagant expenditures or uses of funds, the 1935
Constitution did not grant the Auditor General the power to issue
rules and regulations to prevent the same. His was merely to
bring that matter to the attention of the proper administrative
officer.
The ruling on this particular point, quoted by petitioner from the
cases of Guevarra vs. Gimenez 32 and Ramos vs. Aquino, 33 are no
longer controlling as the two (2) were decided in the light of the 1935
Constitution.
There can be no doubt, however, that the audit power of the
Auditor General under the 1935 Constitution and the Commission
on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and
property. Our present Constitution retains that same power and
authority, further strengthened by the definition of the COA's
general jurisdiction in Section 26 of the Government Auditing
Code of the Philippines 34 and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting and auditing
rules and regulations for the prevention of irregular, unnecessary,
excessive or extravagant expenditures or uses of funds, 36 the COA
promulgated on 29 March 1977 COA Circular No. 77-55. Since the
COA is responsible for the enforcement of the rules and regulations,
it goes without saying that failure to comply with them is a ground for
disapproving the payment of the proposed expenditure. As observed
by one of the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under
Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular,
unnecessary, excessive or extravagant"
expenditures of public funds but could only "bring
[the matter] to the attention of the proper
administrative officer," under the 1987
Constitution, as also under the 1973 Constitution,
the Commission on Audit can "promulgate
accounting and auditing rules and regulations
including those for the prevention and
disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence,
since the Commission on Audit must ultimately be
responsible for the enforcement of these rules
and regulations, the failure to comply with these
regulations can be a ground for disapproving the
payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions
conferred upon the COA a more active role and invested it with
broader and more extensive powers, they did not intend merely to
make the COA a toothless tiger, but rather envisioned a dynamic,
effective, efficient and independent watchdog of the Government.
The issue of the financing charges boils down to the validity of
Department of Finance Circular No. 1-87, Department of Finance
Circular No. 4-88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as amended by E.O.
No. 137, authorizing it to determine "other factors" which may
result in cost underrecovery and a consequent reimbursement
from the OPSF.
The Solicitor General maintains that, following the doctrine
of ejusdem generis, financing charges are not included in "cost
underrecovery" and, therefore, cannot be considered as one of
the "other factors." Section 8 of P.D. No. 1956, as amended by
E.O. No. 137, does not explicitly define what "cost underrecovery"
is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the
following:
i. Reduction in oil company takes as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time of
the price change;
 ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of the
same class or nature as the two specifically enumerated in
subparagraphs (i) and (ii). A common characteristic of both is that
they are in the nature of government mandated price reductions.
Hence, any other factor which seeks to be a part of the
enumeration, or which could qualify as a cost underrecovery,
must be of the same class or nature as those specifically
enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant
the Department of Finance broad and unrestricted authority to
determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words
follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not to be
construed in their widest extent, but are held to be as applying
only to persons or things of the same kind or class as those
specifically mentioned. 38A reading of subparagraphs (i) and (ii)
easily discloses that they do not have a common characteristic. The
first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes.
Therefore, subparagraph (iii) cannot be limited by the enumeration in
these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first
sentence of paragraph (2) of the Section which explicitly allows cost
underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.
Although petitioner's financing losses, if indeed incurred, may
constitute cost underrecovery in the sense that such were
incurred as a result of the inability to fully offset financing
expenses from yields in money market placements, they do not,
however, fall under the foregoing provision of P.D. No. 1956, as
amended, because the same did not result from the reduction of
the domestic price of petroleum products. Until paragraph (2),
Section 8 of the decree, as amended, is further amended by
Congress, this Court can do nothing. The duty of this Court is not
to legislate, but to apply or interpret the law. Be that as it may,
this Court wishes to emphasize that as the facts in this case have
shown, it was at the behest of the Government that petitioner
refinanced its oil import payments from the normal 30-day trade
credit to a maximum of 360 days. Petitioner could be correct in its
assertion that owing to the extended period for payment, the
financial institution which refinanced said payments charged a
higher interest, thereby resulting in higher financing expenses for
the petitioner. It would appear then that equity considerations
dictate that petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained because
it accommodated the request of the Government. Although under
Section 29 of the National Internal Revenue Code such losses
may be deducted from gross income, the effect of that loss would
be merely to reduce its taxable income, but not to actually wipe
out such losses. The Government then may consider some
positive measures to help petitioner and others similarly situated
to obtain substantial relief. An amendment, as aforestated, may
then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted
authority" on the part of the Department of Finance to determine
or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision
does not provide any standard for the exercise of the authority. It
is a fundamental rule that delegation of legislative power may be
sustained only upon the ground that some standard for its
exercise is provided and that the legislature, in making the
delegation, has prescribed the manner of the exercise of the
delegated authority. 39
Finally, whether petitioner gained or lost by reason of the
extensive credit is rendered irrelevant by reason of the foregoing
disquisitions. It may nevertheless be stated that petitioner failed
to disprove COA's claim that it had in fact gained in the process.
Otherwise stated, petitioner failed to sufficiently show that it
incurred a loss. Such being the case, how can petitioner claim for
reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power
Corporation, We find for the petitioner. The respondents
themselves admit in their Comment that underrecovery arising
from sales to NPC are reimbursable because NPC was granted
full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. 40 The
last law cited is the Fiscal Incentives Regulatory Board's Resolution
No. 17-87 of 24 June 1987 which provides, in part, "that the tax and
duty exemption privileges of the National Power Corporation,
including those pertaining to its domestic purchases of petroleum
and petroleum products . . . are restored effective March 10, 1987."
In a Memorandum issued on 5 October 1987 by the Office of the
President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to
exempt sales of petroleum products to the NPC is evident in the
recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. 41 The
pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to
the following conditions:
(1) That the Fund shall be used to
reimburse the oil companies for
(a) cost increases of imported
crude oil and finished petroleum
products resulting from foreign
exchange rate adjustments and/or
increases in world market prices of
crude oil; (b) cost underrecovery
incurred as a result of fuel oil sales
to the National Power Corporation
(NPC); and (c) other cost
underrecoveries incurred as may
be finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of
petroleum products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS
and MARCOPPER, petitioner relies on Letter of Instruction (LOI)
1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether
direct or indirect, due and payable by the copper mining
companies in distress to the national government. Pursuant to
this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued
Memorandum Circular No. 84-11-22 advising the oil companies
that Atlas Consolidated Mining Corporation and Marcopper
Mining Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and
MARCOPPER, the COA, in its 18 August 1989 letter to Executive
Director Wenceslao R. de la Paz, states that "it is our opinion that
LOI 1416 which implements the exemption from payment of
OPSF imposts as effected by OEA has no legal basis;" 42 in its
Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no
authority to claim reimbursement for this uncollected impost because
LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not
yet in existence and could not have contemplated OPSF imposts at
the time of its formulation." 43 It is further stated that: "Moreover, it is
evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by stabilizing
oil prices."
In sustaining COA's stand, respondents vigorously maintain that
LOI 1416 could not have intended to exempt said distressed
mining companies from the payment of OPSF dues for the
following reasons:
a. LOI 1416 granting the alleged exemption was
issued on July 17, 1984. P.D. 1956 creating the
OPSF was promulgated on October 10, 1984,
while E.O. 137, amending P.D. 1956, was issued
on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist
distressed copper mining companies in line with
the government's effort to prevent the collapse of
the copper industry. P.D No. 1956, as amended,
was issued for the purpose of minimizing frequent
price changes brought about by exchange rate
adjustments and/or changes in world market
prices of crude oil and imported petroleum
product's; and
c. LOI 1416 caused the "suspension of all taxes,
duties, fees, imposts and other charges, whether
direct or indirect, due and payable by the copper
mining companies in distress to the Notional and
Local Governments . . ." On the other hand,
OPSF dues are not payable by (sic) distressed
copper companies but by oil companies. It is to be
noted that the copper mining companies do not
pay OPSF dues. Rather, such imposts are built in
or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends the
payment of taxes by distressed mining companies, it does not
accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from
such reasons, however, it is apparent that LOI 1416 was never
published in the Official Gazette 45 as required by Article 2 of the
Civil Code, which reads:
Laws shall take effect after fifteen days following
the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Tañada
vs. Tuvera: 46
WHEREFORE, the Court hereby orders
respondents to publish in the Official Gazette all
unpublished presidential issuances which are of
general application, and unless so published they
shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this
Court, in its Resolution promulgated on 29 December
1986, 47 ruled:
We hold therefore that all statutes, including those
of local application and private laws, shall be
published as a condition for their effectivity, which
shall begin fifteen days after publication unless a
different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and
executive orders promulgated by the President in
the exercise of legislative powers whenever the
same are validly delegated by the legislature or,
at present, directly conferred by the Constitution.
Administrative rules and regulations must also be
published if their purpose is to enforce or
implement existing laws pursuant also to a valid
delegation.
 xxx xxx xxx
WHEREFORE, it is hereby declared that all laws
as above defined shall immediately upon their
approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to become
effective only after fifteen days from their
publication, or on another date specified by the
legislature, in accordance with Article 2 of the Civil
Code.
LOI 1416 has, therefore, no binding force or effect as it was never
published in the Official Gazette after its issuance or at any time
after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by
Executive Order No. 200, issued on 18 June 1987. As amended,
the said provision now reads:
Laws shall take effect after fifteen days following
the completion of their publication either in the
Official Gazette or in a newspaper of general
circulation in the Philippines, unless it is
otherwiseprovided.
We are not aware of the publication of LOI 1416 in any
newspaper of general circulation pursuant to Executive Order No.
200.
Furthermore, even granting arguendo that LOI 1416 has force
and effect, petitioner's claim must still fail. Tax exemptions as a
general rule are construed strictly against the grantee and
liberally in favor of the taxing authority. 48 The burden of proof rests
upon the party claiming exemption to prove that it is in fact covered
by the exemption so claimed. The party claiming exemption must
therefore be expressly mentioned in the exempting law or at least be
within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a
consequence of its sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416. Though LOI
1416 may suspend the payment of taxes by copper mining
companies, it does not give petitioner the same privilege with
respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00,
petitioner maintains that the Department of Finance has still to
issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted
beyond its jurisdiction. 49 Respondents, on the other hand, contend
that said amount was already disallowed by the OEA for failure to
substantiate it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned amount was already
excluded.
An examination of the records of this case shows that petitioner
failed to prove or substantiate its contention that the amount of
P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of
respondents that said amount has already been passed upon by
the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is whether or not the
amounts due to the OPSF from petitioner may be offset against
petitioner's outstanding claims from said fund. Petitioner contends
that it should be allowed to offset its claims from the OPSF
against its contributions to the fund as this has been allowed in
the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the
provisions of the New Civil Code on compensation and Section
21, Book V, Title I-B of the Revised Administrative Code which
provides for "Retention of Money for Satisfaction of Indebtedness
to Government." 52 Petitioner also mentions communications from
the Board of Energy and the Department of Finance that supposedly
authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and
Fernandez, 53 contend that there can be no offsetting of taxes
against the claims that a taxpayer may have against the government,
as taxes do not arise from contracts or depend upon the will of the
taxpayer, but are imposed by law. Respondents also allege that
petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision
empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government
and apply the government indebtedness to the satisfaction of the
obligation of the person to the government, like authority or right to
make compensation is not given to the private person." 54 The reason
for this, as stated in Commissioner of Internal Revenue vs. Algue,
Inc., 55 is that money due the government, either in the form of taxes
or other dues, is its lifeblood and should be collected without
hindrance. Thus, instead of giving petitioner a reason for
compensation or set-off, the Revised Administrative Code makes it
the respondents' duty to collect petitioner's indebtedness to the
OPSF.
Refuting respondents' contention, petitioner claims that the
amounts due from it do not arise as a result of taxation because
"P.D. 1956, amended, did not create a source of taxation; it
instead established a special fund . . .," 56 and that the OPSF
contributions do not go to the general fund of the state and are not
used for public purpose, i.e., not for the support of the government,
the administration of law, or the payment of public expenses. This
alleged lack of a public purpose behind OPSF exactions
distinguishes such from a tax. Hence, the ruling in the Francia case
is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price
Standby Fund to support the OPSF; the said law provides in part
that:
Sec. 2. Application of the fund shall be subject to
the following conditions:
xxx xxx xxx
(3) That no amount of the
Petroleum Price Standby Fund
shall be used to pay any oil
company which has an
outstanding obligation to the
Government without said
obligation being offset first, subject
to the requirements of
compensation or offset under the
Civil Code.
We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go to a
special fund of the government. Taxation is no longer envisioned
as a measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be
within the police power of the state. 57 There can be no doubt that
the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Any unregulated increase in oil prices
could hurt the lives of a majority of the people and cause economic
crisis of untold proportions. It would have a chain reaction in terms
of, among others, demands for wage increases and upward spiralling
of the cost of basic commodities. The stabilization then of oil prices is
of prime concern which the state, via its police power, may properly
address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly
provides that the source of OPSF is taxation. No amount of
semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government. 58Taxes cannot
be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as
is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes
for the OPSF, the oil companies merely act as agents for the
Government in the latter's collection since the taxes are, in reality,
passed unto the end-users –– the consuming public. In that
capacity, the petitioner, as one of such companies, has the
primary obligation to account for and remit the taxes collected to
the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its
collection for the OPSF vis-a-vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, the Government
and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated. Under Article
1279 of the Civil Code, in order that compensation may be
proper, it is necessary that:
(5) over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
That compensation had been the practice in the past can set no
valid precedent. Such a practice has no legal basis. Lastly, R.A.
No. 6952 does not authorize oil companies to offset their claims
against their OPSF contributions. Instead, it prohibits the
government from paying any amount from the Petroleum Price
Standby Fund to oil companies which have outstanding
obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is
hereby rendered AFFIRMING the challenged decision of the
Commission on Audit, except that portion thereof disallowing
petitioner's claim for reimbursement of underrecovery arising from
sales to the National Power Corporation, which is hereby allowed.
With costs against petitioner.
SO ORDERED.

(1) each one of the obligors be bound principally,

and that he be at the same time a principal
creditor of the other;

(2) both debts consist in a sum of :money, or if the

things due are consumable, they be of the same
kind, and also of the same quality if the latter has
been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

G.R. No. 158540. August 3, 2005
SOUTHERN CROSS CEMENT CORPORATION, Petitioners,
vs.
CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF
TRADE AND INDUSTRY, THE SECRETARY OF THE
DEPARTMENT OF FINANCE and THE COMMISSIONER OF
THE BUREAU OF CUSTOMS, Respondent.
RESOLUTION
TINGA, J.:
Cement is hardly an exciting subject for litigation. Still, the parties
in this case have done their best to put up a spirited advocacy of
their respective positions, throwing in everything including the
proverbial kitchen sink. At present, the burden of passion, if not
proof, has shifted to public respondents Department of Trade and
Industry (DTI) and private respondent Philippine Cement
Manufacturers Corporation (Philcemcor),1 who now seek
reconsideration of our Decision dated 8 July 2004 (Decision),
which granted the petition of petitioner Southern Cross Cement
Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For
respondents, it is about love of country and the future of the
domestic industry in the face of foreign competition. For this
Court, it is about elementary statutory construction, constitutional
limitations on the executive power to impose tariffs and similar
measures, and obedience to the law. Just as much was asserted
in the Decision, and the same holds true with this
present Resolution.
An extensive narration of facts can be found in the Decision.2 As
can well be recalled, the case centers on the interpretation of
provisions of Republic Act No. 8800, the Safeguard Measures Act
("SMA"), which was one of the laws enacted by Congress soon
after the Philippines ratified the General Agreement on Tariff and
Trade (GATT) and the World Trade Organization (WTO)
Agreement.3 The SMA provides the structure and mechanics for
the imposition of emergency measures, including tariffs, to protect
domestic industries and producers from increased imports which
inflict or could inflict serious injury on them.4
A brief summary as to how the present petition came to be filed
by Southern Cross. Philcemcor, an association of at least
eighteen (18) domestic cement manufacturers filed with the DTI a
petition seeking the imposition of safeguard measures on gray
Portland cement,5 in accordance with the SMA. After the DTI
issued a provisional safeguard measure,6 the application was
referred to the Tariff Commission for a formal investigation
pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations, in order to determine whether or not to impose a
definitive safeguard measure on imports of gray Portland cement.
The Tariff Commission held public hearings and conducted its
own investigation, then on 13 March 2002, issued its Formal
Investigation Report ("Report"). The Report determined as
follows:
The elements of serious injury and imminent threat of serious
injury not having been established, it is hereby recommended that
no definitive general safeguard measure be imposed on the
importation of gray Portland cement.7
The DTI sought the opinion of the Secretary of Justice whether it
could still impose a definitive safeguard measure notwithstanding
the negative finding of the Tariff Commission. After the Secretary
of Justice opined that the DTI could not do so under the
SMA,8 the DTI Secretary then promulgated a Decision9 wherein
he expressed the DTI’s disagreement with the conclusions of the
Tariff Commission, but at the same time, ultimately denying
Philcemcor’s application for safeguard measures on the ground
that the he was bound to do so in light of the Tariff Commission’s
negative findings.10
Philcemcor challenged this Decision of the DTI Secretary by filing
with the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus11 seeking to set aside the DTI Decision, as well as the
Tariff Commission’s Report. It prayed that the Court of Appeals
direct the DTI Secretary to disregard the Report and to render
judgment independently of the Report. Philcemcor argued that
the DTI Secretary, vested as he is under the law with the power
of review, is not bound to adopt the recommendations of the Tariff
Commission; and, that the Report is void, as it is predicated on a
flawed framework, inconsistent inferences and erroneous
methodology.12
The Court of Appeals Twelfth Division, in a Decision13 penned by
Court of Appeals Associate Justice Elvi John Asuncion,14 partially
granted Philcemcor’s petition. The appellate court ruled that it had
jurisdiction over the petition for certiorari since it alleged grave
abuse of discretion. While it refused to annul the findings of the
Tariff Commission,15 it also held that the DTI Secretary was not
bound by the factual findings of the Tariff Commission since such
findings are merely recommendatory and they fall within the ambit
of the Secretary’s discretionary review. It determined that the
legislative intent is to grant the DTI Secretary the power to make
a final decision on the Tariff Commission’s recommendation.16
On 23 June 2003, Southern Cross filed the present petition,
arguing that the Court of Appeals has no jurisdiction over
Philcemcor’s petition, as the proper remedy is a petition for
review with the CTA conformably with the SMA, and; that the
factual findings of the Tariff Commission on the existence or non-
existence of conditions warranting the imposition of general
safeguard measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals’ Decision had not yet
become final, its binding force was cited by the DTI Secretary
when he issued a new Decision on 25 June 2003, wherein he
ruled that that in light of the appellate court’s Decision, there was
no longer any legal impediment to his deciding Philcemcor’s
application for definitive safeguard measures.17 He made a
determination that, contrary to the findings of the Tariff
Commission, the local cement industry had suffered serious injury
as a result of the import surges.18 Accordingly, he imposed a
definitive safeguard measure on the importation of gray Portland
cement, in the form of a definitive safeguard duty in the amount
of P20.60/40 kg. bag for three years on imported gray Portland
Cement.19
On 7 July 2003, Southern Cross filed with the Court a "Very
Urgent Application for a Temporary Restraining Order and/or A
Writ of Preliminary Injunction" ("TRO Application"), seeking to
enjoin the DTI Secretary from enforcing his Decision of 25 June
2003 in view of the pending petition before this Court. Philcemcor
filed an opposition, claiming, among others, that it is not this
Court but the CTA that has jurisdiction over the application under
the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition
for Review, assailing the DTI Secretary’s 25 June
2003 Decision which imposed the definite safeguard measure.
Yet Southern Cross did not promptly inform this Court about this
filing. The first time the Court would learn about this Petition with
the CTA was when Southern Cross mentioned such fact in a
pleading dated 11 August 2003 and filed the next day with this
Court.20
Philcemcor argued before this Court that Southern Cross had
deliberately and willfully resorted to forum-shopping; that the
CTA, being a special court of limited jurisdiction, could only
review the ruling of the DTI Secretary when a safeguard measure
is imposed; and that the factual findings of the Tariff Commission
are not binding on the DTI Secretary.21
After giving due course to Southern Cross’s Petition, the Court
called the case for oral argument on 18 February 2004.22 At the
oral argument, attended by the counsel for Philcemcor and
Southern Cross and the Office of the Solicitor General, the Court
simplified the issues in this wise: (i) whether the Decision of the
DTI Secretary is appealable to the CTA or the Court of Appeals;
(ii) assuming that the Court of Appeals has jurisdiction, whether
its Decision is in accordance with law; and, whether a Temporary
Restraining Order is warranted.23
After the parties had filed their respective memoranda, the
Court’s Second Division, to which the case had been assigned,
promulgated its Decision granting Southern
Cross’s Petition.24The Decision was unanimous, without any
separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over
Philcemcor’s Petition, the proper remedy under Section 29 of the
SMA being a petition for review with the CTA; and that the Court
of Appeals erred in ruling that the DTI Secretary was not bound
by the negative determination of the Tariff Commission and could
therefore impose the general safeguard measures, since Section
5 of the SMA precisely required that the Tariff Commission make
a positive final determination before the DTI Secretary could
impose these measures. Anent the argument that Southern Cross
had committed forum-shopping, the Court concluded that there
was no evident malicious intent to subvert procedural rules so as
to match the standard under Section 5, Rule 7 of the Rules of
Court of willful and deliberate forum shopping. Accordingly,
the Decision of the Court of Appeals dated 5 June 2003 was
declared null and void.
The Court likewise found it necessary to nullify the Decision of the
DTI Secretary dated 25 June 2003, rendered after the filing of this
present Petition. This Decision by the DTI Secretary had cited the
obligatory force of the null and void Court of Appeals’ Decision,
notwithstanding the fact that the decision of the appellate court
was not yet final and executory. Considering that the decision of
the Court of Appeals was a nullity to begin with, the inescapable
conclusion was that the new decision of the DTI Secretary,
prescinding as it did from the imprimatur of the decision of the
Court of Appeals, was a nullity as well.
After the Decision was reported in the media, there was a flurry of
newspaper articles citing alleged negative reactions to the ruling
by the counsel for Philcemcor, the DTI Secretary, and
others.25 Both respondents promptly filed their respective motions
for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon
motion of respondents, to accept the petition and resolve
the Motions for Reconsideration.26 The case was then
reheard27 on oral argument on 1 March 2005. During the hearing,
the Court elicited from the parties their arguments on the two
central issues as discussed in the assailed Decision, pertaining to
the jurisdictional aspect and to the substantive aspect of whether
the DTI Secretary may impose a general safeguard measure
despite a negative determination by the Tariff Commission. The
Court chose not to hear argumentation on the peripheral issue of
forum-shopping,28 although this question shall be tackled herein
shortly. Another point of concern emerged during oral arguments
on the exercise of quasi-judicial powers by the Tariff Commission,
and the parties were required by the Court to discuss in their
respective memoranda whether the Tariff Commission could
validly exercise quasi-judicial powers in the exercise of its
mandate under the SMA.
The Court has likewise been notified that subsequent to the
rendition of the Court’s Decision, Philcemcor filed a Petition for
Extension of the Safeguard Measure with the DTI, which has
been referred to the Tariff Commission.29 In an Urgent
Motion dated 21 December 2004, Southern Cross prayed that
Philcemcor, the DTI, the Bureau of Customs, and the Tariff
Commission be directed to "cease and desist from taking any and
all actions pursuant to or under the null and void CA Decision and
DTI Decision, including proceedings to extend the safeguard
measure.30 In a Manifestation and Motion dated 23 June 2004,
the Tariff Commission informed the Court that since no
prohibitory injunction or order of such nature had been issued by
any court against the Tariff Commission, the Commission
proceeded to complete its investigation on the petition for
extension, pursuant to Section 9 of the SMA, but opted to defer
transmittal of its report to the DTI Secretary pending "guidance"
from this Court on the propriety of such a step considering this
pending Motion for Reconsideration. In a Resolution dated 5 July
2005, the Court directed the parties to maintain the status quo
effective of even date, and until further orders from this Court.
The denial of the pending motions for reconsideration will
obviously render the pending petition for extension academic.
I. Jurisdiction of the Court of Tax Appeals
Under Section 29 of the SMA
The first core issue resolved in the assailed Decision was
whether the Court of Appeals had jurisdiction over the special civil
action for certiorari filed by Philcemcor assailing the 5 April
2002 Decision of the DTI Secretary. The general jurisdiction of
the Court of Appeals over special civil actions for certiorari is
beyond doubt. The Constitution itself assures that judicial review
avails to determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government. At the
same time, the special civil action of certiorari is available only
when there is no plain, speedy and adequate remedy in the
ordinary course of law.31 Philcemcor’s recourse of special civil
action before the Court of Appeals to challenge the Decision of
the DTI Secretary not to impose the general safeguard measures
is not based on the SMA, but on the general rule on certiorari.
Thus, the Court proceeded to inquire whether indeed there was
no other plain, speedy and adequate remedy in the ordinary
course of law that would warrant the allowance of Philcemcor’s
special civil action.
The answer hinged on the proper interpretation of Section 29 of
the SMA, which reads:
Section 29. Judicial Review. – Any interested party who is
adversely affected by the ruling of the Secretary in connection
with the imposition of a safeguard measure may file with the
CTA, a petition for review of such ruling within thirty (30) days
from receipt thereof. Provided, however, that the filing of such
petition for review shall not in any way stop, suspend or otherwise
toll the imposition or collection of the appropriate tariff duties or
the adoption of other appropriate safeguard measures, as the
case may be.
The petition for review shall comply with the same requirements
and shall follow the same rules of procedure and shall be subject
to the same disposition as in appeals in connection with adverse
rulings on tax matters to the Court of Appeals.32 (Emphasis
supplied)
The matter is crucial for if the CTA properly had jurisdiction over
the petition challenging the DTI Secretary’s ruling not to impose a
safeguard measure, then the special civil action of certiorari
resorted to instead by Philcemcor would not avail, owing to the
existence of a plain, speedy and adequate remedy in the ordinary
course of law.33The Court of Appeals, in asserting that it had
jurisdiction, merely cited the general rule on certiorari jurisdiction
without bothering to refer to, or possibly even study, the import of
Section 29. In contrast, this Court duly considered the meaning
and ramifications of Section 29, concluding that it provided for a
plain, speedy and adequate remedy that Philcemcor could have
resorted to instead of filing the special civil action before the
Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for
review allowed under Section 29 lies only if the DTI Secretary’s
ruling imposes a safeguard measure. If, on the other hand, the
DTI Secretary’s ruling is not to impose a safeguard measure,
judicial review under Section 29 could not be resorted to since the
provision refers to rulings "in connection with the imposition" of
the safeguard measure, as opposed to the non-imposition. Since
the Decision dated 5 April 2002 resolved against imposing a
safeguard measure, Philcemcor claims that the proper remedial
recourse is a petition for certiorari with the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March
2004, expressly vests unto the CTA jurisdiction over "[d]ecisions
of the Secretary of Trade and Industry, in case of nonagricultural
product, commodity or article . . . involving . . . safeguard
measures under Republic Act No. 8800, where either party
may appeal the decision to impose or not to impose said
duties."34 It is clear that any future attempts to advance the
literalist position of the respondents would consequently fail.
However, since Republic Act No. 9282 has no retroactive effect,
this Court had to decide whether Section 29 vests jurisdiction on
the CTA over rulings of the DTI Secretary not to impose a
safeguard measure. And the Court, in its assailed Decision, ruled
that the CTA is endowed with such jurisdiction.
Both respondents reiterate their fundamentalist reading that
Section 29 authorizes the petition for review before the CTA only
when the DTI Secretary decides to impose a safeguard measure,
but not when he decides not to. In doing so, they fail to address
what the Court earlier pointed out would be the absurd
consequences if their interpretation is followed to its logical end.
But in affirming, as the Court now does, its previous holding that
the CTA has jurisdiction over petitions for review questioning the
non-imposition of safeguard measures by the DTI Secretary, the
Court relies on the plain reading that Section 29 explicitly vests
jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated
therein: (i) there must be a ruling by the DTI Secretary; (ii) the
petition must be filed by an interested party adversely affected by
the ruling; and (iii) such ruling must be "in connection with the
imposition of a safeguard measure." Obviously, there are
differences between "a ruling for the imposition of a safeguard
measure," and one issued "in connection with the imposition of a
safeguard measure." The first adverts to a singular type of ruling,
namely one that imposes a safeguard measure. The second does
not contemplate only one kind of ruling, but a myriad of rulings
issued "in connection with the imposition of a safeguard
measure."
Respondents argue that the Court has given an expansive
interpretation to Section 29, contrary to the established rule
requiring strict construction against the existence of jurisdiction in
specialized courts.35 But it is the express provision of Section
29, and not this Court, that mandates CTA jurisdiction to be
broad enough to encompass more than just a ruling
imposing the safeguard measure.
The key phrase remains "in connection with." It has connotations
that are obvious even to the layman. A ruling issued "in
connection with" the imposition of a safeguard measure would be
one that bears some relation to the imposition of a safeguard
measure. Obviously, a ruling imposing a safeguard measure is
covered by the phrase "in connection with," but such ruling is by
no means exclusive. Rulings which modify, suspend or terminate
a safeguard measure are necessarily in connection with the
imposition of a safeguard measure. So does a ruling allowing for
a provisional safeguard measure. So too, a ruling by the DTI
Secretary refusing to refer the application for a safeguard
measure to the Tariff Commission. It is clear that there is an
entire subset of rulings that the DTI Secretary may issue in
connection with the imposition of a safeguard measure, including
those that are provisional, interlocutory, or dispositive in
character.36 By the same token, a ruling not to impose a
safeguard measure is also issued in connection with the
imposition of a safeguard measure.
In arriving at the proper interpretation of "in connection with," the
Court referred to the U.S. Supreme Court cases of Shaw v. Delta
Air Lines, Inc.37 and New York State Blue Cross Plans v.
Travelers Ins.38 Both cases considered the interpretation of the
phrase "relates to" as used in a federal statute, the Employee
Retirement Security Act of 1974. Respondents criticize the
citations on the premise that the cases are not binding in our
jurisdiction and do not involve safeguard measures. The
criticisms are off-tangent considering that our ruling did not call
for the application of the Employee Retirement Security Act of
1974 in the Philippine milieu. The American cases are not relied
upon as precedents, but as guides of interpretation. Certainly, if
there are applicable local precedents pertaining to the
interpretation of the phrase "in connection with," then these
certainly would have some binding force. But none avail, and
neither do the respondents demonstrate a countervailing holding
in Philippine jurisprudence.
Yet we should consider the claim that an "expansive
interpretation" was favored in Shaw because the law in question
was an employee’s benefit law that had to be given an
interpretation favorable to its intended beneficiaries.39 In the next
breath, Philcemcor notes that the U.S. Supreme Court itself was
alarmed by the expansive interpretation in Shaw and thus in Blue
Cross, the Shaw ruling was reversed and a more restrictive
interpretation was applied based on congressional intent.40
Respondents would like to make it appear that the Court acted
rashly in applying a discarded precedent in Shaw, a non-binding
foreign precedent nonetheless. But the Court did make the
following observation in its Decision pertaining to Blue Cross:
Now, let us determine the maximum scope and reach of the
phrase "in connection with" as used in Section 29 of the SMA. A
literalist reading or linguistic survey may not satisfy. Even the
U.S. Supreme Court in New York State Blue Cross Plans v.
Travelers Ins.41 conceded that the phrases "relate to" or "in
connection with" may be extended to the farthest stretch of
indeterminacy for, universally, relations or connections are infinite
and stop nowhere.42 Thus, in the case the U.S. High Court,
examining the same phrase of the same provision of law
involved in Shaw, resorted to looking at the statute and its
objectives as the alternative to an "uncritical literalism." A
similar inquiry into the other provisions of the SMA is in
order to determine the scope of review accorded therein to
the CTA.43
In the next four paragraphs of the Decision, encompassing four
pages, the Court proceeded to inquire into the SMA and its
objectives as a means to determine the scope of rulings to be
deemed as "in connection with the imposition of a safeguard
measure." Certainly, this Court did not resort to the broadest
interpretation possible of the phrase "in connection with," but
instead sought to bring it into the context of the scope and
objectives of the SMA. The ultimate conclusion of the Court was
that the phrase includes all rulings of the DTI Secretary which
arise from the time an application or motu proprio initiation for the
imposition of a safeguard measure is taken.44This conclusion was
derived from the observation that the imposition of a general
safeguard measure is a process, initiated motu proprio or through
application, which undergoes several stages upon which the DTI
Secretary is obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase "in
connection with," it is the SMA that expressly vests jurisdiction on
the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting,
as it should, the clear intent of the legislature in enacting the
SMA. Without "in connection with" or a synonymous phrase, the
Court would be compelled to favor the respondents’ position that
only rulings imposing safeguard measures may be elevated on
appeal to the CTA. But considering that the statute does make
use of the phrase, there is little sense in delving into alternate
scenarios.
Respondents fail to convincingly address the absurd
consequences pointed out by the Decision had their proposed
interpretation been adopted. Indeed, suffocated beneath the
respondents’ legalistic tinsel is the elemental question¾what
sense is there in vesting jurisdiction on the CTA over a decision
to impose a safeguard measure, but not on one choosing not to
impose. Of course, it is not for the Court to inquire into the
wisdom of legislative acts, hence the rule that jurisdiction must be
expressly vested and not presumed. Yet ultimately, respondents
muddle the issue by making it appear that the Decision has
uniquely expanded the jurisdictional rules. For the respondents,
the proper statutory interpretation of the crucial phrase "in
connection with" is to pretend that the phrase did not exist at all in
the statute. The Court, in taking the effort to examine the meaning
and extent of the phrase, is merely giving breath to the legislative
will.
The Court likewise stated that the respondents’ position calls for
split jurisdiction, which is judicially abhorred. In rebuttal, the public
respondents cite Sections 2313 and 2402 of the Tariff and
Customs Code (TCC), which allegedly provide for a splitting of
jurisdiction of the CTA. According to public respondents, under
Section 2313 of the TCC, a decision of the Commissioner of
Customs affirming a decision of the Collector of Customs adverse
to the government is elevated for review to the Secretary of
Finance. However, under Section 2402 of the TCC, a ruling of the
Commissioner of the Bureau of Customs against a taxpayer must
be appealed to the Court of Tax Appeals, and not to the
Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the
decision of the Commissioner of Customs is not judicial review,
since the Secretary of Finance holds an executive and not a
judicial office. The contrast is apparent with the situation in this
case, wherein the interpretation favored by the respondents calls
for the exercise of judicial review by two different courts over
essentially the same question¾whether the DTI Secretary should
impose general safeguard measures. Moreover, as petitioner
points out, the executive department cannot appeal against itself.
The Collector of Customs, the Commissioner of Customs and the
Secretary of Finance are all part of the executive branch. If the
Collector of Customs rules against the government, the executive
cannot very well bring suit in courts against itself. On the other
hand, if a private person is aggrieved by the decision of the
Collector of Customs, he can have proper recourse before the
courts, which now would be called upon to exercise judicial
review over the action of the executive branch.
More fundamentally, the situation involving split review of the
decision of the Collector of Customs under the TCC is not
apropos to the case at bar. The TCC in that instance is quite
explicit on the divergent reviewing body or official depending on
which party prevailed at the Collector of Customs’ level. On the
other hand, there is no such explicit expression of bifurcated
appeals in Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman45 as
another instance wherein the Court purportedly allowed split
jurisdiction. It is argued that the Court, in ruling that it was the
Court of Appeals which possessed appellate authority to review
decisions of the Ombudsman in administrative cases while the
Court retaining appellate jurisdiction of decisions of the
Ombudsman in non-administrative cases, effectively sanctioned
split jurisdiction between the Court and the Court of Appeals.46
Nonetheless, this argument is successfully undercut by Southern
Cross, which points out the essential differences in the power
exercised by the Ombudsman in administrative cases and non-
administrative cases relating to criminal complaints. In the former,
the Ombudsman may impose an administrative penalty, while in
acting upon a criminal complaint what the Ombudsman
undertakes is a preliminary investigation. Clearly, the capacity in
which the Ombudsman takes on in deciding an administrative
complaint is wholly different from that in conducting a preliminary
investigation. In contrast, in ruling upon a safeguard measure, the
DTI Secretary acts in one and the same role. The variance
between an order granting or denying an application for a
safeguard measure is polar though emanating from the same
equator, and does not arise from the distinct character of the
putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of
Congress to limit CTA review only to impositions of the general
safeguard measures. It claims that there is a necessary tax
implication in case of an imposition of a tariff where the CTA’s
expertise is necessary, but there is no such tax implication, hence
no need for the assumption of jurisdiction by a specialized
agency, when the ruling rejects the imposition of a safeguard
measure. But of course, whether the ruling under review calls for
the imposition or non-imposition of the safeguard measure, the
common question for resolution still is whether or not the tariff
should be imposed — an issue definitely fraught with a tax
dimension. The determination of the question will call upon the
same kind of expertise that a specialized body as the CTA
presumably possesses.
In response to the Court’s observation that the setup proposed by
respondents was novel, unusual, cumbersome and unwise, public
respondents invoke the maxim that courts should not be
concerned with the wisdom and efficacy of legislation.47 But this
prescinds from the bogus claim that the CTA may not exercise
judicial review over a decision not to impose a safeguard
measure, a prohibition that finds no statutory support. It is
likewise settled in statutory construction that an interpretation that
would cause inconvenience and absurdity is not favored.
Respondents do not address the particular illogic that the Court
pointed out would ensue if their position on judicial review were
adopted. According to the respondents, while a ruling by the DTI
Secretary imposing a safeguard measure may be elevated on
review to the CTA and assailed on the ground of errors in fact
and in law, a ruling denying the imposition of safeguard measures
may be assailed only on the ground that the DTI Secretary
committed grave abuse of discretion. As stressed in the Decision,
"[c]ertiorari is a remedy narrow in its scope and inflexible in its
character. It is not a general utility tool in the legal workshop."48
It is incorrect to say that the Decision bars any effective remedy
should the Tariff Commission act or conclude erroneously in
making its determination whether the factual conditions exist
which necessitate the imposition of the general safeguard
measure. If the Tariff Commission makes a negative final
determination, the DTI Secretary, bound as he is by this negative
determination, has to render a decision denying the application
for safeguard measures citing the Tariff Commission’s findings as
basis. Necessarily then, such negative determination of the Tariff
Commission being an integral part of the DTI Secretary’s ruling
would be open for review before the CTA, which again is
especially qualified by reason of its expertise to examine the
findings of the Tariff Commission. Moreover, considering that the
Tariff Commission is an instrumentality of the government, its
actions (as opposed to those undertaken by the DTI Secretary
under the SMA) are not beyond the pale of certiorari jurisdiction.
Unfortunately for Philcemcor, it hinged its cause on the claim that
the DTI Secretary’s actions may be annulled on certiorari,
notwithstanding the explicit grant of judicial review over that
cabinet member’s actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this
Court’s interpretation of Section 29 is correct, such ruling should
not be given retroactive effect, otherwise, a gross violation of the
right to due process would be had. This erroneously presumes
that it was this Court, and not Congress, which vested jurisdiction
on the CTA over rulings of non-imposition rendered by the DTI
Secretary. We have repeatedly stressed that Section 29
expressly confers CTA jurisdiction over rulings in connection with
the imposition of the safeguard measure, and the reassertion of
this point in the Decision was a matter of emphasis, not of
contrivance. The due process protection does not shield those
who remain purposely blind to the express rules that ensure the
sporting play of procedural law.
Besides, respondents’ claim would also apply every time this
Court is compelled to settle a novel question of law, or to reverse
precedent. In such cases, there would always be litigants whose
causes of action might be vitiated by the application of newly
formulated judicial doctrines. Adopting their claim would unwisely
force this Court to treat its dispositions in unprecedented,
sometimes landmark decisions not as resolutions to the live
cases or controversies, but as legal doctrine applicable only to
future litigations.
II. Positive Final Determination
By the Tariff Commission an
Indispensable Requisite to the
Imposition of General Safeguard Measures
The second core ruling in the Decision was that contrary to the
holding of the Court of Appeals, the DTI Secretary was barred
from imposing a general safeguard measure absent a positive
final determination rendered by the Tariff Commission. The
fundamental premise rooted in this ruling is based on the
acknowledgment that the required positive final determination of
the Tariff Commission exists as a properly enacted constitutional
limitation imposed on the delegation of the legislative power to
impose tariffs and imposts to the President under Section 28(2),
Article VI of the Constitution.
Congressional Limitations Pursuant
To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures
The safeguard measures imposable under the SMA generally
involve duties on imported products, tariff rate quotas, or
quantitative restrictions on the importation of a product into the
country. Concerning as they do the foreign importation of
products into the Philippines, these safeguard measures fall
within the ambit of Section 28(2), Article VI of the Constitution,
which states:
The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the
Government.49
The Court acknowledges the basic postulates ingrained in the
provision, and, hence, governing in this case. They are:
(1) It is Congress which authorizes the President to impose
tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts. Thus, the authority cannot
come from the Finance Department, the National Economic
Development Authority, or the World Trade Organization, no
matter how insistent or persistent these bodies may be.
(2) The authorization granted to the President must be
embodied in a law. Hence, the justification cannot be supplied
simply by inherent executive powers. It cannot arise from
administrative or executive orders promulgated by the executive
branch or from the wisdom or whim of the President.
(3) The authorization to the President can be exercised only
within the specified limits set in the law and is further
subject to limitations and restrictions which Congress may
impose. Consequently, if Congress specifies that the tariff rates
should not exceed a given amount, the President cannot impose
a tariff rate that exceeds such amount. If Congress stipulates that
no duties may be imposed on the importation of corn, the
President cannot impose duties on corn, no matter how actively
the local corn producers lobby the President. Even the most
picayune of limits or restrictions imposed by Congress must be
observed by the President.
There is one fundamental principle that animates these
constitutional postulates. These impositions under Section
28(2), Article VI fall within the realm of the power of taxation,
a power which is within the sole province of the legislature
under the Constitution.
Without Section 28(2), Article VI, the executive branch has no
authority to impose tariffs and other similar tax levies
involving the importation of foreign goods. Assuming that
Section 28(2) Article VI did not exist, the enactment of the SMA
by Congress would be voided on the ground that it would
constitute an undue delegation of the legislative power to tax. The
constitutional provision shields such delegation from
constitutional infirmity, and should be recognized as an
exceptional grant of legislative power to the President, rather than
the affirmation of an inherent executive power.
This being the case, the qualifiers mandated by the Constitution
on this presidential authority attain primordial consideration. First,
there must be a law, such as the SMA. Second, there must be
specified limits, a detail which would be filled in by the law. And
further, Congress is further empowered to impose limitations and
restrictions on this presidential authority. On this last power, the
provision does not provide for specified conditions, such as that
the limitations and restrictions must conform to prior statutes,
internationally accepted practices, accepted jurisprudence, or the
considered opinion of members of the executive branch.
The Court recognizes that the authority delegated to the
President under Section 28(2), Article VI may be exercised, in
accordance with legislative sanction, by the alter egos of the
President, such as department secretaries. Indeed, for purposes
of the President’s exercise of power to impose tariffs under Article
VI, Section 28(2), it is generally the Secretary of Finance who
acts as alter ego of the President. The SMA provides an
exceptional instance wherein it is the DTI or Agriculture Secretary
who is tasked by Congress, in their capacities as alter egos of the
President, to impose such measures. Certainly, the DTI Secretary
has no inherent power, even as alter ego of the President, to levy
tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA
should be likewise construed within the same context as part and
parcel of the legislative delegation of its inherent power to impose
tariffs and imposts to the executive branch, subject to limitations
and restrictions. In that regard, both the Tariff Commission and
the DTI Secretary may be regarded as agents of Congress within
their limited respective spheres, as ordained in the SMA, in the
implementation of the said law which significantly draws its
strength from the plenary legislative power of taxation. Indeed,
even the President may be considered as an agent of
Congress for the purpose of imposing safeguard measures.
It is Congress, not the President, which possesses inherent
powers to impose tariffs and imposts. Without legislative
authorization through statute, the President has no power,
authority or right to impose such safeguard measures
because taxation is inherently legislative, not executive.
When Congress tasks the President or his/her alter egos to
impose safeguard measures under the delineated
conditions, the President or the alter egos may be properly
deemed as agents of Congress to perform an act that
inherently belongs as a matter of right to the legislature. It is
basic agency law that the agent may not act beyond the
specifically delegated powers or disregard the restrictions
imposed by the principal. In short, Congress may establish the
procedural framework under which such safeguard measures
may be imposed, and assign the various offices in the
government bureaucracy respective tasks pursuant to the
imposition of such measures, the task assignment including the
factual determination of whether the necessary conditions exists
to warrant such impositions. Under the SMA, Congress assigned
the DTI Secretary and the Tariff Commission their respective
functions50 in the legislature’s scheme of things.
There is only one viable ground for challenging the legality of the
limitations and restrictions imposed by Congress under Section
28(2) Article VI, and that is such limitations and restrictions are
themselves violative of the Constitution. Thus, no matter how
distasteful or noxious these limitations and restrictions may seem,
the Court has no choice but to uphold their validity unless their
constitutional infirmity can be demonstrated.
What are these limitations and restrictions that are material to the
present case? The entire SMA provides for a limited framework
under which the President, through the DTI and Agriculture
Secretaries, may impose safeguard measures in the form of
tariffs and similar imposts. The limitation most relevant to this
case is contained in Section 5 of the SMA, captioned "Conditions
for the Application of General Safeguard Measures," and stating:
The Secretary shall apply a general safeguard measure upon
a positive final determination of the [Tariff] Commission that
a product is being imported into the country in increased
quantities, whether absolute or relative to the domestic
production, as to be a substantial cause of serious injury or threat
thereof to the domestic industry; however, in the case of non-
agricultural products, the Secretary shall first establish that the
application of such safeguard measures will be in the public
interest.51
Positive Final Determination
By Tariff Commission Plainly
Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a
limitation validly imposed by Congress on the
presidential52 authority under the SMA to impose tariffs and
imposts. That the positive final determination operates as an
indispensable requisite to the imposition of the safeguard
measure, and that it is the Tariff Commission which makes such
determination, are legal propositions plainly expressed in Section
5 for the easy comprehension for everyone but respondents.
Philcemcor attributes this Court’s conclusion on the
indispensability of the positive final determination to flawed
syllogism in that we read the proposition "if A then B" as if it
stated "if A, and only A, then B."53 Translated in practical terms,
our conclusion, according to Philcemcor, would have only been
justified had Section 5 read "shall apply a general safeguard
measure upon, and only upon, a positive final determination of
the Tariff Commission."
Statutes are not designed for the easy comprehension of the five-
year old child. Certainly, general propositions laid down in
statutes need not be expressly qualified by clauses denoting
exclusivity in order that they gain efficacy. Indeed, applying this
argument, the President would, under the Constitution, be
authorized to declare martial law despite the absence of the
invasion, rebellion or public safety requirement just because the
first paragraph of Section 18, Article VII fails to state the magic
word "only."54
But let us for the nonce pursue Philcemcor’s logic further. It
claims that since Section 5 does not allegedly limit the
circumstances upon which the DTI Secretary may impose general
safeguard measures, it is a worthy pursuit to determine whether
the entire context of the SMA, as discerned by all the other
familiar indicators of legislative intent supplied by norms of
statutory interpretation, would justify safeguard measures absent
a positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly
not being as clear as it sounds. It is advanced that Section 5 does
not relate to the legal ability of either the Tariff Commission or the
DTI Secretary to bind or foreclose review and reversal by one or
the other. Such relationship should instead be governed by
domestic administrative law and remedial law. Philcemcor thus
would like to cast the proposition in this manner: Does it run
contrary to our legal order to assert, as the Court did in
its Decision, that a body of relative junior competence as the
Tariff Commission can bind an administrative superior and
cabinet officer, the DTI Secretary? It is easy to see why
Philcemcor would like to divorce this DTI Secretary-Tariff
Commission interaction from the confines of the SMA. Shorn of
context, the notion would seem radical and unjustifiable that the
lowly Tariff Commission can bind the hands and feet of the DTI
Secretary.
It can be surmised at once that respondents’ preferred
interpretation is based not on the express language of the SMA,
but from implications derived in a roundabout manner. Certainly,
no provision in the SMA expressly authorizes the DTI Secretary
to impose a general safeguard measure despite the absence of a
positive final recommendation of the Tariff Commission. On the
other hand, Section 5 expressly states that the DTI Secretary
"shall apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission." The causal connection
in Section 5 between the imposition by the DTI Secretary of the
general safeguard measure and the positive final determination of
the Tariff Commission is patent, and even respondents do not
dispute such connection.
As stated earlier, the Court in its Decision found Section 5 to be
clear, plain and free from ambiguity so as to render unnecessary
resort to the congressional records to ascertain legislative intent.
Yet respondents, on the dubitable premise that Section 5 is not
as express as it seems, again latch on to the record of legislative
deliberations in asserting that there was no legislative intent to
bar the DTI Secretary from imposing the general safeguard
measure anyway despite the absence of a positive final
determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents’
commonly cited portion of the legislative record. One would
presume, given the intense advocacy for the efficacy of these
citations, that they contain a "smoking gun" ¾ express
declarations from the legislators that the DTI Secretary may
impose a general safeguard measure even if the Tariff
Commission refuses to render a positive final determination. Such
"smoking gun," if it exists, would characterize our Decision as
disingenuous for ignoring such contrary expression of intent from
the legislators who enacted the SMA. But as with many things,
the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the
interpellation of the late Congressman Marcial Punzalan Jr., by
then (and still is) Congressman Simeon Datumanong.55 Nowhere
in these records is the view expressed that the DTI Secretary
may impose the general safeguard measures if the Tariff
Commission issues a negative final determination or otherwise is
unable to make a positive final determination. Instead,
respondents hitch on the observations of Congressman Punzalan
Jr., that "the results of the [Tariff] Commission’s findings . . . is
subsequently submitted to [the DTI Secretary] for the [DTI
Secretary] to impose or not to impose;" and that "the [DTI
Secretary] here is…who would make the final decision on the
recommendation that is made by a more technical body [such as
the Tariff Commission]."56
There is nothing in the remarks of Congressman Punzalan which
contradict our Decision. His observations fall in accord with the
respective roles of the Tariff Commission and the DTI Secretary
under the SMA. Under the SMA, it is the Tariff Commission that
conducts an investigation as to whether the conditions exist to
warrant the imposition of the safeguard measures. These
conditions are enumerated in Section 5, namely; that a product is
being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a
substantial cause of serious injury or threat thereof to the
domestic industry. After the investigation of the Tariff
Commission, it submits a report to the DTI Secretary which
states, among others, whether the above-stated conditions for the
imposition of the general safeguard measures exist. Upon a
positive final determination that these conditions are present, the
Tariff Commission then is mandated to recommend what
appropriate safeguard measures should be undertaken by the
DTI Secretary. Section 13 of the SMA gives five (5) specific
options on the type of safeguard measures the Tariff Commission
recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary
to adopt the recommendations made by the Tariff Commission. In
fact, the SMA requires that the DTI Secretary establish that the
application of such safeguard measures is in the public interest,
notwithstanding the Tariff Commission’s recommendation on the
appropriate safeguard measure upon its positive final
determination. Thus, even if the Tariff Commission makes a
positive final determination, the DTI Secretary may opt not to
impose a general safeguard measure, or choose a different type
of safeguard measure other than that recommended by the Tariff
Commission.
Congressman Punzalan was cited as saying that the DTI
Secretary makes the decision "to impose or not to impose," which
is correct since the DTI Secretary may choose not to impose a
safeguard measure in spite of a positive final determination by the
Tariff Commission. Congressman Punzalan also correctly stated
that it is the DTI Secretary who makes the final decision "on the
recommendation that is made [by the Tariff Commission]," since
the DTI Secretary may choose to impose a general safeguard
measure different from that recommended by the Tariff
Commission or not to impose a safeguard measure at all.
Nowhere in these cited deliberations was Congressman
Punzalan, or any other member of Congress for that matter,
quoted as saying that the DTI Secretary may ignore a negative
determination by the Tariff Commission as to the existence of the
conditions warranting the imposition of general safeguard
measures, and thereafter proceed to impose these measures
nonetheless. It is too late in the day to ascertain from the late
Congressman Punzalan himself whether he had made these
remarks in order to assure the other legislators that the DTI
Secretary may impose the general safeguard measures
notwithstanding a negative determination by the Tariff
Commission. But certainly, the language of Section 5 is more
resolutory to that question than the recorded remarks of
Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5
with undeserved ambiguity in order that a proper resort to the
legislative deliberations may be had. Yet assuming that Section 5
deserves to be clarified through an inquiry into the legislative
record, the excerpts cited by the respondents are far more
ambiguous than the language of the assailed provision regarding
the key question of whether the DTI Secretary may impose
safeguard measures in the face of a negative determination by
the Tariff Commission. Moreover, even Southern Cross counters
with its own excerpts of the legislative record in support of their
own view.57
It will not be difficult, especially as to heavily-debated legislation,
for two sides with contrapuntal interpretations of a statute to
highlight their respective citations from the legislative debate in
support of their particular views.58 A futile exercise of second-
guessing is happily avoided if the meaning of the statute is clear
on its face. It is evident from the text of Section 5 that there
must be a positive final determination by the Tariff
Commission that a product is being imported into the
country in increased quantities (whether absolute or relative
to domestic production), as to be a substantial cause of
serious injury or threat to the domestic industry. Any
disputation to the contrary is, at best, the product of wishful
thinking.
For the same reason that Section 5 is explicit as regards the
essentiality of a positive final determination by the Tariff
Commission, there is no need to refer to the Implementing Rules
of the SMA to ascertain a contrary intent. If there is indeed a
provision in the Implementing Rules that allows the DTI Secretary
to impose a general safeguard measure even without the positive
final determination by the Tariff Commission, said rule is void as it
cannot supplant the express language of the legislature.
Respondents essentially rehash their previous arguments on this
point, and there is no reason to consider them anew.
The Decision made it clear that nothing in Rule 13.2 of the
Implementing Rules, even though captioned "Final Determination
by the Secretary," authorizes the DTI Secretary to impose a
general safeguard measure in the absence of a positive final
determination by the Tariff Commission.59 Similarly, the "Rules
and Regulations to Govern the Conduct of Investigation by the
Tariff Commission Pursuant to Republic Act No. 8800" now cited
by the respondent does not contain any provision that the DTI
Secretary may impose the general safeguard measures in the
absence of a positive final determination by the Tariff
Commission.
Section 13 of the SMA further bolsters the interpretation as
argued by Southern Cross and upheld by the Decision. The first
paragraph thereof states that "[u]pon its positive determination,
the [Tariff] Commission shall recommend to the Secretary an
appropriate definitive measure…", clearly referring to the Tariff
Commission as the entity that makes the positive determination.
On the other hand, the penultimate paragraph of the same
provision states that "[i]n the event of a negative final
determination", the DTI Secretary is to immediately issue through
the Secretary of Finance, a written instruction to the
Commissioner of Customs authorizing the return of the cash
bonds previously collected as a provisional safeguard measure.
Since the first paragraph of the same provision states that it is the
Tariff Commission which makes the positive determination, it
necessarily follows that it, and not the DTI Secretary, makes the
negative final determination as referred to in the penultimate
paragraph of Section 13.60
The Separate Opinion considers as highly persuasive of former
Tariff Commission Chairman Abon, who stated that the
Commission’s findings are merely recommendatory.61 Again, the
considered opinion of Chairman Abon is of no operative effect if
the statute plainly states otherwise, and Section 5 bluntly does
require a positive final determination by the Tariff Commission
before the DTI Secretary may impose a general safeguard
measure.62Certainly, the Court cannot give controlling effect to
the statements of any public officer in serious denial of his duties
if the law otherwise imposes the duty on the public office or
officer.
Nonetheless, if we are to render persuasive effect on the
considered opinion of the members of the Executive Branch, it
bears noting that the Secretary of the Department of Justice
rendered an Opinion wherein he concluded that the DTI
Secretary could not impose a general safeguard measure if the
Tariff Commission made a negative final determination.63 Unlike
Chairman Abon’s impromptu remarks made during a hearing, the
DOJ Opinion was rendered only after a thorough study of the
question after referral to it by the DTI. The DOJ Secretary is
the alter ego of the President with a stated mandate as the head
of the principal law agency of the government.64 As the DOJ
Secretary has no denominated role in the SMA, he was able to
render his Opinion from the vantage of judicious distance. Should
not his Opinion, studied and direct to the point as it is, carry
greater weight than the spontaneous remarks of the Tariff
Commission’s Chairman which do not even expressly disavow
the binding power of the Commission’s positive final
determination?
III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a
legislative enactment, that the executive branch has the power to
impose safeguard measures. At the same time, by constitutional
fiat, the exercise of such power is subjected to the limitations and
restrictions similarly enforced by the SMA. In examining the
relationship of the DTI and the Tariff Commission as established
in the SMA, it is essential to acknowledge and consider these
predicates.
It is necessary to clarify the paradigm established by the SMA
and affirmed by the Constitution under which the Tariff
Commission and the DTI operate, especially in light of the
suggestions that the Court’s rulings on the functions of quasi-
judicial power find application in this case. Perhaps the reflexive
application of the quasi-judicial doctrine in this case, rooted as it
is in jurisprudence, might allow for some convenience in ruling,
yet doing so ultimately betrays ignorance of the fundamental
power of Congress to reorganize the administrative structure of
governance in ways it sees fit.
The Separate Opinion operates from wholly different premises
which are incomplete. Its main stance, similar to that of
respondents, is that the DTI Secretary, acting as alter ego of the
President, may modify and alter the findings of the Tariff
Commission, including the latter’s negative final determination by
substituting it with his own negative final determination to pave
the way for his imposition of a safeguard measure.65 Fatally, this
conclusion is arrived at without considering the fundamental
constitutional precept under Section 28(2), Article VI, on the
ability of Congress to impose restrictions and limitations in its
delegation to the President to impose tariffs and imposts, as well
as the express condition of Section 5 of the SMA requiring a
positive final determination of the Tariff Commission.
Absent Section 5 of the SMA, the President has no inherent,
constitutional, or statutory power to impose a general
safeguard measure. Tellingly, the Separate Opinion does not
directly confront the inevitable question as to how the DTI
Secretary may get away with imposing a general safeguard
measure absent a positive final determination from the Tariff
Commission without violating Section 5 of the SMA, which along
with Section 13 of the same law, stands as the only direct legal
authority for the DTI Secretary to impose such measures. This is
a constitutionally guaranteed limitation of the highest order,
considering that the presidential authority exercised under the
SMA is inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of
whether the DTI Secretary, acting either as alter ego of the
President or in his capacity as head of an executive department,
may review, modify or otherwise alter the final determination of
the Tariff Commission under the SMA. The succeeding
discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the
designation of the DTI or Agriculture secretaries under the SMA
as the imposing authorities of the safeguard measures, even
though Section 28(2) Article VI states that it is the President to
whom the power to impose tariffs and imposts may be delegated
by Congress. The validity of such designation under the SMA
should not be in doubt. We recognize that the authorization made
by Congress in the SMA to the DTI and Agriculture Secretaries
was made in contemplation of their capacities as alter egos of the
President.
Indeed, in Marc Donnelly & Associates v. Agregado66 the Court
upheld the validity of a Cabinet resolution fixing the schedule of
royalty rates on metal exports and providing for their collection
even though Congress, under Commonwealth Act No. 728, had
specifically empowered the President and not any other official of
the executive branch, to regulate and curtail the export of metals.
In so ruling, the Court held that the members of the Cabinet were
acting as alter egos of the President.67 In this case, Congress
itself authorized the DTI Secretary as alter ego of the President to
impose the safeguard measures. If the Court was previously
willing to uphold the alter ego’s tariff authority despite the
absence of explicit legislative grant of such authority on the alter
ego, all the more reason now when Congress itself expressly
authorized the alter ego to exercise these powers to impose
safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing
the roles to be played therein by the Tariff Commission and the
DTI Secretary did not envision that the President, or his/her alter
ego, could exercise supervisory powers over the Tariff
Commission. If truly Congress intended to allow the traditional
"alter ego" principle to come to fore in the peculiar setup
established by the SMA, it would have assigned the role now
played by the DTI Secretary under the law instead to the NEDA.
The Tariff Commission is an attached agency of the National
Economic Development Authority,68 which in turn is the
independent planning agency of the government.69
The Tariff Commission does not fall under the administrative
supervision of the DTI.70 On the other hand, the administrative
relationship between the NEDA and the Tariff Commission is
established not only by the Administrative Code, but similarly
affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v.
Executive Secretary71, acknowledged the interplay between the
NEDA and the Tariff Commission under the Tariff and Customs
Code when he cited the relevant provisions of that law evidencing
such setup. Indeed, under Section 104 of the Tariff and Customs
Code, the rates of duty fixed therein are subject to periodic
investigation by the Tariff Commission and may be revised by the
President upon recommendation of the NEDA.72 Moreover, under
Section 401 of the same law, it is upon periodic investigations by
the Tariff Commission and recommendation of the NEDA that the
President may cause a gradual reduction of protection levels
granted under the law.73
At the same time, under the Tariff and Customs Code, no similar
role or influence is allocated to the DTI in the matter of imposing
tariff duties. In fact, the long-standing tradition has been for the
Tariff Commission and the DTI to proceed independently in the
exercise of their respective functions. Only very recently have our
statutes directed any significant interplay between the Tariff
Commission and the DTI, with the enactment in 1999 of Republic
Act No. 8751 on the imposition of countervailing duties and
Republic Act No. 8752 on the imposition of anti-dumping duties,
and of course the promulgation a year later of the SMA. In all
these three laws, the Tariff Commission is tasked, upon referral of
the matter by the DTI, to determine whether the factual conditions
exist to warrant the imposition by the DTI of a countervailing duty,
an anti-dumping duty, or a general safeguard measure,
respectively. In all three laws, the determination by the Tariff
Commission that these required factual conditions exist is
necessary before the DTI Secretary may impose the
corresponding duty or safeguard measure. And in all three laws,
there is no express provision authorizing the DTI Secretary to
reverse the factual determination of the Tariff Commission.74
In fact, the SMA indubitably establishes that the Tariff
Commission is no mere flunky of the DTI Secretary when it
mandates that the positive final recommendation of the former be
indispensable to the latter’s imposition of a general safeguard
measure. What the law indicates instead is a relationship of
interdependence between two bodies independent of each other
under the Administrative Code and the SMA alike. Indeed, even
the ability of the DTI Secretary to disregard the Tariff
Commission’s recommendations as to the particular safeguard
measures to be imposed evinces the independence from each
other of these two bodies. This is properly so for two reasons –
the DTI and the Tariff Commission are independent of each other
under the Administrative Code; and impropriety is avoided in
cases wherein the DTI itself is the one seeking the imposition of
the general safeguard measures, pursuant to Section 6 of the
SMA.
Thus, in ascertaining the appropriate legal milieu governing the
relationship between the DTI and the Tariff Commission, it is
imperative to apply foremost, if not exclusively, the provisions of
the SMA. The argument that the usual rules on administrative
control and supervision apply between the Tariff Commission and
the DTI as regards safeguard measures is severely undercut by
the plain fact that there is no long-standing tradition of
administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission
appears to be a lower rank relative to the DTI. But does this
necessarily mean that the DTI has the intrinsic right, absent
statutory authority, to reverse the findings of the Tariff
Commission? To insist that it does, one would have to concede
for instance that, applying the same doctrinal guide, the Secretary
of the Department of Science and Technology (DOST) has the
right to reverse the rulings of the Civil Aeronautics Board (CAB)
or the issuances of the Philippine Coconut Authority (PCA). As
with the Tariff Commission-DTI, there is no statutory authority
granting the DOST Secretary the right to overrule the CAB or the
PCA, such right presumably arising only from the position of
subordinacy of these bodies to the DOST. To insist on such a
right would be to invite department secretaries to interfere in the
exercise of functions by administrative agencies, even in areas
wherein such secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the
Secretary of Department of Transportation and Communication
may review the findings of the CAB, the Agriculture Secretary
may review those of the PCA, and that the Secretary of the
Department of Environment and Natural Resources may pass
upon decisions of the Mines and Geosciences Board.75 These
three officers may be alter egos of the President, yet their
authority to review is limited to those agencies or bureaus which
are, pursuant to statutes such as the Administrative Code of
1987, under the administrative control and supervision of their
respective departments. Thus, under the express provision of the
Administrative Code expressly provides that the CAB is an
attached agency of the DOTC76, and that the PCA is an attached
agency of the Department of Agriculture.77 The same law
establishes the Mines and Geo-Sciences Bureau as one of the
Sectoral Staff Bureaus78 that forms part of the organizational
structure of the DENR.79
As repeatedly stated, the Tariff Commission does not fall under
the administrative control of the DTI, but under the NEDA,
pursuant to the Administrative Code. The reliance made by
the Separate Opinion to those three examples are thus
misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created
a functional relationship between the Tariff Commission and the
DTI Secretary, sufficient to allow the DTI Secretary to
exercise alter ego powers to reverse the determination of the
Tariff Commission. Again, considering that the power to impose
tariffs in the first place is not inherent in the President but arises
only from congressional grant, we should affirm the congressional
prerogative to impose limitations and restrictions on such powers
which do not normally belong to the executive in the first place.
Nowhere in the SMA does it state that the DTI Secretary may
impose general safeguard measures without a positive final
determination by the Tariff Commission, or that the DTI Secretary
may reverse or even review the factual determination made by
the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be
played therein by the Tariff Commission and the DTI Secretary
did not envision that the President, or his/her alter ego could
exercise supervisory powers over the Tariff Commission. If truly
Congress intended to allow the traditional alter ego principle to
come to fore in the peculiar setup established by the SMA, it
would have assigned the role now played by the DTI Secretary
under the law instead to the NEDA, the body to which the Tariff
Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and
supervision exercised by the head of an executive department,
but only over those subordinate offices that are attached to the
department, or which are, under statute, relegated under its
supervision and control. To declare that a department secretary,
even if acting as alter ego of the President, may exercise such
control or supervision over all executive offices below cabinet
rank would lead to absurd results such as those adverted to
above. As applied to this case, there is no legal justification for
the DTI Secretary to exercise control, supervision, review or
amendatory powers over the Tariff Commission and its positive
final determination. In passing, we note that there is, admittedly, a
feasible mode by which administrative review of the Tariff
Commission’s final determination could be had, but it is not the
procedure adopted by respondents and now suggested for
affirmation. This mode shall be discussed in a forthcoming
section.
The Separate Opinion asserts that the President, or his/her alter
ego cannot be made a mere rubber stamp of the Tariff
Commission since Section 17, Article VII of the Constitution
denominates the Chief Executive exercises control over all
executive departments, bureaus and offices.80 But let us be clear
that such "executive control" is not absolute. The definition of the
structure of the executive branch of government, and the
corresponding degrees of administrative control and supervision,
is not the exclusive preserve of the executive. It may be
effectively be limited by the Constitution, by law, or by judicial
decisions.
The Separate Opinion cites the respected constitutional law
authority Fr. Joaquin Bernas, in support of the proposition that
such plenary power of executive control of the President cannot
be restricted by a mere statute passed by Congress. However,
the cited passage from Fr. Bernas actually states, "Since the
Constitution has given the President the power of control, with all
its awesome implications, it is the Constitution alone which can
curtail such power."81 Does the President have such tariff powers
under the Constitution in the first place which may be curtailed by
the executive power of control? At the risk of redundancy, we
quote Section 28(2), Article VI: "The Congress may, by law,
authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national
development program of the Government." Clearly the power to
impose tariffs belongs to Congress and not to the President.
It is within reason to assume the framers of the Constitution
deemed it too onerous to spell out all the possible limitations and
restrictions on this presidential authority to impose tariffs. Hence,
the Constitution especially allowed Congress itself to prescribe
such limitations and restrictions itself, a prudent move considering
that such authority inherently belongs to Congress and not the
President. Since Congress has no power to amend the
Constitution, it should be taken to mean that such limitations and
restrictions should be provided "by mere statute". Then again,
even the presidential authority to impose tariffs arises only "by
mere statute." Indeed, this presidential privilege is both
contingent in nature and legislative in origin. These
characteristics, when weighed against the aspect of
executive control and supervision, cannot militate against
Congress’s exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its
unwieldiness, is mere putty in the hands of Congress. The
functions and mandates of the particular executive departments
and bureaus are not created by the President, but by the
legislative branch through the Administrative Code. 82 The
President is the administrative head of the executive department,
as such obliged to see that every government office is managed
and maintained properly by the persons in charge of it in
accordance with pertinent laws and regulations, and empowered
to promulgate rules and issuances that would ensure a more
efficient management of the executive branch, for so long as such
issuances are not contrary to law.83 Yet the legislature has the
concurrent power to reclassify or redefine the executive
bureaucracy, including the relationship between various
administrative agencies, bureaus and departments, and
ultimately, even the power to abolish executive departments and
their components, hamstrung only by constitutional limitations.
The DTI itself can be abolished with ease by Congress through
deleting Title X, Book IV of the Administrative Code. The Tariff
Commission can similarly be abolished through legislative
enactment. 84
At the same time, Congress can enact additional tasks or
responsibilities on either the Tariff Commission or the DTI
Secretary, such as their respective roles on the imposition of
general safeguard measures under the SMA. In doing so, the
same Congress, which has the putative authority to abolish
the Tariff Commission or the DTI, is similarly empowered to
alter or expand its functions through modalities which do not
align with established norms in the bureaucratic structure.
The Court is bound to recognize the legislative prerogative to
prescribe such modalities, no matter how atypical they may be, in
affirmation of the legislative power to restructure the executive
branch of government.
There are further limitations on the "executive control" adverted to
by the Separate Opinion. The President, in the exercise of
executive control, cannot order a subordinate to disobey a final
decision of this Court or any court’s. If the subordinate chooses to
disobey, invoking sole allegiance to the President, the judicial
processes can be utilized to compel obeisance. Indeed, when
public officers of the executive department take their oath of
office, they swear allegiance and obedience not to the President,
but to the Constitution and the laws of the land. The invocation of
executive control must yield when under its subsumption includes
an act that violates the law.
The Separate Opinion concedes that the exercise of executive
control and supervision by the President is bound by the
Constitution and law.85 Still, just three sentences after asserting
that the exercise of executive control must be within the bounds
of the Constitution and law, the Separate Opinion asserts, "the
control power of the Chief Executive emanates from the
Constitution; no act of Congress may validly curtail it."86 Laws are
acts of Congress, hence valid confusion arises whether
the Separate Opinion truly believes the first proposition that
executive control is bound by law. This is a quagmire for
the Separate Opinion to resolve for itself
The Separate Opinion unduly considers executive control as
the ne plus ultra constitutional standard which must govern in this
case. But while the President may generally have the power to
control, modify or set aside the actions of a subordinate, such
powers may be constricted by the Constitution, the legislature,
and the judiciary. This is one of the essences of the check-and-
balance system in our tri-partite constitutional democracy. Not
one head of a branch of government may operate as a Caesar
within his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in
Section 28 (2), Article VI of the Constitution and the general
executive power of control and supervision, the former prevails in
the specific instance of safeguard measures such as tariffs and
imposts, and would thus serve to qualify the general grant to the
President of the power to exercise control and supervision over
his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary
is "bound" by the Tariff Commission in the sense the former
cannot impose general safeguard measures absent a final
positive determination from the latter the Court is obliged to
respect such legislative prerogative, no matter how such
arrangement deviates from traditional norms as may have been
enshrined in jurisprudence. The only ground under which such
legislative determination as expressed in statute may be
successfully challenged is if such legislation contravenes the
Constitution. No such argument is posed by the respondents,
who do not challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the
interrelationship between the Tariff Commission and the DTI
Secretary beyond the context of the SMA, applying instead
traditional precepts on administrative control, review and
supervision. For that reason, the Decision deemed inapplicable
respondents’ previous citations of Cariño v. Commissioner on
Human Rights and Lamb v. Phipps, since the executive power
adverted to in those cases had not been limited by constitutional
restrictions such as those imposed under Section 28(2), Article
VI.87
A similar observation can be made on the case of Sharp
International Marketing v. Court of Appeals,88 now cited by
Philcemcor, wherein the Court asserted that the Land Bank of the
Philippines was required to exercise independent judgment and
not merely rubber-stamp deeds of sale entered into by the
Department of Agrarian Reform in connection with the agrarian
reform program. Philcemcor attempts to demonstrate that the DTI
Secretary, as with the Land Bank of the Philippines, is required to
exercise independent discretion and is not expected to just
merely accede to DAR-approved compensation packages. Yet
again, such grant of independent discretion is expressly called for
by statute, particularly Section 18 of Rep. Act No. 6657 which
specifically requires the joint concurrence of "the landowner and
the DAR and the [Land Bank of the Philippines]" on the amount of
compensation. Such power of review by the Land Bank is a
consequence of clear statutory language, as is our holding in
the Decision that Section 5 explicitly requires a positive final
determination by the Tariff Commission before a general
safeguard measure may be imposed. Moreover, such limitations
under the SMA are coated by the constitutional authority of
Section 28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by
Congress and enshrined into the SMA, truly noxious to existing
legal standards? The Decision acknowledged the internal logic of
the statutory framework, considering that the DTI cannot exercise
review powers over an agency such as the Tariff Commission
which is not within its administrative jurisdiction; that the
mechanism employed establishes a measure of check and
balance involving two government offices with different
specializations; and that safeguard measures are the exception
rather than the rule, pursuant to our treaty obligations.89
We see no reason to deviate from these observations, and
indeed can add similarly oriented comments. Corollary to the
legislative power to decree policies through legislation is the
ability of the legislature to provide for means in the statute itself to
ensure that the said policy is strictly implemented by the body or
office tasked so tasked with the duty. As earlier stated, our treaty
obligations dissuade the State for now from implementing default
protectionist trade measures such as tariffs, and allow the same
only under specified conditions.90The conditions enumerated
under the GATT Agreement on Safeguards for the application of
safeguard measures by a member country are the same as the
requisites laid down in Section 5 of the SMA.91 To insulate the
factual determination from political pressure, and to assure that it
be conducted by an entity especially qualified by reason of its
general functions to undertake such investigation, Congress
deemed it necessary to delegate to the Tariff Commission the
function of ascertaining whether or not the those factual
conditions exist to warrant the atypical imposition of safeguard
measures. After all, the Tariff Commission retains a degree of
relative independence by virtue of its attachment to the National
Economic Development Authority, "an independent planning
agency of the government,"92 and also owing to its vaunted
expertise and specialization.
The matter of imposing a safeguard measure almost always
involves not just one industry, but the national interest as it
encompasses other industries as well. Yet in all candor, any
decision to impose a safeguard measure is susceptible to all sorts
of external pressures, especially if the domestic industry
concerned is well-organized. Unwarranted impositions of
safeguard measures may similarly be detrimental to the national
interest. Congress could not be blamed if it desired to insulate the
investigatory process by assigning it to a body with a putative
degree of independence and traditional expertise in ascertaining
factual conditions. Affected industries would have cause to lobby
for or against the safeguard measures. The decision-maker is in
the unenviable position of having to bend an ear to listen to all
concerned voices, including those which may speak softly but
carry a big stick. Had the law mandated that the decision be
made on the sole discretion of an executive officer, such as the
DTI Secretary, it would be markedly easier for safeguard
measures to be imposed or withheld based solely on political
considerations and not on the factual conditions that are
supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff
Commission is of course, not a fail-safe means to ensure a bias-
free determination. But at least the legislated involvement of the
Commission in the process assures some measure of measure
of check and balance involving two different governmental
agencies with disparate specializations. There is no legal or
constitutional demand for such a setup, but its wisdom as policy
should be acknowledged. As prescribed by Congress, both the
Tariff Commission and the DTI Secretary operate within limited
frameworks, under which nobody acquires an undue advantage
over the other.
We recognize that Congress deemed it necessary to insulate the
process in requiring that the factual determination to be made by
an ostensibly independent body of specialized competence, the
Tariff Commission. This prescribed framework, constitutionally
sanctioned, is intended to prevent the baseless, whimsical, or
consideration-induced imposition of safeguard measures. It
removes from the DTI Secretary jurisdiction over a matter beyond
his putative specialized aptitude, the compilation and analysis of
picayune facts and determination of their limited causal relations,
and instead vests in the Secretary the broad choice on a matter
within his unquestionable competence, the selection of what
particular safeguard measure would assist the duly beleaguered
local industry yet at the same time conform to national trade
policy. Indeed, the SMA recognizes, and places primary
importance on the DTI Secretary’s mandate to formulate trade
policy, in his capacity as the President’s alter ego on trade,
industry and investment-related matters.
At the same time, the statutory limitations on this authorized
power of the DTI Secretary must prevail since the Constitution
itself demands the enforceability of those limitations and
restrictions as imposed by Congress. Policy wisdom will not save
a law from infirmity if the statutory provisions violate the
Constitution. But since the Constitution itself provides that the
President shall be constrained by the limits and restrictions
imposed by Congress and since these limits and restrictions are
so clear and categorical, then the Court has no choice but to
uphold the reins.
Even assuming that this prescribed setup made little sense, or
seemed "uncommonly silly,"93 the Court is bound by propriety not
to dispute the wisdom of the legislature as long as its acts do not
violate the Constitution. Since there is no convincing
demonstration that the SMA contravenes the Constitution, the
Court is wont to respect the administrative regimen propounded
by the law, even if it allots the Tariff Commission a higher degree
of puissance than normally expected. It is for this reason that the
traditional conceptions of administrative review or quasi-judicial
power cannot control in this case.
Indeed, to apply the latter concept would cause the Court to fall
into a linguistic trap owing to the multi-faceted denotations the
term "quasi-judicial" has come to acquire.
Under the SMA, the Tariff Commission undertakes formal
hearings,94 receives and evaluates testimony and evidence by
interested parties,95 and renders a decision is rendered on the
basis of the evidence presented, in the form of the final
determination. The final determination requires a conclusion
whether the importation of the product under consideration is
causing serious injury or threat to a domestic industry producing
like products or directly competitive products, while evaluating all
relevant factors having a bearing on the situation of the domestic
industry.96 This process aligns conformably with definition
provided by Black’s Law Dictionary of "quasi-judicial" as the
"action, discretion, etc., of public administrative officers or bodies,
who are required to investigate facts, or ascertain the existence of
facts, hold hearings, weigh evidence, and draw conclusions from
them, as a basis for their official action, and to exercise discretion
of a judicial nature."97
However, the Tariff Commission is not empowered to hear actual
cases or controversies lodged directly before it by private parties.
It does not have the power to issue writs of injunction or
enforcement of its determination. These considerations militate
against a finding of quasi-judicial powers attributable to the Tariff
Commission, considering the pronouncement that "quasi-judicial
adjudication would mean a determination of rights privileges and
duties resulting in a decision or order which applies to a specific
situation."98
Indeed, a declaration that the Tariff Commission possesses
quasi-judicial powers, even if ascertained for the limited purpose
of exercising its functions under the SMA, may have the
unfortunate effect of expanding the Commission’s powers beyond
that contemplated by law. After all, the Tariff Commission is by
convention, a fact-finding body, and its role under the SMA,
burdened as it is with factual determination, is but a mere
continuance of this tradition. However, Congress through the
SMA offers a significant deviation from this traditional role by
tying the decision by the DTI Secretary to impose a safeguard
measure to the required positive factual determination by the
Tariff Commission. Congress is not bound by past traditions, or
even by the jurisprudence of this Court, in enacting legislation it
may deem as suited for the times. The sole benchmark for judicial
substitution of congressional wisdom is constitutional
transgression, a standard which the respondents do not even
attempt to match.
Respondents’ Suggested Interpretation
Of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decision’s
interpretation of the SMA, particularly of the role of the Tariff
Commission vis-à-vis the DTI Secretary, is noxious to traditional
notions of administrative control and supervision. But in doing so,
they have failed to acknowledge the congressional prerogative to
redefine administrative relationships, a license which falls within
the plenary province of Congress under our representative
system of democracy. Moreover, respondents’ own suggested
interpretation falls wayward of expectations of practical fair play.
Adopting respondents’ suggestion that the DTI Secretary may
disregard the factual findings of the Tariff Commission and
investigatory process that preceded it, it would seem that the
elaborate procedure undertaken by the Commission under the
SMA, with all the attendant guarantees of due process, is but an
inutile spectacle. As Justice Garcia noted during the oral
arguments, why would the DTI Secretary bother with the Tariff
Commission and instead conduct the investigation himself.99
Certainly, nothing in the SMA authorizes the DTI Secretary, after
making the preliminary determination, to personally oversee the
investigation, hear out the interested parties, or receive
evidence.100 In fact, the SMA does not even require the Tariff
Commission, which is tasked with the custody of the submitted
evidence,101 to turn over to the DTI Secretary such evidence it
had evaluated in order to make its factual
determination.102Clearly, as Congress tasked it to be, it is the
Tariff Commission and not the DTI Secretary which acquires the
necessary intimate acquaintance with the factual conditions and
evidence necessary for the imposition of the general safeguard
measure. Why then favor an interpretation of the SMA that leaves
the findings of the Tariff Commission bereft of operative effect
and makes them subservient to the wishes of the DTI Secretary,
a personage with lesser working familiarity with the relevant
factual milieu? In fact, the bare theory of the respondents would
effectively allow the DTI Secretary to adopt, under the subterfuge
of his "discretion", the factual determination of a private
investigative group hired by the industry concerned, and reject
the investigative findings of the Tariff Commission as mandated
by the SMA. It would be highly irregular to substitute what the law
clearly provides for a dubious setup of no statutory basis that
would be readily susceptible to rank chicanery.
Moreover, the SMA guarantees the right of all concerned parties
to be heard, an elemental requirement of due process, by the
Tariff Commission in the context of its investigation. The DTI
Secretary is not similarly empowered or tasked to hear out the
concerns of other interested parties, and if he/she does so, it
arises purely out of volition and not compulsion under law.
Indeed, in this case, it is essential that the position of other than
that of the local cement industry should be given due
consideration, cement being an indispensable need for the
operation of other industries such as housing and construction.
While the general safeguard measures may operate to the better
interests of the domestic cement industries, its deprivation of
cheaper cement imports may similarly work to the detriment of
these other domestic industries and correspondingly, the national
interest. Notably, the Tariff Commission in this case heard the
views on the application of representatives of other allied
industries such as the housing, construction, and cement-bag
industries, and other interested parties such as consumer groups
and foreign governments.103 It is only before the Tariff
Commission that their views had been heard, and this is because
it is only the Tariff Commission which is empowered to hear their
positions. Since due process requires a judicious consideration of
all relevant factors, the Tariff Commission, which is in a better
position to hear these parties than the DTI Secretary, is similarly
more capable to render a determination conformably with the due
process requirements than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances
when it is the DTI Secretary who initiates motu proprio the
application for the safeguard measure pursuant to Section 6 of
the SMA, respondents’ suggested interpretation would result in
the awkward situation wherein the DTI Secretary would rule upon
his own application after it had been evaluated by the Tariff
Commission. Pertinently cited is our ruling in Corona v. Court of
Appeals104 that "no man can be at once a litigant and
judge."105 Certainly, this anomalous situation is avoided if it is the
Tariff Commission which is tasked with arriving at the final
determination whether the conditions exist to warrant the general
safeguard measures. This is the setup provided for by the
express provisions of the SMA, and the problem would arise only
if we adopt the interpretation urged upon by respondents.
The Possibility for Administrative Review
Of the Tariff Commission’s Determination
The Court has been emphatic that a positive final determination
from the Tariff Commission is required in order that the DTI
Secretary may impose a general safeguard measure, and that the
DTI Secretary has no power to exercise control and supervision
over the Tariff Commission and its final determination. These
conclusions are the necessary consequences of the applicable
provisions of the Constitution, the SMA, and laws such as the
Administrative Code. However, the law is silent though on
whether this positive final determination may otherwise be
subjected to administrative review.
There is no evident legislative intent by the authors of the SMA to
provide for a procedure of administrative review. If ever there is a
procedure for administrative review over the final determination of
the Tariff Commission, such procedure must be done in a manner
that does not contravene or disregard legislative prerogatives as
expressed in the SMA or the Administrative Code, or fundamental
constitutional limitations.
In order that such procedure of administrative review would not
contravene the law and the constitutional scheme provided by
Section 28(2), Article VI, it is essential to assert that the positive
final determination by the Tariff Commission is indispensable as a
requisite for the imposition of a general safeguard measure. The
submissions of private respondents and the Separate
Opinion cannot be sustained insofar as they hold that the DTI
Secretary can peremptorily ignore or disregard the determinations
made by the Tariff Commission. However, if the mode of
administrative review were in such a manner that the
administrative superior of the Tariff Commission were to modify or
alter its determination, then such "reversal" may still be valid
within the confines of Section 5 of the SMA, for technically it is
still the Tariff Commission’s determination, administratively
revised as it may be, that would serve as the basis for the DTI
Secretary’s action.
However, and fatally for the present petitions, such administrative
review cannot be conducted by the DTI Secretary. Even if
conceding that the Tariff Commission’s findings may be
administratively reviewed, the DTI Secretary has no authority to
review or modify the same. We have been emphatic on the
reasons — such as that there is no traditional or statutory basis
placing the Commission under the control and supervision of the
DTI; that to allow such would contravene due process, especially
if the DTI itself were to apply for the safeguard measures motu
proprio. To hold otherwise would destroy the administrative
hierarchy, contravene constitutional due process, and disregard
the limitations or restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the
NEDA that may conduct such review following the principles of
administrative law, and the NEDA’s decision in turn is reviewable
by the Office of the President. The decision of the Office of the
President then effectively substitutes as the determination of the
Tariff Commission, which now forms the basis of the DTI
Secretary’s decision, which now would be ripe for judicial review
by the CTA under Section 29 of the SMA. This is the only way
that administrative review of the Tariff Commission’s
determination may be sustained without violating the SMA and its
constitutional restrictions and limitations, as well as administrative
law.
In bare theory, the NEDA may review, alter or modify the Tariff
Commission’s final determination, the Commission being an
attached agency of the NEDA. Admittedly, there is nothing in the
SMA or any other statute that would prevent the NEDA to
exercise such administrative review, and successively, for the
President to exercise in turn review over the NEDA’s decision.
Nonetheless, in acknowledging this possibility, the Court, without
denigrating the bare principle that administrative officers may
exercise control and supervision over the acts of the bodies under
its jurisdiction, realizes that this comes at the expense of a
speedy resolution to an application for a safeguard measure, an
application dependent on fluctuating factual conditions. The
further delay would foster uncertainty and insecurity within the
industry concerned, as well as with all other allied industries,
which in turn may lead to some measure of economic damage.
Delay is certain, since judicial review authorized by law and not
administrative review would have the final say. The fact that the
SMA did not expressly prohibit administrative review of the final
determination of the Tariff Commission does not negate the
supreme advantages of engendering exclusive judicial review
over questions arising from the imposition of a general safeguard
measure.
In any event, even if we conceded the possibility of administrative
review of the Tariff Commission’s final determination by the
NEDA, such would not deny merit to the present petition. It does
not change the fact that the Court of Appeals erred in ruling that
the DTI Secretary was not bound by the negative final
determination of the Tariff Commission, or that the DTI Secretary
acted without jurisdiction when he imposed general safeguard
measures despite the absence of the statutory positive final
determination of the Commission.
IV. Court’s Interpretation of SMA
In Harmony with Other
Constitutional Provisions
In response to our citation of Section 28(2), Article VI,
respondents elevate two arguments grounded in constitutional
law. One is based on another constitutional provision, Section 12,
Article XIII, which mandates that "[t]he State shall promote the
preferential use of Filipino labor, domestic materials and locally
produced goods and adopt measures that help make them
competitive." By no means does this provision dictate that the
Court favor the domestic industry in all competing claims that it
may bring before this Court. If it were so, judicial proceedings in
this country would be rendered a mockery, resolved as they
would be, on the basis of the personalities of the litigants and not
their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls
primarily with Congress, which in that regard enacted the SMA, a
law designed to protect domestic industries from the possible ill-
effects of our accession to the global trade order. Inconveniently
perhaps for respondents, the SMA also happens to provide for a
procedure under which such protective measures may be
enacted. The Court cannot just impose what it deems as the spirit
of the law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that
the purpose of the SMA is to protect or safeguard local industries
from increased importation of foreign products.106 This
inaccurately leaves the impression that the SMA ipso
facto unravels a protective cloak that shelters all local industries
and producers, no matter the conditions. Indeed, our country has
knowingly chosen to accede to the world trade regime, as
expressed in the GATT and WTO Agreements, despite the
understanding that local industries might suffer ill-effects,
especially with the easier entry of competing foreign products. At
the same time, these international agreements were designed to
constrict protectionist trade policies by its member-countries.
Hence, the median, as expressed by the SMA, does allow for the
application of protectionist measures such as tariffs, but only after
an elaborate process of investigation that ensures factual basis
and indispensable need for such measures. More accurately, the
purpose of the SMA is to provide a process for the protection or
safeguarding of domestic industries that have duly established
that there is substantial injury or threat thereof directly caused by
the increased imports. In short, domestic industries are not
entitled to safeguard measures as a matter of right or influence.
Respondents also make the astounding argument that the
imposition of general safeguard measures should not be seen as
a taxation measure, but instead as an exercise of police power.
The vain hope of respondents in divorcing the safeguard
measures from the concept of taxation is to exclude from
consideration Section 28(2), Article VI of the Constitution.
This argument can be debunked at length, but it deserves little
attention. The motivation behind many taxation measures is the
implementation of police power goals. Progressive income taxes
alleviate the margin between rich and poor; the so-called "sin
taxes" on alcohol and tobacco manufacturers help dissuade the
consumers from excessive intake of these potentially harmful
products. Taxation is distinguishable from police power as to the
means employed to implement these public good goals. Those
doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects of
taxation,107 and the belief that taxes are the lifeblood of the
state.108 These considerations necessitated the evolution of
taxation as a distinct legal concept from police power. Yet at the
same time, it has been recognized that taxation may be made the
implement of the state’s police power.109
Even assuming that the SMA should be construed exclusively as
a police power measure, the Court recognizes that police power
is lodged primarily in the national legislature, though it may also
be exercised by the executive branch by virtue of a valid
delegation of legislative power.110 Considering these premises, it
is clear that police power, however "illimitable" in theory, is still
exercised within the confines of implementing legislation. To
declare otherwise is to sanction rule by whim instead of rule of
law. The Congress, in enacting the SMA, has delegated the
power to impose general safeguard measures to the executive
branch, but at the same time subjected such imposition to
limitations, such as the requirement of a positive final
determination by the Tariff Commission under Section 5. For the
executive branch to ignore these boundaries imposed by
Congress is to set up an ignoble clash between the two co-equal
branches of government. Considering that the exercise of police
power emanates from legislative authority, there is little question
that the prerogative of the legislative branch shall prevail in such
a clash.
V. Assailed Decision Consistent
With Ruling in Tañada v. Angara
Public respondents allege that the Decision is contrary to our
holding in Tañada v. Angara,111 since the Court noted therein that
the GATT itself provides built-in protection from unfair foreign
competition and trade practices, which according to the public
respondents, was a reason "why the Honorable [Court] ruled the
way it did." On the other hand, the Decision "eliminates safeguard
measures as a mode of defense."
This is balderdash, as with any and all claims that
the Decision allows foreign industries to ride roughshod over our
domestic enterprises. The Decision does not prohibit the
imposition of general safeguard measures to protect domestic
industries in need of protection. All it affirms is that the positive
final determination of the Tariff Commission is first required
before the general safeguard measures are imposed and
implemented, a neutral proposition that gives no regard to the
nationalities of the parties involved. A positive determination by
the Tariff Commission is hardly the elusive Shangri-la of
administrative law. If a particular industry finds it difficult to obtain
a positive final determination from the Tariff Commission, it may
be simply because the industry is still sufficiently competitive
even in the face of foreign competition. These safeguard
measures are designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the
colors of the flag. Yet these postures hardly advance legal claims,
or nationalism for that matter. The fineries of the costume
pageant are no better measure of patriotism than simple
obedience to the laws of the Fatherland. And even assuming that
respondents are motivated by genuine patriotic impulses, it must
be remembered that under the setup provided by the SMA, it is
the facts, and not impulse, that determine whether the protective
safeguard measures should be imposed. As once orated, facts
are stubborn things; and whatever may be our wishes, our
inclinations, or the dictates of our passions, they cannot alter the
state of facts and evidence.112
It is our goal as judges to enforce the law, and not what we might
deem as correct economic policy. Towards this end, we should
not construe the SMA to unduly favor or disfavor domestic
industries, simply because the law itself provides for a
mechanism by virtue of which the claims of these industries are
thoroughly evaluated before they are favored or disfavored. What
we must do is to simply uphold what the law says. Section 5 says
that the DTI Secretary shall impose the general safeguard
measures upon the positive final determination of the Tariff
Commission. Nothing in the whereas clauses or the invisible ink
provisions of the SMA can magically delete the words "positive
final determination" and "Tariff Commission" from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate
forum-shopping in this case by Southern Cross. The causes of
action that animate this present petition for review and the petition
for review with the CTA are distinct from each other, even though
they relate to similar factual antecedents. Yet it also appears that
contrary to the undertaking signed by the President of Southern
Cross, Hironobu Ryu, to inform this Court of any similar action or
proceeding pending before any court, tribunal or agency within
five (5) days from knowledge thereof, Southern Cross informed
this Court only on 12 August 2003 of the petition it had filed with
the CTA eleven days earlier. An appropriate sanction is
warranted for such failure, but not the dismissal of the petition.
VII. Effects of Court’s Resolution
Philcemcor argues that the granting of Southern
Cross’s Petition should not necessarily lead to the voiding of
the Decision of the DTI Secretary dated 5 August 2003 imposing
the general safeguard measures. For Philcemcor, the availability
of appeal to the CTA as an available and adequate remedy would
have made the Court of Appeals’ Decision merely erroneous or
irregular, but not void. Moreover, the said Decision merely
required the DTI Secretary to render a decision, which could have
very well been a decision not to impose a safeguard measure;
thus, it could not be said that the annulled decision resulted from
the judgment of the Court of Appeals.
The Court of Appeals’ Decision was annulled precisely because
the appellate court did not have the power to rule on the petition
in the first place. Jurisdiction is necessarily the power to decide a
case, and a court which does not have the power to adjudicate a
case is one that is bereft of jurisdiction. We find no reason to
disturb our earlier finding that the Court of Appeals’ Decision is
null and void.
At the same time, the Court in its Decision paid particular heed to
the peculiarities attaching to the 5 August 2003 Decision of the
DTI Secretary. In the DTI Secretary’s Decision, he expressly
stated that as a result of the Court of Appeals’ Decision, "there is
no legal impediment for the Secretary to decide on the
application." Yet the truth remained that there was a legal
impediment, namely, that the decision of the appellate court was
not yet final and executory. Moreover, it was declared null and
void, and since the DTI Secretary expressly denominated the
Court of Appeals’ Decision as his basis for deciding to impose the
safeguard measures, the latter decision must be voided as well.
Otherwise put, without the Court of Appeals’ Decision, the DTI
Secretary’s Decision of 5 August 2003 would not have been
rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI
Secretary’s Decision dated 5 August 2003. As a necessary
consequence, no further action can be taken on
Philcemcor’s Petition for Extension of the Safeguard Measure.
Obviously, if the imposition of the general safeguard measure is
void as we declared it to be, any extension thereof should
likewise be fruitless. The proper remedy instead is to file a new
application for the imposition of safeguard measures, subject to
the conditions prescribed by the SMA. Should this step be
eventually availed of, it is only hoped that the parties involved
would content themselves in observing the proper procedure,
instead of making a mockery of the rule of law.
WHEREFORE, respondents’ Motions for Reconsideration are
DENIED WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any
further action on the pending Petition for Extension of the
Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement
Corporation, and Angara Abello Concepcion Regala & Cruz,
counsel petitioner, are hereby given FIVE (5) days from receipt of
this Resolution to EXPLAIN why they should not be meted
disciplinary sanction for failing to timely inform the Court of the
filing of Southern Cross’s Petition for Review with the Court of
Tax Appeals, as adverted to earlier in this Resolution.
SO ORDERED.
G.R. No. 152675 April 28, 2004
BATANGAS POWER CORPORATION, petitioner,
vs.
BATANGAS CITY and NATIONAL POWER
CORPORATION, respondents.
x--------------------x
G.R. No. 152771 April 28, 2004
NATIONAL POWER CORPORATION, petitioner,
vs.
HON. RICARDO R. ROSARIO, in his capacity as Presiding
Judge, RTC, Br. 66, Makati City; BATANGAS CITY
GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity
as Chief Legal Officer, Batangas City; and BENJAMIN
PARGAS, in his capacity as City Treasurer, Batangas
City, respondents.
DECISION
PUNO, J.:
Before us are two (2) consolidated petitions for review under Rule
45 of the Rules of Civil Procedure, seeking to set aside the
rulings of the Regional Trial Court of Makati in its February 27,
2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990’s, the country suffered from
a crippling power crisis. Power outages lasted 8-12 hours daily
and power generation was badly needed. Addressing the
problem, the government, through the National Power
Corporation (NPC), sought to attract investors in power plant
operations by providing them with incentives, one of which was
through the NPC’s assumption of payment of their taxes in the
Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation
(Enron) and petitioner NPC entered into a Fast Track BOT
Project. Enron agreed to supply a power station to NPC and
transfer its plant to the latter after ten (10) years of operation.
Section 11.02 of the BOT Agreement provided that NPC shall be
responsible for the payment of all taxes that may be imposed on
the power station, except income taxes and permit fees.
Subsequently, Enron assigned its obligation under the BOT
Agreement to petitioner Batangas Power Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board of
Investments (BOI) as a pioneer enterprise. On September 23,
1992, the BOI issued a certificate of registration1 to BPC as a
pioneer enterprise entitled to a tax holiday for a period of six (6)
years. The construction of the power station in respondent
Batangas City was then completed. BPC operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its
legal officer Teodulfo A. Deguito, sent a letter to BPC demanding
payment of business taxes and penalties, commencing from the
year 1994 as provided under Ordinance XI or the 1992 Batangas
City Tax Code.2 BPC refused to pay, citing its tax-exempt status
as a pioneer enterprise for six (6) years under Section 133 (g) of
the Local Government Code (LGC).3
On April 15, 1999, city treasurer Benjamin S. Pargas modified the
city’s tax claim4 and demanded payment of business taxes from
BPC only for the years 1998-1999. He acknowledged that BPC
enjoyed a 6-year tax holiday as a pioneer industry but its tax
exemption period expired on September 22, 1998, six (6) years
after its registration with the BOI on September 23, 1992. The city
treasurer held that thereafter BPC became liable to pay its
business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax
holiday commenced from the date of its commercial operation on
July 16, 1993, not from the date of its BOI registration in
September 1992.5 It furnished the city with a BOI letter6 wherein
BOI designated July 16, 1993 as the start of BPC’s income tax
holiday as BPC was not able to immediately operate due to force
majeure. BPC claimed that the local tax holiday is concurrent with
the income tax holiday. In the alternative, BPC asserted that the
city should collect the tax from the NPC as the latter assumed
responsibility for its payment under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted7 that
BPC’s tax holiday has already expired, while the city argued that
it directed its tax claim to BPC as it is the entity doing business in
the city and hence liable to pay the taxes. The city alleged that it
was not privy to NPC’s assumption of BPC’s tax payment under
their BOT Agreement as the only parties thereto were NPC and
BPC.
BPC adamantly refused to pay the tax claims and reiterated its
position.8 The city was likewise unyielding on its stand.9 On
August 26, 1999, the NPC intervened.10 While admitting
assumption of BPC’s tax obligations under their BOT Agreement,
NPC refused to pay BPC’s business tax as it allegedly constituted
an indirect tax on NPC which is a tax-exempt corporation under
its Charter.11
In view of the deadlock, BPC filed a petition for declaratory
relief12 with the Makati Regional Trial Court (RTC) against
Batangas City and NPC, praying for a ruling that it was not bound
to pay the business taxes imposed on it by the city. It alleged that
under the BOT Agreement, NPC is responsible for the payment of
such taxes but as NPC is exempt from taxes, both the BPC and
NPC are not liable for its payment. NPC and Batangas City filed
their respective answers.
On February 23, 2000, while the case was still pending, the city
refused to issue a permit to BPC for the operation of its business
unless it paid the assessed business taxes amounting to close
to P29M.
In view of this supervening event, BPC, whose principal office is
in Makati City, filed a supplemental petition13 with the Makati RTC
to convert its original petition into an action for injunction to enjoin
the city from withholding the issuance of its business permit and
closing its power plant. The city opposed on the grounds of lack
of jurisdiction and lack of cause of action.14 The Supplemental
Petition was nonetheless admitted by the Makati RTC.
On February 27, 2002, the Makati RTC dismissed the petition for
injunction. It held that: (1) BPC is liable to pay business taxes to
the city; (2) NPC’s tax exemption was withdrawn with the
passage of R.A. No. 7160 (The Local Government Code); and,
(3) the 6-year tax holiday granted to pioneer business enterprises
starts on the date of registration with the BOI as provided in
Section 133 (g) of R.A. No. 7160, and not on the date of its actual
business operations.15
BPC and NPC filed with this Court a petition for review on
certiorari16 assailing the Makati RTC decision. The petitions were
consolidated as they impugn the same decision, involve the same
parties and raise related issues.17
In G.R. No. 152771, the NPC contends:
I
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
RULED THAT PETITIONER NPC HAS LOST ITS TAX
EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A.
7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH
PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT
THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL
LAW, CANNOT REPEAL A SPECIAL LAW AND THAT SECTION
13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY
MENTIONED IN THE REPEALING CLAUSE IN SECTION 534
OF R.A. 7160, AMONG OTHERS.
II
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
OMITTED THE CLEAR PROVISION OF SECTION 133,
PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS "NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES"
FROM THE IMPOSITION OF "TAXES, FEES OR CHARGES OF
ANY KIND."
III
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT ERRONEOUSLY AND
CAPRICIOUSLY ADMITTED BPC’s SUPPLEMENTAL PETITION
FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO
JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF
BATANGAS) SOUGHT TO BE ENJOINED.
In G.R. No. 152675, BPC also contends that the trial court erred:
1) in holding it liable for payment of business taxes even if it is
undisputed that NPC has already assumed payment thereof; and,
2) in ruling that BPC’s 6-year tax holiday commenced on the date
of its registration with the BOI as a pioneer enterprise.
The issues for resolution are:
1. whether BPC’s 6-year tax holiday commenced on the
date of its BOI registration as a pioneer enterprise or on
the date of its actual commercial operation as certified by
the BOI;
2. whether the trial court had jurisdiction over the petition
for injunction against Batangas City; and,
3. whether NPC’s tax exemption privileges under its
Charter were withdrawn by Section 193 of the Local
Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that
contrary to the impugned decision, BPC’s 6-year tax holiday
should commence on the date of its actual commercial operations
as certified to by the BOI, not on the date of its BOI registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local
government units (LGUs) from levying taxes on BOI-certified
pioneer enterprises for a period of six years from the date of
registration, applies specifically to taxes imposed by the
local government, like the business tax imposed by
Batangas City on BPC in the case at bar. Reliance of BPC on
the provision of Executive Order No. 226,18 specifically Section
1, Article 39, Title III, is clearly misplaced as the six-year tax
holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the
national government on BOI-registered pioneer firms. Clearly, it
is the provision of the Local Government Code that should apply
to the tax claim of Batangas City against the BPC. The 6-year tax
exemption of BPC should thus commence from the date of BPC’s
registration with the BOI on July 16, 1993 and end on July 15,
1999.
Anent the second issue, the records disclose that petitioner NPC
did not oppose BPC’s conversion of the petition for declaratory
relief to a petition for injunction or raise the issue of the alleged
lack of jurisdiction of the Makati RTC over the petition for
injunction before said court. Hence, NPC is estopped from raising
said issue before us. The fundamental rule is that a party cannot
be allowed to participate in a judicial proceeding, submit the case
for decision, accept the judgment only if it is favorable to him but
attack the jurisdiction of the court when it is adverse.19
Finally, on the third issue, petitioners insist that NPC’s
exemption from all taxes under its Charter had not been repealed
by the LGC. They argue that NPC’s Charter is a special law
which cannot be impliedly repealed by a general and later
legislation like the LGC. They likewise anchor their claim of tax-
exemption on Section 133 (o) of the LGC which exempts
government instrumentalities, such as the NPC, from taxes
imposed by local government units (LGUs), citing in support
thereof the case of Basco v. PAGCOR.20
We find no merit in these contentions. The effect of the LGC on
the tax exemption privileges of the NPC has already been
extensively discussed and settled in the recent case of National
Power Corporation v. City of Cabanatuan.21 In said case, this
Court recognized the removal of the blanket exclusion of
government instrumentalities from local taxation as one of
the most significant provisions of the 1991 LGC. Specifically,
we stressed that Section 193 of the LGC,22 an express and
general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. We explained the
rationale for this provision, thus:
In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare
and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
Section 5.- Each Local Government unit shall
have the power to create its own sources of
revenue, to levy taxes, fees and charges subject
to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges
shall accrue exclusively to the Local
Governments.
This paradigm shift results from the realization that
genuine development can be achieved only by
strengthening local autonomy and promoting
decentralization of governance. For a long time, the
country’s highly centralized government structure has
bred a culture of dependence among local government
leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on
the part of local government leaders. The only way to
shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer
them sufficient powers to generate their own sources for
the purpose. To achieve this goal, x x x the 1987
Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy
of local autonomy, set the guidelines and limitations to
this grant of taxing powers x x x."
To recall, prior to the enactment of the x x x Local Government
Code x x x, various measures have been enacted to promote
local autonomy. x x x Despite these initiatives, however, the
shackles of dependence on the national government remained.
Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base,
(b) lack of fiscal control over external sources of income, (c)
limited authority to prioritize and approve development projects,
(d) heavy dependence on external sources of income, and (e)
limited supervisory control over personnel of national line
agencies.

Considered as the most revolutionary piece of legislation on local

autonomy, the LGC effectively deals with the fiscal constraints
faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws x x x.

Neither can the NPC successfully rely on the Basco case23 as

this was decided prior to the effectivity of the LGC, when there
was still no law empowering local government units to tax
instrumentalities of the national government.

Consequently, when NPC assumed the tax liabilities of the BPC

under their 1992 BOT Agreement, the LGC which removed
NPC’s tax exemption privileges had already been in effect for six
(6) months. Thus, while BPC remains to be the entity doing
business in said city, it is the NPC that is ultimately liable to pay
said taxes under the provisions of both the 1992 BOT Agreement
and the 1991 Local Government Code.

IN VIEW WHEREOF, the petitions are DISMISSED. No costs.

SO ORDERED.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of
OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY MAYOR and
CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City
Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his
own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to
as the BOARD). The Decree was promulgated on October 5,
1985 and took effect on April 10, 1986, fifteen (15) days after
completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended
the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on
each processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank
video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association,
Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case,
over petitioner's opposition, upon the allegations that intervention
was necessary for the complete protection of their rights and that
their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in
its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated
circulation of videograms including, among others,
videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced
the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at
least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government
revenues;
2. WHEREAS, videogram(s) establishments collectively
earn around P600 Million per annum from rentals, sales
and disposition of videograms, and such earnings have
not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each
year;
3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the
movie industry, particularly the more than 1,200 movie
houses and theaters throughout the country, and
occasioned industry-wide displacement and
unemployment due to the shutdown of numerous
moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic
recovery, it is imperative for the Government to create an
environment conducive to growth and development of all
business industries, including the movie industry which
has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of
videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more
than 75,000 families and 500,000 workers depend for
their livelihood, but also provide an additional source of
revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of
obscene videogram features constitutes a clear and
present danger to the moral and spiritual well-being of the
youth, and impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic
efficiency and the development of moral character and
promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have
called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and
copyright laws;
8. WHEREAS, in the face of these grave emergencies
corroding the moral values of the people and betraying
the national economic recovery program, bold emergency
measures must be adopted with dispatch; ... (Numbering
of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on
the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the
gross receipts payable to the local government is a
RIDER and the same is not germane to the subject matter
thereof;
2. The tax imposed is harsh, confiscatory, oppressive
and/or in unlawful restraint of trade in violation of the due
process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by
the President of the vast powers conferred upon him by
Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it
were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace
only one subject which shall be expressed in the title thereof" 1 is
sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is
not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all
the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. 2 An
act having a single general subject, indicated in the title, may
contain any number of provisions, no matter how diverse they
may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such
subject by providing for the method and means of carrying out the
general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It
should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the
tax provision of the DECREE is a rider is without merit. That
section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of
Videograms. — Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty
percent (30%) of the purchase price or rental rate, as the
case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion
picture or audiovisual program. Fifty percent (50%) of the
proceeds of the tax collected shall accrue to the province,
and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That
in Metropolitan Manila, the tax shall be shared equally by
the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general
object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed
in its title. The tax provision is not inconsistent with, nor foreign to
that general subject and title. As a tool for regulation 6 it is simply
one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE
to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms
is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure.
The title of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the
title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint of
trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or
even definitely deters the activities taxed. 8 The power to impose
taxes is one so unlimited in force and so searching in extent, that
the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the
authority which exercises it. 9 In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also
a revenue measure prompted by the realization that earnings of
videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the
Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available
for public viewing. It is similar to the 30% amusement tax
imposed or borne by the movie industry which the theater-owners
pay to the government, but which is passed on to the entire cost
of the admission ticket, thus shifting the tax burden on the buying
or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed
primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax
was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly
held that "inequities which result from a singling out of
one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the
implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the
taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for
the promulgation of the DECREE by the former President under
Amendment No. 6 of the 1973 Constitution providing that
"whenever in the judgment of the President ... , there exists a
grave emergency or a threat or imminence thereof, or whenever
the interim Batasang Pambansa or the regular National Assembly
fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or
letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office
aver that the 8th "whereas" clause sufficiently summarizes the
justification in that grave emergencies corroding the moral values
of the people and betraying the national economic recovery
program necessitated bold emergency measures to be adopted
with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise
of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the
question raised at the proper time.
4. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power. The grant in
Section 11 of the DECREE of authority to the BOARD to "solicit
the direct assistance of other agencies and units of the
government and deputize, for a fixed and limited period, the
heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the
power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation.
"The true distinction is between the delegation of power to make
the law, which necessarily involves a discretion as to what it shall
be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be
done; to the latter, no valid objection can be made." 14 Besides, in
the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the
deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be
the source of graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the eventuality occur, the
aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle.
An ex post facto law is, among other categories, one which
"alters the legal rules of evidence, and authorizes conviction upon
less or different testimony than the law required at the time of the
commission of the offense." It is petitioner's position that Section
15 of the DECREE in providing that:
All videogram establishments in the Philippines are
hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and
secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all
their inventories of videograms, including videotapes,
 discs, cassettes or other technical improvements or
variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in
the possession of any person engaged in the videogram
business without the required proof of registration by the
BOARD, shall be prima facie evidence of violation of the
Decree, whether the possession of such videogram be for
private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the
DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature
of an ex post facto law.
The argument is untenable. As this Court held in the recent case
of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional
objection to the passage of a law providing that the
presumption of innocence may be overcome by a
contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence"
(People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1
COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact
that when certain facts have been proved that they shall
be prima facie evidence of the existence of the guilt of the
accused and shift the burden of proof provided there be a
rational connection between the facts proved and the
ultimate facts presumed so that the inference of the one
from proof of the others is not unreasonable and arbitrary
because of lack of connection between the two in
common experience". 16
Applied to the challenged provision, there is no question that
there is a rational connection between the fact proved, which is
non-registration, and the ultimate fact presumed which is violation
of the DECREE, besides the fact that the prima facie presumption
of violation of the DECREE attaches only after a forty-five-day
period counted from its effectivity and is, therefore, neither
retrospective in character.
6. We do not share petitioner's fears that the video industry is
being over-regulated and being eased out of existence as if it
were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the
DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy;
the erosion of the moral fiber of the viewing public brought about
by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop
in theatrical attendance, not to mention the fact that the activities
of video establishments are virtually untaxed since mere payment
of Mayor's permit and municipal license fees are required to
engage in business. 17
The enactment of the Decree since April 10, 1986 has not
brought about the "demise" of the video industry. On the contrary,
video establishments are seen to have proliferated in many
places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the
necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a matter of
legislative concern.
Only congressional power or competence, not the wisdom
of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the
respective authority of each department and confined its
jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a
 matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to
the rule of law, as there ought to be, the last offender
should be courts of justice, to which rightly litigants submit
their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack
on the validity of the challenged provision likewise insofar
as there may be objections, even if valid and cogent on its
wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity

which attaches to a challenged statute. We find no clear violation
of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
G.R. No. 168584 October 15, 2007
REPUBLIC OF THE PHILIPPINES, represented by THE
HONORABLE SECRETARY OF FINANCE, THE HONORABLE
COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE
HONORABLE COMMISSIONER OF CUSTOMS, and THE
COLLECTOR OF CUSTOMS OF THE PORT OF
SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74,
RTC, Third Judicial Region, Olongapo City, INDIGO
DISTRIBUTION CORP., herein represented by ARIEL G.
CONSOLACION, W STAR TRADING AND WAREHOUSING
CORP., herein represented by HIERYN R. ECLARINAL,
FREEDOM BRANDS PHILS., CORP., herein represented by
ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein
represented by MARY AILEEN S. GOZUN, ALTASIA INC.,
herein represented by ALAN HARROW, TAINAN TRADE
(TAIWAN), INC., herein represented by ELENA RANULLO,
SUBIC PARK N’ SHOP, herein represented by NORMA
MANGALINO DIZON, TRADING GATEWAYS
INTERNATIONAL PHILS., herein represented by MA.
CHARINA FE C. RODOLFO, DUTY FREE SUPERSTORE
(DFS), herein represented by RAJESH R. SADHWANI,
CHJIMES TRADING INC., herein represented by ANGELO
MARK M. PICARDAL, PREMIER FREEPORT, INC., herein
represented by ROMMEL P. GABALDON, FUTURE TRADE
SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP.,
herein represented by JULIUS MOLINDA, and FIRST
PLATINUM INTERNATIONAL, INC., herein represented by
ISIDRO M. MUÑOZ, respondents.
DECISION
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition to annul
(1) the May 4, 2005 Order1 issued by public respondent Judge
Ramon S. Caguioa of the Regional Trial Court (RTC), Branch 74,
Olongapo City, granting private respondents’ application for the
issuance of a writ of preliminary injunction and (2) the Writ of
Preliminary Injunction2 that was issued pursuant to such Order,
which stayed the implementation of Republic Act (R.A.) No. 9334,
AN ACT INCREASING THE EXCISE TAX RATES IMPOSED ON
ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE
PURPOSE SECTIONS 131, 141, 142, 143, 144, 145 AND 288
OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS
AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit public
respondent from enforcing the impugned issuances and from
further proceeding with the trial of Civil Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No. 72273 or the
Bases Conversion and Development Act of 1992 which, among
other things, created the Subic Special Economic and Freeport
Zone (SBF4) and the Subic Bay Metropolitan Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a "self-
sustaining, industrial, commercial, financial and investment center
to generate employment opportunities in and around the zone
and to attract and promote productive foreign investments."5 In
line with this vision, Section 12 of the law provided:
(b) The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of goods
and capital within, into and exported out of the Subic
Special Economic Zone, as well as provide incentives
such as tax and duty-free importations of raw
materials, capital and equipment. However,
exportation or removal of goods from the territory of
the Subic Special Economic Zone to the other parts
of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code
and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the Subic
Special Economic Zone. In lieu of paying taxes, three
percent (3%) of the gross income earned by all
businesses and enterprises within the Subic Special
Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local
government units affected by the declaration of the zone
in proportion to their population area, and other factors. In
addition, there is hereby established a development fund
of one percent (1%) of the gross income earned by all
businesses and enterprises within the Subic Special
Economic Zone to be utilized for the development of
municipalities outside the City of Olongapo and the
Municipality of Subic, and other municipalities contiguous
to be base areas.
In case of conflict between national and local laws with
respect to tax exemption privileges in the Subic Special
Economic Zone, the same shall be resolved in favor of
the latter;
(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and future
shall be allowed and maintained in the Subic Special
Economic Zone;
(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic
Zone;
(f) Banking and finance shall be liberalized with the
establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign
banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone
whose continuing investment shall not be less than Two
hundred fifty thousand dollars ($250,000), his/her spouse
and dependent children under twenty-one (21) years of
age, shall be granted permanent resident status within the
Subic Special Economic Zone. They shall have freedom
of ingress and egress to and from the Subic Special
Economic Zone without any need of special authorization
from the Bureau of Immigration and Deportation. The
Subic Bay Metropolitan Authority referred to in Section 13
of this Act may also issue working visas renewal every
two (2) years to foreign executives and other aliens
possessing highly-technical skills which no Filipino within
the Subic Special Economic Zone possesses, as certified
by the Department of Labor and Employment. The names
of aliens granted permanent residence status and working
visas by the Subic Bay Metropolitan Authority shall be
reported to the Bureau of Immigration and Deportation
within thirty (30) days after issuance thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo Distribution
Corporation, W Star Trading and Warehousing Corporation,
Freedom Brands Philippines Corporation, Branded Warehouse,
Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park ‘N
Shop, Incorporated, Trading Gateways International Philipines,
Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading, Inc.,
Premier Freeport, Inc., Future Trade Subic Freeport, Inc., Grand
Comtrade Int’l., Corp., and First Platinum International, Inc.,
which are all domestic corporations doing business at the SBF,
applied for and were granted Certificates of Registration and Tax
Exemption6 by the SBMA.
These certificates allowed them to engage in the business either
of trading, retailing or wholesaling, import and export,
warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and
uniformly granted them tax exemptions for such importations as
contained in the following provision of their respective
Certificates:
ARTICLE IV. The Company shall be entitled to tax and
duty-free importation of raw materials, capital
equipment, and household and personal items for
use solely within the Subic Bay Freeport
Zone pursuant to Sections 12(b) and 12(c) of the Act and
Sections 43, 45, 46 and 49 of the Implementing Rules. All
importations by the Company are exempt from inspection
by the Societe Generale de Surveillance if such
importations are delivered immediately to and for use
solely within the Subic Bay Freeport Zone. (Emphasis
supplied)
Congress subsequently passed R.A. No. 9334, however, effective
on January 1, 2005,7 Section 6 of which provides:
Sec. 6. Section 131 of the National Internal Revenue
Code of 1977, as amended, is hereby amended to read
as follows:
Sec. 131. Payment of Excise Taxes on Imported Articles.
– removal and transfer of tax and duty-free goods,
(A) Persons Liable. – Excise taxes on imported articles
shall be paid by the owner or importer to the Customs
Officers, conformably with the regulations of the
Department of Finance and before the release of such
articles from the customshouse or by the person who is
found in possession of articles which are exempt from
On the basis of Section 6 of R.A. No. 9334, SBMA issued on
January 10, 2005 a Memorandum8 declaring that effective
excise taxes other than those legally entitled to
exemption.
In the case of tax-free articles brought or imported into the
Philippines by persons, entities or agencies exempt from
tax which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or
entities, the purchasers or recipients shall be considered
the importers thereof, and shall be liable for the duty and
internal revenue tax due on such importation.
The provision of any special or general law to the
contrary notwithstanding, the importation of cigars
and cigarettes, distilled spirits, fermented liquors and
wines into the Philippines, even if destined for tax
and duty free shops, shall be subject to all applicable
taxes, duties, charges, including excise taxes due
thereon. This shall apply to cigars and cigarettes,
distilled spirits, fermented liquors and wines brought
directly into the duly chartered or legislated freeports
of the Subic Economic Freeport Zone, created under
Republic Act No. 7227; x x x and such other freeports as
may hereafter be established or created by law: Provided,
further, That importations of cigars and cigarettes, distilled
spirits, fermented liquors and wines made directly by a
government-owned and operated duty-free shop, like the
Duty Free Philippines (DFP), shall be exempted from all
applicable duties only: x x x Provided, finally, That the
products, machinery, equipment and other similar articles
other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one Freeport to
another Freeport, shall not be deemed an introduction
into the Philippine customs territory. x x x. (Emphasis and
underscoring supplied)
January 1, 2005, all importations of cigars, cigarettes, distilled
spirits, fermented liquors and wines into the SBF, including those
intended to be transshipped to other free ports in the Philippines,
shall be treated as ordinary importations subject to all applicable
taxes, duties and charges, including excise taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal
Revenue (BIR) Commissioner Guillermo L. Parayno, Jr.
requested then Customs Commissioner George M. Jereos to
immediately collect the excise tax due on imported alcohol and
tobacco products brought to the Duty Free Philippines (DFP) and
Freeport zones.9
Accordingly, the Collector of Customs of the port of Subic
directed the SBMA Administrator to require payment of all
appropriate duties and taxes on all importations of cigars and
cigarettes, distilled spirits, fermented liquors and wines; and for all
transactions involving the said items to be covered from then on
by a consumption entry and no longer by a warehousing entry.10
On February 7, 2005, SBMA issued a Memorandum11 directing
the departments concerned to require locators/importers in the
SBF to pay the corresponding duties and taxes on their
importations of cigars, cigarettes, liquors and wines before said
items are cleared and released from the freeport. However,
certain SBF locators which were "exclusively engaged in the
transshipment of cigarette products for foreign destinations" were
allowed by the SBMA to process their import documents subject
to their submission of an Undertaking with the Bureau of
Customs.12
On February 15, 2005, private respondents wrote the offices of
respondent Collector of Customs and the SBMA Administrator
requesting for a reconsideration of the directives on the
imposition of duties and taxes, particularly excise taxes, on their
shipments of cigars, cigarettes, wines and liquors.13 Despite these
letters, however, they were not allowed to file any warehousing
entry for their shipments.
Thus, private respondent enterprises, through their
representatives, brought before the RTC of Olongapo City a
special civil action for declaratory relief14 to have certain
provisions of R.A. No. 9334 declared as unconstitutional, which
case was docketed as Civil Case No. 102-0-05.
In the main, private respondents submitted that (1) R.A. No. 9334
should not be interpreted as altering, modifying or amending the
provisions of R.A. No. 7227 because repeals by implication are
not favored; (2) a general law like R.A. No. 9334 cannot amend
R.A. No. 7727, which is a special law; and (3) the assailed law
violates the one bill-one subject rule embodied in Section 26(1),
Article VI15 of the Constitution as well as the constitutional
proscription against the impairment of the obligation of
contracts.16
Alleging that great and irreparable loss and injury would befall
them as a consequence of the imposition of taxes on alcohol and
tobacco products brought into the SBF, private respondents
prayed for the issuance of a writ of preliminary injunction and/or
Temporary Restraining Order (TRO) and preliminary mandatory
injunction to enjoin the directives of herein petitioners.
Petitioners duly opposed the private respondents’ prayer for the
issuance of a writ of preliminary injunction and/or TRO, arguing
that (1) tax exemptions are not presumed and even when
granted, are strictly construed against the grantee; (2) an
increase in business expense is not the injury contemplated by
law, it being a case of damnum absque injuria; and (3) the
drawback mechanism established in the law clearly negates the
possibility of the feared injury.17
Petitioners moreover pointed out that courts are enjoined from
issuing a writ of injunction and/or TRO on the grounds of an
alleged nullity of a law, ordinance or administrative regulation or
circular or in a manner that would effectively dispose of the main
case. Taxes, they stressed, are the lifeblood of the government
and their prompt and certain availability is an imperious need.
They maintained that greater injury would be inflicted on the
public should the writ be granted.
On May 4, 2005, the court a quo granted private respondents’
application for the issuance of a writ of preliminary injunction,
after it found that the essential requisites for the issuance of a
preliminary injunction were present.
As investors duly licensed to operate inside the SBF, the trial
court declared that private respondents were entitled to enjoy the
benefits of tax incentives under R.A. No. 7227, particularly the
exemption from local and national taxes under Section 12(c); the
aforecited provision of R.A. No. 7227, coupled with private
respondents’ Certificates of Registration and Tax Exemption from
the SBMA, vested in them a clear and unmistakable right or right
in esse that would be violated should R.A. No. 9334 be
implemented; and the invasion of such right is substantial and
material as private respondents would be compelled to pay more
than what they should by way of taxes to the national
government.
The trial court thereafter ruled that the prima facie presumption of
validity of R.A. No. 9334 had been overcome by private
respondents, it holding that as a partial amendment of the
National Internal Revenue Code (NIRC) of 1997,18 as amended,
R.A. No. 9334 is a general law that could not prevail over a
special statute like R.A. No. 7227 notwithstanding the fact that the
assailed law is of later effectivity.
The trial court went on to hold that the repealing provision of
Section 10 of R.A. No. 9334 does not expressly mention the
repeal of R. A. No. 7227, hence, its repeal can only be an implied
repeal, which is not favored; and since R.A. No. 9334 imposes
new tax burdens, whatever doubts arising therefrom should be
resolved against the taxing authority and in favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates the
terms and conditions of private respondents’ subsisting contracts
with SBMA, which are embodied in their Certificates of
Registration and Exemptions in contravention of the constitutional
guarantee against the impairment of contractual obligations; that
greater damage would be inflicted on private respondents if the
writ of injunction is not issued as compared to the injury that the
government and the general public would suffer from its issuance;
and that the damage that private respondents are bound to suffer
once the assailed statute is implemented – including the loss of
confidence of their foreign principals, loss of business opportunity
and unrealized income, and the danger of closing down their
businesses due to uncertainty of continued viability – cannot be
measured accurately by any standard.
With regard to the rule that injunction is improper to restrain the
collection of taxes under Section 21819 of the NIRC, the trial court
held that what is sought to be enjoined is not per se the collection
of taxes, but the implementation of a statute that has been found
preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private respondents’
taxes have not yet been assessed, as they have not filed
consumption entries on all their imported tobacco and alcohol
products, hence, their duty to pay the corresponding excise taxes
and the concomitant right of the government to collect the same
have not yet materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary
Injunction directing petitioners and the SBMA Administrator as
well as all persons assisting or acting for and in their behalf "1) to
allow the operations of [private respondents] in accordance with
R.A. No. 7227; 2) to allow [them] to file warehousing entries
instead of consumption entries as regards their importation of
tobacco and alcohol products; and 3) to cease and desist from
implementing the pertinent provisions of R.A. No. 9334 by not
compelling [private respondents] to immediately pay duties and
taxes on said alcohol and tobacco products as a condition to their
removal from the port area for transfer to the warehouses of
[private respondents]."20
The injunction bond was approved at One Million pesos
(P1,000,000).21
Without moving for reconsideration, petitioners have come
directly to this Court to question the May 4, 2005 Order and the
Writ of Preliminary Injunction which, they submit, were issued by
public respondent with grave abuse of discretion amounting to
lack or excess of jurisdiction.
In particular, petitioners contend that public respondent
peremptorily and unjustly issued the injunctive writ despite the
absence of the legal requisites for its issuance, resulting in heavy
government revenue losses.22 They emphatically argue that since
the tax exemption previously enjoyed by private respondents has
clearly been withdrawn by R.A. No. 9334, private respondents do
not have any right in esse nor can they invoke legal injury to
stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the injunctive
writ, public respondent showed manifest bias and prejudice and
prejudged the merits of the case in utter disregard of the caveat
issued by this Court in Searth Commodities Corporation, et al. v.
Court of Appeals23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public
respondent, petitioners argue that the same is grossly
disproportionate to the damages that have been and continue to
be sustained by the Republic.
In their Reply25 to private respondents’ Comment, petitioners
additionally plead public respondent’s bias and partiality in
allowing the motions for intervention of a number of
corporations26 without notice to them and in disregard of their
present pending petition for certiorari and prohibition before this
Court. The injunction bond filed by private respondent Indigo
Distribution Corporation, they stress, is not even sufficient to
cover all the original private respondents, much less, intervenor-
corporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions relating to the
propriety of the issuance of the May 4, 2005 Order and the Writ of
Preliminary Injunction are properly within the scope of the present
petition and shall be so addressed in order to determine if public
respondent committed grave abuse of discretion. The arguments
raised by private respondents which pertain to the
constitutionality of R.A. No. 9334 subject matter of the case
pending litigation before the trial court have no bearing in
resolving the present petition.
Section 3 of Rule 58 of the Revised Rules of Court provides:
SEC. 3. Grounds for issuance of preliminary injunction. –
A preliminary injunction may be granted when it is
established.
(a) That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts
complained of, or in requiring the performance of an act
or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-
performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the
 subject of the action or proceeding, and tending to render owner or importer to the Customs owner or importer to the
the judgment ineffectual. Officers, conformably with the Officers, conformably wit
regulations of the Department of Finance regulations of the Depart
For a writ of preliminary injunction to issue, the plaintiff must be and before the release of such articles and before the release o
able to establish that (1) there is a clear and unmistakable right to from the customs house or by the person from the customs house
be protected, (2) the invasion of the right sought to be protected who is found in possession of articles who is found in possessi
is material and substantial, and (3) there is an urgent and which are exempt from excise taxes which are exempt from e
paramount necessity for the writ to prevent serious damage.27 other than those legally entitled to other than those legally e
exemption. exemption.
Conversely, failure to establish either the existence of a clear and
positive right which should be judicially protected through the writ In the case of tax-free articles brought or In the case of tax-free ar
of injunction, or of the acts or attempts to commit any act which imported into the Philippines by persons, imported into the Philipp
endangers or tends to endanger the existence of said right, or of entities or agencies exempt from tax entities or agencies exem
the urgent need to prevent serious damage, is a sufficient ground which are subsequently sold, transferred which are subsequently
for denying the preliminary injunction.28 or exchanged in the Philippines to non- or exchanged in the Phil
exempt persons or entities, the exempt persons or entitie
It is beyond cavil that R.A. No. 7227 granted private respondents purchasers or recipients shall be purchasers or recipients
exemption from local and national taxes, including excise taxes, considered the importers thereof, and considered the importers
on their importations of general merchandise, for which reason shall be liable for the duty and internal shall be liable for the dut
they enjoyed tax-exempt status until the effectivity of R.A. No. revenue tax due on such importation. revenue tax due on such
9334.
The provision of any special or general The provision of any sp
By subsequently enacting R.A. No. 9334, however, Congress law to the contrary notwithstanding, the general law to the cont
expressed its intention to withdraw private respondents’ tax importation of cigars and cigarettes, notwithstanding, the im
exemption privilege on their importations of cigars, cigarettes, distilled spirits, fermented liquors and cigars and cigarettes, d
distilled spirits, fermented liquors and wines. Juxtaposed to show wines into the Philippines, even if fermented liquors and
this intention are the respective provisions of Section 131 of the destined for tax and duty free shops, Philippines, even if des
NIRC before and after its amendment by R.A. No. 9334: shall be subject to all applicable taxes, and duty free shops, sh
duties, charges, including excise taxes to all applicable taxes,
x x x x. due thereon. Provided, charges, including exc
however, That this shall not apply to thereon. This shall app
cigars and cigarettes, fermented cigarettes, distilled spi
Sec. 131 of NIRC before R.A. No. 9334 Sec. 131, as amended by R.A. No. 9334and wines brought directly into
spirits liquors and wines brou
Sec. 131. Payment of Excise Taxes on Sec. 131. Payment of Excise Taxes on chartered or legislated
the duly into the duly chartered
Imported Articles. – Imported Articles. – freeports of the Subic Economic freeports of the Subic E
Freeport Zone, created under Freeport Zone, created
(A) Persons Liable. – Excise taxes on (A) Persons Liable. – Excise taxes on
Republic Act No. 7227; the Cagayan Republic Act No. 7227;
imported articles shall be paid by the imported articles shall be paid bySpecial
the Economic Zone and Freeport, Special Economic Zone
created under Republic Act No. 7922; created under Republic(Emphasis Act No. 7922;and underscoring supplied)
and the Zamboanga City Special and the Zamboanga City Special
Economic Zone, created under Republic Economic Zone, To created
note, under
the oldRepublic
Section 131 of the NIRC expressly provided that
Act No. 7903, and are not transshipped Act No. 7903, and allsuch
taxes, other freeports
duties, charges, including excise taxes shall not apply to
to any other port in the as may hereafterimportations
be established or
of cigars, cigarettes, fermented spirits and wines
Philippines: Provided, further, That created by law: Provided, further,into
brought directly Thatthe duly chartered or legislated freeports of
importations of cigars and cigarettes, importations of cigars
the SBF. and cigarettes,
distilled spirits, fermented liquors and distilled spirits, fermented liquors and
wines made directly by a government- wines made directly On the by aother
government-
hand, Section 131, as amended by R.A. No. 9334,
owned and operated duty-free shop, like owned and operated duty-free
now provides that shop, liketaxes, duties and charges, including
such
the Duty Free Philippines (DFP), shall be the Duty Free Philippines (DFP), shall
excise taxes, shall apply be to importation of cigars and cigarettes,
exempted from all applicable duties, exempted from all applicable duties
distilled spirits, fermented liquors and wines into the SBF.
charges, including excise tax due only: Provided still further, That such
thereon; Provided still further, That such articles directly imported by a
Without necessarily passing upon the validity of the withdrawal of
articles directly imported by a government-owned the tax exemptionduty-
and operated privileges of private respondents, it behooves
government-owned and operated duty- free shop, like the Duty-Free
this Court to Philippines,
state certain basic principles and observations that
free shop, like the Duty-Free Philippines, shall be labeled "taxshould andthrow
duty-free"
light onand the propriety of the issuance of the writ of
shall be labeled "tax and duty-free" and "not for resale": Provided, finally, That
preliminary injunction in this case.
"not for resale": Provided, still further, the removal and transfer of tax and duty-
That if such articles brought into the duly free goods, products, machinery,
chartered or legislated freeports under equipment and other First.similar
Every presumption
articles must be indulged in favor of the
constitutionality
Republic Acts Nos. 7227, 7922 and 7903 other than cigars and cigarettes, distilled of a statute. 29 The burden of proving the

are subsequently introduced into the spirits, fermentedunconstitutionality

Philippine customs territory, then such
one Freeport to another Freeport, shall
articles shall, upon such introduction, be not be deemed an
deemed imported into the Philippines
Philippine customs territory.
and shall be subject to all imposts and
excise taxes provided herein and other x x x x.
statutes: Provided, finally, That the
removal and transfer of tax and duty-free
goods, products, machinery, equipment
and other similar articles, from one
freeport to another freeport, shall not be
deemed an introduction into the
Philippine customs territory.
x x x x.
liquors and wines,offrom a law rests on the party assailing the
law. 30 In passing upon the validity of an act of a co-equal and
coordinate
introductionbranch
into of
thethe government, courts must ever be
mindful
of the time-honored principle that a statute is presumed to
be valid.
Second. There is no vested right in a tax exemption, more so
when the latest expression of legislative intent renders its
continuance doubtful. Being a mere statutory privilege,31 a tax
exemption may be modified or withdrawn at will by the granting
authority.32
To state otherwise is to limit the taxing power of the State, which
is unlimited, plenary, comprehensive and supreme. The power to
impose taxes is one so unlimited in force and so searching in
extent, it is subject only to restrictions which rest on the discretion
of the authority exercising it.33
Third. As a general rule, tax exemptions are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority.34 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so
claimed.35 In case of doubt, non-exemption is favored.36
Fourth. A tax exemption cannot be grounded upon the continued
existence of a statute which precludes its change or
repeal.37 Flowing from the basic precept of constitutional law that
no law is irrepealable, Congress, in the legitimate exercise of its
lawmaking powers, can enact a law withdrawing a tax exemption
just as efficaciously as it may grant the same under Section 28(4)
of Article VI38 of the Constitution. There is no gainsaying therefore
that Congress can amend Section 131 of the NIRC in a manner it
sees fit, as it did when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of Registration and
Tax Exemption of private respondents are not absolute and
unconditional as to constitute rights in esse – those clearly
founded on or granted by law or is enforceable as a matter of
law.39
These certificates granting private respondents a "permit to
operate" their respective businesses are in the nature of licenses,
which the bulk of jurisprudence considers as neither a property
nor a property right.40 The licensee takes his license subject to
such conditions as the grantor sees fit to impose, including its
revocation at pleasure.41 A license can thus be revoked at any
time since it does not confer an absolute right.42
While the tax exemption contained in the Certificates of
Registration of private respondents may have been part of the
inducement for carrying on their businesses in the SBF, this
exemption, nevertheless, is far from being contractual in nature in
the sense that the non-impairment clause of the Constitution can
rightly be invoked.43
Sixth. Whatever right may have been acquired on the basis of the
Certificates of Registration and Tax Exemption must yield to the
State’s valid exercise of police power.44 It is well to remember that
taxes may be made the implement of the police power.45
It is not difficult to recognize that public welfare and necessity
underlie the enactment of R.A. No. 9334. As petitioners point out,
the now assailed provision was passed to curb the pernicious
practice of some unscrupulous business enterprises inside the
SBF of using their tax exemption privileges for smuggling
purposes. Smuggling in whatever form is bad enough; it is worse
when the same is allegedly perpetrated, condoned or facilitated
by enterprises hiding behind the cloak of their tax exemption
privileges.
Seventh. As a rule, courts should avoid issuing a writ of
preliminary injunction which would in effect dispose of the main
case without trial.46 This rule is intended to preclude a
prejudgment of the main case and a reversal of the rule on the
burden of proof since by issuing the injunctive writ, the court
would assume the proposition that petitioners are inceptively duty
bound to prove.47
Eighth. A court may issue a writ of preliminary injunction only
when the petitioner assailing a statute has made out a case of
unconstitutionality or invalidity strong enough, in the mind of the
judge, to overcome the presumption of validity, in addition to a
showing of a clear legal right to the remedy sought.48
Thus, it is not enough that petitioners make out a case of
unconstitutionality or invalidity to overcome the prima
facie presumption of validity of a statute; they must also be able
to show a clear legal right that ought to be protected by the court.
The issuance of the writ is therefore not proper when the
complainant’s right is doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of duties,
charges and taxes on imported cigars, cigarettes, distilled spirits,
fermented liquors and wines on private respondents’ businesses
cannot possibly outweigh the dire consequences that the non-
collection of taxes, not to mention the unabated smuggling inside
the SBF, would wreak on the government. Whatever damage
would befall private respondents must perforce take a back seat
to the pressing need to curb smuggling and raise revenues for
governmental functions.
All told, while the grant or denial of an injunction generally rests
on the sound discretion of the lower court, this Court may and
should intervene in a clear case of abuse.50
One such case of grave abuse obtained in this case when public
respondent issued his Order of May 4, 2005 and the Writ of
Preliminary Injunction on May 11, 200551 despite the absence of
a clear and unquestioned legal right of private respondents.
In holding that the presumption of constitutionality and validity of
R.A. No. 9334 was overcome by private respondents for the
reasons public respondent cited in his May 4, 2005 Order, he
disregarded the fact that as a condition sine qua non to the
issuance of a writ of preliminary injunction, private respondents
needed also to show a clear legal right that ought to be protected.
That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without proof of
an actual existing right would not justify an injunctive relief.52
Besides, private respondents are not altogether lacking an
appropriate relief under the law. As petitioners point out in their
Petition53 before this Court, private respondents may avail
themselves of a tax refund or tax credit should R.A. No. 9334 be
finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for the
recovery of erroneously or illegally collected taxes which would
be the nature of the excise taxes paid by private respondents
should Section 6 of R.A. No. 9334 be declared unconstitutional or
invalid.
It may not be amiss to add that private respondents can also opt
not to import, or to import less of, those items which no longer
enjoy tax exemption under R.A. No. 9334 to avoid the payment of
taxes thereon.
The Court finds that public respondent had also ventured into the
delicate area which courts are cautioned from taking when
deciding applications for the issuance of the writ of preliminary
injunction. Having ruled preliminarily against the prima
facie validity of R.A. No. 9334, he assumed in effect the
proposition that private respondents in their petition for
declaratory relief were duty bound to prove, thereby shifting to
petitioners the burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.
In the same vein, the Court finds public respondent to have
overstepped his discretion when he arbitrarily fixed the injunction
bond of the SBF enterprises at only P1million.
The alleged sparseness of the testimony of Indigo Corporation’s
representative56 on the injury to be suffered by private
respondents may be excused because evidence for a preliminary
injunction need not be conclusive or complete. Nonetheless,
considering the number of private respondent enterprises and the
volume of their businesses, the injunction bond is undoubtedly
not sufficient to answer for the damages that the government was
bound to suffer as a consequence of the suspension of the
implementation of the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in favor of
the party enjoined to answer for all damages which it may sustain
by reason of the injunction. The purpose of the injunction bond is
to protect the defendant against loss or damage by reason of the
injunction in case the court finally decides that the plaintiff was
not entitled to it, and the bond is usually conditioned
accordingly.57
Recalling this Court’s pronouncements in Olalia v. Hizon58 that:
collected without unnecessary hindrance,60 every precaution must
be taken not to unduly suppress it.
Whether this Court must issue the writ of prohibition, suffice it to
stress that being possessed of the power to act on the petition for
declaratory relief, public respondent can proceed to determine the
merits of the main case. To halt the proceedings at this point may
be acting too prematurely and would not be in keeping with the
policy that courts must decide controversies on the merits.

x x x [T]here is no power the exercise of which is more
delicate, which requires greater caution, deliberation and
sound discretion, or more dangerous in a doubtful case,
than the issuance of an injunction. It is the strong arm of
equity that should never be extended unless to cases of
great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a
limitation upon the freedom of action of the defendant and
should not be granted lightly or precipitately. It should be
granted only when the court is fully satisfied that the law
permits it and the emergency demands it,
it cannot be overemphasized that any injunction that restrains the
collection of taxes, which is the inevitable result of the suspension
of the implementation of the assailed Section 6 of R.A. No. 9334,
is a limitation upon the right of the government to its lifeline and
wherewithal.
Moreover, lacking the requisite proof of public respondent’s
alleged partiality, this Court has no ground to prohibit him from
proceeding with the case for declaratory relief. For these reasons,
prohibition does not lie.
WHEREFORE, the Petition is PARTLY GRANTED. The writ of
certiorari to nullify and set aside the Order of May 4, 2005 as well
as the Writ of Preliminary Injunction issued by respondent Judge
Caguioa on May 11, 2005 is GRANTED. The assailed Order and
Writ of Preliminary Injunction are hereby declared NULL AND
VOID and accordingly SET ASIDE. The writ of prohibition prayed
for is, however, DENIED.
SO ORDERED.

The power to tax emanates from necessity; without taxes,

government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.59 That the enforcement of
tax laws and the collection of taxes are of paramount importance
for the sustenance of government has been repeatedly observed.
Taxes being the lifeblood of the government that should be
G.R. No. 183505 February 26, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY
DEVELOPMENT CORPORATION, Respondents.
DECISION
DEL CASTILLO, J.:
When the intent of the law is not apparent as worded, or when the
application of the law would lead to absurdity or injustice,
legislative history is all important. In such cases, courts may take
judicial notice of the origin and history of the law,1 the
deliberations during the enactment,2 as well as prior laws on the
same subject matter3 to ascertain the true intent or spirit of the
law.
This Petition for Review on Certiorari under Rule 45 of the Rules
of Court, in relation to Republic Act (RA) No. 9282,4 seeks to set
aside the April 30, 2008 Decision5 and the June 24, 2008
Resolution6 of the Court of Tax Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia
Realty Development Corporation (First Asia) are domestic
corporations duly organized and existing under the laws of the
Republic of the Philippines. Both are engaged in the business of
operating cinema houses, among others.7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR)
sent SM Prime a Preliminary Assessment Notice (PAN) for value
added tax (VAT) deficiency on cinema ticket sales in the amount
of P119,276,047.40 for taxable year 2000.8 In response, SM
Prime filed a letter-protest dated December 15, 2003.9
On December 12, 2003, the BIR sent SM Prime a Formal Letter
of Demand for the alleged VAT deficiency, which the latter
protested in a letter dated January 14, 2004.10
On September 6, 2004, the BIR denied the protest filed by SM
Prime and ordered it to pay the VAT deficiency for taxable year
2000 in the amount of P124,035,874.12.11
On October 15, 2004, SM Prime filed a Petition for Review before
the CTA docketed as CTA Case No. 7079.12
CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia a PAN for VAT
deficiency on
cinema ticket sales for taxable year 1999 in the total amount
of P35,823,680.93.13 First Asia protested the PAN in a letter
dated July 9, 2002.14
Subsequently, the BIR issued a Formal Letter of Demand for the
alleged VAT deficiency which was protested by First Asia in a
letter dated December 12, 2002.15
On September 6, 2004, the BIR rendered a Decision denying the
protest and ordering First Asia to pay the amount
of P35,823,680.93 for VAT deficiency for taxable year 1999.16
Accordingly, on October 20, 2004, First Asia filed a Petition for
Review before the CTA, docketed as CTA Case No. 7085.17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT
deficiency on cinema ticket sales for taxable year 2000 in the
amount of P35,840,895.78. First Asia protested the PAN through
a letter dated April 22, 2004.18
Thereafter, the BIR issued a Formal Letter of Demand for alleged
VAT deficiency.19 First Asia protested the same in a letter dated
July 9, 2004.20
On October 5, 2004, the BIR denied the protest and ordered First
Asia to pay the VAT deficiency in the amount of P35,840,895.78
for taxable year 2000.21
This prompted First Asia to file a Petition for Review before the
CTA on December 16, 2004. The case was docketed as CTA
Case No. 7111.22
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable
year 2002 in the total amount of P32,802,912.21 was issued
against First Asia by the BIR. In response, First Asia filed a
protest-letter dated November 11, 2004. The BIR then sent a
Formal Letter of Demand, which was protested by First Asia on
December 14, 2004.23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total
amount of P28,196,376.46 for the taxable year 2003 was issued
by the BIR against First Asia. In a letter dated September 23,
2004, First Asia protested the PAN. A Formal Letter of Demand
was thereafter issued by the BIR to First Asia, which the latter
protested through a letter dated November 11, 2004. 24
On May 11, 2005, the BIR rendered a Decision denying the
protests. It ordered First Asia to pay the amounts
of P33,610,202.91 and P28,590,826.50 for VAT deficiency for
taxable years 2002 and 2003, respectively.25
Thus, on June 22, 2005, First Asia filed a Petition for Review
before the CTA, docketed as CTA Case No. 7272.26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to
the Petitions filed by SM Prime and First Asia.27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA
Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079 on the
grounds that the issues raised therein are identical and that SM
Prime is a majority shareholder of First Asia. The motion was
granted.28
Upon submission of the parties’ respective memoranda, the
consolidated cases were submitted for decision on the sole issue
of whether gross receipts derived from admission tickets by
cinema/theater operators or proprietors are subject to VAT.29
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA rendered a
Decision granting the Petition for Review. Resorting to the
language used and the legislative history of the law, it ruled that
the activity of showing cinematographic films is not a service
covered by VAT under the National Internal Revenue Code
(NIRC) of 1997, as amended, but an activity subject to
amusement tax under RA 7160, otherwise known as the Local
Government Code (LGC) of 1991. Citing House Joint Resolution
No. 13, entitled "Joint Resolution Expressing the True Intent of
Congress with Respect to the Prevailing Tax Regime in the
Theater and Local Film Industry Consistent with the State’s Policy
to Have a Viable, Sustainable and Competitive Theater and Film
Industry as One of its Partners in National Development,"30 the
CTA First Division held that the House of Representatives
resolved that there should only be one business tax applicable to
theaters and movie houses, which is the 30% amusement tax
imposed by cities and provinces under the LGC of 1991. Further,
it held that consistent with the State’s policy to have a viable,
sustainable and competitive theater and film industry, the national
government should be precluded from imposing its own business
tax in addition to that already imposed and collected by local
government units. The CTA First Division likewise found that
Revenue Memorandum Circular (RMC) No. 28-2001, which
imposes VAT on gross receipts from admission to cinema
houses, cannot be given force and effect because it failed to
comply with the procedural due process for tax issuances under
RMC No. 20-86.31 Thus, it disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, this Court
hereby GRANTS the Petitions for Review. Respondent’s
Decisions denying petitioners’ protests against deficiency value-
added taxes are hereby REVERSED. Accordingly, Assessment
Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-
03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED.32
Aggrieved, the CIR moved for reconsideration which was denied
by the First Division in its Resolution dated December 14, 2006.33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc.34 The case was
docketed as CTA EB No. 244.35 The CTA En Banc however
denied36 the Petition for Review and dismissed37 as well
petitioner’s Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets
forth an exhaustive enumeration of what services are intended to
be subject to VAT. And since the showing or exhibition of motion
pictures, films or movies by cinema operators or proprietors is not
among the enumerated activities contemplated in the phrase
"sale or exchange of services," then gross receipts derived by
cinema/ theater operators or proprietors from admission tickets in
showing motion pictures, film or movie are not subject to VAT. It
reiterated that the exhibition or showing of motion pictures, films,
or movies is instead subject to amusement tax under the LGC of
1991. As regards the validity of RMC No. 28-2001, the CTA En
Banc agreed with its First Division that the same cannot be given
force and effect for failure to comply with RMC No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges that the
CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by
operators/proprietors of cinema houses from admission tickets
[are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA
OPERATORS/PROPRIETORS TO THE PAYING
PUBLIC IS A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF
SERVICES ARE EXPRESSLY SUBJECT TO VAT
UNDER SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR
PROVISION OF LAW AND THE APPLICATION OF
RULES OF STATUTORY CONSTRUCTION AND
EXTRINSIC AIDS IS UNWARRANTED;
 (d) GRANTING WITHOUT CONCEDING THAT RULES
OF CONSTRUCTION ARE APPLICABLE HEREIN,
STILL THE HONORABLE COURT ERRONEOUSLY
APPLIED THE SAME AND PROMULGATED
DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF
LAW EXEMPTING RESPONDENTS’ SERVICES FROM
THE VAT IMPOSED UNDER SECTION 108 OF THE
NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE
NOT PROPER ISSUES TO BE TRIED BY THE
HONORABLE COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE
PROVISION OF SECTION 108 OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of
1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the
showing of motion pictures is merely subject to the amusement
tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-
2001.38
Simply put, the issue in this case is whether the gross receipts
derived by operators or proprietors of cinema/theater houses from
admission tickets are subject to VAT.
Petitioner’s Arguments
Petitioner argues that the enumeration of services subject to VAT
in Section 108 of the NIRC is not exhaustive because it covers all
sales of services unless exempted by law. He claims that the
CTA erred in applying the rules on statutory construction and in
using extrinsic aids in interpreting Section 108 because the
provision is clear and unambiguous. Thus, he maintains that the
exhibition of movies by cinema operators or proprietors to the
paying public, being a sale of service, is subject to VAT.
Respondents’ Arguments
Respondents, on the other hand, argue that a plain reading of
Section 108 of the NIRC of 1997 shows that the gross receipts of
proprietors or operators of cinemas/theaters derived from public
admission are not among the services subject to VAT.
Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax
imposed by the national government. According to them, the
absence of gross receipts from cinema/theater admission tickets
from the list of services which are subject to the national
amusement tax under Section 125 of the NIRC of 1997 reinforces
this legislative intent. Respondents also highlight the fact that
RMC No. 28-2001 on which the deficiency assessments were
based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of
the NIRC is not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services, (8) The lease or the use of or the right to use radio, television,
including the use or lease of properties. satellite transmission and cable television time.

The phrase "sale or exchange of services" means the x x x x (Emphasis supplied)

performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including those A cursory reading of the foregoing provision clearly shows that
performed or rendered by construction and service contractors; the enumeration of the "sale or exchange of services" subject to
stock, real estate, commercial, customs and immigration brokers; VAT is not exhaustive. The words, "including," "similar services,"
lessors of property, whether personal or real; warehousing and "shall likewise include," indicate that the enumeration is by
services; lessors or distributors of cinematographic films; persons way of example only.39
engaged in milling, processing, manufacturing or repacking goods
for others; proprietors, operators or keepers of hotels, motels, rest Among those included in the enumeration is the "lease of motion
houses, pension houses, inns, resorts; proprietors or operators of picture films, films, tapes and discs." This, however, is not the
restaurants, refreshment parlors, cafes and other eating places, same as the showing or exhibition of motion pictures or films. As
including clubs and caterers; dealers in securities; lending pointed out by the CTA En Banc:
investors; transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
"Exhibition" in Black’s Law Dictionary is defined as "To show or
hire and other domestic common carriers by land, air and water
display. x x x To produce anything in public so that it may be
relative to their transport of goods or cargoes; services of
taken into possession" (6th ed., p. 573). While the word "lease" is
franchise grantees of telephone and telegraph, radio and
defined as "a contract by which one owning such property grants
television broadcasting and all other franchise grantees except
to another the right to possess, use and enjoy it on specified
those under Section 119 of this Code; services of banks, non-
period of time in exchange for periodic payment of a stipulated
bank financial intermediaries and finance companies; and non-life
price, referred to as rent (Black’s Law Dictionary, 6th ed., p. 889).
insurance companies (except their crop insurances), including
x x x40
surety, fidelity, indemnity and bonding companies; and similar
services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. Since the activity of showing motion pictures, films or movies by
The phrase "sale or exchange of services" shall likewise include: cinema/ theater operators or proprietors is not included in the
enumeration, it is incumbent upon the court to the determine
whether such activity falls under the phrase "similar services."
(1) The lease or the use of or the right or privilege to use any
The intent of the legislature must therefore be ascertained.
copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or
right; The legislature never intended operators

xxxx or proprietors of cinema/theater houses to be covered by VAT

(7) The lease of motion picture films, films, tapes and discs; and Under the NIRC of 1939,41 the national government imposed
amusement tax on proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses, boxing exhibitions, and
other places of amusement, including cockpits, race tracks, and
cabaret.42 In the case of theaters or cinematographs, the taxes
were first deducted, withheld, and paid by the proprietors,
lessees, or operators of such theaters or cinematographs before
the gross receipts were divided between the proprietors, lessees,
or operators of the theaters or cinematographs and the
distributors of the cinematographic films. Section 1143 of the Local
Tax Code,44 however, amended this provision by transferring the
power to impose amusement tax45 on admission from theaters,
cinematographs, concert halls, circuses and other places of
amusements exclusively to the local government. Thus, when the
NIRC of 197746 was enacted, the national government imposed
amusement tax only on proprietors, lessees or operators of
cabarets, day and night clubs, Jai-Alai and race tracks.47
On January 1, 1988, the VAT Law48 was promulgated. It
amended certain provisions of the NIRC of 1977 by imposing a
multi-stage VAT to replace the tax on original and subsequent
sales tax and percentage tax on certain services. It imposed VAT
on sales of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. — (a) Rate
and base of tax. — There shall be levied, assessed and collected,
a value-added tax equivalent to 10% percent of gross receipts
derived by any person engaged in the sale of services. The
phrase "sale of services" means the performance of all kinds of
services for others for a fee, remuneration or consideration,
including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; and
similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental
faculties: Provided That the following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, x x x
xxxx
"Gross receipts" means the total amount of money
or its equivalent representing the contract price,
compensation or service fee, including the
amount charged for materials supplied with the
services and deposits or advance payments
actually or constructively received during the
taxable quarter for the service performed or to be
performed for another person, excluding value-
added tax.
(b) Determination of the tax. — (1) Tax billed as a
separate item in the invoice. — If the tax is billed
as a separate item in the invoice, the tax shall be
based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the
invoice. — If the tax is not billed separately or is billed
erroneously in the invoice, the tax shall be determined by
multiplying the gross receipts (including the amount
intended to cover the tax or the tax billed erroneously) by
1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as
amended, however, were exempted from the coverage of VAT.49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr.
issued RMC 8-88, which clarified that the power to impose
amusement tax on gross receipts derived from admission tickets
was exclusive with the local government units and that only the
gross receipts of amusement places derived from sources other
than from admission tickets were subject to amusement tax under
the NIRC of 1977, as amended. Pertinent portions of RMC 8-88
read:
Under the Local Tax Code (P.D. 231, as amended), the
jurisdiction to levy amusement tax on gross receipts arising from
admission to places of amusement has been transferred to the
local governments to the exclusion of the national government.
xxxx
Since the promulgation of the Local Tax Code which took effect
on June 28, 1973 none of the amendatory laws which amended
the National Internal Revenue Code, including the value added
tax law under Executive Order No. 273, has amended the
provisions of Section 11 of the Local Tax Code. Accordingly, the
sole jurisdiction for collection of amusement tax on admission
receipts in places of amusement rests exclusively on the local
government, to the exclusion of the national government. Since
the Bureau of Internal Revenue is an agency of the national
government, then it follows that it has no legal mandate to levy
amusement tax on admission receipts in the said places of
amusement.
Considering the foregoing legal background, the provisions under
Section 123 of the National Internal Revenue Code as
renumbered by Executive Order No. 273 (Sec. 228, old NIRC)
pertaining to amusement taxes on places of amusement shall be
implemented in accordance with BIR RULING, dated December
4, 1973 and BIR RULING NO. 231-86 dated November 5, 1986 to
wit:
"x x x Accordingly, only the gross receipts of the amusement
places derived from sources other than from admission
tickets shall be subject to x x x amusement tax prescribed
under Section 228 of the Tax Code, as amended (now Section
123, NIRC, as amended by E.O. 273). The tax on gross
receipts derived from admission tickets shall be levied and
collected by the city government pursuant to Section 23 of
Presidential Decree No. 231, as amended x x x" or by the
provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The
local government retained the power to impose amusement tax
on proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of
amusement at a rate of not more than thirty percent (30%) of the
gross receipts from admission fees under Section 140
thereof.50 In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators
and paid to the local government before the gross receipts are
divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films. However, the provision
in the Local Tax Code expressly excluding the national
government from collecting tax from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses
and other places of amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its
tax base and enhancing its administration. Three years later, RA
7716 was amended by RA 8241. Shortly thereafter, the NIRC of
199751 was signed into law. Several amendments52 were made to
expand the coverage of VAT. However, none pertain to
cinema/theater operators or proprietors. At present, only lessors
or distributors of cinematographic films are subject to VAT. While
persons subject to amusement tax53 under the NIRC of 1997 are
exempt from the coverage of VAT.54
Based on the foregoing, the following facts can be established:
(1) Historically, the activity of showing motion pictures,
films or movies by cinema/theater operators or proprietors
has always been considered as a form of entertainment
subject to amusement tax.
 (2) Prior to the Local Tax Code, all forms of amusement
tax were imposed by the national government.
(3) When the Local Tax Code was enacted, amusement
tax on admission tickets from theaters, cinematographs,
concert halls, circuses and other places of amusements
were transferred to the local government.
(4) Under the NIRC of 1977, the national government
imposed amusement tax only on proprietors, lessees or
operators of cabarets, day and night clubs, Jai-Alai and
race tracks.
(5) The VAT law was enacted to replace the tax on
original and subsequent sales tax and percentage tax on
certain services.
(6) When the VAT law was implemented, it exempted
persons subject to amusement tax under the NIRC from
the coverage of VAT.
1auuphil
(7) When the Local Tax Code was repealed by the LGC
of 1991, the local government continued to impose
amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places
of amusements.
(8) Amendments to the VAT law have been consistent in
exempting persons subject to amusement tax under the
NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films
are included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons
already covered by the amusement tax. This holds true even in
the case of cinema/theater operators taxed under the LGC of
1991 precisely because the VAT law was intended to replace the
percentage tax on certain services. The mere fact that they are
taxed by the local government unit and not by the national
government is immaterial. The Local Tax Code, in transferring the
power to tax gross receipts derived by cinema/theater operators
or proprietor from admission tickets to the local government, did
not intend to treat cinema/theater houses as a separate class. No
distinction must, therefore, be made between the places of
amusement taxed by the national government and those taxed by
the local government.
To hold otherwise would impose an unreasonable burden on
cinema/theater houses operators or proprietors, who would be
paying an additional 10%55 VAT on top of the 30% amusement
tax imposed by Section 140 of the LGC of 1991, or a total of 40%
tax. Such imposition would result in injustice, as persons taxed
under the NIRC of 1997 would be in a better position than those
taxed under the LGC of 1991. We need not belabor that a literal
application of a law must be rejected if it will operate unjustly or
lead to absurd results.56 Thus, we are convinced that the
legislature never intended to include cinema/theater operators or
proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of
Tax Appeals,57 to wit:
The power of taxation is sometimes called also the power to
destroy. Therefore, it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg." And, in order to maintain the
general public's trust and confidence in the Government this
power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a
legal basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT
against respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator
was then subject to amusement tax under Section 260 of
Commonwealth Act No. 466, otherwise known as the National
Internal Revenue Code of 1939, computed on the amount paid for
admission. With the enactment of the Local Tax Code under
Presidential Decree (PD) No. 231, dated June 28, 1973, the
power of imposing taxes on gross receipts from admission of
persons to cinema/theater and other places of amusement had,
thereafter, been transferred to the provincial government, to the
exclusion of the national or municipal government (Sections 11 &
13, Local Tax Code). However, the said provision containing the
exclusive power of the provincial government to impose
amusement tax, had also been repealed and/or deleted by
Republic Act (RA) No. 7160, otherwise known as the Local
Government Code of 1991, enacted into law on October 10,
1991. Accordingly, the enactment of RA No. 7160, thus,
eliminating the statutory prohibition on the national government to
impose business tax on gross receipts from admission of persons
to places of amusement, led the way to the valid imposition of the
VAT pursuant to Section 102 (now Section 108) of the old Tax
Code, as amended by the Expanded VAT Law (RA No. 7716)
and which was implemented beginning January 1,
1996.58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a
legal basis for the imposition of VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission
tickets. The removal of the prohibition under the Local Tax Code
did not grant nor restore to the national government the power to
impose amusement tax on cinema/theater operators or
proprietors. Neither did it expand the coverage of VAT. Since the
imposition of a tax is a burden on the taxpayer, it cannot be
presumed nor can it be extended by implication. A law will not be
construed as imposing a tax unless it does so clearly, expressly,
and unambiguously.59 As it is, the power to impose amusement
tax on cinema/theater operators or proprietors remains with the
local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the
gross receipts of cinema/theater operators or proprietors derived
from admission tickets, RMC No. 28-2001 which imposes VAT on
the gross receipts from admission to cinema houses must be
struck down. We cannot overemphasize that RMCs must not
override, supplant, or modify the law, but must remain consistent
and in harmony with, the law they seek to apply and implement.60
In view of the foregoing, there is no need to discuss whether
RMC No. 28-2001 complied with the procedural due process for
tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need
not prove their entitlement to an exemption from the coverage of
VAT. The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly
subject to the tax being levied against him.61 The reason is
obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the
provision.62Thus, unless a statute imposes a tax clearly, expressly
and unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed.63 In fact, in case
of doubt, tax laws must be construed strictly against the
government and in favor of the taxpayer.64
WHEREFORE, the Petition is hereby DENIED. The assailed April
30, 2008 Decision of the Court of Tax Appeals En Banc holding
that gross receipts derived by respondents from admission tickets
in showing motion pictures, films or movies are not subject to
value-added tax under Section 108 of the National Internal
Revenue Code of 1997, as amended, and its June 24, 2008
Resolution denying the motion for reconsideration
are AFFIRMED.

SO ORDERED.
G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT
STEAMSHIP AGENCIES INC., and COURT OF TAX
APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo
Shipping Co. Ltd., is entitled to a refund or tax credit for amounts
representing pre-payment of income and common carrier's taxes
under the National Internal Revenue Code, section 24 (b) (2), as
amended. 1
Private respondent is a foreign corporation represented in the
Philippines by Soriamont Steamship Agencies, Incorporated. It
owns and operates tramper vessel M/V Gardenia. In December
1980, NASUTRA 2 chartered M/V Gardenia to load 16,500 metric
3
tons of raw sugar in the Philippines. On December 23, 1980, Mr.
Edilberto Lising, the operations supervisor of Soriamont
Agency, 4 paid the required income and common carrier's taxes in
the respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED
TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS
(P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED
NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and
SEVENTY-FIVE CENTAVOS (P107,142.75) based on the expected
gross receipts of the vessel. 5 Upon arriving, however, at Guimaras
Port of Iloilo, the vessel found no sugar for loading. On January 10,
1981, NASUTRA and private respondent's agent mutually agreed to
have the vessel sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes
as erroneous since no receipt was realized from the charter
agreement, private respondent instituted a claim for tax credit or
refund of the sum ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) before petitioner Commissioner of
Internal Revenue on March 23, 1981. Petitioner failed to act
promptly on the claim, hence, on May 14, 1981, private
respondent filed a petition for review 6 before public respondent
Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative
defenses, it alleged the following: that taxes are presumed to
have been collected in accordance with law; that in an action for
refund, the burden of proof is upon the taxpayer to show that
taxes are erroneously or illegally collected, and the taxpayer's
failure to sustain said burden is fatal to the action for refund; and
that claims for refund are construed strictly against tax
claimants. 7
After trial, respondent tax court decided in favor of the private
respondent. It held:
It has been shown in this case that 1) the
petitioner has complied with the mentioned
statutory requirement by having filed a written
claim for refund within the two-year period from
date of payment; 2) the respondent has not
issued any deficiency assessment nor disputed
the correctness of the tax returns and the
corresponding amounts of prepaid income and
percentage taxes; and 3) the chartered vessel
sailed out of the Philippine port with absolutely no
cargo laden on board as cleared and certified by
the Customs authorities; nonetheless 4)
respondent's apparent bit of reluctance in
validating the legal merit of the claim, by and
large, is tacked upon the "examiner who is
investigating petitioner's claim for refund which is
the subject matter of this case has not yet
submitted his report. Whether or not respondent
will present his evidence will depend on the said
report of the examiner." (Respondent's
Manifestation and Motion dated September 7,
1982). Be that as it may the case was submitted
for decision by respondent on the basis of the
pleadings and records and by petitioner on the
evidence presented by counsel sans the
respective memorandum.
An examination of the records satisfies us that the
case presents no dispute as to relatively simple
material facts. The circumstances obtaining amply
justify petitioner's righteous indignation to a more
expeditious action. Respondent has offered no
reason nor made effort to submit any
controverting documents to bash that patina of
legitimacy over the claim. But as might well be,
towards the end of some two and a half years of
seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue
would furnish the satisfaction of ultimate solution
by manifesting that "it is now his turn to present
evidence, however, the Appellate Division of the
BIR has already recommended the approval of
petitioner's claim for refund subject matter of this
petition. The examiner who examined this case
has also recommended the refund of petitioner's
claim. Without prejudice to withdrawing this case
after the final approval of petitioner's claim, the
Court ordered the resetting to September 7,
1983." (Minutes of June 9, 1983 Session of the
Court) We need not fashion any further issue into
an apparently settled legal situation as far be it
from a comedy of errors it would be too much of a
stretch to hold and deny the refund of the amount
of prepaid income and common carrier's taxes for
which petitioner could no longer be made
accountable.
On August 3, 1984, respondent court denied petitioner's motion
for reconsideration, hence, this petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of
proof to support its claim of refund; (2) it failed to prove that it did
not realize any receipt from its charter agreement; and (3) it
suppressed evidence when it did not present its charter
agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b)
(2) of the National Internal Revenue Code which at that time
provides as follows:
A corporation organized, authorized, or existing
under the laws of any foreign country, engaged in
trade or business within the Philippines, shall be
taxable as provided in subsection (a) of this
section upon the total net income derived in the
preceding taxable year from all sources within the
Philippines: Provided, however, That international
carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings:
"Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any
international carrier doing business in the
Philippines of passage documents sold therein,
whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the
Philippines. The gross revenue realized from the
said cargo or mail include the gross freight charge
up to final destination. Gross revenue from
chartered flights originating from the Philippines
 shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the
passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged
in the transport of cargo is liable for taxes depending on the
amount of income it derives from sources within the Philippines.
Thus, before such a tax liability can be enforced the taxpayer
must be shown to have earned income sourced from the
Philippines.
We agree with petitioner that a claim for refund is in the nature of
a claim for exemption 8 and should be construed in strictissimi
juris against the taxpayer. 9 Likewise, there can be no disagreement
with petitioner's stance that private respondent has the burden of
proof to establish the factual basis of its claim for tax refund.
The pivotal issue involves a question of fact — whether or not the
private respondent was able to prove that it derived no receipts
from its charter agreement, and hence is entitled to a refund of
the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been
adduced by the private respondent proving that it derived no
receipt from its charter agreement with NASUTRA. This finding of
fact rests on a rational basis, and hence must be sustained.
Exhibits "E", "F," and "G" positively show that the tramper vessel
M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no
raw sugar to load and returned to Japan without any cargo laden
on board. Exhibit "E" is the Clearance Vessel to a Foreign Port
issued by the District Collector of Customs, Port of Iloilo while
Exhibit "F" is the Certification by the Officer-in-Charge, Export
Division of the Bureau of Customs Iloilo. The correctness of the
contents of these documents regularly issued by officials of the
Bureau of Customs cannot be doubted as indeed, they have not
been contested by the petitioner. The records also reveal that in
the course of the proceedings in the court a quo, petitioner
hedged and hawed when its turn came to present evidence. At
one point, its counsel manifested that the BIR examiner and the
appellate division of the BIR have both recommended the
approval of private respondent's claim for refund. The same
counsel even represented that the government would withdraw its
opposition to the petition after final approval of private
respondents' claim. The case dragged on but petitioner never
withdrew its opposition to the petition even if it did not present
evidence at all. The insincerity of petitioner's stance drew the
sharp rebuke of respondent court in its Decision and for good
reason. Taxpayers owe honesty to government just as
government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the
private respondent, petitioner contends that private respondent
suppressed evidence when it did not present its charter
agreement with NASUTRA. The contention cannot succeed. It
presupposes without any basis that the charter agreement is
prejudicial evidence against the private respondent. 10 Allegedly, it
will show that private respondent earned a charter fee with or without
transporting its supposed cargo from Iloilo to Japan. The allegation
simply remained an allegation and no court of justice will regard it as
truth. Moreover, the charter agreement could have been presented
by petitioner itself thru the proper use of a subpoena duces tecum. It
never did either because of neglect or because it knew it would be of
no help to bolster its position. 11 For whatever reason, the petitioner
cannot take to task the private respondent for not presenting what it
mistakenly calls "suppressed evidence."
We cannot but bewail the unyielding stance taken by the
government in refusing to refund the sum of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS
AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously
prepaid by private respondent. The tax was paid way back in
1980 and despite the clear showing that it was erroneously paid,
the government succeeded in delaying its refund for fifteen (15)
years. After fifteen (15) long years and the expenses of litigation,
the money that will be finally refunded to the private respondent is
just worth a damaged nickel. This is not, however, the kind of
success the government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers from
the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected. Our ruling
in Roxas v. Court of Tax Appeals 12 is apropos to recall:

The power of taxation is sometimes called also

the power to destroy. Therefore it should be
exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg."
And, in order to maintain the general public's trust
and confidence in the Government this power
must be used justly and not treacherously.

IN VIEW HEREOF, the assailed decision of respondent Court of

Tax Appeals, dated September 15, 1983, is AFFIRMED in toto.
No costs.

SO ORDERED.
G.R. No. 132527. July 29, 2005 respondents from continuing with, the operation of tax and duty-
free shops located at the Subic Special Economic Zone (SSEZ)
COCONUT OIL REFINERS ASSOCIATION, INC. represented and the Clark Special Economic Zone (CSEZ), and to declare the
by its President, JESUS L. ARRANZA, PHILIPPINE following issuances as unconstitutional, illegal, and void:
ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI),
represented by its Secretary, ROMEO G. HIDALGO, 1. Section 5 of Executive Order No. 80,1 dated April 3, 1993,
FEDERATION OF FREE FARMERS (FFF), represented by its regarding the CSEZ.
President, JEREMIAS U. MONTEMAYOR, and BUKLURAN
NG MANGGAGAWANG PILIPINO (BMP), represented by its 2. Executive Order No. 97-A, dated June 19, 1993, pertaining to
Chairperson, FELIMON C. LAGMAN, Petitioners, the SSEZ.
vs.
HON. RUBEN TORRES, in his capacity as Executive 3. Section 4 of BCDA Board Resolution No. 93-05-034,2 dated
Secretary; BASES CONVERSION AND DEVELOPMENT May 18, 1993, pertaining to the CSEZ.
AUTHORITY, CLARK DEVELOPMENT CORPORATION,
SUBIC BAY METROPOLITAN AUTHORITY, 88 MART DUTY
Petitioners contend that the aforecited issuances are
FREE, FREEPORT TRADERS, PX CLUB, AMERICAN
unconstitutional and void as they constitute executive lawmaking,
HARDWARE, ROYAL DUTY FREE SHOPS, INC., DFS
and that they are contrary to Republic Act No. 72273 and in
SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR
violation of the Constitution, particularly Section 1, Article III
CORP. (formerly MCI RESOURCES, CORP.), PARK & SHOP,
(equal protection clause), Section 19, Article XII (prohibition of
DUTY FREE COMMODITIES, L. FURNISHING, SHAMBURGH,
unfair competition and combinations in restraint of trade), and
SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST
Section 12, Article XII (preferential use of Filipino labor, domestic
BUY, INC., PX CLUB, CLARK TRADING, DEMAGUS TRADING
materials and locally produced goods).
CORP., D.F.S. SPORTS UNLIMITED, INC., DUTY FREE FIRST
SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC.
(formerly 88 Mart [Clark] Duty Free Corp.), LILLY HILL The facts are as follows:
CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL
DFS and ZAXXON PHILIPPINES, INC., Respondents. On March 13, 1992, Republic Act No. 7227 was enacted,
providing for, among other things, the sound and balanced
DECISION conversion of the Clark and Subic military reservations and their
extensions into alternative productive uses in the form of special
economic zones in order to promote the economic and social
AZCUNA, J.:
development of Central Luzon in particular and the country in
general. Among the salient provisions are as follows:
This is a Petition for Prohibition and Injunction seeking to enjoin
and prohibit the Executive Branch, through the public
SECTION 12. Subic Special Economic Zone. —
respondents Ruben Torres in his capacity as Executive
Secretary, the Bases Conversion Development Authority (BCDA),
the Clark Development Corporation (CDC) and the Subic Bay ...
Metropolitan Authority (SBMA), from allowing, and the private
The abovementioned zone shall be subject to the following
policies:
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the
Local Government Code, the Subic Special Economic Zone shall
be developed into a self-sustaining, industrial, commercial,
financial and investment center to generate employment
opportunities in and around the zone and to attract and promote
productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives
such as tax and duty-free importations of raw materials, capital
and equipment. However, exportation or removal of goods from
the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Code and other relevant
tax laws of the Philippines;4
(c) The provision of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross income earned by
all businesses and enterprises within the Subic Special Ecoomic
Zone shall be remitted to the National Government, one percent
(1%) each to the local government units affected by the
declaration of the zone in proportion to their population area, and
other factors. In addition, there is hereby established a
development fund of one percent (1%) of the gross income
earned by all businesses and enterprises within the Subic Special
Economic Zone to be utilized for the development of
municipalities outside the City of Olangapo and the Municipality of
Subic, and other municipalities contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic Zones. —
Subject to the concurrence by resolution of the local government
units directly affected, the President is hereby authorized to
create by executive proclamation a Special Economic Zone
covering the lands occupied by the Clark military reservations and
its contiguous extensions as embraced, covered and defined by
the 1947 Military Bases Agreement between the Philippines and
the United States of America, as amended, located within the
territorial jurisdiction of Angeles City, Municipalities of Mabalacat
and Porac, Province of Pampanga and the Municipality of Capas,
Province of Tarlac, in accordance with the policies as herein
provided insofar as applicable to the Clark military reservations.
The governing body of the Clark Special Economic Zone shall
likewise be established by executive proclamation with such
powers and functions exercised by the Export Processing Zone
Authority pursuant to Presidential Decree No. 66 as amended.
The policies to govern and regulate the Clark Special Economic
Zone shall be determined upon consultation with the inhabitants
of the local government units directly affected which shall be
conducted within six (6) months upon approval of this Act.
Similarly, subject to the concurrence by resolution of the local
government units directly affected, the President shall create
other Special Economic Zones, in the base areas of Wallace Air
Station in San Fernando, La Union (excluding areas designated
for communications, advance warning and radar requirements of
the Philippine Air Force to be determined by the Conversion
Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President
is likewise authorized to create Special Economic Zones covering
the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos
and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive and R.A. No. 7042 which shall include, but not limited to, the
Order No. 80, which declared, among others, that Clark shall following:
have all the applicable incentives granted to the Subic Special
Economic and Free Port Zone under Republic Act No. 7227. The I. As in Subic Economic and Free Port Zone:
pertinent provision assailed therein is as follows:
A. Customs:
SECTION 5. Investments Climate in the CSEZ. — Pursuant to
Section 5(m) and Section 15 of RA 7227, the BCDA shall ...
promulgate all necessary policies, rules and regulations
governing the CSEZ, including investment incentives, in
4. Tax and duty-free purchase and consumption of goods/articles
consultation with the local government units and pertinent
(duty free shopping) within the CSEZ Main Zone.
government departments for implementation by the CDC.
5. For individuals, duty-free consumer goods may be brought out
Among others, the CSEZ shall have all the applicable incentives
of the CSEZ Main Zone into the Philippine Customs territory but
in the Subic Special Economic and Free Port Zone under RA
not to exceed US$200.00 per month per CDC-registered person,
7227 and those applicable incentives granted in the Export
similar to the limits imposed in the Subic SEZ. This privilege shall
Processing Zones, the Omnibus Investments Code of 1987, the
be enjoyed only once a month. Any excess shall be levied taxes
Foreign Investments Act of 1991 and new investments laws
and duties by the Bureau of Customs.
which may hereinafter be enacted.
On June 10, 1993, the President issued Executive Order No. 97,
The CSEZ Main Zone covering the Clark Air Base proper shall
"Clarifying the Tax and Duty Free Incentive Within the Subic
have all the aforecited investment incentives, while the CSEZ
Special Economic Zone Pursuant to R.A. No. 7227." Said
Sub-Zone covering the rest of the CSEZ shall have limited
issuance in part states, thus:
incentives. The full incentives in the Clark SEZ Main Zone and
the limited incentives in the Clark SEZ Sub-Zone shall be
determined by the BCDA. SECTION 1. On Import Taxes and Duties – Tax and duty-free
importations shall apply only to raw materials, capital goods and
equipment brought in by business enterprises into the SSEZ.
Pursuant to the directive under Executive Order No. 80, the
Except for these items, importations of other goods into the
BCDA passed Board Resolution No. 93-05-034 on May 18, 1993,
SSEZ, whether by business enterprises or resident individuals,
allowing the tax and duty-free sale at retail of consumer goods
are subject to taxes and duties under relevant Philippine laws.
imported via Clark for consumption outside the CSEZ. The
assailed provisions of said resolution read, as follows:
The exportation or removal of tax and duty-free goods from the
territory of the SSEZ to other parts of the Philippine territory shall
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. –
be subject to duties and taxes under relevant Philippine laws.
The CSEZ-registered enterprises/businesses shall be entitled to
all the incentives available under R.A. No. 7227, E.O. No. 226
Nine days after, on June 19, 1993, Executive Order No. 97-A was
issued, "Further Clarifying the Tax and Duty-Free Privilege Within
the Subic Special Economic and Free Port Zone." The relevant
provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax and
duty-free privilege within the Secured Area of the Subic Special
Economic and Free Port Zone:
1.1 The Secured Area consisting of the presently fenced-in
former Subic Naval Base shall be the only completely tax and
duty-free area in the SSEFPZ. Business enterprises and
individuals (Filipinos and foreigners) residing within the Secured
Area are free to import raw materials, capital goods, equipment,
and consumer items tax and duty-free. Consumption items,
however, must be consumed within the Secured Area. Removal
of raw materials, capital goods, equipment and consumer items
out of the Secured Area for sale to non-SSEFPZ registered
enterprises shall be subject to the usual taxes and duties, except
as may be provided herein.
1.2. Residents of the SSEFPZ living outside the Secured Area
can enter the Secured Area and consume any quantity of
consumption items in hotels and restaurants within the Secured
Area. However, these residents can purchase and bring out of the
Secured Area to other parts of the Philippine territory consumer
items worth not exceeding US$100 per month per person. Only
residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the
Secured Area and consume any quantity of consumption items in
hotels and restaurants within the Secured Area. However, they
can purchase and bring out [of] the Secured Area to other parts of
the Philippine territory consumer items worth not exceeding
US$200 per year per person. Only Filipinos age 15 and over are
entitled to this privilege.
Petitioners assail the $100 monthly and $200 yearly tax-free
shopping privileges granted by the aforecited provisions
respectively to SSEZ residents living outside the Secured Area of
the SSEZ and to Filipinos aged 15 and over residing outside the
SSEZ.
On February 23, 1998, petitioners thus filed the instant petition,
seeking the declaration of nullity of the assailed issuances on the
following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR]
BEING AN EXERCISE OF EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR
BEING VIOLATIVE OF THE EQUAL PROTECTION CLAUSE
AND THE PROHIBITION AGAINST UNFAIR COMPETITION
AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE
ORDER NO. 80, AND SECTION 4 OF BCDA BOARD
RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR]
BEING VIOLATIVE OF REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED
ISSUANCES IF NOT RESTRAINED WILL CONTINUE TO
CAUSE PETITIONERS TO SUFFER GRAVE AND
IRREPARABLE INJURY.5
In their Comments, respondents point out procedural issues,
alleging lack of petitioners’ legal standing, the unreasonable delay
in the filing of the petition, laches, and the propriety of the remedy
of prohibition.
Anent the claim on lack of legal standing, respondents argue that
petitioners, being mere suppliers of the local retailers operating
outside the special economic zones, do not stand to
suffer direct injury in the enforcement of the issuances being
assailed herein. Assuming this is true, this Court has
nevertheless held that in cases of paramount importance where
serious constitutional questions are involved, the standing
requirements may be relaxed and a suit may be allowed to
prosper even where there is no direct injury to the party claiming
the right of judicial review.6
In the same vein, with respect to the other alleged procedural
flaws, even assuming the existence of such defects, this Court, in
the exercise of its discretion, brushes aside these technicalities
and takes cognizance of the petition considering the importance
to the public of the present case and in keeping with the duty to
determine whether the other branches of the government have
kept themselves within the limits of the Constitution.7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an
act of a co-equal and coordinate branch of the Government, it
bears emphasis that deeply ingrained in our jurisprudence is the
time-honored principle that a statute is presumed to be
valid.8 This presumption is rooted in the doctrine of separation of
powers which enjoins upon the three coordinate departments of
the Government a becoming courtesy for each other’s
acts.9 Hence, to doubt is to sustain. The theory is that before the
act was done or the law was enacted, earnest studies were made
by Congress, or the President, or both, to insure that the
Constitution would not be breached.10 This Court, however, may
declare a law, or portions thereof, unconstitutional where a
petitioner has shown a clear and unequivocal breach of the
Constitution, not merely a doubtful or argumentative one.11 In
other words, before a statute or a portion thereof may be declared
unconstitutional, it must be shown that the statute or issuance
violates the Constitution clearly, palpably and plainly, and in such
a manner as to leave no doubt or hesitation in the mind of the
Court.12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order
No. 97-A; Section 5 of Executive Order No. 80; and Section 4 of
BCDA Board Resolution No. 93-05-034) constitute executive
legislation, in violation of the rule on separation of powers.
Petitioners argue that the Executive Department, by allowing
through the questioned issuances the setting up of tax and duty-
free shops and the removal of consumer goods and items from
the zones without payment of corresponding duties and taxes,
arbitrarily provided additional exemptions to the limitations
imposed by Republic Act No. 7227, which limitations petitioners
identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free
importation of raw materials, capital and equipment.
(2) It provides that any exportation or removal of goods from the
territory of the Subic Special Economic Zone to other parts of the
Philippine territory shall be subject to customs duties and taxes
under the Customs and Tariff Code and other relevant tax laws of
the Philippines.
Anent the first alleged limitation, petitioners contend that the
wording of Republic Act No. 7227 clearly limits the grant of tax
incentives to the importation of raw materials, capital and
equipment only. Hence, they claim that the assailed issuances
constitute executive legislation for invalidly granting tax incentives
in the importation of consumer goods such as those being sold in
the duty-free shops, in violation of the letter and intent of Republic
Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which
pertains to the SSEZ, would show that it does not restrict the
duty-free importation only to "raw materials, capital and
equipment." Section 12 of the cited law is partly reproduced, as
follows:
SECTION 12. Subic Special Economic Zone. —
...
The abovementioned zone shall be subject to the following
policies:
...
(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives
such as tax and duty-free importations of raw materials, capital
and equipment. However, exportation or removal of goods from
the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Code and other relevant
tax laws of the Philippines.13
While it is true that Section 12 (b) of Republic Act No. 7227
mentions only raw materials, capital and equipment, this does not
necessarily mean that the tax and duty-free buying privilege is
limited to these types of articles to the exclusion of consumer
goods. It must be remembered that in construing statutes, the
proper course is to start out and follow the true intent of the
Legislature and to adopt that sense which harmonizes best with
the context and promotes in the fullest manner the policy and
objects of the Legislature.14
In the present case, there appears to be no logic in following the
narrow interpretation petitioners urge. To limit the tax-free
importation privilege of enterprises located inside the special
economic zone only to raw materials, capital and equipment
clearly runs counter to the intention of the Legislature to create a
free port where the "free flow of goods or capital within, into, and
out of the zones" is insured.
The phrase "tax and duty-free importations of raw materials,
capital and equipment" was merely cited as an example of
incentives that may be given to entities operating within the zone.
Public respondent SBMA correctly argued that the
maxim expressio unius est exclusio alterius, on which petitioners
impliedly rely to support their restrictive interpretation, does not
apply when words are mentioned by way of example.15 It is
obvious from the wording of Republic Act No. 7227, particularly
the use of the phrase "such as," that the enumeration only meant
to illustrate incentives that the SSEZ is authorized to grant, in line
with its being a free port zone.
Furthermore, said legal maxim should be applied only as a
means of discovering legislative intent which is not otherwise
manifest, and should not be permitted to defeat the plainly
indicated purpose of the Legislature.16
The records of the Senate containing the discussion of the
concept of "special economic zone" in Section 12 (a) of Republic
Act No. 7227 show the legislative intent that consumer goods
entering the SSEZ which satisfy the needs of the zone and are
consumed there are not subject to duties and taxes in
accordance with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone
is one that really includes the concept of a free port, but it is
broader. While a free port is necessarily included in the Special
Economic Zone, the reverse is not true that a free port would
include a special economic zone.
Special Economic Zone, Mr. President, would include not only the
incoming and outgoing of vessels, duty-free and tax-free, but it
would involve also tourism, servicing, financing and all the
appurtenances of an investment center. So, that is the concept,
Mr. President. It is broader. It includes the free port concept and
would cater to the greater needs of Olangapo City, Subic Bay and
the surrounding municipalities.
Senator Enrile. May I know then if a factory located within the
jurisdiction of Morong, Bataan that was originally a part of the
Subic Naval reservation, be entitled to a free port treatment or
just a special economic zone treatment?
Senator Guingona. As far as the goods required for manufacture
is concerned, Mr. President, it would have privileges of duty-free
and tax-free. But in addition, the Special Economic Zone could
embrace the needs of tourism, could embrace the needs of
servicing, could embrace the needs of financing and other
investment aspects.
Senator Enrile. When a hotel is constructed, Mr. President, in
this geographical unit which we call a special economic zone, will
the goods entering to be consumed by the customers or guests of
the hotel be subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr.
President.
Senator Enrile. No. I am asking whether those goods will be
duty-free, because it is constructed within a free port.
Senator Guingona. For as long as it services the needs of the
Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone,
whether we call it an economic zone or a free port, for as long as
we say in this law that all goods entering this particular territory
will be duty-free and tax-free, for as long as they remain there,
consumed there or reexported or destroyed in that place, then
they are not subject to the duties and taxes in accordance with
the laws of the Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206 submitted by the
Ad Hoc Oversight Committee on Bases Conversion on June 26,
1995. Petitioners put emphasis on the report’s finding that the
setting up of duty-free stores never figured in the minds of the
authors of Republic Act No. 7227 in attracting foreign investors to
the former military baselands. They maintain that said law aimed
to attract manufacturing and service enterprises that will employ
the dislocated former military base workers, but not investors who
would buy consumer goods from duty-free stores.
The Court is not persuaded. Indeed, it is well-established that
opinions expressed in the debates and proceedings of the
Legislature, steps taken in the enactment of a law, or the history
of the passage of the law through the Legislature, may be
resorted to as aids in the interpretation of a statute with a doubtful
meaning.18 Petitioners’ posture, however, overlooks the fact that
the 1995 Committee Report they are referring to came into being
well after the enactment of Republic Act No. 7227 in 1993.
Hence, as pointed out by respondent Executive Secretary Torres,
the aforementioned report cannot be said to form part of Republic
Act No. 7227’s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to the following
policies:
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the
Local Government Code, the Subic Special Economic Zone shall
be developed into a self-sustaining, industrial, commercial,
financial and investment center to generate employment
opportunities in and around the zone and to attract and promote
productive foreign investments. 19
The aforecited policy was mentioned as a basis for the issuance
of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the
framework and subject to the mandate and limitations of the
Constitution and the pertinent provisions of the Local Government
Code, the Subic Special Economic and Free Port Zone (SSEFPZ)
shall be developed into a self-sustaining industrial, commercial,
financial and investment center to generate employment
opportunities in and around the zone and to attract and promote
productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured
Area in the SSEFPZ subject, to existing laws has been
determined necessary to attract local and foreign visitors to the
zone.
Executive Order No. 97-A provides guidelines to govern the "tax
and duty-free privileges within the Secured Area of the Subic
Special Economic and Free Port Zone." Paragraph 1.6 thereof
states that "(t)he sale of tax and duty-free consumer items in the
Secured Area shall only be allowed in duly authorized duty-free
shops."
The Court finds that the setting up of such commercial
establishments which are the only ones duly authorized to sell
consumer items tax and duty-free is still well within the policy
enunciated in Section 12 of Republic Act No. 7227 that ". . .the
Subic Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and investment
center to generate employment opportunities in and around
the zone and to attract and promote productive foreign
investments." (Emphasis supplied.)
However, the Court reiterates that the second sentences of
paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing
tax and duty-free removal of goods to certain individuals, even
in a limited amount, from the Secured Area of the SSEZ, are null
and void for being contrary to Section 12 of Republic Act No.
7227. Said Section clearly provides that "exportation or removal
of goods from the territory of the Subic Special Economic Zone to
the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines."
On the other hand, insofar as the CSEZ is concerned, the case
for an invalid exercise of executive legislation is tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et
al.,20 this Court resolved an issue, very much like the one herein,
concerning the legality of the tax exemption benefits given to the
John Hay Economic Zone under Presidential Proclamation No.
420, Series of 1994, "CREATING AND DESIGNATING A
PORTION OF THE AREA COVERED BY THE FORMER CAMP
JOHN AS THE JOHN HAY SPECIAL ECONOMIC ZONE
PURSUANT TO REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was that the granting of
tax exemptions to John Hay was an invalid and illegal exercise by
the President of the powers granted only to the Legislature.
Petitioners therein argued that Republic Act No. 7227 expressly
granted tax exemption only to Subic and not to the other
economic zones yet to be established. Thus, the grant of tax
exemption to John Hay by Presidential Proclamation contravenes
the constitutional mandate that "[n]o law granting any tax
exemption shall be passed without the concurrence of a majority
of all the members of Congress."21
This Court sustained the argument and ruled that the incentives
under Republic Act No. 7227 are exclusive only to the SSEZ. The
President, therefore, had no authority to extend their application
to John Hay. To quote from the Decision:
More importantly, the nature of most of the assailed privileges is
one of tax exemption. It is the legislature, unless limited by a
provision of a state constitution, that has full power to exempt any
person or corporation or class of property from taxation, its power
to exempt being as broad as its power to tax. Other than
Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on
exemption only from local taxes.
The challenged grant of tax exemption would circumvent the
Constitution’s imposition that a law granting any tax exemption
must have the concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of privileges
extended to the John Hay SEZ are by tradition and usage for
Congress to legislate upon.
Contrary to public respondents’ suggestions, the claimed
statutory exemption of the John Hay SEZ from taxation should be
manifest and unmistakable from the language of the law on which
it is based; it must be expressly granted in a statute stated in a
language too clear to be mistaken. Tax exemption cannot be
implied as it must be categorically and unmistakably expressed.
If it were the intent of the legislature to grant to John Hay SEZ the
same tax exemption and incentives given to the Subic SEZ, it
would have so expressly provided in R.A. No. 7227.22
In the present case, while Section 12 of Republic Act No. 7227
expressly provides for the grant of incentives to the SSEZ, it fails
to make any similar grant in favor of other economic zones,
including the CSEZ. Tax and duty-free incentives being in the
nature of tax exemptions, the basis thereof should be
categorically and unmistakably expressed from the language of
the statute. Consequently, in the absence of any express grant of
tax and duty-free privileges to the CSEZ in Republic Act No.
7227, there would be no legal basis to uphold the questioned
portions of two issuances: Section 5 of Executive Order No. 80
and Section 4 of BCDA Board Resolution No. 93-05-034, which
both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute
executive legislation for allowing the removal of consumer goods
and items from the zones without payment of corresponding
duties and taxes in violation of Republic Act No. 7227 as Section
12 thereof provides for the taxation of goods that are exported or
removed from the SSEZ to other parts of the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued,
curtailing the duty-free shopping privileges in the SSEZ and the
CSEZ "to prevent abuse of duty-free privilege and to protect local
industries from unfair competition." The pertinent provisions of
said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the
Year-round Centennial Anniversary Celebration in 1998. — Upon
effectivity of this Order and up to the Centennial Year 1998, in
addition to the permanent residents, locators and employees of
the fenced-in areas of the Subic Special Economic and Freeport
Zone and the Clark Special Economic Zone who are allowed
unlimited duty free purchases, provided these are consumed
within said fenced-in areas of the Zones, the residents of the
municipalities adjacent to Subic and Clark as respectively
provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall
continue to be allowed One Hundred US Dollars (US$100)
monthly shopping privilege until 31 December 1998. Domestic
tourists visiting Subic and Clark shall be allowed a shopping
privilege of US$25 for consumable goods which shall be
consumed only in the fenced-in area during their visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only
To Individuals Allowed by Law. — Starting 1 January 1999, only
the following persons shall continue to be eligible to shop in duty
free shops/outlets with their corresponding purchase limits:
a. Tourists and Filipinos traveling to or returning from foreign
destinations under E.O. 97-A s. 1993 — One Thousand US
Dollars (US$1,000) but not to exceed Ten Thousand US Dollars
(US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans defined
under R.A. 6768 dated 3 November 1989 — Two Thousand US
Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the fenced-in
areas of the freeports under R.A. 7227 (1992) and E.O. 97-A s.
1993 — Unlimited purchase as long as these are for consumption
within these freeports.
The term "Residents" mentioned in item c above shall refer to
individuals who, by virtue of domicile or employment, reside on
permanent basis within the freeport area. The term excludes (1)
non-residents who have entered into short- or long-term property
lease inside the freeport, (2) outsiders engaged in doing business
within the freeport, and (3) members of private clubs (e.g., yacht
and golf clubs) based or located within the freeport. In this regard,
duty free privileges granted to any of the above individuals (e.g.,
unlimited shopping privilege, tax-free importation of cars, etc.) are
hereby revoked.23
A perusal of the above provisions indicates that effective January
1, 1999, the grant of duty-free shopping privileges to domestic
tourists and to residents living adjacent to SSEZ and the CSEZ
had been revoked. Residents of the fenced-in area of the free
port are still allowed unlimited purchase of consumer goods, "as
long as these are for consumption within these freeports." Hence,
the only individuals allowed by law to shop in the duty-free outlets
and remove consumer goods out of the free ports tax-free are
tourists and Filipinos traveling to or returning from foreign
destinations, and Overseas Filipino Workers and Balikbayans as
defined under Republic Act No. 6768.24
Subsequently, on October 20, 2000, Executive Order No. 303
was issued, amending Executive Order No. 444. Pursuant to the
limited duration of the privileges granted under the preceding
issuance, Section 2 of Executive Order No. 303 declared that
"[a]ll special shopping privileges as granted under Section 3 of
Executive Order 444, s. 1997, are hereby deemed terminated.
The grant of duty free shopping privileges shall be restricted to
qualified individuals as provided by law."
It bears noting at this point that the shopping privileges currently
being enjoyed by Overseas Filipino Workers, Balikbayans, and
tourists traveling to and from foreign destinations, draw authority
not from the issuances being assailed herein, but from Executive
Order No. 4625 and Republic Act No. 6768, both enacted prior to
the promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners’ objection to the
allowance of tax-free removal of goods from the special economic
zones as previously authorized by the questioned issuances has
become moot and academic.
In any event, Republic Act No. 7227, specifically Section 12 (b)
thereof, clearly provides that "exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Code and other relevant
tax laws of the Philippines."
Thus, the removal of goods from the SSEZ to other parts of the
Philippine territory without payment of said customs duties and
taxes is not authorized by the Act. Consequently, the following
italicized provisions found in the second sentences of paragraphs
1.2 and 1.3, Section 1 of Executive Order No. 97-A are null and
void:
1.2 Residents of the SSEFPZ living outside the Secured Area can
enter and consume any quantity of consumption items in hotels
and restaurants within the Secured Area. However, these
residents can purchase and bring out of the Secured Area to
other parts of the Philippine territory consumer items worth not
exceeding US $100 per month per person. Only residents age 15
and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the
Secured Area and consume any quantity of consumption items in
hotels and restaurants within the Secured Area. However, they
can purchase and bring out of the Secured Area to other parts of
the Philippine territory consumer items worth not exceeding US
$200 per year per person. Only Filipinos age 15 and over are
entitled to this privilege.26
A similar provision found in paragraph 5, Section 4(A) of BCDA
Board Resolution No. 93-05-034 is also null and void. Said
Resolution applied the incentives given to the SSEZ under
Republic Act No. 7227 to the CSEZ, which, as aforestated, is
without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax
and duty-free incentives provided under Republic Act No. 7227,
this Court will resolve the remaining arguments only with regard
to the operations of the SSEZ. Thus, the assailed issuance that
will be discussed is solely Executive Order No. 97-A, since it is
the only one among the three questioned issuances which
pertains to the SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive Order No.
97-A) is violative of their right to equal protection of the laws, as
enshrined in Section 1, Article III of the Constitution. To support
this argument, they assert that private respondents operating
inside the SSEZ are not different from the retail establishments
located outside, the products sold being essentially the same.
The only distinction, they claim, lies in the products’ variety and
source, and the fact that private respondents import their items
tax-free, to the prejudice of the retailers and manufacturers
located outside the zone.
Petitioners’ contention cannot be sustained. It is an established
principle of constitutional law that the guaranty of the equal
protection of the laws is not violated by a legislation based on a
reasonable classification.27Classification, to be valid, must (1) rest
on substantial distinction, (2) be germane to the purpose of the
law, (3) not be limited to existing conditions only, and (4) apply
equally to all members of the same class.28
Applying the foregoing test to the present case, this Court finds
no violation of the right to equal protection of the
laws. First, contrary to petitioners’ claim, substantial distinctions
lie between the establishments inside and outside the zone,
justifying the difference in their treatment. In Tiu v. Court of
Appeals,29 the constitutionality of Executive Order No. 97-A was
challenged for being violative of the equal protection clause. In
that case, petitioners claimed that Executive Order No. 97-A was
discriminatory in confining the application of Republic Act No.
7227 within a secured area of the SSEZ, to the exclusion of those
outside but are, nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this
Court therein found substantial differences between the retailers
inside and outside the secured area, thereby justifying a valid and
reasonable classification:
Certainly, there are substantial differences between the big
investors who are being lured to establish and operate their
industries in the so-called "secured area" and the present
business operators outside the area. On the one hand, we are
talking of billion-peso investments and thousands of new jobs. On
the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even
more important, at this time the business activities outside the
"secured area" are not likely to have any impact in achieving the
purpose of the law, which is to turn the former military base
to productive use for the benefit of the Philippine economy. There
is, then, hardly any reasonable basis to extend to them the
benefits and incentives accorded in R.A. 7227. Additionally, as
the Court of Appeals pointed out, it will be easier to manage and
monitor the activities within the "secured area," which is already
fenced off, to prevent "fraudulent importation of merchandise" or
smuggling.
It is well-settled that the equal-protection guarantee does not
require territorial uniformity of laws. As long as there are actual
and material differences between territories, there is no violation
of the constitutional clause. And of course, anyone, including the
petitioners, possessing the requisite investment capital can
always avail of the same benefits by channeling his or her
resources or business operations into the fenced-off free port
zone.30
The Court in Tiu found real and substantial distinctions between
residents within the secured area and those living within the
economic zone but outside the fenced-off area. Similarly, real and
substantial differences exist between the establishments herein
involved. A significant distinction between the two groups is that
enterprises outside the zones maintain their businesses within
Philippine customs territory, while private respondents and the
other duly-registered zone enterprises operate within the so-
called "separate customs territory." To grant the same tax
incentives given to enterprises within the zones to businesses
operating outside the zones, as petitioners insist, would clearly
defeat the statute’s intent to carve a territory out of the military
reservations in Subic Bay where free flow of goods and capital is
maintained.
The classification is germane to the purpose of Republic Act No.
7227. As held in Tiu, the real concern of Republic Act No. 7227 is
to convert the lands formerly occupied by the US military bases
into economic or industrial areas. In furtherance of such objective,
Congress deemed it necessary to extend economic incentives to
the establishments within the zone to attract and encourage
foreign and local investors. This is the very rationale behind
Republic Act No. 7227 and other similar special economic zone
laws which grant a complete package of tax incentives and other
benefits.
The classification, moreover, is not limited to the existing
conditions when the law was promulgated, but to future
conditions as well, inasmuch as the law envisioned the former
military reservation to ultimately develop into a self-sustaining
investment center.
And, lastly, the classification applies equally to all retailers found
within the "secured area." As ruled in Tiu, the individuals and
businesses within the "secured area," being in like circumstances
or contributing directly to the achievement of the end purpose of
the law, are not categorized further. They are all similarly treated,
both in privileges granted and in obligations required.
With all the four requisites for a reasonable classification present,
there is no ground to invalidate Executive Order No. 97-A for
being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions
and privileges gave the private respondents undue advantage
over local enterprises which do not operate inside the SSEZ,
thereby creating unfair competition in violation of the
constitutional prohibition against unfair competition and practices
in restraint of trade.
The argument is without merit. Just how the assailed issuance is
violative of the prohibition against unfair competition and
practices in restraint of trade is not clearly explained in the
petition. Republic Act No. 7227, and consequently Executive
Order No. 97-A, cannot be said to be distinctively arbitrary
against the welfare of businesses outside the zones. The mere
fact that incentives and privileges are granted to certain
enterprises to the exclusion of others does not render the
issuance unconstitutional for espousing unfair competition. Said
constitutional prohibition cannot hinder the Legislature from using
tax incentives as a tool to pursue its policies.
Suffice it to say that Congress had justifiable reasons in granting
incentives to the private respondents, in accordance with
Republic Act No. 7227’s policy of developing the SSEZ into a
self-sustaining entity that will generate employment and attract
foreign and local investment. If petitioners had wanted to avoid
any alleged unfavorable consequences on their profits, they
should upgrade their standards of quality so as to effectively
compete in the market. In the alternative, if petitioners really
wanted the preferential treatment accorded to the private
respondents, they could have opted to register with SSEZ in
order to operate within the special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance (Executive
Order No. 97-A) openly violated the State policy of promoting the
preferential use of Filipino labor, domestic materials and locally
produced goods and adopting measures to help make them
competitive.
Again, the argument lacks merit. This Court notes that petitioners
failed to substantiate their sweeping conclusion that the issuance
has violated the State policy of giving preference to Filipino goods
and labor. The mere fact that said issuance authorizes the
importation and trade of foreign goods does not suffice to declare
it unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v. GSIS31 which, however,
does not apply. That case dealt with the policy enunciated under
the second paragraph of Section 10, Article XII of the
Constitution,32 applicable to the grant of rights, privileges, and
concessions "covering the national economy and patrimony,"
which is different from the policy invoked in this petition,
specifically that of giving preference to Filipino materials and
labor found under Section 12 of the same Article of the
Constitution. (Emphasis supplied).
In Tañada v. Angara,33 this Court elaborated on the meaning of
Section 12, Article XII of the Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of
Filipino goods, services, labor and enterprises, at the same time,
it recognizes the need for business exchange with the rest of the
world on the bases of equality and reciprocity and limits
protection of Filipino enterprises only against foreign competition
and trade practices that are unfair. In other words, the
Constitution did not intend to pursue an isolationist policy. It did
not shut out foreign investments, goods and services in the
development of the Philippine economy. While the Constitution
does not encourage the unlimited entry of foreign goods, services
and investments into the country, it does not prohibit them either.
In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.34
This Court notes that the Executive Department, with its
subsequent issuance of Executive Order Nos. 444 and 303, has
provided certain measures to prevent unfair competition. In
particular, Executive Order Nos. 444 and 303 have restricted the
special shopping privileges to certain individuals.35 Executive
Order No. 303 has limited the range of items that may be sold in
the duty-free outlets,36 and imposed sanctions to curb abuses of
duty-free privileges.37 With these measures, this Court finds no
reason to strike down Executive Order No. 97-A for allegedly
being prejudicial to Filipino labor, domestic materials and locally
produced goods.

WHEREFORE, the petition is PARTLY GRANTED. Section 5 of

Executive Order No. 80 and Section 4 of BCDA Board Resolution
No. 93-05-034 are hereby declared NULL and VOID and are
accordingly declared of no legal force and effect. Respondents
are hereby enjoined from implementing the aforesaid void
provisions. All portions of Executive Order No. 97-A are valid and
effective, except the second sentences in paragraphs 1.2 and 1.3
of said Executive Order, which are hereby declared INVALID.

No costs.

SO ORDERED.
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and
FIDELINA CRUZ, in her capacity as Acting Municipal
Treasurer of the Municipality of Las Piñas, respondents,
REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to
Combat Injustice and Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant
Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order
No. 73 dated November 25, 1986, which We quote in full, as
follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR
UNDER SECTION 21 OF THE REAL PROPERTY
TAX CODE, AS AMENDED
WHEREAS, the collection of real property taxes is
still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real
property assessments completed in 1984 has
rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes
based on the 1984 real property values was
deferred to take effect on January 1, 1988 instead
of January 1, 1985, thus depriving the local
government units of an additional source of
revenue;
WHEREAS, there is an urgent need for local
governments to augment their financial resources
to meet the rising cost of rendering effective
services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO,
President of the Philippines, do hereby order:
SECTION 1. Real property values as of
December 31, 1984 as determined by the local
assessors during the latest general revision of
assessments shall take effect beginning January
1, 1987 for purposes of real property tax
collection.
SEC. 2. The Minister of Finance shall promulgate
the necessary rules and regulations to implement
this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18,
1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and
regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified
accordingly.
 SEC. 5. This Executive Order shall take effect
immediately.
On March 31, 1987, Memorandum Order No. 77 was issued
suspending the implementation of Executive Order No. 73 until
June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of
three parcels of land. He alleges the following: that Executive Order
No. 73 accelerated the application of the general revision of
assessments to January 1, 1987 thereby mandating an excessive
increase in real property taxes by 100% to 400% on improvements,
and up to 100% on land; that any increase in the value of real
property brought about by the revision of real property values and
assessments would necessarily lead to a proportionate increase in
real property taxes; that sheer oppression is the result of increasing
real property taxes at a period of time when harsh economic
conditions prevail; and that the increase in the market values of real
property as reflected in the schedule of values was brought about
only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc.
(ROAP), which is the national association of owners-lessors, joins
Chavez in his petition to declare unconstitutional Executive Order
No. 73, but additionally alleges the following: that Presidential
Decree No. 464 is unconstitutional insofar as it imposes an
additional one percent (1%) tax on all property owners to raise
funds for education, as real property tax is admittedly a local tax
for local governments; that the General Revision of Assessments
does not meet the requirements of due process as regards
publication, notice of hearing, opportunity to be heard and insofar
as it authorizes "replacement cost" of buildings (improvements)
which is not provided in Presidential Decree No. 464, but only in
an administrative regulation of the Department of Finance; and
that the Joint Local Assessment/Treasury Regulations No. 2-
86 2 is even more oppressive and unconstitutional as it imposes
successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the
constitutionality of Executive Order No. 73 insofar as the revision
of the assessments and the effectivity thereof are concerned. It
should be emphasized that Executive Order No. 73 merely
directs, in Section 1 thereof, that:
SECTION 1. Real property values as of
December 31, 1984 as determined by the local
assessors during the latest general revision of
assessments shall take effect beginning January
1, 1987 for purposes of real property tax
collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based
on Section 21 of Presidential Decree No. 464 which provides, as
follows:
SEC. 21. General Revision of Assessments. —
Beginning with the assessor shall make a
calendar year 1978, the provincial or city general
revision of real property assessments in the
province or city to take effect January 1, 1979,
and once every five years thereafter: Provided;
however, That if property values in a province or
city, or in any municipality, have greatly changed
since the last general revision, the provincial or
city assesor may, with the approval of the
Secretary of Finance or upon bis direction,
undertake a general revision of assessments in
the province or city, or in any municipality before
the fifth year from the effectivity of the last general
revision.
Thus, We agree with the Office of the Solicitor General that the
attack on Executive Order No. 73 has no legal basis as the
general revision of assessments is a continuing process
mandated by Section 21 of Presidential Decree No. 464. If at all,
it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any
objection against said decree. It was ROAP which questioned the
constitutionality thereof. Furthermore, Presidential Decree No.
464 furnishes the procedure by which a tax assessment may be
questioned:
SEC. 30. Local Board of Assessment Appeals. —
Any owner who is not satisfied with the action of
the provincial or city assessor in the assessment
of his property may, within sixty days from the
date of receipt by him of the written notice of
assessment as provided in this Code, appeal to
the Board of Assessment Appeals of the province
or city, by filing with it a petition under oath using
the form prescribed for the purpose, together with
copies of the tax declarations and such affidavit or
documents submitted in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of
assessment Appeals. — The Local Board of
Assessment Appeals shall decide the appeal
within one hundred and twenty days from the date
of receipt of such appeal. The decision rendered
must be based on substantial evidence presented
at the hearing or at least contained in the record
and disclosed to the parties or such relevant
evidence as a reasonable mind might accept as
adequate to support the conclusion.
In the exercise of its appellate jurisdiction, the
Board shall have the power to summon
witnesses, administer oaths, conduct ocular
inspection, take depositions, and issue subpoena
and subpoena duces tecum. The proceedings of
the Board shall be conducted solely for the
purpose of ascertaining the truth without-
necessarily adhering to technical rules applicable
in judicial proceedings.
The Secretary of the Board shall furnish the
property owner and the Provincial or City
Assessor with a copy each of the decision of the
Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall
be his duty to notify the property owner of such
fact using the form prescribed for the purpose.
The owner or administrator of the property or the
assessor who is not satisfied with the decision of
the Board of Assessment Appeals, may, within
thirty days after receipt of the decision of the local
Board, appeal to the Central Board of
Assessment Appeals by filing his appeal under
oath with the Secretary of the proper provincial or
city Board of Assessment Appeals using the
prescribed form stating therein the grounds and
the reasons for the appeal, and attaching thereto
any evidence pertinent to the case. A copy of the
appeal should be also furnished the Central Board
of Assessment Appeals, through its Chairman, by
the appellant.
Within ten (10) days from receipt of the appeal,
the Secretary of the Board of Assessment
Appeals concerned shall forward the same and all
papers related thereto, to the Central Board of
Assessment Appeals through the Chairman
thereof.
xxx xxx xxx
 SEC. 36. Scope of Powers and Functions. — The
Central Board of Assessment Appeals shall have
jurisdiction over appealed assessment cases
decided by the Local Board of Assessment
Appeals. The said Board shall decide cases
brought on appeal within twelve (12) months from
the date of receipt, which decision shall become
final and executory after the lapse of fifteen (15)
days from the date of receipt of a copy of the
decision by the appellant.
In the exercise of its appellate jurisdiction, the
Central Board of Assessment Appeals, or upon
express authority, the Hearing Commissioner,
shall have the power to summon witnesses,
administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall
adopt and promulgate rules of procedure relative
to the conduct of its business.
Simply stated, within sixty days from the date of receipt of the,
written notice of assessment, any owner who doubts the
assessment of his property, may appeal to the Local Board of
Assessment Appeals. In case the, owner or administrator of the
property or the assessor is not satisfied with the decision of the
Local Board of Assessment Appeals, he may, within thirty days
from the receipt of the decision, appeal to the Central Board of
Assessment Appeals. The decision of the Central Board of
Assessment Appeals shall become final and executory after the
lapse of fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real
property taxes brought about by Executive Order No. 73 amounts
to a confiscation of property repugnant to the constitutional
guarantee of due process, invoking the cases of Ermita-Malate
Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967,
20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July
25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because
the due process requirement called for therein applies to the
"power to tax." Executive Order No. 73 does not impose new
taxes nor increase taxes.
Indeed, the government recognized the financial burden to the
taxpayers that will result from an increase in real property taxes.
Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes
resulting from the revised real property assessments, from
January 1, 1985 to January 1, 1988. Section 5 thereof is quoted
herein as follows:
SEC. 5. The increase in real property taxes
resulting from the revised real property
assessments as provided for under Section 21 of
Presidential Decree No. 464, as amended by
Presidential Decree No. 1621, shall be collected
beginning January 1, 1988 instead of January 1,
1985 in order to enable the Ministry of Finance
and the Ministry of Local Government to establish
the new systems of tax collection and assessment
provided herein and in order to alleviate the
condition of the people, including real property
owners, as a result of temporary economic
difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date
of implementation of the increase in real property taxes from
January 1, 1988 to January 1, 1987 and therefore repealed
Executive Order No. 1019, also finds ample justification in its
"whereas' clauses, as follows:
 WHEREAS, the collection of real property taxes ACCORDINGLY, the petition and the petition-in-intervention are
based on the 1984 real property values was hereby DISMISSED.
deferred to take effect on January 1, 1988 instead
of January 1, 1985, thus depriving the local SO ORDERED.
government units of an additional source of
revenue;

WHEREAS, there is an urgent need for local

governments to augment their financial resources
to meet the rising cost of rendering effective
services to the people; (emphasis supplied)

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is

unconstitutional, is not proper to be resolved in the present
petition. As stated at the outset, the issue here is limited to the
constitutionality of Executive Order No. 73. Intervention is not an
independent proceeding, but an ancillary and supplemental one
which, in the nature of things, unless otherwise provided for by
legislation (or Rules of Court), must be in subordination to the
main proceeding, and it may be laid down as a general rule that
an intervention is limited to the field of litigation open to the
original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et
al., 67 Phil. 279).

We agree with the observation of the Office of the Solicitor

General that without Executive Order No. 73, the basis for
collection of real property taxes win still be the 1978 revision of
property values. Certainly, to continue collecting real property
taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax
system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
G.R. No. 159796 July 17, 2007
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and
ENVIRONMENTALIST CONSUMERS NETWORK, INC.
(ECN), Petitioners,
vs.
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY
COMMISSION (ERC), NATIONAL POWER CORPORATION
(NPC), POWER SECTOR ASSETS AND LIABILITIES
MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER
UTILITIES GROUP (SPUG), and PANAY ELECTRIC
COMPANY INC. (PECO), Respondents.
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and
Environmentalist Consumers Network, Inc. (ECN) (petitioners),
come before this Court in this original action praying that Section
34 of Republic Act (RA) 9136, otherwise known as the "Electric
Power Industry Reform Act of 2001" (EPIRA), imposing the
Universal Charge,1and Rule 18 of the Rules and Regulations
(IRR)2 which seeks to implement the said imposition, be declared
unconstitutional. Petitioners also pray that the Universal Charge
imposed upon the consumers be refunded and that a preliminary
injunction and/or temporary restraining order (TRO) be issued
directing the respondents to refrain from implementing, charging,
and collecting the said charge.3 The assailed provision of law
reads:
SECTION 34. Universal Charge. — Within one (1) year from the
effectivity of this Act, a universal charge to be determined, fixed
and approved by the ERC, shall be imposed on all electricity end-
users for the following purposes:
(a) Payment for the stranded debts4 in excess of the
amount assumed by the National Government and
stranded contract costs of NPC5 and as well as qualified
stranded contract costs of distribution utilities resulting
from the restructuring of the industry;
(b) Missionary electrification;6
(c) The equalization of the taxes and royalties applied to
indigenous or renewable sources of energy vis-à-vis
imported energy fuels;
(d) An environmental charge equivalent to one-fourth of
one centavo per kilowatt-hour (P0.0025/kWh), which shall
accrue to an environmental fund to be used solely for
watershed rehabilitation and management. Said fund
shall be managed by NPC under existing arrangements;
and
(e) A charge to account for all forms of cross-subsidies for
a period not exceeding three (3) years.
The universal charge shall be a non-bypassable charge which
shall be passed on and collected from all end-users on a monthly
basis by the distribution utilities. Collections by the distribution
utilities and the TRANSCO in any given month shall be remitted
to the PSALM Corp. on or before the fifteenth (15th) of the
succeeding month, net of any amount due to the distribution
utility. Any end-user or self-generating entity not connected to a
distribution utility shall remit its corresponding universal charge
directly to the TRANSCO. The PSALM Corp., as administrator of
the fund, shall create a Special Trust Fund which shall be
disbursed only for the purposes specified herein in an open and
transparent manner. All amount collected for the universal charge
shall be distributed to the respective beneficiaries within a
reasonable period to be provided by the ERC.
 The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001,
it took effect.7
On April 5, 2002, respondent National Power Corporation-
Strategic Power Utilities Group8 (NPC-SPUG) filed with
respondent Energy Regulatory Commission (ERC) a petition for
the availment from the Universal Charge of its share for
Missionary Electrification, docketed as ERC Case No. 2002-165.9
On May 7, 2002, NPC filed another petition with ERC, docketed
as ERC Case No. 2002-194, praying that the proposed share
from the Universal Charge for the Environmental charge
of P0.0025 per kilowatt-hour (/kWh), or a total
of P119,488,847.59, be approved for withdrawal from the Special
Trust Fund (STF) managed by respondent Power Sector Assets
and
Liabilities Management Group (PSALM)10 for the rehabilitation
and management of watershed areas.11
On December 20, 2002, the ERC issued an Order12 in ERC Case
No. 2002-165 provisionally approving the computed amount
of P0.0168/kWh as the share of the NPC-SPUG from the
Universal Charge for Missionary Electrification and authorizing
the National Transmission Corporation (TRANSCO) and
Distribution Utilities to collect the same from its end-users on a
monthly basis.
On June 26, 2003, the ERC rendered its Decision13 (for ERC
Case No. 2002-165) modifying its Order of December 20, 2002,
thus:
WHEREFORE, the foregoing premises considered, the
provisional authority granted to petitioner National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG) in the
Order dated December 20, 2002 is hereby modified to the effect
that an additional amount of P0.0205 per kilowatt-hour should be
added to the P0.0168 per kilowatt-hour provisionally authorized
by the Commission in the said Order. Accordingly, a total amount
of P0.0373 per kilowatt-hour is hereby APPROVED for withdrawal
from the Special Trust Fund managed by PSALM as its share
from the Universal Charge for Missionary Electrification (UC-ME)
effective on the following billing cycles:
(a) June 26-July 25, 2003 for National Transmission
Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).
Relative thereto, TRANSCO and Dus are directed to collect the
UC-ME in the amount of P0.0373 per kilowatt-hour and remit the
same to PSALM on or before the 15th day of the succeeding
month.
In the meantime, NPC-SPUG is directed to submit, not later than
April 30, 2004, a detailed report to include Audited Financial
Statements and physical status (percentage of completion) of the
projects using the prescribed format. 1av vphi1
Let copies of this Order be furnished petitioner NPC-SPUG and
all distribution utilities (Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for
Reconsideration asking the ERC, among others,14 to set aside the
above-mentioned Decision, which the ERC granted in its Order
dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the "Motion
for Reconsideration" filed by petitioner National Power
Corporation-Small Power Utilities Group (NPC-SPUG) is hereby
GRANTED. Accordingly, the Decision dated June 26, 2003 is
hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a quarterly
report on the following:
1. Projects for CY 2002 undertaken;
2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if any.
SO ORDERED.15
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-
194, authorizing the NPC to draw up to P70,000,000.00 from
PSALM for its 2003 Watershed Rehabilitation Budget subject to
the availability of funds for the Environmental Fund component of
the Universal Charge.16
On the basis of the said ERC decisions, respondent Panay
Electric Company, Inc. (PECO) charged petitioner Romeo P.
Gerochi and all other end-users with the Universal Charge as
reflected in their respective electric bills starting from the month of
July 2003.17
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR
which sought to implement the same are unconstitutional on the
following grounds:
1) The universal charge provided for under Sec. 34 of the
EPIRA and sought to be implemented under Sec. 2, Rule
18 of the IRR of the said law is a tax which is to be
collected from all electric end-users and self-generating
entities. The power to tax is strictly a legislative function
and as such, the delegation of said power to any
executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The
assailed provision clearly provides that the Universal
Charge is to be determined, fixed and approved by the
ERC, hence leaving to the latter complete discretionary
legislative authority.
2) The ERC is also empowered to approve and determine
where the funds collected should be used.
3) The imposition of the Universal Charge on all end-
users is oppressive and confiscatory and amounts to
taxation without representation as the consumers were
not given a chance to be heard and represented.18
Petitioners contend that the Universal Charge has the
characteristics of a tax and is collected to fund the operations of
the NPC. They argue that the cases19 invoked by the respondents
clearly show the regulatory purpose of the charges imposed
therein, which is not so in the case at bench. In said cases, the
respective funds20 were created in order to balance and stabilize
the prices of oil and sugar, and to act as buffer to counteract the
changes and adjustments in prices, peso devaluation, and other
variables which cannot be adequately and timely monitored by
the legislature. Thus, there was a need to delegate powers to
administrative bodies.21 Petitioners posit that the Universal
Charge is imposed not for a similar purpose.
On the other hand, respondent PSALM through the Office of the
Government Corporate Counsel (OGCC) contends that unlike a
tax which is imposed to provide income for public purposes, such
as support of the government, administration of the law, or
payment of public expenses, the assailed Universal Charge is
levied for a specific regulatory purpose, which is to ensure the
viability of the country's electric power industry. Thus, it is
exacted by the State in the exercise of its inherent police power.
On this premise, PSALM submits that there is no undue
delegation of legislative power to the ERC since the latter merely
exercises a limited authority or discretion as to the execution and
implementation of the provisions of the EPIRA.22
Respondents Department of Energy (DOE), ERC, and NPC,
through the Office of the Solicitor General (OSG), share the same
view that the Universal Charge is not a tax because it is levied for
a specific regulatory purpose, which is to ensure the viability of
the country's electric power industry, and is, therefore, an
exaction in the exercise of the State's police power. Respondents
further contend that said Universal Charge does not possess the
essential characteristics of a tax, that its imposition would
redound to the benefit of the electric power industry and not to the
public, and that its rate is uniformly levied on electricity end-users,
unlike a tax which is imposed based on the individual taxpayer's
ability to pay. Moreover, respondents deny that there is undue
delegation of legislative power to the ERC since the EPIRA sets
forth sufficient determinable standards which would guide the
ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal Charge is
not oppressive and confiscatory since it is an exercise of the
police power of the State and it complies with the requirements of
due process.23
On its part, respondent PECO argues that it is duty-bound to
collect and remit the amount pertaining to the Missionary
Electrification and Environmental Fund components of the
Universal Charge, pursuant to Sec. 34 of the EPIRA and the
Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise,
PECO could be held liable under Sec. 4624 of the EPIRA, which
imposes fines and penalties for any violation of its provisions or
its IRR.25
The Issues
The ultimate issues in the case at bar are:
1) Whether or not, the Universal Charge imposed under
Sec. 34 of the EPIRA is a tax; and
2) Whether or not there is undue delegation of legislative
power to tax on the part of the ERC.26
Before we discuss the issues, the Court shall first deal with an
obvious procedural lapse.
Petitioners filed before us an original action particularly
denominated as a Complaint assailing the constitutionality of Sec.
34 of the EPIRA imposing the Universal Charge and Rule 18 of
the EPIRA's IRR. No doubt, petitioners have locus standi. They
impugn the constitutionality of Sec. 34 of the EPIRA because they
sustained a direct injury as a result of the imposition of the
Universal Charge as reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of courts
when they filed this "Complaint" directly with us. Furthermore, the
Complaint is bereft of any allegation of grave abuse of discretion
on the part of the ERC or any of the public respondents, in order
for the Court to consider it as a petition for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987
Constitution27 categorically provides that:
SECTION 5. The Supreme Court shall have the following powers:
 1. Exercise original jurisdiction over cases affecting
ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus, quo
warranto, and habeas corpus.
2. Review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the rules of court may provide,
final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in
question.
But this Court's jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, and habeas corpus, while
concurrent with that of the regional trial courts and the Court of
Appeals, does not give litigants unrestrained freedom of choice of
forum from which to seek such relief.28 It has long been
established that this Court will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate
courts, or where exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of our
primary jurisdiction.29 This circumstance alone warrants the
outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve the
constitutional issue raised herein. We are aware that if the
constitutionality of Sec. 34 of the EPIRA is not resolved now, the
issue will certainly resurface in the near future, resulting in a
repeat of this litigation, and probably involving the same parties.
In the public interest and to avoid unnecessary delay, this Court
renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the State’s
power of taxation from the police power.
The power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility
of the legislature which imposes the tax on the constituency that
is to pay it.30 It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain
availability is an imperious need.31 Thus, the theory behind the
exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.32
On the other hand, police power is the power of the state to
promote public welfare by restraining and regulating the use of
liberty and property.33 It is the most pervasive, the least limitable,
and the most demanding of the three fundamental powers of the
State. The justification is found in the Latin maxims salus populi
est suprema lex (the welfare of the people is the supreme law)
and sic utere tuo ut alienum non laedas (so use your property as
not to injure the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs, police
power grants a wide panoply of instruments through which the
State, as parens patriae, gives effect to a host of its regulatory
powers.34 We have held that the power to "regulate" means the
power to protect, foster, promote, preserve, and control, with due
regard for the interests, first and foremost, of the public, then of
the utility and of its patrons.35
The conservative and pivotal distinction between these two
powers rests in the purpose for which the charge is made. If
generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does
not make the imposition a tax.36
In exacting the assailed Universal Charge through Sec. 34 of the
EPIRA, the State's police power, particularly its regulatory
dimension, is invoked. Such can be deduced from Sec. 34 which
enumerates the purposes for which the Universal Charge is
imposed37 and which can be amply discerned as regulatory in
character. The EPIRA resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. — It is hereby declared the
policy of the State:
(a) To ensure and accelerate the total electrification of the
country;
(b) To ensure the quality, reliability, security and
affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of
electricity in a regime of free and fair competition and full
public accountability to achieve greater operational and
economic efficiency and enhance the competitiveness of
Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden
the ownership base of the power generation, transmission
and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of
public and private sector entities in the process of
restructuring the electric power industry;
(f) To protect the public interest as it is affected by the
rates and services of electric utilities and other providers
of electric power;
(g) To assure socially and environmentally compatible
energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and
renewable energy resources in power generation in order
to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization
of the assets and liabilities of the National Power
Corporation (NPC);
(j) To establish a strong and purely independent
regulatory body and system to ensure consumer
protection and enhance the competitive operation of the
electricity market; and
(k) To encourage the efficient use of energy and other
modalities of demand side management.
From the aforementioned purposes, it can be gleaned that the
assailed Universal Charge is not a tax, but an exaction in the
exercise of the State's police power. Public welfare is surely
promoted.
Moreover, it is a well-established doctrine that the taxing power
may be used as an implement of police power.38In Valmonte v.
Energy Regulatory Board, et al.39 and in Gaston v. Republic
Planters Bank,40 this Court held that the Oil Price Stabilization
Fund (OPSF) and the Sugar Stabilization Fund (SSF) were
exactions made in the exercise of the police power. The doctrine
was reiterated in Osmeña v. Orbos41 with respect to the OPSF.
Thus, we disagree with petitioners that the instant case is
different from the aforementioned cases. With the Universal
Charge, a Special Trust Fund (STF) is also created under the
administration of PSALM.42 The STF has some notable
characteristics similar to the OPSF and the SSF, viz.:
1) In the implementation of stranded cost recovery, the
ERC shall conduct a review to determine whether there is
under-recovery or over recovery and adjust (true-up) the
 level of the stranded cost recovery charge. In case of an
over-recovery, the ERC shall ensure that any excess
amount shall be remitted to the STF. A separate account
shall be created for these amounts which shall be held in
trust for any future claims of distribution utilities for
stranded cost recovery. At the end of the stranded cost
recovery period, any remaining amount in this account
shall be used to reduce the electricity rates to the end-
users.43
2) With respect to the assailed Universal Charge, if the
total amount collected for the same is greater than the
actual availments against it, the PSALM shall retain the
balance within the STF to pay for periods where a
shortfall occurs.44
3) Upon expiration of the term of PSALM, the
administration of the STF shall be transferred to the DOF
or any of the DOF attached agencies as designated by
the DOF Secretary.45
The OSG is in point when it asseverates:
Evidently, the establishment and maintenance of the Special
Trust Fund, under the last paragraph of Section 34, R.A. No.
9136, is well within the pervasive and non-waivable power and
responsibility of the government to secure the physical and
economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police
power of the State.46
This feature of the Universal Charge further boosts the position
that the same is an exaction imposed primarily in pursuit of the
State's police objectives. The STF reasonably serves and
assures the attainment and perpetuity of the purposes for which
the Universal Charge is imposed, i.e., to ensure the viability of the
country's electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the
three branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere. A logical corollary to the doctrine of separation of powers
is the principle of non-delegation of powers, as expressed in the
Latin maxim potestas delegata non delegari potest (what has
been delegated cannot be delegated). This is based on the
ethical principle that such delegated power constitutes not only a
right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the
intervening mind of another. 47
In the face of the increasing complexity of modern life, delegation
of legislative power to various specialized administrative agencies
is allowed as an exception to this principle.48 Given the volume
and variety of interactions in today's society, it is doubtful if the
legislature can promulgate laws that will deal adequately with and
respond promptly to the minutiae of everyday life. Hence, the
need to delegate to administrative bodies - the principal agencies
tasked to execute laws in their specialized fields - the authority to
promulgate rules and regulations to implement a given statute
and effectuate its policies. All that is required for the valid
exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and
that the regulation be not in contradiction to, but in conformity
with, the standards prescribed by the law. These requirements
are denominated as the completeness test and the sufficient
standard test.
Under the first test, the law must be complete in all its terms and
conditions when it leaves the legislature such that when it
reaches the delegate, the only thing he will have to do is to
enforce it. The second test mandates adequate guidelines or
limitations in the law to determine the boundaries of the
delegate's authority and prevent the delegation from running
riot.49
The Court finds that the EPIRA, read and appreciated in its
entirety, in relation to Sec. 34 thereof, is complete in all its
essential terms and conditions, and that it contains sufficient
standards.
Although Sec. 34 of the EPIRA merely provides that "within one
(1) year from the effectivity thereof, a Universal Charge to be
determined, fixed and approved by the ERC, shall be imposed on
all electricity end-users," and therefore, does not state the
specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters
provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA
provides:
SECTION 43. Functions of the ERC. — The ERC shall promote
competition, encourage market development, ensure customer
choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to
issue cease and desist order after due notice and hearing.
Towards this end, it shall be responsible for the following key
functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act,
promulgate and enforce, in accordance with law, a National Grid
Code and a Distribution Code which shall include, but not limited
to the following:
xxxx
(ii) Financial capability standards for the generating companies,
the TRANSCO, distribution utilities and suppliers: Provided, That
in the formulation of the financial capability standards, the nature
and function of the entity shall be considered: Provided, further,
That such standards are set to ensure that the electric power
industry participants meet the minimum financial standards to
protect the public interest. Determine, fix, and approve, after due
notice and public hearings the universal charge, to be imposed on
all electricity end-users pursuant to Section 34 hereof;
Moreover, contrary to the petitioners’ contention, the ERC does
not enjoy a wide latitude of discretion in the determination of the
Universal Charge. Sec. 51(d) and (e) of the EPIRA50 clearly
provides:
SECTION 51. Powers. — The PSALM Corp. shall, in the
performance of its functions and for the attainment of its
objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and
stranded contract costs of NPC which shall form the
basis for ERC in the determination of the universal
charge;
(e) To liquidate the NPC stranded contract costs, utilizing
the proceeds from sales and other property contributed to
it, including the proceeds from the universal charge.
Thus, the law is complete and passes the first test for valid
delegation of legislative power.
As to the second test, this Court had, in the past, accepted as
sufficient standards the following: "interest of law and
order;"51 "adequate and efficient instruction;"52 "public
interest;"53 "justice and equity;"54 "public convenience and
welfare;"55 "simplicity, economy and efficiency;"56 "standardization
and regulation of medical education;"57and "fair and equitable
employment practices."58 Provisions of the EPIRA such as,
among others, "to ensure the total electrification of the country
and the quality, reliability, security and affordability of the supply
of electric power"59 and "watershed rehabilitation and
management"60 meet the requirements for valid delegation, as
they provide the limitations on the ERC’s power to formulate the
IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's
conferred powers were challenged. In Freedom from Debt
Coalition v. Energy Regulatory Commission,61 the Court had
occasion to say:
In determining the extent of powers possessed by the ERC, the
provisions of the EPIRA must not be read in separate parts.
Rather, the law must be read in its entirety, because a statute is
passed as a whole, and is animated by one general purpose and
intent. Its meaning cannot to be extracted from any single part
thereof but from a general consideration of the statute as a whole.
Considering the intent of Congress in enacting the EPIRA and
reading the statute in its entirety, it is plain to see that the law has
expanded the jurisdiction of the regulatory body, the ERC in this
case, to enable the latter to implement the reforms sought to be
accomplished by the EPIRA. When the legislators decided to
broaden the jurisdiction of the ERC, they did not intend to abolish
or reduce the powers already conferred upon ERC's
predecessors. To sustain the view that the ERC possesses only
the powers and functions listed under Section 43 of the EPIRA is
to frustrate the objectives of the law.
In his Concurring and Dissenting Opinion62 in the same case,
then Associate Justice, now Chief Justice, Reynato S. Puno
described the immensity of police power in relation to the
delegation of powers to the ERC and its regulatory functions over
electric power as a vital public utility, to wit:
Over the years, however, the range of police power was no
longer limited to the preservation of public health, safety and
morals, which used to be the primary social interests in earlier
times. Police power now requires the State to "assume an
affirmative duty to eliminate the excesses and injustices that are
the concomitants of an unrestrained industrial economy." Police
power is now exerted "to further the public welfare — a concept
as vast as the good of society itself." Hence, "police power is but
another name for the governmental authority to further the
welfare of society that is the basic end of all government." When
police power is delegated to administrative bodies with regulatory
functions, its exercise should be given a wide latitude. Police
power takes on an even broader dimension in developing
countries such as ours, where the State must take a more active
role in balancing the many conflicting interests in society. The
Questioned Order was issued by the ERC, acting as an agent of
the State in the exercise of police power. We should have
exceptionally good grounds to curtail its exercise. This approach
is more compelling in the field of rate-regulation of electric power
rates. Electric power generation and distribution is a traditional
instrument of economic growth that affects not only a few but the
entire nation. It is an important factor in encouraging investment
and promoting business. The engines of progress may come to a
screeching halt if the delivery of electric power is impaired.
Billions of pesos would be lost as a result of power outages or
unreliable electric power services. The State thru the ERC should
be able to exercise its police power with great flexibility, when the
need arises.
This was reiterated in National Association of Electricity
Consumers for Reforms v. Energy Regulatory
Commission63 where the Court held that the ERC, as regulator,
should have sufficient power to respond in real time to changes
wrought by multifarious factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is
no undue delegation of legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention
in the Complaint that the imposition of the Universal Charge on all
end-users is oppressive and confiscatory, and amounts to
taxation without representation. Hence, such contention is
deemed waived or abandoned per Resolution64 of August 3,
2004.65 Moreover, the determination of whether or not a tax is
excessive, oppressive or confiscatory is an issue which Finally, every law has in its favor the presumption of
essentially involves questions of fact, and thus, this Court is constitutionality, and to justify its nullification, there must be a
precluded from reviewing the same.66 clear and unequivocal breach of the Constitution and not one that
is doubtful, speculative, or argumentative.68Indubitably, petitioners
As a penultimate statement, it may be well to recall what this failed to overcome this presumption in favor of the EPIRA. We
Court said of EPIRA: find no clear violation of the Constitution which would warrant a
pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR
One of the landmark pieces of legislation enacted by Congress in are unconstitutional and void.
recent years is the EPIRA. It established a new policy, legal
structure and regulatory framework for the electric power industry. WHEREFORE, the instant case is hereby DISMISSED for lack of
The new thrust is to tap private capital for the expansion and merit.
improvement of the industry as the large government debt and
the highly capital-intensive character of the industry itself have SO ORDERED.
long been acknowledged as the critical constraints to the
program. To attract private investment, largely foreign, the jaded
structure of the industry had to be addressed. While the
generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130
utilities, mostly small and uneconomic. The pervasive flaws have
caused a low utilization of existing generation capacity; extremely
high and uncompetitive power rates; poor quality of service to
consumers; dismal to forgettable performance of the government
power sector; high system losses; and an inability to develop a
clear strategy for overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the

industry, including the privatization of the assets of the National
Power Corporation (NPC), the transition to a competitive
structure, and the delineation of the roles of various government
agencies and the private entities. The law ordains the division of
the industry into four (4) distinct sectors, namely: generation,
transmission, distribution and supply.

Corollarily, the NPC generating plants have to privatized and its

transmission business spun off and privatized thereafter.67
G.R. No. 173863 September 15, 2010
CHEVRON PHILIPPINES, INC. (Formerly CALTEX
PHILIPPINES, INC.), Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and
CLARK DEVELOPMENT CORPORATION, Respondents.
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari assails the Decision1 dated
November 30, 2005 of the Court of Appeals (CA) in CA-G.R. SP
No. 87117, which affirmed the Resolution2 dated August 2, 2004
and the Order3 dated September 30, 2004 of the Office of the
President in O.P. Case No. 04-D-170.
The facts follow.
On June 28, 2002, the Board of Directors of respondent Clark
Development Corporation (CDC) issued and approved Policy
Guidelines on the Movement of Petroleum Fuel to and from the
Clark Special Economic Zone (CSEZ)4 which provided, among
others, for the following fees and charges:
1. Accreditation Fee
xxxx
2. Annual Inspection Fee
xxxx
3. Royalty Fees
Suppliers delivering fuel from outside sources shall be
assessed the following royalty fees:
- Php0.50 per liter – those delivering Coastal petroleum
fuel to CSEZ locators not sanctioned by CDC
- Php1.00 per liter – those bringing-in petroleum fuel
(except Jet A-1) from outside sources
xxxx
4. Gate Pass Fee
x x x x5
The above policy guidelines were implemented effective July 27,
2002. On October 1, 2002, CDC sent a letter6 to herein petitioner
Chevron Philippines, Inc. (formerly Caltex Philippines, Inc.), a
domestic corporation which has been supplying fuel to Nanox
Philippines, a locator inside the CSEZ since 2001, informing the
petitioner that a royalty fee of P0.50 per liter shall be assessed on
its deliveries to Nanox Philippines effective August 1, 2002.
Thereafter, on October 21, 2002 a Statement of Account7 was
sent by CDC billing the petitioner for royalty fees in the amount
of P115,000.00 for its fuel sales from Coastal depot to Nanox
Philippines from August 1-31 to September 3-21, 2002.
Claiming that nothing in the law authorizes CDC to impose royalty
fees or any fees based on a per unit measurement of any
commodity sold within the special economic zone, petitioner sent
a letter8 dated October 30, 2002 to the President and Chief
Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to protest
the assessment for royalty fees. Petitioner nevertheless paid the
said fees under protest on November 4, 2002.
On August 18, 2003, CDC again wrote a letter9 to petitioner
regarding the latter’s unsettled royalty fees covering the period of
December 2002 to July 2003. Petitioner responded through a
letter10 dated September 8, 2003 reiterating its continuing
objection over the assessed royalty fees and requested a refund
of the amount paid under protest on November 4, 2002. The letter
also asked CDC to revoke the imposition of such royalty fees.
The request was denied by CDC in a letter11 dated September 29,
2003.
Petitioner elevated its protest before respondent Bases
Conversion Development Authority (BCDA) arguing that the
royalty fees imposed had no reasonable relation to the probable
expenses of regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue generating purpose,
thus, akin to a "tax". The protest was however denied by BCDA in
a letter12 dated March 3, 2004.
Petitioner appealed to the Office of the President which
dismissed13 the appeal for lack of merit on August 2, 2004 and
denied14 petitioner’s motion for reconsideration thereof on
September 30, 2004.
Aggrieved, petitioner elevated the case to the CA which likewise
dismissed15 the appeal for lack of merit on November 30, 2005
and denied16 the motion for reconsideration on July 26, 2006.
The CA held that in imposing the challenged royalty fees,
respondent CDC was exercising its right to regulate the flow of
fuel into CSEZ, which is bolstered by the fact that it possesses
exclusive right to distribute fuel within CSEZ pursuant to its Joint
Venture Agreement (JVA)17 with Subic Bay Metropolitan Authority
(SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated
April 11, 1996. The appellate court also found that royalty fees
were assessed on fuel delivered, not on the sale, by petitioner
and that the basis of such imposition was petitioner’s delivery
receipts to Nanox Philippines. The fact that revenue is incidentally
also obtained does not make the imposition a tax as long as the
primary purpose of such imposition is regulation.18
Petitioner filed a motion for reconsideration but the CA denied the
same in its Resolution19 dated July 26, 2006.
Hence, this petition raising the following grounds:
I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A
QUESTION OF SUBSTANCE NOT HERETOFORE
DETERMINED BY THE HONORABLE SUPREME COURT.
II. THE RULING OF THE COURT OF APPEALS THAT THE CDC
HAS THE POWER TO IMPOSE THE QUESTIONED "ROYALTY
FEES" IS CONTRARY TO LAW.
III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN
AND COMMITTED GRAVE ABUSE OF DISCRETION AND A
CLEAR MISUNDERSTANDING OF FACTS WHEN IT RULED
CONTRARY TO THE EVIDENCE THAT: (i) THE QUESTIONED
"ROYALTY FEE" IS PRIMARILY FOR REGULATION; AND (ii)
ANY REVENUE EARNED THEREFROM IS MERELY
INCIDENTAL TO THE PURPOSE OF REGULATION.
IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT
AND CONSIDERATION TO THE EVIDENCE PRESENTED BY
CPI SUCH AS THE LETTERS COMING FROM RESPONDENT
CDC ITSELF PROVING THAT THE QUESTIONED ROYALTY
FEES ARE IMPOSED ON THE BASIS OF FUEL SALES (NOT
DELIVERY OF FUEL) AND NOT FOR REGULATION BUT
PURELY FOR INCOME GENERATION, I.E. AS PRICE OR
CONSIDERATION FOR THE RIGHT TO MARKET AND
DISTRIBUTE FUEL INSIDE THE CSEZ.20
Petitioner argues that CDC does not have any power to impose
royalty fees on sale of fuel inside the CSEZ on the basis of purely
income generating functions and its exclusive right to market and
distribute goods inside the CSEZ. Such imposition of royalty fees
for revenue generating purposes would amount to a tax, which
the respondents have no power to impose. Petitioner stresses
that the royalty fee imposed by CDC is not regulatory in nature
but a revenue generating measure to increase its profits and to
further enhance its exclusive right to market and distribute fuel in
CSEZ.21
Petitioner would also like this Court to note that the fees imposed,
assuming arguendo they are regulatory in nature, are
unreasonable and are grossly in excess of regulation costs. It
adds that the amount of the fees should be presumed to be
unreasonable and that the burden of proving that the fees are not
unreasonable lies with the respondents.22
On the part of the respondents, they argue that the purpose of the
royalty fees is to regulate the flow of fuel to and from the CSEZ.
Such being its main purpose, and revenue (if any) just an
incidental product, the imposition cannot be considered a tax. It is
their position that the regulation is a valid exercise of police power
since it is aimed at promoting the general welfare of the public.
They claim that being the administrator of the CSEZ, CDC is
responsible for the safe distribution of fuel products inside the
CSEZ.23
The petition has no merit.
In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If
the purpose is primarily to raise revenue, then it will be deemed a
tax even though the measure results in some form of regulation.
On the other hand, if the purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the police power of the
state, even though incidentally, revenue is generated. Thus, in
Gerochi v. Department of Energy,24 the Court stated:
The conservative and pivotal distinction between these two (2)
powers rests in the purpose for which the charge is made. If
generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does
not make the imposition a tax.
In the case at bar, we hold that the subject royalty fee was
imposed primarily for regulatory purposes, and not for the
generation of income or profits as petitioner claims. The Policy
Guidelines on the Movement of Petroleum Fuel to and from the
Clark Special Economic Zone25 provides:
DECLARATION OF POLICY
It is hereby declared the policy of CDC to develop and maintain
the Clark Special Economic Zone (CSEZ) as a highly secured
zone free from threats of any kind, which could possibly endanger
the lives and properties of locators, would-be investors, visitors,
and employees.
It is also declared the policy of CDC to operate and manage the
CSEZ as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the CSEZ.26 (Emphasis supplied.)
From the foregoing, it can be gleaned that the Policy
Guidelines was issued, first and foremost, to ensure the safety,
security, and good condition of the petroleum fuel industry within
the CSEZ. The questioned royalty fees form part of the regulatory
framework to ensure "free flow or movement" of petroleum fuel to
and from the CSEZ. The fact that respondents have the exclusive
right to distribute and market petroleum products within CSEZ
pursuant to its JVA with SBMA and CSBTI does not diminish the
regulatory purpose of the royalty fee for fuel products supplied by
petitioner to its client at the CSEZ.
As pointed out by the respondents in their Comment, from the
time the JVA took effect up to the time CDC implemented
its Policy Guidelines on the Movement of Petroleum Fuel to and
from the CSEZ, suppliers/distributors were allowed to bring in
petroleum products inside CSEZ without any charge at all. But
this arrangement clearly negates CDC’s mandate under the JVA
as exclusive distributor of CSBTI’s fuel products within CSEZ and
respondents’ ownership of the Subic-Clark Pipeline.27 On this
score, respondents were justified in charging royalty fees on fuel
delivered by outside suppliers.
However, it was erroneous for petitioner to argue that such
exclusive right of respondent CDC to market and distribute fuel
inside CSEZ is the sole basis of the royalty fees imposed under
the Policy Guidelines. Being the administrator of CSEZ, the
responsibility of ensuring the safe, efficient and orderly
distribution of fuel products within the Zone falls on CDC.
Addressing specific concerns demanded by the nature of goods
or products involved is encompassed in the range of services
which respondent CDC is expected to provide under the law, in
pursuance of its general power of supervision and control over
the movement of all supplies and equipment into the CSEZ.
Section 2 of Executive Order No. 8028 provides:
SEC. 2. Powers and Functions of the Clark Development
Corporation. – The BCDA, as the incorporator and holding
company of its Clark subsidiary, shall determine the powers and
functions of the CDC. Pursuant to Section 15 of RA 7227, the
CDC shall have the specific powers of the Export Processing
Zone Authority as provided for in Section 4 of Presidential Decree
No. 66 (1972) as amended.
Among those specific powers granted to CDC under Section 4 of
Presidential Decree No. 66 are:
(a) To operate, administer and manage the export processing
zone established in the Port of Mariveles, Bataan, and such other
export processing zones as may be established under this
Decree; to construct, acquire, own, lease, operate and maintain
infrastructure facilities, factory building, warehouses, dams,
reservoir, water distribution, electric light and power system,
telecommunications and transportation, or such other facilities
and services necessary or useful in the conduct of commerce or
in the attainment of the purposes and objectives of this Decree;
xxxx
(g) To fix, assess and collect storage charges and fees, including
rentals for the lease, use or occupancy of lands, buildings,
structure, warehouses, facilities and other properties owned and
administered by the Authority; and to fix and collect the fees
and charges for the issuance of permits, licenses and the
rendering of services not enumerated herein, the provisions of
law to the contrary notwithstanding;
(h) For the due and effective exercise of the powers conferred by
law and to the extend (sic) [extent] requisite therefor, to exercise
exclusive jurisdiction and sole police authority over all areas
owned or administered by the Authority. For this purpose, the
Authority shall have supervision and control over the bringing
in or taking out of the Zone, including the movement therein,
of all cargoes, wares, articles, machineries, equipment, supplies
or merchandise of every type and description;
x x x x (Emphasis supplied.)
In relation to the regulatory purpose of the imposed fees, this
Court in Progressive Development Corporation v. Quezon
City,29 stated that "x x x the imposition questioned must relate to
an occupation or activity that so engages the public interest in
health, morals, safety and development as to require regulation
for the protection and promotion of such public interest; the
imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of
direct regulation but also its incidental consequences as well."
In the case at bar, there can be no doubt that the oil industry is
greatly imbued with public interest as it vitally affects the general
welfare.30 In addition, fuel is a highly combustible product which, if
left unchecked, poses a serious threat to life and property. Also,
the reasonable relation between the royalty fees imposed on a
"per liter" basis and the regulation sought to be attained is that
the higher the volume of fuel entering CSEZ, the greater the
extent and frequency of supervision and inspection required to
ensure safety, security, and order within the Zone.
enjoyed by statutes. These two precepts place a heavy burden
upon any party assailing governmental regulations.33 Petitioner’s
plain allegations are simply not enough to overcome the
presumption of validity and reasonableness of the subject
imposition.
WHEREFORE, the petition is DENIED for lack of merit and the
Decision of the Court of Appeals dated November 30, 2005 in
CA-G.R. SP No. 87117 is hereby AFFIRMED.

Respondents submit that increased administrative costs were With costs against the petitioner.
triggered by security risks that have recently emerged, such as
terrorist strikes in airlines and military/government facilities. SO ORDERED.
Explaining the regulatory feature of the charges imposed under
the Policy Guidelines, then BCDA President Rufo Colayco in his
letter dated March 3, 2004 addressed to petitioner’s Chief
Corporate Counsel, stressed:

The need for regulation is more evident in the light of the 9/11
tragedy considering that what is being moved from one location to
another are highly combustible fuel products that could cause
loss of lives and damage to properties, hence, a set of guidelines
was promulgated on 28 June 2002. It must be emphasized also
that greater security measure must be observed in the CSEZ
because of the presence of the airport which is a vital public
infrastructure.
1avvphi1

We are therefore constrained to sustain the imposition of the

royalty fees on deliveries of CPI’s fuel products to Nanox
Philippines.31

As to the issue of reasonableness of the amount of the fees, we

hold that no evidence was adduced by the petitioner to show that
the fees imposed are unreasonable.

Administrative issuances have the force and effect of law.32 They

benefit from the same presumption of validity and constitutionality
G.R. No. 166006 March 14, 2008
PLANTERS PRODUCTS, INC., Petitioner,
vs.
FERTIPHIL CORPORATION, Respondent.
DECISION
REYES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and
jurisdiction to consider the constitutionality of statutes, executive
orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in
all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of
the Decision1 of the Court of Appeals (CA) affirming with
modification that of the RTC in Makati City,2 finding petitioner
Planters Products, Inc. (PPI) liable to private respondent Fertiphil
Corporation (Fertiphil) for the levies it paid under Letter of
Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private
corporations incorporated under Philippine laws.3 They are both
engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising
his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a capital recovery component
(CRC) on the domestic sale of all grades of fertilizers in the
Philippines.4 The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include
in its fertilizer pricing formula a capital contribution component of
not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales
of fertilizers in the Philippines.5 (Underscoring supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it
sold in the domestic market to the Fertilizer and Pesticide
Authority (FPA). FPA then remitted the amount collected to the
Far East Bank and Trust Company, the depositary bank of PPI.
Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24,
1986.6
After the 1986 Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. With the return of democracy, Fertiphil
demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.7
Fertiphil filed a complaint for collection and damages8 against
FPA and PPI with the RTC in Makati. It questioned the
constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a
denial of due process of law.9 Fertiphil alleged that the LOI solely
favored PPI, a privately owned corporation, which used the
proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that
the issuance of LOI No. 1465 was a valid exercise of the police
power of the State in ensuring the stability of the fertilizer industry
in the country. It also averred that Fertiphil did not sustain any
damage from the LOI because the burden imposed by the levy
fell on the ultimate consumer, not the seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of
Fertiphil, disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant
Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the
time of judicial demand;
2) the sum of P100,000 as attorney’s fees;
3) the cost of suit.
SO ORDERED.11
Ruling that the imposition of the P10 CRC was an exercise of the
State’s inherent power of taxation, the RTC invalidated the levy
for violating the basic principle that taxes can only be levied for
public purpose, viz.:
It is apparent that the imposition of P10 per fertilizer bag sold in
the country by LOI 1465 is purportedly in the exercise of the
power of taxation. It is a settled principle that the power of
taxation by the state is plenary. Comprehensive and supreme, the
principal check upon its abuse resting in the responsibility of the
members of the legislature to their constituents. However, there
are two kinds of limitations on the power of taxation: the inherent
limitations and the constitutional limitations.
One of the inherent limitations is that a tax may be levied only for
public purposes:
The power to tax can be resorted to only for a constitutionally
valid public purpose. By the same token, taxes may not be levied
for purely private purposes, for building up of private fortunes, or
for the redress of private wrongs. They cannot be levied for the
improvement of private property, or for the benefit, and promotion
of private enterprises, except where the aid is incident to the
public benefit. It is well-settled principle of constitutional law that
no general tax can be levied except for the purpose of raising
money which is to be expended for public use. Funds cannot be
exacted under the guise of taxation to promote a purpose that is
not of public interest. Without such limitation, the power to tax
could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on the
ground of want of public interest unless the want of such interest
is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00
to the Fertilizer and Pesticide Authority pursuant to the P10 per
bag of fertilizer sold imposition under LOI 1465 which, in turn,
remitted the amount to the defendant Planters Products, Inc. thru
the latter’s depository bank, Far East Bank and Trust Co. Thus,
by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which is a
private domestic corporation, became poorer by the amount
of P6,698,144.00 and the defendant, Planters Product, Inc.,
another private domestic corporation, became richer by the
amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the
afore-quoted jurisprudence, it is quite evident that LOI 1465
insofar as it imposes the amount of P10 per fertilizer bag sold in
the country and orders that the said amount should go to the
defendant Planters Product, Inc. is unlawful because it violates
the mandate that a tax can be levied only for a public purpose
and not to benefit, aid and promote a private enterprise such as
Planters Product, Inc.12
PPI moved for reconsideration but its motion was denied.13 PPI
then filed a notice of appeal with the RTC but it failed to pay the
requisite appeal docket fee. In a separate but related proceeding,
this Court14 allowed the appeal of PPI and remanded the case to
the CA for proper disposition.
 CA Decision
On November 28, 2003, the CA handed down its decision
affirming with modification that of the RTC, with the following fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed from
is hereby AFFIRMED, subject to the MODIFICATION that the
award of attorney’s fees is hereby DELETED.15
In affirming the RTC decision, the CA ruled that the lis mota of the
complaint for collection was the constitutionality of LOI No. 1465,
thus:
The question then is whether it was proper for the trial court to
exercise its power to judicially determine the constitutionality of
the subject statute in the instant case.
As a rule, where the controversy can be settled on other grounds,
the courts will not resolve the constitutionality of a law (Lim v.
Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to
avoid ruling on constitutional questions and to presume that the
acts of political departments are valid, absent a clear and
unmistakable showing to the contrary.
However, the courts are not precluded from exercising such
power when the following requisites are obtaining in a
controversy before it: First, there must be before the court an
actual case calling for the exercise of judicial review. Second, the
question must be ripe for adjudication. Third, the person
challenging the validity of the act must have standing to
challenge. Fourth, the question of constitutionality must have
been raised at the earliest opportunity; and lastly, the issue of
constitutionality must be the very lis mota of the case (Integrated
Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for
collection and damages. However, a perusal of the complaint also
reveals that the instant action is founded on the claim that the
levy imposed was an unlawful and unconstitutional special
assessment. Consequently, the requisite that the constitutionality
of the law in question be the very lis mota of the case is present,
making it proper for the trial court to rule on the constitutionality of
LOI 1465.16
The CA held that even on the assumption that LOI No. 1465 was
issued under the police power of the state, it is still
unconstitutional because it did not promote public welfare. The
CA explained:
In declaring LOI 1465 unconstitutional, the trial court held that the
levy imposed under the said law was an invalid exercise of the
State’s power of taxation inasmuch as it violated the inherent and
constitutional prescription that taxes be levied only for public
purposes. It reasoned out that the amount collected under the
levy was remitted to the depository bank of PPI, which the latter
used to advance its private interest.
On the other hand, appellant submits that the subject statute’s
passage was a valid exercise of police power. In addition, it
disputes the court a quo’s findings arguing that the collections
under LOI 1465 was for the benefit of Planters Foundation,
Incorporated (PFI), a foundation created by law to hold in trust for
millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of
police power has been characterized as the most essential,
insistent and the least limitable of powers, extending as it does to
all the great public needs. It may be exercised as long as the
activity or the property sought to be regulated has some
relevance to public welfare (Constitutional Law, by Isagani A.
Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the
limits set by the Constitution, which requires the concurrence of a
lawful subject and a lawful method. Thus, our courts have laid
down the test to determine the validity of a police measure as
follows: (1) the interests of the public generally, as distinguished
from those of a particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon
individuals (National Development Company v. Philippine
Veterans Bank, 192 SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial
court’s holding LOI 1465 unconstitutional. To be sure, ensuring
the continued supply and distribution of fertilizer in the country is
an undertaking imbued with public interest. However, the method
by which LOI 1465 sought to achieve this is by no means a
measure that will promote the public welfare. The government’s
commitment to support the successful rehabilitation and
continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s impartiality.
There is no way to treat the self-interest of a favored entity, like
PPI, as identical with the general interest of the country’s farmers
or even the Filipino people in general. Well to stress, substantive
due process exacts fairness and equal protection disallows
distinction where none is needed. When a statute’s public
purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or
for the exclusive benefit of private individuals.17
The CA did not accept PPI’s claim that the levy imposed under
LOI No. 1465 was for the benefit of Planters Foundation, Inc., a
foundation created to hold in trust the stock ownership of PPI.
The CA stated:
Appellant next claims that the collections under LOI 1465 was for
the benefit of Planters Foundation, Incorporated (PFI), a
foundation created by law to hold in trust for millions of farmers,
the stock ownership of PFI on the strength of Letter of
Undertaking (LOU) issued by then Prime Minister Cesar Virata on
April 18, 1985 and affirmed by the Secretary of Justice in an
Opinion dated October 12, 1987, to wit:
"2. Upon the effective date of this Letter of Undertaking, the
Republic shall cause FPA to include in its fertilizer pricing formula
a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust by
Planters Foundation, Inc. (Planters Foundation), which unpaid
capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) (such unpaid
portion of the outstanding capital stock of Planters being hereafter
referred to as the ‘Unpaid Capital’), and subsequently for such
capital increases as may be required for the continuing viability of
Planters.
The capital recovery component shall be in the minimum amount
of P10 per bag, which will be added to the price of all domestic
sales of fertilizer in the Philippines by any importer and/or fertilizer
mother company. In this connection, the Republic hereby
acknowledges that the advances by Planters to Planters
Foundation which were applied to the payment of the Planters
shares now held in trust by Planters Foundation, have been
assigned to, among others, the Creditors. Accordingly, the
Republic, through FPA, hereby agrees to deposit the proceeds of
the capital recovery component in the special trust account
designated in the notice dated April 2, 1985, addressed by
counsel for the Creditors to Planters Foundation. Such proceeds
shall be deposited by FPA on or before the 15th day of each
month.
The capital recovery component shall continue to be charged and
collected until payment in full of (a) the Unpaid Capital and/or (b)
any shortfall in the payment of the Subsidy Receivables, (c) any
carrying cost accruing from the date hereof on the amounts which
may be outstanding from time to time of the Unpaid Capital
and/or the Subsidy Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the
foregoing clause (c), the ‘carrying cost’ shall be at such rate as
will represent the full and reasonable cost to Planters of servicing
its debts, taking into account both its peso and foreign currency-
denominated obligations." (Records, pp. 42-43)
Appellant’s proposition is open to question, to say the least. The
LOU issued by then Prime Minister Virata taken together with the
Justice Secretary’s Opinion does not preponderantly demonstrate
that the collections made were held in trust in favor of millions of
farmers. Unfortunately for appellant, in the absence of sufficient
evidence to establish its claims, this Court is constrained to rely
on what is explicitly provided in LOI 1465 – that one of the
primary aims in imposing the levy is to support the successful
rehabilitation and continued viability of PPI.18
PPI moved for reconsideration but its motion was denied.19 It then
filed the present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE
COLLATERALLY ATTACKED AND BE DECREED VIA A
DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION
AND DAMAGES WHERE THE ISSUE OF
CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY
PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE
OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION
IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION
CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF
FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES
A VALID LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL
RECOVERY COMPONENT WAS REMITTED TO THE
GOVERNMENT, AND BECAME GOVERNMENT FUNDS
PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW
WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY
VIRTUE OF THE PRINCIPLE OF "OPERATIVE FACT" PRIOR
TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI
1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE
ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT
CASE.20 (Underscoring supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the
jurisdiction of the RTC to resolve constitutional issues.
Fertiphil has locus standi because it suffered direct injury;
doctrine of standing is a mere procedural technicality which may
be waived.
PPI argues that Fertiphil has no locus standi to question the
constitutionality of LOI No. 1465 because it does not have a
"personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement."21 It asserts that Fertiphil did
not suffer any damage from the CRC imposition because
"incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company."22
We cannot agree. The doctrine of locus standi or the right of
appearance in a court of justice has been adequately discussed
by this Court in a catena of cases. Succinctly put, the doctrine
requires a litigant to have a material interest in the outcome of a
case. In private suits, locus standi requires a litigant to be a "real
party in interest," which is defined as "the party who stands to be
benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit."23
In public suits, this Court recognizes the difficulty of applying the
doctrine especially when plaintiff asserts a public right on behalf
of the general public because of conflicting public policy
issues. 24 On one end, there is the right of the ordinary citizen to
petition the courts to be freed from unlawful government intrusion
and illegal official action. At the other end, there is the public
policy precluding excessive judicial interference in official acts,
which may unnecessarily hinder the delivery of basic public
services.
In this jurisdiction, We have adopted the "direct injury test" to
determine locus standi in public suits. In People v. Vera,25 it was
held that a person who impugns the validity of a statute must
have "a personal and substantial interest in the case such that he
has sustained, or will sustain direct injury as a result." The "direct
injury test" in public suits is similar to the "real party in interest"
rule for private suits under Section 2, Rule 3 of the 1997 Rules of
Civil Procedure.26
Recognizing that a strict application of the "direct injury" test may
hamper public interest, this Court relaxed the requirement in
cases of "transcendental importance" or with "far reaching
implications." Being a mere procedural technicality, it has also
been held that locus standi may be waived in the public interest.27
Whether or not the complaint for collection is characterized as a
private or public suit, Fertiphil has locus standi to file it. Fertiphil
suffered a direct injury from the enforcement of LOI No. 1465. It
was required, and it did pay, the P10 levy imposed for every bag
of fertilizer sold on the domestic market. It may be true that
Fertiphil has passed some or all of the levy to the ultimate
consumer, but that does not disqualify it from attacking the
constitutionality of the LOI or from seeking a refund. As seller, it
bore the ultimate burden of paying the levy. It faced the possibility
of severe sanctions for failure to pay the levy. The fact of
payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the
LOI because it was compelled to factor in its product the levy.
The levy certainly rendered the fertilizer products of Fertiphil and
other domestic sellers much more expensive. The harm to their
business consists not only in fewer clients because of the
increased price, but also in adopting alternative corporate
strategies to meet the demands of LOI No. 1465. Fertiphil and
other fertilizer sellers may have shouldered all or part of the levy
just to be competitive in the market. The harm occasioned on the
business of Fertiphil is sufficient injury for purposes of locus
standi.
Even assuming arguendo that there is no direct injury, We find
that the liberal policy consistently adopted by this Court on locus
standi must apply. The issues raised by Fertiphil are of
paramount public importance. It involves not only the
constitutionality of a tax law but, more importantly, the use of
taxes for public purpose. Former President Marcos issued LOI
No. 1465 with the intention of rehabilitating an ailing private
company. This is clear from the text of the LOI. PPI is expressly
named in the LOI as the direct beneficiary of the levy. Worse, the
levy was made dependent and conditional upon PPI becoming
financially viable. The LOI provided that "the capital contribution
shall be collected until adequate capital is raised to make PPI
viable."
The constitutionality of the levy is already in doubt on a plain
reading of the statute. It is Our constitutional duty to squarely
resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing, being a mere procedural
technicality, should be waived, if at all, to adequately thresh out
an important constitutional issue.
RTC may resolve constitutional issues; the constitutional issue
was adequately raised in the complaint; it is the lis mota of the
case.
PPI insists that the RTC and the CA erred in ruling on the
constitutionality of the LOI. It asserts that the constitutionality of
the LOI cannot be collaterally attacked in a complaint for
collection.28 Alternatively, the resolution of the constitutional issue
is not necessary for a determination of the complaint for
collection.29
Fertiphil counters that the constitutionality of the LOI was
adequately pleaded in its complaint. It claims that the
constitutionality of LOI No. 1465 is the very lis mota of the case
because the trial court cannot determine its claim without
resolving the issue.30
It is settled that the RTC has jurisdiction to resolve the
constitutionality of a statute, presidential decree or an executive
order. This is clear from Section 5, Article VIII of the 1987
Constitution, which provides:
SECTION 5. The Supreme Court shall have the following powers:
xxxx
(2) Review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in
question. (Underscoring supplied)
In Mirasol v. Court of Appeals,31 this Court recognized the power
of the RTC to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts have the
authority and jurisdiction to consider the constitutionality of a
statute, presidential decree, or executive order. The Constitution
vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation not only in this Court,
but in all Regional Trial Courts.32
In the recent case of Equi-Asia Placement, Inc. v. Department of
Foreign Affairs,33 this Court reiterated:
There is no denying that regular courts have jurisdiction over
cases involving the validity or constitutionality of a rule or
regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court
alone for even the regional trial courts can take cognizance of
actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial
courts.34
Judicial review of official acts on the ground of unconstitutionality
may be sought or availed of through any of the actions cognizable
by courts of justice, not necessarily in a suit for declaratory relief.
Such review may be had in criminal actions, as in People v.
Ferrer35 involving the constitutionality of the now defunct Anti-
Subversion law, or in ordinary actions, as in Krivenko v. Register
of Deeds36 involving the constitutionality of laws prohibiting aliens
from acquiring public lands. The constitutional issue, however, (a)
must be properly raised and presented in the case, and (b) its
resolution is necessary to a determination of the case, i.e., the
issue of constitutionality must be the very lis mota presented.37
Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was
properly and adequately raised in the complaint for collection filed
with the RTC. The pertinent portions of the complaint allege:
6. The CRC of P10 per bag levied under LOI 1465 on domestic
sales of all grades of fertilizer in the Philippines, is unlawful,
unjust, uncalled for, unreasonable, inequitable and
oppressive because:
xxxx
(c) It favors only one private domestic corporation, i.e., defendant
PPPI, and imposed at the expense and disadvantage of the other
fertilizer importers/distributors who were themselves in tight
business situation and were then exerting all efforts and
maximizing management and marketing skills to remain viable;
xxxx
(e) It was a glaring example of crony capitalism, a forced program
through which the PPI, having been presumptuously
masqueraded as "the" fertilizer industry itself, was the sole and
anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special
assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no
benefit therefrom; that on the contrary it was used by PPI in trying
to regain its former despicable monopoly of the fertilizer industry
to the detriment of other distributors and
importers.38 (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of
the complaint for collection. Fertiphil filed the complaint to compel
PPI to refund the levies paid under the statute on the ground that
the law imposing the levy is unconstitutional. The thesis is that an
unconstitutional law is void. It has no legal effect. Being void,
Fertiphil had no legal obligation to pay the levy. Necessarily, all
levies duly paid pursuant to an unconstitutional law should be
refunded under the civil code principle against unjust enrichment.
The refund is a mere consequence of the law being declared
unconstitutional. The RTC surely cannot order PPI to refund
Fertiphil if it does not declare the LOI unconstitutional. It is the
unconstitutionality of the LOI which triggers the refund. The issue
of constitutionality is the very lis mota of the complaint with the
RTC.
The P10 levy under LOI No. 1465 is an exercise of the power of
taxation.
At any rate, the Court holds that the RTC and the CA did not err
in ruling against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the
police power or the power of taxation. It claims that the LOI was
implemented for the purpose of assuring the fertilizer supply and
distribution in the country and for benefiting a foundation created
by law to hold in trust for millions of farmers their stock ownership
in PPI.
Fertiphil counters that the LOI is unconstitutional because it was
enacted to give benefit to a private company. The levy was
imposed to pay the corporate debt of PPI. Fertiphil also argues
that, even if the LOI is enacted under the police power, it is still
unconstitutional because it did not promote the general welfare of
the people or public interest.
Police power and the power of taxation are inherent powers of the
State. These powers are distinct and have different tests for
validity. Police power is the power of the State to enact legislation
that may interfere with personal liberty or property in order to
promote the general welfare,39 while the power of taxation is the
power to levy taxes to be used for public purpose. The main
purpose of police power is the regulation of a behavior or
conduct, while taxation is revenue generation. The "lawful
subjects" and "lawful means" tests are used to determine the
validity of a law enacted under the police power.40 The power of
taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.
We agree with the RTC that the imposition of the levy was an
exercise by the State of its taxation power. While it is true that the
power of taxation can be used as an implement of police
power,41 the primary purpose of the levy is revenue generation. If
the purpose is primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction is properly
called a tax.42
In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition
of a vehicle registration fee is not an exercise by the State of its
police power, but of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act
123 and Section 61 of the Land Transportation and Traffic Code
that the legislative intent and purpose behind the law requiring
owners of vehicles to pay for their registration is mainly to raise
funds for the construction and maintenance of highways and to a
much lesser degree, pay for the operating expenses of the
administering agency. x x x Fees may be properly regarded as
taxes even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power
(Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily revenue,
or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax. Such is the case of
motor vehicle registration fees. The same provision appears as
Section 59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax as the
law refers to the imposition on the registration, operation or
ownership of a motor vehicle as a "tax or fee." x x x Simply put, if
the exaction under Rep. Act 4136 were merely a regulatory fee,
the imposition in Rep. Act 5448 need not be an "additional" tax.
Rep. Act 4136 also speaks of other "fees" such as the special
permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not
to be understood as taxes because such fees are very minimal to
be revenue-raising. Thus, they are not mentioned by Sec. 59(b)
of the Code as taxes like the motor vehicle registration fee and
chauffeurs’ license fee. Such fees are to go into the expenditures
of the Land Transportation Commission as provided for in the last
proviso of Sec. 61.44 (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a
mere regulatory purpose. The levy, no doubt, was a big burden
on the seller or the ultimate consumer. It increased the price of a
bag of fertilizer by as much as five percent.45 A plain reading of
the LOI also supports the conclusion that the levy was for
revenue generation. The LOI expressly provided that the levy was
imposed "until adequate capital is raised to make PPI viable."
Taxes are exacted only for a public purpose. The P10 levy is
unconstitutional because it was not for a public purpose. The levy
was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose.
Taxes are exacted only for a public purpose. They cannot be
used for purely private purposes or for the exclusive benefit of
private persons.46 The reason for this is simple. The power to tax
exists for the general welfare; hence, implicit in its power is the
limitation that it should be used only for a public purpose. It would
be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case
bluntly put it: "To lay with one hand, the power of the government
on the property of the citizen, and with the other to bestow it upon
favored individuals to aid private enterprises and build up private
fortunes, is nonetheless a robbery because it is done under the
forms of law and is called taxation."47
The term "public purpose" is not defined. It is an elastic concept
that can be hammered to fit modern standards. Jurisprudence
states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which
are traditionally viewed as essentially government functions, such
as building roads and delivery of basic services, but also includes
those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-
cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are
continually expanding in light of the expansion of government
functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the
heart of a tax law. When a tax law is only a mask to exact funds
from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the
requirement of "public purpose."
The purpose of a law is evident from its text or inferable from
other secondary sources. Here, We agree with the RTC and that
CA that the levy imposed under LOI No. 1465 was not for a public
purpose.
First, the LOI expressly provided that the levy be imposed to
benefit PPI, a private company. The purpose is explicit from
Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include
in its fertilizer pricing formula a capital contribution component of
not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales
of fertilizers in the Philippines.48 (Underscoring supplied)
It is a basic rule of statutory construction that the text of a statute
should be given a literal meaning. In this case, the text of the LOI
is plain that the levy was imposed in order to raise capital for PPI.
The framers of the LOI did not even hide the insidious purpose of
the law. They were cavalier enough to name PPI as the ultimate
beneficiary of the taxes levied under the LOI. We find it utterly
repulsive that a tax law would expressly name a private company
as the ultimate beneficiary of the taxes to be levied from the
public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was
conditional and dependent upon PPI becoming financially
"viable." This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount
when PPI is deemed financially "viable." Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy is
made indefinite. They are required to continuously pay the levy
until adequate capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI
were directly remitted and deposited by FPA to Far East Bank
and Trust Company, the depositary bank of PPI.49 This proves
that PPI benefited from the LOI. It is also proves that the main
purpose of the law was to give undue benefit and advantage to
PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A
reading of the Letter of Understanding50 dated May 18, 1985
signed by then Prime Minister Cesar Virata reveals that PPI was
in deep financial problem because of its huge corporate debts.
There were pending petitions for rehabilitation against PPI before
the Securities and Exchange Commission. The government
guaranteed payment of PPI’s debts to its foreign creditors. To
fund the payment, President Marcos issued LOI No. 1465. The
pertinent portions of the letter of understanding read:
 Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE "CREDITORS")
OF PLANTERS PRODUCTS, INC. ("PLANTERS")
Gentlemen:
This has reference to Planters which is the principal importer and
distributor of fertilizer, pesticides and agricultural chemicals in the
Philippines. As regards Planters, the Philippine Government
confirms its awareness of the following: (1) that Planters has
outstanding obligations in foreign currency and/or pesos, to the
Creditors, (2) that Planters is currently experiencing financial
difficulties, and (3) that there are presently pending with the
Securities and Exchange Commission of the Philippines a petition
filed at Planters’ own behest for the suspension of payment of all
its obligations, and a separate petition filed by Manufacturers
Hanover Trust Company, Manila Offshore Branch for the
appointment of a rehabilitation receiver for Planters.
In connection with the foregoing, the Republic of the Philippines
(the "Republic") confirms that it considers and continues to
consider Planters as a major fertilizer distributor. Accordingly, for
and in consideration of your expressed willingness to consider
and participate in the effort to rehabilitate Planters, the Republic
hereby manifests its full and unqualified support of the successful
rehabilitation and continuing viability of Planters, and to that end,
hereby binds and obligates itself to the creditors and Planters, as
follows:
xxxx
2. Upon the effective date of this Letter of Undertaking, the
Republic shall cause FPA to include in its fertilizer pricing formula
a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust by
Planters Foundation, Inc. ("Planters Foundation"), which unpaid
capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) such unpaid
portion of the outstanding capital stock of Planters being hereafter
referred to as the "Unpaid Capital"), and subsequently for such
capital increases as may be required for the continuing viability of
Planters.
xxxx
The capital recovery component shall continue to be charged and
collected until payment in full of (a) the Unpaid Capital and/or (b)
any shortfall in the payment of the Subsidy Receivables, (c) any
carrying cost accruing from the date hereof on the amounts which
may be outstanding from time to time of the Unpaid Capital
and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the
foregoing clause (c), the "carrying cost" shall be at such rate as
will represent the full and reasonable cost to Planters of servicing
its debts, taking into account both its peso and foreign currency-
denominated obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51
It is clear from the Letter of Understanding that the levy was
imposed precisely to pay the corporate debts of PPI. We cannot
agree with PPI that the levy was imposed to ensure the stability of
the fertilizer industry in the country. The letter of understanding
and the plain text of the LOI clearly indicate that the levy was
exacted for the benefit of a private corporation.
All told, the RTC and the CA did not err in holding that the levy
imposed under LOI No. 1465 was not for a public purpose. LOI
No. 1465 failed to comply with the public purpose requirement for
tax laws.
The LOI is still unconstitutional even if enacted under the police
power; it did not promote public interest.
Even if We consider LOI No. 1695 enacted under the police
power of the State, it would still be invalid for failing to comply
with the test of "lawful subjects" and "lawful means."
Jurisprudence states the test as follows: (1) the interest of the
public generally, as distinguished from those of particular class,
requires its exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid
because it did not promote public interest. The law was enacted
to give undue advantage to a private corporation. We quote with
approval the CA ratiocination on this point, thus:
It is upon applying this established tests that We sustain the trial
court’s holding LOI 1465 unconstitutional. To be sure, ensuring
1aw phil
the continued supply and distribution of fertilizer in the country is
an undertaking imbued with public interest. However, the method
by which LOI 1465 sought to achieve this is by no means a
measure that will promote the public welfare. The government’s
commitment to support the successful rehabilitation and
continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s impartiality.
There is no way to treat the self-interest of a favored entity, like
PPI, as identical with the general interest of the country’s farmers
or even the Filipino people in general. Well to stress, substantive
due process exacts fairness and equal protection disallows
distinction where none is needed. When a statute’s public
purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or
for the exclusive benefit of private individuals. (Underscoring
supplied)
The general rule is that an unconstitutional law is void; the
doctrine of operative fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI
No. 1465 is declared unconstitutional. It banks on the doctrine of
operative fact, which provides that an unconstitutional law has an
effect before being declared unconstitutional. PPI wants to retain
the levies paid under LOI No. 1465 even if it is subsequently
declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument
will be entertained on appeal, unless it has been raised in the
court a quo.53 PPI did not raise the applicability of the doctrine of
operative fact with the RTC and the CA. It cannot belatedly raise
the issue with Us in order to extricate itself from the dire effects of
an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is
that an unconstitutional law is void. It produces no rights, imposes
no duties and affords no protection. It has no legal effect. It is, in
legal contemplation, inoperative as if it has not been
passed.54 Being void, Fertiphil is not required to pay the levy. All
levies paid should be refunded in accordance with the general
civil code principle against unjust enrichment. The general rule is WHEREFORE, the petition is DENIED. The Court of Appeals
supported by Article 7 of the Civil Code, which provides: Decision dated November 28, 2003 is AFFIRMED.

ART. 7. Laws are repealed only by subsequent ones, and their SO ORDERED.
violation or non-observance shall not be excused by disuse or
custom or practice to the contrary.

When the courts declare a law to be inconsistent with the

Constitution, the former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule,

only applies as a matter of equity and fair play.55 It nullifies the
effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot
always be erased by a new judicial declaration.56

The doctrine is applicable when a declaration of

unconstitutionality will impose an undue burden on those who
have relied on the invalid law. Thus, it was applied to a criminal
case when a declaration of unconstitutionality would put the
accused in double jeopardy57 or would put in limbo the acts done
by a municipality in reliance upon a law creating it.58

Here, We do not find anything iniquitous in ordering PPI to refund

the amounts paid by Fertiphil under LOI No. 1465. It unduly
benefited from the levy. It was proven during the trial that the
levies paid were remitted and deposited to its bank account.
Quite the reverse, it would be inequitable and unjust not to order
a refund. To do so would unjustly enrich PPI at the expense of
Fertiphil. Article 22 of the Civil Code explicitly provides that "every
person who, through an act of performance by another comes
into possession of something at the expense of the latter without
just or legal ground shall return the same to him." We cannot
allow PPI to profit from an unconstitutional law. Justice and equity
dictate that PPI must refund the amounts paid by Fertiphil.