G.R. No.

149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN, respondent. PUNO, J.: This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan. Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants.6 For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year.9 Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz: "Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt: (a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities; (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12 The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14 which reads as follows: "Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code." On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of

Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the national government. Pertinent portion of the Order reads: "The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC remain. Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that: 'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local government.' Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial institutions.' (underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal of this government instrumentality. Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved against its existence. From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose the subject tax on the defendant."16 On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19 On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied by the appellate court, viz: "The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the effect that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied. IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED. SO ORDERED."20

In this petition for review, petitioner raises the following issues: "A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE. B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW. C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21 It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz: "Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied) x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes." Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city government to private entities that are engaged in trade or occupation for profit. 22 Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare, security and safety." From the phraseology of this provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise tax in question. On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and improvement of its facilities and services.24 Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26 where this Court held that local governments have no power to tax instrumentalities of the National Government, viz: "Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere local government. 'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)' This doctrine emanates from the 'supremacy' of the National Government over local governments. 'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even seriously burden it from accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' ( U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the 'power to destroy' ( Mc Culloch v. Maryland,supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it."27 Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz: "It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute." 28 Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation."29 The petition is without merit. Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty,31 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;32 without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. 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. 33 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 34 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."35 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, section 3 of Article X of 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, viz: "Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units." To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40 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. 41 Considered as the most revolutionary piece of legislation on local autonomy, 42 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 such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.43 One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz: "Section 133. Common Limitations on the Taxing Powers of the Local Government Units .- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units." (emphasis supplied) In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax, viz: "Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national government, its agencies and instrumentalities, and local government units'; however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.'" 47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question. In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation.49 The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use.52 In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its property54 or its income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this context that the phrase "tax on businesses enjoying a franchise " in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary corporations, viz: "x x x (e) To conduct investigations and surveys for the development of water power in any part of the Philippines; (f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby; (g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x x x; (h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such property; (i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or railway of private and public ownership, as the location of said works may require xxx; (j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting condemnation proceedings by the national, provincial and municipal governments;

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration and public service entities; (n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic water supply; (o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources xxx "58 With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner. Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question. Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit" organization. These contentions must necessarily fail. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code.62 To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz: "A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x." (emphases supplied) Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government.64 Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), 65 among others. Petitioner was created to "undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68 "(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance; (o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the said purpose xxx."( emphases supplied) It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its operation, for expansion"70 while other franchise holders have the option to distribute their profits to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the taxable entity is the corporation, which exercises the franchise, and not the individual stockholders. We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC. As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads: "Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code." (emphases supplied) It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes. But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption granted by any law or other special law ." This particular provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz: "It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws. Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in

point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn. Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used."76 (emphases supplied). It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof. Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them. IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED. SO ORDERED. Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

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," 9 being "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. Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

G.R. No. 134062

April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, Respondent. DECISION CORONA, J.: This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715. In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63: 1986 Deficiency Percentage Tax Deficiency percentage tax Add: 25% surcharge 20% interest from 1-21-87 to 10-28-88 Compromise penalty TOTAL AMOUNT DUE AND COLLECTIBLE 1986 Deficiency Documentary Stamp Tax Deficiency percentage tax Add: 25% surcharge Compromise penalty TOTAL AMOUNT DUE AND COLLECTIBLE Both notices of assessment contained the following note: Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown above. Said assessment has been based on return (filed by you) (as verified) (made by this Office) (pending investigation) (after investigation). You are requested to pay the above amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx6 In a letter dated December 10, 1988, BPI, through counsel, replied as follows: 1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more so when the assessment involves astronomical amounts, as in this case. We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and as to the percentage tax, it is 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 BPIs submission of its computations under this compromise. There is therefore no basis whatsoever for this assessment, assuming it P93,723,372.40 23,430,843.10 15,000.00 P117,169,215.50.5 P 7, 270,892.88 1,817,723.22 3,215,825.03 15,000.00 P12,319,441.13

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 taxpayers 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 CIRs 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 courts decision and resolution and remanded the case to the CTA 14 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 notices 19 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. BPIs 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 formers decision to charge the latter for deficiency documentary stamp and gross receipts taxes.31 In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it in wr iting 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 [CIRs] 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 taxpayers 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 BPIs 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 BPIs 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 CIRs 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-75697 June 18, 1987 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. 168557

February 16, 2007

FELS ENERGY, INC., Petitioner, vs. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents. x----------------------------------------------------x G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner, vs. LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS represented by its Provincial Assessor, Respondents. DECISION CALLEJO, SR., J.: Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription. The pertinent facts are as follows: On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads: 10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.6 Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement. On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor. In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision to assess real property taxes on the power barges. However, the motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections.9 In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment. On August 26, 1996, the LBAA rendered a Resolution 11 denying the petition. The fallo reads: WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount ofP56,184,088.40, for the year 1994. SO ORDERED.12 The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges FELS, a private corporationis the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time. Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA). On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by Distraint13over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal. On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the Board would issue. Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998. During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA. On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax. The dispositive portion reads: WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly. SO ORDERED.18 Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC. In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The fallo of the resolution reads: WHEREFORE, premises considered, it is the resolution of this Board that: (a) The decision of the Board dated 6 April 2000 is hereby reversed. (b) The petition of FELS, as well as the intervention of NPC, is dismissed. (c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise hereby affirmed. SO ORDERED.21 FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001. Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491. On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for reconsideration. NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of prescription. The decretal portion of the decision reads: WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED. SO ORDERED.24 On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate courts decision in CA-G.R. SP No. 67490. Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution26 dated January 19, 2005. Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial Government to collect the tax was already absolute. NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution27 dated November 23, 2005. The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution28 dated June 20, 2005. On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues: A. Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax. B. Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC"). C. Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law.

D. Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties. E. Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioners personal properties is imprescriptible.29 On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating the following errors committed by the CA: I THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME. II THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES. III THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30 Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare involved in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view of advancing the interests of justice and avoiding further delay. In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration. Petitioners contentions are bereft of merit. Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides: SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement: If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal.32 Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It follows then that the determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject to appeal before the LBAA.33 We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman, 34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as follows: x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be prevented and excised from our system.36 For its part, the appellate court declared in CA-G.R. SP No. 67491: x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491. 37 To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders the ass essment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits. 39 In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory.40 In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping. FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping could have been committed since the elements of litis pendentia or res judicata are not present. We do not agree. Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to the interest of the State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42 x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights of the parties and their

privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit. xxx Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties. This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter.43 To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition filed by NPC is thus unavailing. On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one or the other court would make a favorable disposition.44 Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases. It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.46 Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other.47 Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of petitioners, we shall shed light on the merits of the case. As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power company brought an action to review property tax assessment. On the citys motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation. Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.51 Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power. We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2 of the Agreement: OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52 It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: xxx (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; x x x Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides: OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53 It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract are bound by its terms and conditions.54 Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. 55 The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for it. 57 The right of local government units

to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments 58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. 59 In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. 60 WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED. SO ORDERED.

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents. DECISION DAVIDE, JR., J.: For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900, entitled Mactan Cebu International Airport Authority vs. City of Cebu, and its order of 4 May 1995[2]denying the motion to reconsider the decision. We resolved to give due course to this petition for it raises issues dwelling on the scope of the taxing power of local government units and the limits of tax exemption privileges of government-owned and controlled corporations. The uncontradicted factual antecedents are summarized in the instant petition as follows: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x (Sec. 3, RA 6958). It is also mandated to: a) encourage, promote and develop international and domestic air traffic in the Central Visayas and Mindanao regions as a means of making the regions centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country; and, b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter: Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities x x x. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units: Section 133. Common Limitations on the Taxing Powers of Local Government Units . -- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: a) xxx xxx o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (underscoring supplied) Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (underscoring supplied) xxx Section 234. (a) xxx xxx (e) xxx Exemptions from Real Property Taxes. x x x

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account under protest and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a governmentowned corporation performing proprietary functions. As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it took effect on January 1, 1992.[3] The petition for declaratory relief was docketed as Civil Case No. CEB-16900. In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of its findings, to wit: A close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government-owned and controlled corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234] Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section 14 of RA 6958). However, RA 7160 expressly provides that All general and special laws, acts, city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (/ f/, Section 534, RA 7160). With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991. So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present. This Courts ruling finds expression to give impetus and meaning to the overall objectives of the New Local Government Code of 1991, RA 7160. It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the instant petition based on the following assignment of errors: I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU. Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled corporation, it is mandated to perform functions in the same category as an instrumentality of Government. An instrumentality of Government is one created to perform governmental functions primarily to promote certain aspects of the economic life of the people.[6] Considering its task not merely to efficiently operate and manage the Mactan -Cebu International Airport, but more importantly, to carry out the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country,[7] and that it is an attached agency of the Department of Transportation and Communication (DOTC),[8] the petitioner may stand in [sic] the same footing as an agency or instrumentality of the national government. Hence, its tax exemption privilege under Section 14 of its Charter cannot be considered withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the `taxing powers of local government units shall not extend to the levy of taxes or fees or charges of any kind on the national government, its agencies and instrumentalities. As to the second assigned error, the petitioner contends that being an instrumentality of the National Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation:[9] Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stock are owned by the National Government. . . . PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the supremacy of the National Government over local governments . Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the power to destroy (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (underscoring supplied) It then concludes that the respondent Judge cannot therefore correctly say that the questioned provisions of the Code do not contain any distinction between a government corporation performing governmental functions as against one performing merely proprietary ones such that the exemption privilege withdrawn under the said Code would apply to all government corporations. For it is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the national government from the taxing powers of the local government units. In its comment, respondent City of Cebu alleges that as a local government unit and a political subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by the Constitution[10] and enhanced further by the LGC. While it may be true that under its Charter the petitioner was exempt from the payment of realty taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In response to the petitioners claim that such exemption was not repealed because being an instrumentality of the National Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-owned corporation, and Section 234

thereof does not distinguish between government-owned or controlled corporations performing governmental and purely proprietary functions. Respondent City of Cebu urges this Court to apply by analogy its ruling that the Manila International Airport Authority is a government-owned corporation,[12] and to reject the application of Basco because it was promulgated . . . before the enactment and the signing into law of R.A. No. 7160, and was not, therefore, decided in the light of the spirit and intention of the framers of the said law. As a general rule, 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 who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions.[13] Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. [14] So potent indeed is the power that it was once opined that the power to tax involves the power to destroy.[15] Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer.[16] But since taxes are what we pay for civilized society, [17] or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. [18] A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. [19] Elsewise stated, taxation is the rule, exemption therefrom is the exception.[20] However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. [21] The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.[22] Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.[23] The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemptions from taxation. Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as follows: SEC. 133. Common Limitations on the Taxing Power of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (a) (b) (c) (d) Income tax, except when levied on banks and other financial institutions; Documentary stamp tax; Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned; Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;

(e)

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) (h) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; (k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except, tricycles; (m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the Cooperatives Code of the Philippines respectively; and TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis supplied)

(o)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges referred to are of any kind; hence, they include all of these, unless other wise provided by the LGC. The term taxes is well understood so as to need no further elaboration, especially in light of the above enumeration. The term fees means charges fixed by law or ordinance for the regulation or inspection of business or activity,[24]while charges are pecuniary liabilities such as rents or fees against persons or property.[25] Among the taxes enumerated in the LGC is real property tax, which is governed by Section 232. It reads as follows: SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted. Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government-owned and controlled corporations, except as provided therein. It provides: SEC. 234. tax: (a) (b) Exemptions from Real Property Tax. The following are exempted from payment of the real property

Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable person; Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and Machinery and equipment used for pollution control and environmental protection.

(c)

(d) (e)

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. These exemptions are based on the ownership, character, and use of the property. Thus: (a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives. Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries. Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are actually directly and exclusively used for religious, charitable or educational purposes; (ii) all machineries and

(b)

(c)

equipment actually, directly and exclusively used by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection. To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for pollution control and environmental protection may not be taxed by local governments. 2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including government-owned or controlled corporations are withdrawn upon the effectivity of the Code.[26] Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides: SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section 192 thereof provides: SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses: (1) (2) (3) (4) unless otherwise provided herein in the opening paragraph of Section 133; Unless otherwise provided in this Code in Section 193; not hereafter specifically exempted in Section 232; and Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the clause unless otherwise provided herein, with the herein to mean, of course, the section, it should have used the clause unless otherwise provided in this Code. The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes when levied on banks and other financial institutions; item (d) which excepts wharfage on wharves constructed and maintained by the local government unit concerned; and item (1) which excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving of tricycles. It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause except as otherwise provided herein as in items (c) and (i), or the clause except as provided in this Code in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section were Unless otherwise provided in this Code instead of Unless otherwise provided herein. In any event, even if the latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities, and local government units; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person, as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines

or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local government units cannot extend to the levy of: (o) taxes, fees or charges of any kind on the National Government, its agencies or instrumentalities, and local government units. It must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first, but not under any explicit provision of the said section, for none exists. In light of the petitioners theory that it is an instrumentality of the Government, it could only be within the first item of the first paragraph of the section by expanding the scope of the term Republic of the Philippines to embrace its instrumentalities and agencies. For expediency, we quote: (a) real property owned by the Republic of the Philippines, or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. This view does not persuade us. In the first place, the petitioners claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word instrumentalities; and, in the second place, it fails to consider the fact that the legislature used the phrase National Government, its agencies and instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or any of its political subdivisions in Section 234(a). The terms Republic of the Philippines and National Government are not interchangeable. The former is broader and synonymous with Government of the Republic of the Philippines which the Administrative Code of 1987 defines as the corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government. [27] These autonomous regions, provincial, city, municipal or barangay subdivisions are the political subdivisions.[28] On the other hand, National Government refers to the entire machinery of the central government, as distinguished from the different forms of local governments. [29] The National Government then is composed of the three great departments: the executive, the legislative and the judicial.[30] An agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein;[31] while an instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations.[32] If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property Tax Code, which reads: SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter: Provided, however, That this exemption shall not apply to real property of the above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or controlled corporation so exempt by its charter was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments[33] and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.[34] The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. [35] The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a taxable person. Section 15 of the petitioners Charter provides: Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and all assets, powers, rights, interests and privileges relating on airport works or air operations, including all equipment which are necessary for the operations of air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided, however, that the operations control of all equipment necessary for the operation of radio aids to air navigation, airways communication, the approach control office, and the area control center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by the Air Transportation Office from Mactan without the concurrence of the Authority. The Authority may assist in the maintenance of the Air Transportation Office equipment. The airports referred to are the Lahug Air Port in Cebu City and the Mactan International Airport in the Province of Cebu,[36] which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO).[37] It may be reasonable to assume that the term lands refer to lands in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a transfer of the lands, among other things, to the petitioner and not just the transfer of the benefici al use thereof, with the ownership being retained by the Republic of the Philippines. This transfer is actually an absolute conveyance of the ownership thereof because the petitioners authorized capital stock consists of, inter alia, the value of such real estate owned and/or administered by the airports.[38] Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable. Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conc eded to be an agency or instrumentality of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner. Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement and Gaming Corporation[39]is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED. No pronouncement as to costs. SO ORDERED. Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur. 17 U.S. 159 (____) 4 Wheat. 159

McCULLOCH v. STATE OF MARYLAND et al. Supreme Court of United States. 162*162 February 22d-27th, and March 1st-3d. Webster, for the plaintiff in error,[(a)]. 166*166 Hopkinson, for the defendants in error. Jones, for the defendants in error. Martin, Attorney-General of Maryland. 180*180 197*197 March 7th, 1819. MARSHALL, Ch. J., delivered the opinion of the court. In the case now to be determined, the defendant, a sovereign state, denies the obligation of a law enacted by the legislature of the Union, and the plaintiff, on his part, contests the validity of an act which has been passed by the legislature of that state. The constitution of our country, in its most interesting and vital parts, is to be considered; the conflicting powers of the government of the Union and of its members, as marked in that constitution, are to be discussed; and an opinion given, which may essentially influence the great operations of the government. No tribunal can approach such a question without a deep sense of its importance, and of the awful responsibility involved in its decision. But it must be decided peacefully, or remain a source of *hostile legislation, perhaps, of hostility of [*401 a still more serious nature; and if it is to be so decided, by this tribunal alone can the decision be made. On the supreme court of the United States has the constitution of our country devolved this important duty. The first question made in the cause is has congress power to incorporate a bank? It has been truly said, that this can scarcely be considered as an open question, entirely unprejudiced by the former proceedings of the nation respecting it. The principle now contested was introduced at a very early period of our history, has been recognised by many successive legislatures, and has been acted upon by the judicial department, in cases of peculiar delicacy, as a law of undoubted obligation. It will not be denied, that a bold and daring usurpation might be resisted, after an acquiescence still longer and more complete than this. But it is conceived, that a doubtful question, one on which human reason may pause, and the human judgment be suspended, in the decision of which the great principles of liberty are not concerned, but the respective powers of those who are equally the representatives of the people, are to be adjusted; if not put at rest by the practice of the government, ought to receive a considerable impression from that practice. An exposition of the constitution, deliberately established by legislative acts, on the faith of which an immense property has been advanced, ought not to be lightly disregarded. The power now contested was exercised by the first congress elected under the present constitution. *The bill for incorporating the Bank [*402 of the United States did not steal upon an unsuspecting legislature, and pass unobserved. Its principle was completely understood, and was opposed with equal zeal and ability. After being resisted, first, in the fair and open field of debate, and afterwards, in the executive cabinet, with as much persevering talent as any measure has ever experienced, and being 198*198 supported by arguments which convinced minds as pure and as intelligent as this country can boast, it became a law. The original act was permitted to expire; but a short experience of the embarrassments to which the refusal to revive it exposed the government, convinced those who were most prejudiced against the measure of its necessity, and induced the passage of the present law. It would require no ordinary share of intrepidity, to assert that a measure adopted under these circumstances, was a bold and plain usurpation, to which the constitution gave no countenance. These observations belong to the cause; but they are not made under the impression, that, were the question entirely new, the law would be found irreconcilable with the constitution. In discussing this question, the counsel for the state of Maryland have deemed it of some importance, in the construction of the constitution, to consider that instrument, not as emanating from the people, but as the act of sovereign and independent states. The powers of the general government, it has been said, are delegated by the states, who alone are truly sovereign; and must be exercised in subordination to the states, who alone *403] possess supreme dominion. *It would be difficult to sustain this proposition. The convention which framed the constitution was indeed elected by the state legislatures. But the instrument, when it came from their hands, was a mere proposal, without obligation, or pretensions to it. It was reported to the then existing congress of the United States, with a request that it might "be submitted to a convention of delegates, chosen in each state by the people thereof, under the recommendation of its legislature, for their assent and ratification." This mode of proceeding was adopted; and by the convention, by congress, and by the state legislatures, the instrument was submitted to the people. They acted upon it in the only manner in which they can act safely, effectively and wisely, on such a subject, by assembling in

convention. It is true, they assembled in their several states and where else should they have assembled? No political dreamer was ever wild enough to think of breaking down the lines which separate the states, and of compounding the American people into one common mass. Of consequence, when they act, they act in their states. But the measures they adopt do not, on that account, cease to be the measures of the people themselves, or become the measures of the state governments. From these conventions, the constitution derives its whole authority. The government proceeds directly from the people; is "ordained and established," in the name of the people; and is declared to be ordained, "in order to form a more perfect union, establish justice, insure domestic *404] tranquillity, and secure *the blessings of liberty to themselves and to their posterity." The assent of the states, in their sovereign capacity, is implied, in calling a convention, and thus submitting that instrument to the people. But the people were at perfect liberty to accept, or reject it; and their act was final. It required not the affirmance, and could not be negatived, by the state governments. The constitution, when thus adopted, was of complete obligation, and bound the state sovereignties. It has been said, that the people had already surrendered all their powers to the state sovereignties, and had nothing more to give. But, surely, the question whether they may resume and modify the powers granted to government, does not remain to be settled in this country. Much more might 199*199 the legitimacy of the general government be doubted, had it been created by the states. The powers delegated to the state sovereignties were to be exercised by themselves, not by a distinct and independent sovereignty, created by themselves. To the formation of a league, such as was the confederation, the state sovereignties were certainly competent. But when, "in order to form a more perfect union," it was deemed necessary to change this alliance into an effective government, possessing great and sovereign powers, and acting directly on the people, the necessity of referring it to the people, and of deriving its powers directly from them, was felt and acknowledged by all. The government of the Union, then (whatever may be the influence of this fact on the case), is, *emphatically and truly, [*405 a government of the people. In form, and in substance, it emanates from them. Its powers are granted by them and are to be exercised directly on them, and for their benefit. This government is acknowledged by all, to be one of enumerated powers. The principle, that it can exercise only the powers granted to it, would seem too apparent, to have required to be enforced by all those arguments, which its enlightened friends, while it was depending before the people, found it necessary to urge; that principle is now universally admitted. But the question respecting the extent of the powers actually granted, is perpetually arising, and will probably continue to arise, so long as our system shall exist. In discussing these questions, the conflicting powers of the general and state governments must be brought into view, and the supremacy of their respective laws, when they are in opposition, must be settled. If any one proposition could command the universal assent of mankind, we might expect it would be this that the government of the Union, though limited in its powers, is supreme within its sphere of action. This would seem to result, necessarily, from its nature. It is the government of all; its powers are delegated by all; it represents all, and acts for all. Though any one state may be willing to control its operations, no state is willing to allow others to control them. The nation, on those subjects on which it can act, must necessarily bind its component parts. But this question is not left to mere reason: the people have, in express terms, decided it, by saying, *"this constitution, and the laws of the United States, [*406 which shall be made in pursuance thereof," "shall be the supreme law of the land," and by requiring that the members of the state legislatures, and the officers of the executive and judicial departments of the states, shall take the oath of fidelity to it. The government of the United States, then, though limited in its powers, is supreme; and its laws, when made in pursuance of the constitution, form the supreme law of the land, "anything in the constitution or laws of any state to the contrary notwithstanding." Among the enumerated powers, we do not find that of establishing a bank or creating a corporation. But there is no phrase in the instrument which, like the articles of confederation, excludes incidental or implied powers; and which requires that everything granted shall be expressly and minutely described. Even the 10th amendment, which was framed for the purpose of quieting the excessive jealousies which had been excited, omits the word "expressly," and declares only, that the powers "not delegated to the United States, nor prohibited to the states, are reserved to the states or to the people;" thus, leaving the question, whether the particular power 200*200which may become the subject of contest, has been delegated to the one government, or prohibited to the other, to depend on a fair construction of the whole instrument. The men who drew and adopted this amendment had experienced the embarrassments resulting from the insertion of this *407] word in the articles *of confederation, and probably omitted it, to avoid those embarrassments. A constitution, to contain an accurate detail of all the subdivisions of which its great powers will admit, and of all the means by which they may be carried into execution, would partake of the prolixity of a legal code, and could scarcely be embraced by the human mind. It would, probably, never be understood by the public. Its nature, therefore, requires, that only its great outlines should be marked, its important objects designated, and the minor ingredients which compose those objects, be deduced from the nature of the objects themselves. That this idea was entertained by the framers of the American constitution, is not only to be inferred from the nature of the instrument, but from the language. Why else were some of the limitations, found in the 9th section of the 1st article, introduced? It is also, in some degree, warranted, by their having omitted to use any restrictive term which might prevent its receiving a fair and just interpretation. In considering this question, then, we must never forget that it is a constitution we are expounding.

Although, among the enumerated powers of government, we do not find the word "bank" or "incorporation," we find the great powers, to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. The sword and the purse, all the external relations, and no inconsiderable portion of the industry of the nation, are intrusted to its government. It can never be pretended, *408] *that these vast powers draw after them others of inferior importance, merely because they are inferior. Such an idea can never be advanced. But it may with great reason be contended, that a government, intrusted with such ample powers, on the due execution of which the happiness and prosperity of the nation so vitally depends, must also be intrusted with ample means for their execution. The power being given, it is the interest of the nation to facilitate its execution. It can never be their interest, and cannot be presumed to have been their intention, to clog and embarrass its execution, by withholding the most appropriate means. Throughout this vast republic, from the St. Croix to the Gulf of Mexico, from the Atlantic to the Pacific, revenue is to be collected and expended, armies are to be marched and supported. The exigencies of the nation may require, that the treasure raised in the north should be transported to the south, that raised in the east, conveyed to the west, or that this order should be reversed. Is that construction of the constitution to be preferred, which would render these operations difficult, hazardous and expensive? Can we adopt that construction (unless the words imperiously require it), which would impute to the framers of that instrument, when granting these powers for the public good, the intention of impeding their exercise, by withholding a choice of means? If, indeed, such be the mandate of the constitution, we have only to obey; but that instrument does not profess to enumerate the means by which the powers it confers may be executed; nor does it *409] prohibit the creation of a corporation, *if the existence of such a 201*201 being be essential, to the beneficial exercise of those powers. It is, then, the subject of fair inquiry, how far such means may be employed. It is not denied, that the powers given to the government imply the ordinary means of execution. That, for example, of raising revenue, and applying it to national purposes, is admitted to imply the power of conveying money from place to place, as the exigencies of the nation may require, and of employing the usual means of conveyance. But it is denied, that the government has its choice of means; or, that it may employ the most convenient means, if, to employ them, it be necessary to erect a corporation. On what foundation does this argument rest? On this alone: the power of creating a corporation, is one appertaining to sovereignty, and is not expressly conferred on congress. This is true. But all legislative powers appertain to sovereignty. The original power of giving the law on any subject whatever, is a sovereign power; and if the government of the Union is restrained from creating a corporation, as a means for performing its functions, on the single reason that the creation of a corporation is an act of sovereignty; if the sufficiency of this reason be acknowledged, there would be some difficulty in sustaining the authority of congress to pass other laws for the accomplishment of the same objects. The government which has a right to do an act, and has imposed on it, the duty of performing that act, must, according to the dictates of reason, be allowed *to select the [*410 means; and those who contend that it may not select any appropriate means, that one particular mode of effecting the object is excepted, take upon themselves the burden of establishing that exception. The creation of a corporation, it is said, appertains to sovereignty. This is admitted. But to what portion of sovereignty does it appertain? Does it belong to one more than to another? In America, the powers of sovereignty are divided between the government of the Union, and those of the states. They are each sovereign, with respect to the objects committed to it, and neither sovereign, with respect to the objects committed to the other. We cannot comprehend that train of reasoning, which would maintain, that the extent of power granted by the people is to be ascertained, not by the nature and terms of the grant, but by its date. Some state constitutions were formed before, some since that of the United States. We cannot believe, that their relation to each other is in any degree dependent upon this circumstance. Their respective powers must, we think, be precisely the same, as if they had been formed at the same time. Had they been formed at the same time, and had the people conferred on the general government the power contained in the constitution, and on the states the whole residuum of power, would it have been asserted, that the government of the Union was not sovereign, with respect to those objects which were intrusted to it, in relation to which its laws were declared to be supreme? If this could not have been asserted, we cannot well comprehend the process of reasoning *which maintains, that a power appertaining to sovereignty [*411 cannot be connected with that vast portion of it which is granted to the general government, so far as it is calculated to subserve the legitimate objects of that government. The power of creating a corporation, though appertaining to sovereignty, is not, like the power of making war, or levying taxes, or of regulating commerce, a great substantive and independent power, which cannot be implied as incidental to other powers, or 202*202 used as a means of executing them. It is never the end for which other powers are exercised, but a means by which other objects are accomplished. No contributions are made to charity, for the sake of an incorporation, but a corporation is created to administer the charity; no seminary of learning is instituted, in order to be incorporated, but the corporate character is conferred to subserve the purposes of education. No city was ever built, with the sole object of being incorporated, but is incorporated as affording the best means of being well governed. The power of creating a corporation is never used for its own sake, but for the purpose of effecting something else. No sufficient reason is, therefore, perceived, why it may not pass as incidental to those powers which are expressly given, if it be a direct mode of executing them. But the constitution of the United States has not left the right of congress to employ the necessary means, for the execution of the powers conferred on the government, to general reasoning. To its enumeration of *412] powers is added, that of making "all *laws which shall be necessary and proper, for carrying into execution the foregoing powers, and all other powers vested by this constitution, in the government of the United States, or in any department thereof." The counsel for the state of Maryland have urged various arguments, to prove that this clause, though, in terms, a

grant of power, is not so, in effect; but is really restrictive of the general right, which might otherwise be implied, of selecting means for executing the enumerated powers. In support of this proposition, they have found it necessary to contend, that this clause was inserted for the purpose of conferring on congress the power of making laws. That, without it, doubts might be entertained, whether congress could exercise its powers in the form of legislation. But could this be the object for which it was inserted? A government is created by the people, having legislative, executive and judicial powers. Its legislative powers are vested in a congress, which is to consist of a senate and house of representatives. Each house may determine the rule of its proceedings; and it is declared, that every bill which shall have passed both houses, shall, before it becomes a law, be presented to the president of the United States. The 7th section describes the course of proceedings, by which a bill shall become a law; and, then, the 8th section enumerates the powers of congress. Could it be necessary to say, that a legislature should exercise legislative powers, in the shape of legislation? After allowing *413] each house to prescribe *its own course of proceeding, after describing the manner in which a bill should become a law, would it have entered into the mind of a single member of the convention, that an express power to make laws was necessary, to enable the legislature to make them? That a legislature, endowed with legislative powers, can legislate, is a proposition too self-evident to have been questioned. But the argument on which most reliance is placed, is drawn from that peculiar language of this clause. Congress is not empowered by it to make all laws, which may have relation to the powers conferred on the government, but such only as may be "necessary and proper" for carrying them into execution. The word "necessary" is considered as controlling the whole sentence, and as limiting the right to pass laws for the execution of the granted powers, to such as are indispensable, and without which the power 203*203 would be nugatory. That it excludes the choice of means, and leaves to congress, in each case, that only which is most direct and simple. Is it true, that this is the sense in which the word "necessary" is always used? Does it always import an absolute physical necessity, so strong, that one thing to which another may be termed necessary, cannot exist without that other? We think it does not. If reference be had to its use, in the common affairs of the world, or in approved authors, we find that it frequently imports no more than that one thing is convenient, or useful, or essential to another. To employ the means necessary to an end, is generally understood as employing any means calculated to *produce [*414 the end, and not as being confined to those single means, without which the end would be entirely unattainable. Such is the character of human language, that no word conveys to the mind, in all situations, one single definite idea; and nothing is more common than to use words in a figurative sense. Almost all compositions contain words, which, taken in a their rigorous sense, would convey a meaning different from that which is obviously intended. It is essential to just construction, that many words which import something excessive, should be understood in a more mitigated sense in that sense which common usage justifies. The word "necessary" is of this description. It has not a fixed character, peculiar to itself. It admits of all degrees of comparison; and is often connected with other words, which increase or diminish the impression the mind receives of the urgency it imports. A thing may be necessary, very necessary, absolutely or indispensably necessary. To no mind would the same idea be conveyed by these several phrases. The comment on the word is well illustrated by the passage cited at the bar, from the 10th section of the 1st article of the constitution. It is, we think, impossible to compare the sentence which prohibits a state from laying "imposts, or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws," with that which authorizes congress "to make all laws which shall be necessary and proper for carrying into execution" the powers of the general government, without feeling a conviction, that the convention understood itself to change materially *the meaning of the word "necessary," by prefixing [*415 the word "absolutely." This word, then, like others, is used in various senses; and, in its construction, the subject, the context, the intention of the person using them, are all to be taken into view. Let this be done in the case under consideration. The subject is the execution of those great powers on which the welfare of a nation essentially depends. It must have been the intention of those who gave these powers, to insure, so far as human prudence could insure, their beneficial execution. This could not be done, by confiding the choice of means to such narrow limits as not to leave it in the power of congress to adopt any which might be appropriate, and which were conducive to the end. This provision is made in a constitution, intended to endure for ages to come, and consequently, to be adapted to the various crises of human affairs. To have prescribed the means by which government should, in all future time, execute its powers, would have been to change, entirely, the character of the instrument, and give it the properties of a legal code. It would have been an unwise attempt to provide, by immutable rules, for exigencies which, if foreseen at all, must have been seen dimly, and which can be best provided204*204 for as they occur. To have declared, that the best means shall not be used, but those alone, without which the power given would be nugatory, would have been to deprive the legislature of the capacity to avail itself of experience, to exercise its reason, and to accommodate its legislation to circumstances. *416] *If we apply this principle of construction to any of the powers of the government, we shall find it so pernicious in its operation that we shall be compelled to discard it. The powers vested in congress may certainly be carried into execution, without prescribing an oath of office. The power to exact this security for the faithful performance of duty, is not given, nor is it indispensably necessary. The different departments may be established; taxes may be imposed and collected; armies and navies may be raised and maintained; and money may be borrowed, without requiring an oath of office. It might be argued, with as much plausibility as other incidental powers have been assailed, that the convention was not unmindful of this subject. The oath which might be exacted that of fidelity to the constitution is prescribed, and no other can be

required. Yet, he would be charged with insanity, who should contend, that the legislature might not superadd, to the oath directed by the constitution, such other oath of office as its wisdom might suggest. So, with respect to the whole penal code of the United States: whence arises the power to punish, in cases not prescribed by the constitution? All admit, that the government may, legitimately, punish any violation of its laws; and yet, this is not among the enumerated powers of congress. The right to enforce the observance of law, by punishing its infraction, might be denied, with the more plausibility, because it is expressly given in some cases. *417] Congress is empowered "to provide for the punishment *of counterfeiting the securities and current coin of the United States," and "to define and punish piracies and felonies committed on the high seas, and offences against the law of nations." The several powers of congress may exist, in a very imperfect state, to be sure, but they may exist and be carried into execution, although no punishment should be inflicted, in cases where the right to punish is not expressly given. Take, for example, the power "to establish post-offices and post-roads." This power is executed, by the single act of making the establishment. But, from this has been inferred the power and duty of carrying the mail along the postroad, from one post-office to another. And from this implied power, has again been inferred the right to punish those who steal letters from the post-office, or rob the mail. It may be said, with some plausibility, that the right to carry the mail, and to punish those who rob it, is not indispensably necessary to the establishment of a post-office and postroad. This right is indeed essential to the beneficial exercise of the power, but not indispensably necessary to its existence. So, of the punishment of the crimes of stealing or falsifying a record or process of a court of the United States, or of perjury in such court. To punish these offences, is certainly conducive to the due administration of justice. But courts may exist, and may decide the causes brought before them, though such crimes escape punishment. The baneful influence of this narrow construction on all the operations of *418] the government, and the absolute *impracticability of maintaining it, without rendering the government incompetent to its great objects, might be illustrated by numerous examples drawn from the constitution, and 205*205 from our laws. The good sense of the public has pronounced, without hesitation, that the power of punishment appertains to sovereignty, and may be exercised, whenever the sovereign has a right to act, as incidental to his constitutional powers. It is a means for carrying into execution all sovereign powers, and may be used, although not indispensably necessary. It is a right incidental to the power, and conducive to its beneficial exercise. If this limited construction of the word "necessary" must be abandoned, in order to punish, whence is derived the rule which would reinstate it, when the government would carry its powers into execution, by means not vindictive in their nature? If the word "necessary" means "needful," "requisite," "essential," "conducive to," in order to let in the power of punishment for the infraction of law; why is it not equally comprehensive, when required to authorize the use of means which facilitate the execution of the powers of government, without the infliction of punishment? In ascertaining the sense in which the word "necessary" is used in this clause of the constitution, we may derive some aid from that with which it it is associated. Congress shall have power "to make all laws which shall be necessary and proper to carry into execution" the powers of the government. If the word "necessary" was used in that strict and rigorous sense for which the counsel for the state of *Maryland contend, it would [*419 be an extraordinary departure from the usual course of the human mind, as exhibited in composition, to add a word, the only possible offect of which is, to qualify that strict and rigorous meaning; to present to the mind the idea of some choice of means of legislation, not strained and compressed within the narrow limits for which gentlemen contend. But the argument which most conclusively demonstrates the error of the construction contended for by the counsel for the state of Maryland, is founded on the intention of the convention, as manifested in the whole clause. To waste time and argument in proving that, without it, congress might carry its powers into execution, would be not much less idle, than to hold a lighted taper to the sun. As little can it be required to prove, that in the absence of this clause, congress would have some choice of means. That it might employ those which, in its judgment, would most advantageously effect the object to be accomplished. That any means adapted to the end, any means which tended directly to the execution of the constitutional powers of the government, were in themselves constitutional. This clause, as construed by the state of Maryland, would abridge, and almost annihilate, this useful and necessary right of the legislature to select its means. That this could not be intended, is, we should think, had it not been already controverted, too apparent for controversy. We think so for the following reasons: 1st. The clause is placed among the powers of congress, not among the limitations on those powers. *2d. Its terms purport to enlarge, not to diminish the powers vested [*420 in the government. It purports to be an additional power, not a restriction on those already granted. No reason has been, or can be assigned, for thus concealing an intention to narrow the discretion of the national legislature, under words which purport to enlarge it. The framers of the constitution wished its adoption, and well knew that it would be endangered by its strength, not by its weakness. Had they been capable of using language which would convey to the eye one idea, and, after deep reflection, impress 206*206 on the mind, another, they would rather have disguised the grant of power, than its limitation. If, then, their intention had been, by this clause, to restrain the free use of means which might otherwise have been implied, that intention would have been inserted in another place, and would have been expressed in terms resembling these. "In carrying into execution the foregoing powers, and all others," &c., "no

laws shall be passed but such as are necessary and proper." Had the intention been to make this clause restrictive, it would unquestionably have been so in form as well as in effect. The result of the most careful and attentive consideration bestowed upon this clause is, that if it does not enlarge, it cannot be construed to restrain the powers of congress, or to impair the right of the legislature to exercise its best judgment in the selection of measures to carry into execution the constitutional powers of the government. If no other motive for its insertion can be suggested, a sufficient one is found in the desire to *421] remove all doubts respecting *the right to legislate on that vast mass of incidental powers which must be involved in the constitution, if that instrument be not a splendid bauble. We admit, as all must admit, that the powers of the government are limited, and that its limits are not to be transcended, But we think the sound construction of the constitution must allow to the national legislature that discretion, with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it, in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional. [1] That a corporation must be considered as a means not less usual, not of higher dignity, not more requiring a particular specification than other means, has been sufficiently proved. If we look to the origin of corporations, to the manner in which they have been framed in that government from which we have derived most of our legal principles and ideas, or to the uses to which they have been applied, we find no reason to suppose, that a constitution, omitting, and wisely omitting, to enumerate all the means for carrying into execution the great powers vested in government, ought to have specified this. Had it been intended to grant this power, as one which should be distinct and independent, to be exercised in any case whatever, it *422] *would have found a place among the enumerated powers of the government. But being considered merely as a means, to be employed only for the purpose of carrying into execution the given powers, there could be no motive for particularly mentioning it. The propriety of this remark would seem to be generally acknowledged, by the universal acquiescence in the construction which has been uniformly put on the 3d section of the 4th article of the constitution. The power to "make all needful rules and regulations respecting the territory or other property belonging to the United States," is not more comprehensive, than the power "to make all laws which shall be necessary and proper for carrying 207*207 into execution" the powers of the government. Yet all admit the constitutionality of a territorial government, which is a corporate body. If a corporation may be employed, indiscriminately with other means, to carry into execution the powers of the government, no particular reason can be assigned for excluding the use of a bank, if required for its fiscal operations. To use one, must be within the discretion of congress, if it be an appropriate mode of executing the powers of government. That it is a convenient, a useful, and essential instrument in the prosecution of its fiscal operations, is not now a subject of controversy. All those who have been concerned in the administration of our finances, have concurred in representing its importance and necessity; and so strongly have they been felt, that statesmen of the first class, whose previous opinions *against it had [*423 been confirmed by every circumstance which can fix the human judgment, have yielded those opinions to the exigencies of the nation. Under the confederation, congress, justifying the measure by its necessity, transcended, perhaps, its powers, to obtain the advantage of a bank; and our own legislation attests the universal conviction of the utility of this measure. The time has passed away, when it can be necessary to enter into any discussion, in order to prove the importance of this instrument, as a means to effect the legitimate objects of the government. But were its necessity less apparent, none can deny its being an appropriate measure; and if it is, the decree of its necessity, as has been very justly observed, is to be discussed in another place. Should congress, in the execution of its powers, adopt measures which are prohibited by the constitution; or should congress, under the pretext of executing its powers, pass laws for the accomplishment of objects not intrusted to the government; it would become the painful duty of this tribunal, should a case requiring such a decision come before it, to say, that such an act was not the law of the land. But where the law is not prohibited, and is really calculated to effect any of the objects intrusted to the government, to undertake here to inquire into the decree of its necessity, would be to pass the line which circumscribes the judicial department, and to tread on legislative ground. This court disclaims all pretensions to such a power. *After this declaration, it can scarcely be necessary to say, that [*424 the existence of state banks can have no possible influence on the question. No trace is to be found in the constitution, of an intention to create a dependence of the government of the Union on those of the states, for the execution of the great powers assigned to it. Its means are adequate to its ends; and on those means alone was it expected to rely for the accomplishment of its ends. To impose on it the necessity of resorting to means which it cannot control, which another government may furnish or withhold, would render its course precarious, the result of its measures uncertain, and create a dependence on other governments, which might disappoint its most important designs, and is incompatible with the language of the

constitution. But were it otherwise, the choice of means implies a right to choose a national bank in preference to state banks, and congress alone can make the election. After the most deliberate consideration, it is the unanimous and decided opinion of this court, that the act to incorporate the Bank of the United States is a law made in pursuance of the constitution, and is a part of the supreme law of the land. 208*208 The branches, proceeding from the same stock, and being conducive to the complete accomplishment of the object, are equally constitutional. It would have been unwise, to locate them in the charter, and it would be unnecessarily inconvenient, to employ the legislative power in making those subordinate arrangements. The great duties of the bank are prescribed; *425] those duties require branches; and the bank itself *may, we think, be safely trusted with the selection of places where those branches shall be fixed; reserving always to the government the right to require that a branch shall be located where it may be deemed necessary. It being the opinion of the court, that the act incorporating the bank is constitutional; and that the power of establishing a branch in the state of Maryland might be properly exercised by the bank itself, we proceed to inquire 2. Whether the state of Maryland may, without violating the constitution, tax that branch? That the power of taxation is one of vital importance; that it is retained by the states; that it is not abridged by the grant of a similar power to the government of the Union; that it is to be concurrently exercised by the two governments are truths which have never been denied. But such is the paramount character of the constitution, that its capacity to withdraw any subject from the action of even this power, is admitted. The states are expressly forbidden to lay any duties on imports or exports, except what may be absolutely necessary for executing their inspection laws. If the obligation of this prohibition must be conceded if it may restrain a state from the exercise of its taxing power on imports and exports the same paramount character would seem to restrain, as it certainly may restrain, a state from such other exercise of this power, as is in its nature incompatible with, and repugnant to, the constitutional laws of *426] the Union. A law, absolutely repugnant to another, as entirely *repeals that other as if express terms of repeal were used. On this ground, the counsel for the bank place its claim to be exempted from the power of a state to tax its operations. There is no express provision for the case, but the claim has been sustained on a principle which so entirely pervades the constitution, is so intermixed with the materials which compose it, so interwoven with its web, so blended with its texture, as to be incapable of being separated from it, without rending it into shreds. This great principle is, that the constitution and the laws made in pursuance thereof are supreme; that they control the constitution and laws of the respective states, and cannot be controlled by them. From this, which may be almost termed an axiom, other propositions are deduced as corollaries, on the truth or error of which, and on their application to this case, the cause has been supposed to depend. These are, 1st. That a power to create implies a power to preserve: 2d. That a power to destroy, if wielded by a different hand, is hostile to, and incompatible with these powers to create and to preserve: 3d. That where this repugnancy exists, that authority which is supreme must control, not yield to that over which it is supreme. These propositions, as abstract truths, would, perhaps, never be controverted. Their application to this case, however, has been denied; and both in maintaining the affirmative and the negative, a splendor of eloquence, and strength of argument, seldom, if ever, surpassed, have been displayed. 209*209 *427] *The power of congress to create, and of course, to continue, the bank, was the subject of the preceding part of this opinion; and is no longer to be considered as questionable. That the power of taxing it by the states may be exercised so as to destroy it, is too obvious to be denied. But taxation is said to be an absolute power, which acknowledges no other limits than those expressly prescribed in the constitution and like sovereign power of every other description, is intrusted to the discretion of those who use it. But the very terms of this argument admit, that the sovereignty of the state, in the article of taxation itself, is subordinate to, and may be controlled by the constitution of the United States. How far it has been controlled by that instrument, must be a question of construction. In making this construction, no principle, not declared, can be admissible, which would defeat the legitimate operations of a supreme government. It is of the very essence of supremacy, to remove all obstacles to its action within its own sphere, and so to modify every power vested in subordinate governments, as to exempt its own operations from their own influence. This effect need not be stated in terms. It is so involved in the declaration of supremacy, so necessarily implied in it, that the expression of it could not make it more certain. We must, therefore, keep it in view, while construing the constitution. The argument on the part of the state of Maryland, is, not that the states may directly resist a law of congress, but that they may exercise their *acknowledged powers upon it, and that the constitution leaves them, [*428 this right, in the confidence that they will not abuse it. Before we proceed to examine this argument, and to subject it to test of the constitution, we must be permitted to bestow a few considerations on the nature and extent of this original right of taxation, which is acknowledged to remain with the states. It is admitted, that the power of taxing the people and their property, is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the

abuse of this power, is found, in the structure of the government itself. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The people of a state, therefore, give to their government a right of taxing themselves and their property, and as the exigencies of government cannot be limited, they prescribe no limits to the exercise of this right, resting confidently on the interest of the legislator, and on the influence of the constituent over their representative, to guard them against its abuse. But the means employed by the government of the Union have no such security, nor is the right of a state to tax them sustained by the same theory. Those means are not given by the people of a particular state, not given by the constituents of the legislature, which claim the right to tax them, but by the people of all the states. They are given by all, *for the benefit [*429 of all and upon theory, should be subjected to that government only which belongs to all. It may be objected to this definition, that the power of taxation is not confined to the people and property of a state. It may be exercised upon every object brought within its jurisdiction. This is true, But to what 210*210 source do wo trace this right? It is obvious, that it is an incident of sovereignty, and is co-extensive with that to which it is an incident. All subjects over which the sovereign power of a state extends, are objects of taxation; but those over which it does not extend, are, upon the soundest principles, exempt from taxation. This proposition may almost be pronounced selfevident. The sovereignty of a state extends to everything which exists by its own authority, or is introduced by its permission; but does it extend to those means which are employed by congress to carry into execution powers conferred on that body by the people of the United States? We think it demonstrable, that it does not. Those powers are not given by the people of a single state. They are given by the people of the United States, to a government whose laws, made in pursuance of the constitution, are declared to be supreme. Consequently, the people of a single state cannot confer a sovereignty which will extend over them. If we measure the power of taxation residing in a state, by the extent of sovereignty which the people of a single state possess, and can confer on *430] its government, we have an intelligible standard, applicable *to every case to which the power may be applied. We have a principle which leaves the power of taxing the people and property of a state unimpaired; which leaves to a state the command of all its resources, and which places beyond its reach, all those powers which are conferred by the people of the United States on the government of the Union, and all those means which are given for the purpose of carrying those powers into execution. We have a principle which is safe for the states, and safe for the Union. We are relieved, as we ought to be, from clashing sovereignty; from interfering powers; from a repugnancy between a right in one government to pull down, what there is an acknowledged right in another to build up; from the incompatibility of a right in one government to destroy, what there is a right in another to preserve. We are not driven to the perplexing inquiry, so unfit for the judicial department, what degree of taxation is the legitimate use, and what degree may amount to the abuse of the power. The attempt to use it on the means employed by the government of the Union, in pursuance of the constitution, is itself an abuse, because it is the usurpation of a power which the people of a single state cannot give. We find, then, on just theory, a total failure of this original right to tax the means employed by the government of the Union, for the execution of its powers. The right never existed, and the question whether it has been surrendered, cannot arise. But, waiving this theory for the present, let us resume the inquiry, *431] whether this power can be exercised *by the respective states, consistently with a fair construction of the constitution? That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create; that there is a plain repugnance in conferring on one government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied. But all inconsistencies are to be reconciled by the magic of the word confidence. Taxation, it is said, does not necessarily and unavoidably destroy. To carry it to the excess of destruction, would be an 211*211 abuse, to presume which, would banish that confidence which is essential to all government. But is this a case of confidence? Would the people of any one state trust those of another with a power to control the most insignificant operations of their state government? We know they would not. Why, then, should we suppose, that the people of any one state should be willing to trust those of another with a power to control the operations of a government to which they have confided their most important and most valuable interests? In the legislature of the Union alone, are all represented. The legislature of the Union alone, therefore, can be trusted by the people with the power of controlling measures which concern all, in the confidence that it will not be abused. This, then, is not a case of confidence, and we must consider it is as it really is. *If we apply the principle for which the state of Maryland contends, [*432 to the constitution, generally, we shall find it capable of changing totally the character of that instrument. We shall find it capable of arresting all the measures of the government, and of prostrating it at the foot of the states. The American people have declared their constitution and the laws made in pursuance thereof, to be supreme; but this principle would transfer the supremacy, in fact, to the states. If the states may tax one instrument, employed by the government in the execution of its powers, they may tax any and every other instrument. They may tax the mail; they may tax the mint; they may tax patent-rights; they may tax the papers of the custom-house; they may tax judicial process; they may tax all the means employed by the

government, to an excess which would defeat all the ends of government. This was not intended by the American people. They did not design to make their government dependent on the states. Gentlemen say, they do not claim the right to extend state taxation to these objects. They limit their pretensions to property. But on what principle, is this distinction made? Those who make it have furnished no reason for it, and the principle for which they contend denies it. They contend, that the power of taxation has no other limit than is found in the 10th section of the 1st article of the constitution; that, with respect to everything else, the power of the states is supreme, and admits of no control. If this be true, the distinction between property and *other subjects [*433 to which the power of taxation is applicable, is merely arbitrary, and can never be sustained. This is not all. If the controlling power of the states be established; if their supremacy as to taxation be acknowledged; what is to restrain their exercising control in any shape they may please to give it? Their sovereignty is not confined to taxation; that is not the only mode in which it might be displayed. The question is, in truth, a question of supremacy; and if the right of the states to tax the means employed by the general government be conceded, the declaration that the constitution, and the laws made in pursuance thereof, shall be the supreme law of the land, is empty and unmeaning declamation. In the course of the argument, the Federalist has been quoted; and the opinions expressed by the authors of that work have been justly supposed to be entitled to great respect in expounding the constitution. No tribute can be paid to them which exceeds their merit; but in applying their opinions to the cases which may arise in the progress of our government, a right to 212*212 judge of their correctness must be retained; and to understand the argument, we must examine the proposition it maintains, and the objections against which it is directed. The subject of those numbers, from which passages have been cited, is the unlimited power of taxation which is vested in the general government. The objection to this unlimited power, which the argument seeks to remove, is stated with fulness and clearness. It is, "that an indefinite power of taxation in the latter (the government *434] *of the Union) might, and probably would, in time, deprive the former (the government of the states) of the means of providing for their own necessities; and would subject them entirely to the mercy of the national legislature. As the laws of the Union are to become the supreme law of the land; as it is to have power to pass all laws that may necessary for carrying into execution the authorities with which it is proposed to vest it; the national government might, at any time, abolish the taxes imposed for state objects, upon the pretence of an interference with its own. It might allege a necessity for doing this, in order to give efficacy to the national revenues; and thus, all the resources of taxation might, by degrees, become the subjects of federal monopoly, to the entire exclusion and destruction of the state governments." The objections to the constitution which are noticed in these numbers, were to the undefined power of the government to tax, not to the incidental privilege of exempting its own measures from state taxation. The consequences apprehended from this undefined power were, that it would absorb all the objects of taxation, "to the exclusion and destruction of the state governments." The arguments of the Federalist are intended to prove the fallacy of these apprehensions; not to prove that the government was incapable of executing any of its powers, without exposing the means it employed to the embarrassments of state taxation. Arguments urged against these objections, and these apprehensions, are to be understood as relating to the points *435] they *mean to prove. Had the authors of those excellent essays been asked, whether they contended for that construction of the constitution, which would place within the reach of the states those measures which the government might adopt for the execution of its powers; no man, who has read their instructive pages, will hesitate to admit, that their answer must have been in the negative. It has also been insisted, that, as the power of taxation in the general and state governments is acknowledged to be concurrent, every argument which would sustain the right of the general government to tax banks chartered by the states, will equally sustain the right of the states to tax banks chartered by the general government. But the two cases are not on the same reason. The people of all the states have created the general government, and have conferred upon it the general power of taxation. The people of all the states, and the states themselves, are represented in congress, and, by their representatives, exercise this power. When they tax the chartered institutions of the states, they tax their constituents; and these taxes must be uniform. But when a state taxes the operations of the government of the United States, it acts upon institutions created, not by their own constituents, but by people over whom they claim no control. It acts upon the measures of a government created by others as well as themselves, for the benefit of others in common with themselves. The difference is that213*213 which always exists, and always must exist, between the action of the whole on a *part, and the action of a part on the whole between the laws [*436 of a government declared to be supreme, and those of a government which, when in opposition to those laws, is not supreme. But if the full application of this argument could be admitted, it night bring into question the right of congress to tax the state banks, and could not prove the rights of the states to tax the Bank of the United States. The court has bestowed on this subject its most deliberate consideration. The result is a conviction that the states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which the constitution has declared. We are unanimously of opinion, that the law passed by the legislature of Maryland, imposing a tax on the Bank of the United States, is unconstitutional and void.

This opinion does not deprive the states of any resources which they originally possessed. It does not extend to a tax paid by the real property of the bank, in common with the other real property within the state, nor to a tax imposed on the interest which the citizens of Maryland may hold in this institution, in common with other property of the same description throughout the state. But this is a tax on the operations of the bank, and is, consequently, a tax on the operation of an instrument employed by the government *of the Union to carry its powers into execution. Such [*437 a tax must be unconstitutional. JUDGMENT. This cause came on to be heard, on the transcript of the record of the court of appeals of the state of Maryland, and was argued by counsel: on consideration whereof, it is the opinion of this court, that the act of the legislature of Maryland is contrary to the constitution of the United States, and void; and therefore, that the said court of appeals of the state of Maryland erred, in affirming the judgment of the Baltimore county court, in which judgment was rendered against James W. McCulloch; but that the said court of appeals of Maryland ought to have reversed the said judgment of the said Baltimore county court, and ought to have given judgment for the said appellant, McCulloch: It is, therefore, adjudged and ordered, that the said judgment of the said court of appeals of the state of Maryland in this case, be, and the same hereby is, reversed and annulled. And this court, proceeding to render such judgment as the said court of appeals should have rendered; it is further adjudged and ordered, that the judgment of the said Baltimore county court be reversed and annulled, and that judgment be entered in the said Baltimore county court for the said James W. McCulloch.

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 tons of raw sugar in the Philippines. 3 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. Narvasa, C.J., Regalado and Mendoza, JJ., concur.

G.R. No. L-25043

April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial coguardians of JOSE ROXAS, petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties: (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province; (2) A residential house and lot located at Wright St., Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers. In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Section 34 of the Tax Code. RESIDENTIAL HOUSE During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. ASSESSMENTS On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax. The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and 1955, as follows: 1953 P7,010.00 7,281.00 6,323.00 1955 P5,813.00 5,828.00 5,588.00

Antonio Roxas Eduardo Roxas Jose Roxas

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The following deductions were disallowed: ROXAS Y CIA.: 1953 Tickets for Banquet in honor of S. Osmea Gifts of San Miguel beer Contributions to Philippine Air Force Chapel Manila Police Trust Fund Philippines Herald's fund for Manila's neediest families 1955 Contributions to Contribution to Our Lady of Fatima Chapel, FEU ANTONIO ROXAS: 1953 Contributions to Pasay City Firemen Christmas Fund Pasay City Police Dept. X'mas fund 1955 Contributions to Baguio City Police Christmas fund Pasay City Firemen Christmas fund Pasay City Police Christmas fund EDUARDO ROXAS: 1953 Contributions to 25.00 25.00 50.00 25.00 50.00 50.00 100.00 150.00 P 40.00 28.00

100.00

Hijas de Jesus' Retiro de Manresa Philippines Herald's fund for Manila's neediest families 1955 Contributions to Philippines Herald's fund for Manila's neediest families JOSE ROXAS: 1955 Contributions to Philippines Herald's fund for Manila's neediest families

450.00

100.00

120.00

120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads: WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against petitioners. Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal. The issues: (1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? (2) Are the deductions for business expenses and contributions deductible? (3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers? The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership, quoted below: 4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes no deben conservarse; The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the

same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. 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. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%. DISALLOWED DEDUCTIONS Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses. Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained. The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University. The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions. The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code. Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern University on the ground that the said university gives dividends to its stockholders. Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the lower court found that it belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be sustained. Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals. The law, which states: 1wph1.t . . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . . . (Emphasis supplied) . is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained.1wph1.t

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: * ANTONIO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount declared Amount understated Contributions disallowed P 153,249.15 146,135.46 P 7,113.69 115.00 P 7,228.69 Less 1/3 share of contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax due Tax paid Deficiency 154,169.00 154,060.00 P 109.00 ========== EDUARDO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia Less profits declared Amount understated Less 1/3 share in contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax Due Tax paid Deficiency P147,250.00 147,159.00 P91.00 =========== P 153,249.15 146,052.58 P 7,196.57 P 304,166.92 P315,476.59

7,042.02

186.67 P315,663.26 4,200.00 P311,463.26

7,042.02

155.55 P304,322.47 4,800.00 P299,592.47

JOSE ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount reported Amount understated Less 1/3 share of contributions disallowed from partnership but allowed as deductions to partners Net income per review Less: Exemption Net income subject to tax Tax due Tax paid Deficiency P102,763.00 102,714.00 P 49.00 =========== P153,429.15 146,135.46 7,113.69 P222,681.76

7,042.02

71.67 P222,753.43 1,800.00 P220,953.43

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.

PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner,

G.R. No. 172598 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated:

- versus -

COMMISSIONER OF INTERNAL REVENUE, Respondent.

December 21, 2007 x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: The Case Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006 Decision [1] of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 64, which upheld respondents assessment against petitioner for deficiency excise taxes for the taxable years 1992 and 1994 to 1997. Said En Banc decision reversed and set aside the August 2, 2004 Decision[2] and January 20, 2005 Resolution[3] of the CTA Division in CTA Case No. 6003 entitled Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue , which ordered the withdrawal of the April 22, 1998 collection letter of respondent and enjoined him from collecting said deficiency excise taxes. The Facts Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the international petroleum giant Shell, and is engaged in the importation, refining and sale of petroleum products in the country. From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (Center) from other Board of Investment (BOI)-registered companies. The Center is a composite body run by four government agencies, namely: the DOF, Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), and BOI. Through the Center, PSPC acquired for value various Center-issued TCCs which were correspondingly transferred to it by other BOI-registered companies through Center-approved Deeds of Assignments. Subsequently, when PSPC signified its intent to use the TCCs to pay part of its excise tax liabilities, said payments were duly approved by the Center through the issuance of Tax Debit Memoranda (TDM), and the BIR likewise accepted as payments the TCCs by issuing its own TDM covering said TCCs, and the corresponding Authorities to Accept Payment for Excise Taxes (ATAPETs). However, on April 22, 1998, the BIR sent a collection letter[4] to PSPC for alleged deficiency excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997, inclusive of delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-registered companies. These alleged excise tax deficiencies covered by the collection letter were already paid by PSPC with TCCs acquired through, and issued and duly authorized by the Center, and duly covered by TDMs of both the Center and BIR, with the latter also issuing the corresponding ATAPETs. PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR through the Regional Director of Revenue Region No. 8. PSPC filed its motion for reconsideration. However, due to respondents inaction on the motion, onFebruary 2, 1999, PSPC filed a petition for review before the CTA, docketed as CTA Case No. 5728. On July 23, 1999, the CTA rendered a Decision[5] in CTA Case No. 5728 ruling, inter alia, that the use by PSPC of the TCCs was legal and valid, and that respondents attempt to collect alleged delinquent taxes and penalties from PSPC without an assessment constitutes denial of due process. The dispositive portion of the July 23, 1999 CTA Decision reads: [T]he instant petition for review is GRANTED. The collection letter issued by the Respondent dated April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to collect from petitioner the specific tax, surcharge and interest subject of this petition.[6]

Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court of Appeals (CA) through a petition for review[7] docketed as CA-G.R. SP No. 55329. This case was subsequently consolidated with the

similarly situated case of Petron Corporation under CA-G.R. SP No. 55330. To date, these consolidated cases are still pending resolution before the CA.

Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center sent several letters to PSPC datedAugust 31, 1999,[8] September 1, 1999,[9] and October 18, 1999.[10] The first required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale transactions of PSPC products to the TCC assignors/transferors purportedly in connection with an ongoing post audit. The second letter similarly required submission of the same documents covering PSPC Industrial Fuel Oil (IFO) deliveries to Spintex International, Inc. The third letter is in reply to the September 29, 1999 letter sent by PSPC requesting a list of the serial numbers of the TCCs assigned or transferred to it by various BOI-registered companies, either assignors or transferors. In its letter dated October 29, 1999 and received by the Center on November 3, 1999, PSPC emphasized that the required submission of these documents had no legal basis, for the applicable rules and regulations on the matter only require that both the assignor and assignee of TCCs be BOI-registered entities.[11] On November 3, 1999, the Center informed PSPC of the cancellation of the first batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs as well as the corresponding TCC assignments. PSPCs motion for reconsideration was not acted upon. On November 22, 1999, PSPC received the November 15, 1999 assessment letter[12] from respondent for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled TCCs and TDM covering PSPCs use of the TCCs. All these cancelled TDM and TCCs were also part of the subject matter in CTA Case No. 5728, now pending before the CA in CA-G.R. SP No. 55329. PSPC protested[13] the assessment letter, but the protest was denied by the BIR, constraining it to file another petition for review[14] before the CTA, docketed as CTA Case No. 6003. Parenthetically, on March 30, 2004, Republic Act No. (RA) 9282[15] was promulgated amending RA expanding the jurisdiction of the CTA and enlarging its membership. It became effective on April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was heard and decided by a CTA Division. 1125,[16] The Ruling of the Court of Tax Appeals Division (CTA Case No. 6003) On August 2, 2004, the CTA Division rendered a Decision[17] granting the PSPCs petition for review. The dispositive portion reads: [T]he instant petition is hereby GRANTED. Accordingly, the assessment issued by the respondent dated November 15, 1999 against petitioner is hereby CANCELLED and SET ASIDE.[18] In granting PSPCs petition for review, the CTA Division held that respondent failed to prove with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as respondents finding of allege d fraud was merely speculative. The CTA Division found that neither the respondent nor the Center could state what sales figures were used as basis for the TCCs to issue, as they merely based their conclusions on the audited financial statements of the transferors which did not clearly show the actual export sales of transactions from which the TCCs were issued. In the same vein, the CTA Division held that the machinery and equipment cannot be the basis in concluding that transferor could not have produced the volume of products indicated in its BOI registration. It further ruled that the Center erroneously based its findings of fraud on two possibilities: either the transferor did not declare its export sales or underdeclare them. Thus, no specific fraudulent acts were identified or proven. The CTA Division concluded that the TCCs transferred to PSPC were not fraudulently issued. On the issue of whether a TCC transferee should be a supplier of either capital equipment, materials, or supplies, the CTA Division ruled in the negative as the Memorandum of Agreement (MOA) [19] between the DOF and BOI executed on August 29, 1989 specifying such requirement was not incorporated in the Implementing Rules and Regulations (IRR) of Executive Order No. (EO) 226. [20] The CTA Division found that only the October 5, 1982 MOA between the then Ministry of Finance (MOF) and BOI was incorporated in the IRR of EO 226. It held that while the August 29, 1989 MOA indeed amended the October 5, 1982 MOA still it was not incorporated in the IRR. Moreover, according to the CTA Division, even if the August 29, 1989 MOA was elevated or incorporated in the IRR of EO 226, still, it is ineffective and could not bind nor prejudice third parties as it was never published. Anent the affidavits of former Officers or General Managers of transferors attesting that no IFO deliveries were made by PSPC, the CTA Division ruled that such cannot be given probative value as the affiants were not presented

during trial of the case. However, the CTA Division said that the November 15, 1999 assessment was not precluded by the prior CTA Case No. 5728 as the latter concerned the validity of the transfer of the TCCs, while CTA Case No. 6003 involved alleged fraudulent procurement and transfer of the TCCs. Respondent forthwith filed his motion for reconsideration of the above decision which was rejected on January 20, 2005. And, pursuant to Section 11[21] of RA 9282, respondent appealed the above decision through a petition for review[22] before the CTA En Banc. The Ruling of the Court of Tax Appeals En Banc (CTA EB No. 64) The CTA En Banc, however, rendered the assailed April 28, 2006 Decision[23] setting aside the August 2, 2004 Decision and the January 20, 2005 Resolution of the CTA Division. The fallo reads: WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. The assailed Decision and Resolution dated August 2, 2004 and January 20, 2005, respectively, are hereby SET ASIDE and a new one entered dismissing respondent Pilipinas Shell Petroleum Corporations Petition for Review filed in C.T.A. Case No. 6003 for lack of merit. Accordingly, respondent is ORDERED TO PAY the petitioner the amount of P570,577,401.61 as deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20% interest, computed as follows: Basic Tax Add: Surcharge (25%) Interest (20%) Total Tax Due P285,766,987.00 71,441,746.75 213,368,667.86 P570,577,401.61

In addition, respondent is hereby ORDERED TO PAY 20% delinquency interest thereon per annum computed from December 4, 1999 until full payment thereof, pursuant to Sections 248 and 249 of the NIRC of 1997. SO ORDERED.[24] The CTA En Banc resolved respondents appeal by holding that PSPC was liable to pay the alleged excise tax deficiencies arising from the cancellation of the TDM issued against its TCCs which were used to pay some of its excise tax liabilities for the years 1992 and 1994 to 1997. It ratiocinated in this wise, to wit: First, the finding of the DOF that the TCCs had no monetary value was undisputed. Consequently, there was a non-payment of excise taxes corresponding to the value of the TCCs used for payment. Since it was PSPC which acquired the subject TCCs from a third party and utilized the same to discharge its own obligations, then it must bear the loss. Second, the TCCs carry a suspensive condition, that is, their issuance was subject to post audit in order to determine if the holder is indeed qualified to use it. Thus, until final determination of the holders right to the issuance of the TCCs, there is no obligation on the part of the DOF or BIR to recognize the rights of the holder or assignee. And, considering that the subject TCCs were canceled after the DOFs fi nding of fraud in its issuance, the assignees must bear the consequence of such cancellation. Third, PSPC was not an innocent purchaser for value of the TCCs as they contained liability clauses expressly stipulating that the transferees are solidarily liable with the transferors for any fraudulent act or violation of pertinent laws, rules, or regulations relating to the transfer of the TCC. Fourth, the BIR was not barred by estoppel as it is a settled rule that in the performance of its governmental functions, the State cannot be estopped by the neglect of its agents and officers. Although the TCCs were confirmed to be valid in view of the TDM, the subsequent finding on post audit by the Center declaring the TCCs to be fraudulently issued is entitled to the presumption of regularity. Thus, the cancellation of the TCCs was legal and valid. Fifth, the BIRs assessment did not prescribe considering that no payment took effect as the subject TCCs were canceled upon post audit. Consequently, the filing of the tax return sans payment due to the cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax return which put them in the ambit of the applicability of the 10-year prescriptive period from the discovery of falsity, fraud, or omission. Finally, however, the CTA En Banc applied Aznar v. Court of Tax Appeals,[25] where this Court held that without proof that the taxpayer participated in the fraud, the 50% fraud surcharge is not imposed, but the 25% late payment and the 20% interest per annum are applicable.

Thus, PSPC filed this petition with the following issues: I WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ORDERING PETITIONER PSPC TO PAY THE AMOUNT OF TWO HUNDRED EIGHTY FIVE MILLION SEVEN HUNDRED SIXTY SIX THOUSAND NINE HUNDRED EIGHTY SEVEN PESOS (P285,766,987.00), AS ALLEGED DEFICIENCY EXCISE TAXES, FOR THE TAXABLE YEARS, 1992 AND 1994 TO 1997. II WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ISSUING THE QUESTIONED DECISION DATED 28 APRIL 2006 UPHOLDING THE CANCELLATION OF THE TAX CREDIT CERTIFICATES UTILIZED BY PETITIONER PSPC IN PAYING ITS EXCISE TAX LIABILITIES. III WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN IMPOSING SURCHARGES AND INTERESTS ON THE ALLEGED DEFICIENCY EXCISE TAX OF PETITIONER PSPC. IV WHETHER OR NOT THE ASSESSMENT DATED 15 NOVEMBER 1999 IS VOID CONSIDERING THAT IT FAILED TO COMPLY WITH THE STATUTORY AS WELL AS REGULATORY REQUIREMENTS IN THE ISSUANCE OF ASSESSMENTS.[26] The Courts Ruling The petition is meritorious. First Issue: Assessment of excise tax deficiencies

PSPC contends that respondent had no basis in issuing the November 15, 1999 assessment as PSPC had no pending unpaid excise tax liabilities. PSPC argues that under the IRR of EO 226, it is allowed to use TCCs transferred from other BOI-registered entities. On one hand, relative to the validity of the transferred TCCs, PSPC asserts that the TCCs are not subject to a suspensive condition; that the post-audit of a transferred TCC refers only to computational discrepancy; that the solidary liability of the transferor and transferee refers to computational discrepancy resulting from the transfer and not from the issuance of the TCC; that a post-audit cannot affect the validity and effectivity of a TCC after it has been utilized by the transferee; and that the BIR duly acknowledged the use of the subject TCCs, accepting them as payment for the excise tax liabilities of PSPC. On the other hand, PSPC maintains that if there was indeed fraud in the issuance of the subject TCCs, of which it had no knowledge nor participation, the Centers remedy is to go after the transferor for the value of the TCCs the Center may have erroneously issued. PSPC likewise assails the BIR assessment on prescription for having been issued beyond the three-year prescriptive period under Sec. 203 of the National Internal Revenue Code (NIRC); and neither can the BIR use the 10year prescriptive period under Sec. 222(a) of the NIRC, as PSPC has neither failed to file a return nor filed a false or fraudulent return with intent to evade taxes. Respondent, on the other hand, counters that petitioner is liable for the tax liabilities adjudged by the CTA En Banc since PSPC, as transferee of the subject TCCs, is bound by the liability clause found at the dorsal side of the TCCs which subjects the genuineness, validity, and value of the TCCs to the outcome of the post-audit to be conducted by the Center. He relies on the CTAEn Bancs finding of the presence of a suspensive condition in the issuance of the TCCs. Thus, according to him, with the finding by the Center that the TCCs were fraudulently procured the subsequent cancellation of the TCCs resulted in the non-payment by PSPC of its excise tax liabilities equivalent to the value of the canceled TCCs. Respondent likewise posits that the Center erred in approving the transfer and issuance of the TDM, and of the TDM and ATAPETs issued by the BIR in accepting the utilization by PSPC of the subject TCCs, as payments for excise taxes cannot prejudice the BIR from assessing the tax deficiencies of PSPC resulting from the non-payment of the deficiencies after due cancellation by the Center of the subject TCCs and corresponding TDM. Respondent concludes that due to the fraudulent procurement of the subject TCCs, his right to assess has not yet prescribed. He relies on the finding of the Center that the fraud was discovered only after the post-audit was

conducted; hence, Sec. 222(a) of the NIRC applies, reckoned from October 24, 1999 or the date of the post-audit report. In fine, he points that what is at issue is the resulting non-payment of PSPCs excise tax liabilities from the cancellation of subject TCCs and not the amount of deficiency taxes due from PSPC, as what was properly assessed on November 15, 1999 was the amount of tax declared and found in PSPCs excise tax returns covered by the subject TCCs. We find for PSPC. The CTA En Banc upheld respondents theory by holding that the Center has the authority to do a post -audit on the TCCs it issued; the TCCs are subject to the results of the post-audit since their issuance is subject to a suspensive condition; the transferees of the TCCs are solidarily liable with the transferors on the result of the post-audit; and the cancellation of the subject TCCs resulted in PSPC having to bear the loss anchored on its solidary liability with the transferor of the subject TCCs. We can neither sustain respondents theory nor that of the CTA En Banc. First, in overturning the August 2, 2004 Decision of the CTA Division, the CTA En Banc applied Article 1181 of the Civil Code in this manner: To completely understand the matter presented before Us, it is worth emphasizing that the statement on the subject certificate stating that it is issued subject to post-audit is in the nature of a suspensive condition under Article 1181 of the Civil Code, which is quoted hereunder for ready reference, to wit: In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. The above-quoted article speaks of obligations. These conditions affect obligations in diametrically opposed ways. If the suspensive condition happens, the obligation arises; in other words, if the condition does not happen, the obligation does not come into existence. On the other hand, the resolutory condition extinguishes rights and obligations already existing; in other words, the obligations and rights already exist, but under the threat of extinction upon the happening of the resolutory condition. (8 Manresa 130-131, cited on page 140, Civil Code of the Philippines, Tolentino, 1962 ed., Vol. IV). In adopting the foregoing provision of law, this Court rules that the issuance of the tax credit certificate is subject to the condition that a post-audit will subsequently be conducted in order to determine if the holder is indeed qualified for its issuance. As stated earlier, the holder takes the same subject to the outcome of the post-audit. Thus, unless and until there is a final determination of the holders right to the issuance of the certificate, there exists no obligation on the part of the DOF or the BIR to recognize the rights of then holder or transferee. x x x xxxx The validity and propriety of the TCC to effectively constitute payment of taxes to the government are still subject to the outcome of the post-audit. In other words, when the issuing authority (DOF) finds, as in the case at bar, circumstances which may warrant the cancellation of the certificate, the holder is inevitably bound by the outcome by the virtue of the express provisions of the TCCs. [27] The CTA En Banc is incorrect. Art.1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. [28] However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106(c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition. The CTA En Bancs holding of the presence of a suspensive condition is untenable as the subject TCCs duly issued by the Center are immediately effective and valid. The suspensive condition as ratiocinated by the CTA En Banc is one where the transfer contract was duly effected on the day it was executed between the transferee and the transferor but the TCC cannot be enforced until after the post-audit has been conducted. In short, under the ruling of the CTA En Banc, even if the TCC has been issued, the real and true application of the tax credit happens only after

the post-audit confirms the TCCs validity and not before the confirmation; thus, the TCC can still be canceled even if it has already been ostensibly applied to specific internal revenue tax liabilities. We are not convinced. We cannot subscribe to the CTA En Bancs holding that the suspensive condition suspends the effectivity of the TCCs as payment until after the post-audit. This strains the very nature of a TCC. A tax credit is not specifically defined in our Tax Code,[29] but Art. 21 of EO 226 defines a tax credit as any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board (of Investments), if so delegated by the Secretary of Finance. Tax credits were granted under EO 2 26 as incentives to encourage investments in certain businesses. A tax credit generally refers to an amount that may be subtracted directly from ones total tax liability.[30] It is therefore an allowance against the tax itself [31]or a deduction from what is owed[32] by a taxpayer to the government. In RR 5-2000,[33] a tax credit is defined as the amount due to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due. [34] A TCC is a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.[35] From the above definitions, it is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations. Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and Instructions found at the back of each TCC, which provide: 1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized , in accordance with the pertinent tax and customs laws, rules and regulations. xxxx 4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue the corresponding Tax Debit Memo (TDM) to the grantee. The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit portion at the back of the certificate and affix his signature on the column provided. (Emphasis supplied.)

The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity. Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit. The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance. As such, in the present case, if the TCCs have already been applied as partial payment for the tax liability of PSPC, a post-audit of the TCCs cannot simply annul them and the tax payment made through said TCCs. Payment has already been made and is as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs and allow the respondent to declare that utilizing canceled TCCs results

in nonpayment on the part of PSPC. As will be discussed, respondent and the Center expressly recognize the TCCs as valid payment of PSPCs tax liability. Second, the only conditions the TCCs are subjected to are those found on its face. And these are: 1. 2. Post-audit and subsequent adjustment in the event of computational discrepancy; A reduction for any outstanding account/obligation of herein claimant with the BIR and/or BOC; and Revalidation with the Center in case the TCC is not utilized or applied within one (1) year from date of issuance/date of last utilization.

3.

The above conditions clearly show that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have resulted from the transfer and utilization of the TCC. This is shown by a close reading of the first and second conditions above; the third condition is self explanatory. Since a tax credit partakes of what is owed by the State to a taxpayer, if the taxpayer has an outstanding liability with the BIR or the BOC, the money value of the tax credit covered by the TCC is primarily applied to such internal revenue liabilities of the holder as provided under condition number two. Elsewise put, the TCC issued to a claimant is applied first and foremost to any outstanding liability the claimant may have with the government. Thus, it may happen that upon post-audit, a TCC of a taxpayer may be reduced for whatever liability the taxpayer may have with the BIR which remains unpaid due to inadvertence or computational errors, and such reduction necessarily affects the balance of the monetary value of the tax credit of the TCC. For example, Company A has been granted a TCC in the amount of PhP 500,000 through its export transactions, but it has an outstanding excise tax liability of PhP 250,000 which due to inadvertence was erroneously assessed and paid at PhP 225,000. On post-audit, with the finding of a deficiency of PhP 25,000, the utilization of the TCC is accordingly corrected and the tax credit remaining in the TCC correspondingly reduced by PhP 25,000. This is a concrete example of a computational discrepancy which comes to light after a post-audit is conducted on the utilization of the TCC. The same holds true for a transferees use of the TCC in paying its outstanding internal revenue tax liabilities. Other examples of computational errors would include the utilization of a single TCC to settle several internal revenue tax liabilities of the taxpayer or transferee, where errors committed in the reduction of the credit tax running balance are discovered in the post-audit resulting in the adjustment of the TCC utilization and remaining tax credit balance. Third, the post-audit the Center conducted on the transferred TCCs, delving into their issuance and validity on alleged violations by PSPC of the August 29, 1989 MOA between the DOF and BOI, is completely misplaced. As may be recalled, the Center required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale transactions of PSPC products to the TCC assignors/transferors purportedly in connection with an ongoing post audit. As correctly protested by PSPC but which was completely ignored by the Center, PSPC is not required by law to be a capital equipment provider or a supplier of raw material and/or component supplier to the transferors. What the law requires is that the transferee be a BOI-registered company similar to the BOI-registered transferors. The IRR of EO 226, which incorporated the October 5, 1982 MOA between the MOF and BOI, pertinently provides for the guidelines concerning the transferability of TCCs: [T]he MOF and the BOI, through their respective representatives, have agreed on the following guidelines to govern the transferability of tax credit certificates: 1) All tax credit certificates issued to BOI-registered enterprises under P.D. 1789 may be transferred under conditions provided herein; 2) The transferee should be a BOI-registered firm;

3) The transferee may apply such tax credit certificates for payment of taxes, duties, charges or fees directly due to the national government for as long as it enjoys incentives under P.D. 1789. (Emphasis supplied.)

The above requirement has not been amended or repealed during the unfolding of the instant controversy. Thus, it is clear from the above proviso that it is only required that a TCC transferee be BOI-registered. In

requiring PSPC to submit sales documents for its purported post-audit of the TCCs, the Center gravely abused its discretion as these are not required of the transferee PSPC by law and by the rules. While the October 5, 1982 MOA appears to have been amended by the August 29, 1989 MOA between the DOF and BOI, such may not operate to prejudice transferees like PSPC. For one, the August 29, 1989 MOA remains only an internal agreement as it has neither been elevated to the level of nor incorporated as an amendment in the IRR of EO 226. As aptly put by the CTA Division: If the 1989 MOA has validly amended the 1982 MOA, it would have been incorporated either expressly or by reference in Rule VII of the Implementing Rules and Regulations (IRRs) of E.O. 226. To date, said Rule VII has not been repealed, amended or otherwise modified. It is noteworthy that the 1999 edition of the official publication by the BOI of E.O. 226 and its IRRs ( Exhibit R) which is the latest version, as amended, has not mentioned expressly or by reference [sic] 1989 MOA. The MOA mentioned therein is still the 1982 MOA. The 1982 MOA, although executed as a mere agreement between the DOF and the BOI was elevated to the status of a rule and regulation applicable to the general public by reason of its having been expressly incorporated in Rule VII of the IRRs. On the other hand, the 1989 MOA which purportedly amended the 1982 MOA, remained a mere agreement between the DOF and the BOI because, unlike the 1982 MOA, it was never incorporated either expressly or by reference to any amendment or revision of the said IRRs. Thus, it cannot be the basis of any invalidation of the transfers of TCCs to petitioner nor of any other sanction against petitioner.[36]

For another, even if the August 29, 1989 MOA has indeed amended the IRR, which it has not, still, it is ineffective and cannot prejudice third parties for lack of publication as mandatorily required under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987, which pertinently provides: Section 3. Filing.(1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months from the date shall not thereafter be the basis of any sanction against any party or person. (2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this section under pain of disciplinary action. (3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public inspection. Section 4. Effectivity.In addition to other rule-making requirement provided by law not inconsistent with this Book, each rule shall become effective fifteen (15) days from the date of filing as above provided unless a different date is fixed by law, or specified in the rule in cases of imminent danger to public health, safety and welfare, the existence of which must be expressed in a statement accompanying the rule. The agency shall take appropriate measures to make emergency rules known to persons who may be affected by them. Section 5. x x x x (2) Every rule establishing an offense or defining an act which pursuant to law, is punishable as a crime or subject to a penalty shall in all cases be published in full text.

It is clear that the Center or DOF cannot compel PSPC to submit sales documents for the purported post-audit, as PSPC has duly complied with the requirements of the law and rules to be a qualified transferee of the subject TCCs. Fourth, we likewise fail to see the liability clause at the dorsal portion of the TCCs to be a suspensive condition relative to the result of the post-audit. Said liability clause indicates: LIABILITY CLAUSE Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE. (Emphasis supplied.)

The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latters responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh violative of the constitutional right not to be deprived of ones property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed. A transferee in good faith and for value of a TCC who has relied on the Centers representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law. In the instant case, a close review of the factual milieu and the records reveals that PSPC is a transferee in good faith and for value. No evidence was adduced that PSPC participated in any way in the issuance of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It has likewise been shown that PSPC was not involved in the processing for the approval of the transfers of the subject TCCs from the various BOI-registered transferors. Respondent, through the Center, made much of the alleged non-payment through non-delivery by PSPC of the IFOs it purportedly sold to the transferors covered by supply agreements which were allegedly the basis of the Center for the approval of the transfers. Respondent points to the requirement under the August 29, 1989 MOA between the DOF and BOI, specifying the requirement that [t]he transferee should be a BOI -registered firm which is a domestic capital equipment supplier, or a raw material and/or component supplier of the transferor. [37] As discussed above, the above amendment to the October 5, 1982 MOA between BOI and MOF cannot prejudice any transferee, like PSPC, as it was neither incorporated nor elevated to the IRR of EO 226, and for lack of due publication. The pro-forma supply agreements allegedly executed by PSPC and the transferors covering the sale of IFOs to the transferors have been specifically denied by PSPC. Moreover, the above-quoted requirement is not required under the IRR of EO 226. Therefore, it is incumbent for respondent to present said supply agreements to prove participation by PSPC in the approval of the transfers of the subject TCCs. Respondent failed to do this. PSPC claims to be a transferee in good faith of the subject TCCs. It believed that its tax obligations for 1992 and 1994 to 1997 had in fact been paid when it applied the subject TCCs, considering that all the necessary authorizations and approvals attendant to the transfer and utilization of the TCCs were present. It is undisputed that the transfers of the TCCs from the original holders to PSPC were duly approved by the Center, which is composed of a number of government agencies, including the BIR. Such approval was annotated on the reverse side of the TCCs, and the Center even issued TDM which is proof of its approval for PSPC to apply the TCCs as payment for the tax liabilities. The BIR issued its own TDM, also signifying approval of the TCCs as payment for PSPCs tax liabilities. The BIR also issued ATAPETs covering the aforementioned BIR-issued TDM, further proving its acceptance of the TCCs as valid tax payments, which formed part of PSPCs total tax payments along with checks duly acknowledged and received by BIRs authorized agent banks. Several approvals were secured by PSPC before it utilized the transferred TCCs, and it relied on the verification of the various government agencies concerned of the genuineness and authenticity of the TCCs as well as the validity of their issuances. Furthermore, the parties stipulated in open court that the BIR-issued ATAPETs for the taxes covered by the subject TCCs confirm the correctness of the amount of excise taxes paid by PSPC during the tax years in question. Thus, it is clear that PSPC is a transferee in good faith and for value of the subject TCCs and may not be prejudiced with a re-assessment of excise tax liabilities it has already settled when due with the use of the subject TCCs. Logically, therefore, the excise tax returns filed by PSPC duly covered by the TDM and ATAPETs issued by the BIR confirming the full payment and satisfaction of the excise tax liabilities of PSPC, have not been fraudulently filed. Consequently, as PSPC is a transferee in good faith and for value, Sec. 222(a) of the NIRC does not apply in the instant case as PSPC has neither been shown nor proven to have committed any fraudulent act in the transfer and utilization of the subject TCCs. With more reason, therefore, that the three-year prescriptive period for assessment under Art. 203 of the NIRC has already set in and bars respondent from assessing anew PSPC for the excise taxes already paid in 1992 and 1994 to 1997. Besides, even if the period for assessment has not prescribed, still, there is no valid ground for the assessment as the excise tax liabilities of PSPC have been duly settled and paid.

Fifth, PSPC cannot be blamed for relying on the Centers approval for the transfers of the subject TCCs and the Centers acceptance of the TCCs for the payment of its excise tax liabilities. Likewise, PSPC cannot be faulted in relying on the BIRs acceptance of the subject TCCs as payment for its excise tax liabilities. This reliance is supported by the fact that the subject TCCs have passed through stringent reviews starting from the claims of the transferors, their issuance by the Center, the Centers approval for their transfer to PSPC, the Centers acceptance of the TCCs to pay PSPCs excise tax liabilities through the issuance of the Centers TDM, and finally the acceptance by the BIR of the subject TCCs as payment through the issuance of its own TDM and ATAPETs. Therefore, PSPC cannot be prejudiced by the Centers turnaround in assailing the validity of the subject TCCs which it issued in due course. Sixth, we are of the view that the subject TCCs cannot be canceled by the Center as these had already been canceled after their application to PSPCs excise tax liabilities. PSPC contends they are already functus officio, not quite in the sense of being no longer effective, but in the sense that they have been used up. When the subject TCCs were accepted by the BIR through the latters issuance of TDM and the ATAPETs, the subject TCCs were duly canceled. The tax credit of a taxpayer evidenced by a TCC is used up or, in accounting parlance, debited when applied to the taxpayers internal revenue tax liability, and the TCC canceled after the tax credit it represented is fully debited or used up. A credit is a payable or a liability. A tax credit, therefore, is a liability of the government evidenced by a TCC. Thus, the tax credit of a taxpayer evidenced by a TCC is debited by the BIR through a TDM, not only evidencing the payment of the tax by the taxpayer, but likewise deducting or debiting the existing tax credit with the amount of the tax paid. For example, a transferee or the tax claimant has a TCC of PhP 1 million, which was used to pay income tax liability of PhP 500,000, documentary stamp tax liability of PhP 100,000, and value-added tax liability of PhP 350,000, for an aggregate internal revenue tax liability of PhP 950,000. After the payments through the PhP 1 million TCC have been approved and accepted by the BIR through the issuance of corresponding TDM, the TCC money value is reduced to only PhP 50,000, that is, a credit balance of PhP 50,000. In this sense, the tax credit of the TCC has been canceled or used up in the amount of PhP 950,000. Now, let us say the transferee or taxpayer has excise tax liability of PhP 250,000, s/he only has the remaining PhP 50,000 tax credit in the TCC to pay part of said excise tax. When the transferee or taxpayer applies such payment, the TCC is canceled as the money value of the tax credit it represented has been fully debited or used up. In short, there is no more tax credit available for the taxpayer to settle his/her other tax liabilities. In the instant case, with due application, approval, and acceptance of the payment by PSPC of the subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs have been canceled as the money value of the tax credits these represented have been used up. Therefore, the DOF through the Center may not now cancel the subject TCCs as these have already been canceled and used up after their acceptance as payment for PSPCs excise tax liabilities. What has been used up, debited, and canceled cannot anymore be declared to be void, ineffective, and canceled anew. Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC canceled when fully utilized, but the payment is also final subject only to a post-audit on computational errors. Under RR 5-2000, a TDM is a certification, duly issued by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a Tax Credit Certificate, duly issued and existing in accordance with the provisions of these Regulations. The Tax Debit Memo shall serve as the official receipt from the BIR evidencing a taxpayers payment or satisfaction of his tax obligation . The amount shown therein shall be charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate. Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC with the use of the subject TCCs have been effected and consummated as the TDMs serve as the official receipts evidencing PSPCs payment or satisfaction of its tax obligation. Moreover, the BIR not only issued the corresponding TDM, but it also issued ATAPETs which doubly show the payment of the subject excise taxes of PSPC. Based on the above discussion, we hold that respondent erroneously and without factual and legal basis levied the assessment. Consequently, the CTA En Banc erred in sustaining respondents assessment. Second Issue: Cancellation of TCCs PSPC argues that the CTA En Banc erred in upholding the cancellation by the Center of the subject TCCs it used in paying some of its excise tax liabilities as the subject TCCs were genuine and authentic, having been subjected to thorough and stringent procedures, and approvals by the Center. Moreover, PSPC posits that both the CTAs

Division and En Banc duly found that PSPC had neither knowledge, involvement, nor participation in the alleged fraudulent issuance of the subject TCCs, and, thus, as a transferee in good faith and for value, it cannot be held solidarily liable for any fraud attendant to the issuance of the subject TCCs. PSPC further asserts that the Center has no authority to cancel the subject TCCs as such authority is lodged exclusively with the BOI. Lastly, PSPC said that the Centers Excom Resolution No. 03-05-99 which the Center relied upon as basis for the cancellation is defective, ineffective, and cannot prejudice third parties for lack of publication. As we have explained above, the subject TCCs after being fully utilized in the settlement of PSPCs excise tax liabilities have been canceled, and thus cannot be canceled anymore. For being immediately effective and valid when issued, the subject TCCs have been duly utilized by transferee PSPC which is a transferee in good faith and for value. On the issue of the fraudulent procurement of the TCCs, it has been asseverated that fraud was committed by the TCC claimants who were the transferors of the subject TCCs. We see no need to rule on this issue in view of our finding that the real issue in this petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee. The finding of the CTA En Banc that there was fraud in the procurement of the subject TCCs is, therefore, irrelevant and immaterial to the instant petition. Moreover, there are pending criminal cases arising from the alleged fraud. We leave the matter to the anti-graft court especially considering the failure of the affiants to the affidavits to appear, making these hearsay evidence. We note in passing that PSPC and its officers were not involved in any fraudulent act that may have been undertaken by the transferors of subject TCCs, supported by the finding of the Ombudsman Special Prosecutor Leonardo P. Tamayo that Pacifico R. Cruz, PSPC General Manager of the Treasury and Taxation Department, who was earlier indicted as accused in OMB-0-99-2012 to 2034 for violation of Sec. 3(e) and (j) of RA 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act, for allegedly conspiring with other accused in defrauding and causing undue injury to the government,[38] did not in any way participate in alleged fraudulent activities relative to the transfer and use of the subject TCCs. In a Memorandum[39] addressed to then Ombudsman Aniano A. Desierto, the Special Prosecutor Leonardo P. Tamayo recommended dropping Pacifico Cruz as accused in Criminal Case Nos. 25940-25962 entitled People of the Philippines v. Antonio P. Belicena, et al., pending before the Sandiganbayan Fifth Division for lack of probable cause. Special Prosecutor Tamayo found that Cruzs involvement in the transfers of the subject TCCs came after the applications for the transfers had been duly processed and approved; and that Cruz could not have been part of the conspiracy as he cannot be presumed to have knowledge of the irregularity, because the 1989 MOA, which prescribed the additional requirement that the transferee of a TCC should be a supplier of the transferor, was not yet published and made known to private parties at the time the subject TCCs were transferred to PSPC. The Memorandum of Special Prosecutor Tamayo was duly approved by then Ombudsman Desierto. Consequently, on May 31, 2000, the Sandiganbayan Fifth Division, hearing Criminal Case Nos. 25940-25962, dropped Cruz as accused.[40] But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPCs rights as earlier explained since PSPC has not been shown or proven to have participated in the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs. On the issue of the authority to cancel duly issued TCCs, we agree with respondent that the Center has concurrent authority with the BIR and BOC to cancel the TCCs it issued. The Center was created under Administrative Order No. (AO) 266 in relation to EO 226. A scrutiny of said executive issuances clearly shows that the Center was granted the authority to issue TCCs pursuant to its mandate under AO 266. Sec. 5 of AO 266 provides: SECTION 5. Issuance of Tax Credit Certificates and/or Duty Drawback .The Secretary of Finance shall designate his representatives who shall, upon the recommendation of the CENTER, issue tax credit certificates within thirty (30) working days from acceptance of applications for the enjoyment thereof. (Emphasis supplied.)

On the other hand, it is undisputed that the BIR under the NIRC and related statutes has the authority to both issue and cancel TCCs it has issued and even those issued by the Center, either upon full utilization in the settlement of internal revenue tax liabilities or upon conversion into a tax refund of unutilized TCCs in specific cases under the conditions provided.[41] AO 266 however is silent on whether or not the Center has authority to cancel a TCC it itself issued. Sec. 3 of AO 266 reveals: SECTION 3. Powers, Duties and Functions.The Center shall have the following powers, duties and functions: a. To promulgate the necessary rules and regulations and/or guidelines for the effective implementation of this administrative order;

xxxx g. To enforce compliance with tax credit/duty drawback policy and procedural guidelines ; xxxx l. To perform such other functions/duties as may be necessary or incidental in the furtherance of the purpose for which it has been established. (Emphasis supplied.)

Sec. 3, letter l. of AO 266, in relation to letters a. and g., does give ample authority to the Center to cancel the TCCs it issued. Evidently, the Center cannot carry out its mandate if it cannot cancel the TCCs it may have erroneously issued or those that were fraudulently issued. It is axiomatic that when the law and its implementing rules are silent on the matter of cancellation while granting explicit authority to issue, an inherent and incidental power resides on the issuing authority to cancel that which was issued. A caveat however is required in that while the Center has authority to do so, it must bear in mind the nature of the TCCs immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or canceled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless of course the claimant or transferee was involved in the perpetration of the fraud in the TCCs issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty party from the consequences of the fraud committed. While we agree with respondent that the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, [42] yet this principle cannot be applied to work injustice against an innocent party. In the case at bar, PSPCs rights as an innocent transferee for value must be protected. Therefore, the remedy for respondent is to go after the claimant companies who allegedly perpetrated the fraud. This is now the subject of a criminal prosecution before the Sandiganbayan docketed as Criminal Case Nos. 25940-25962 for violation of RA 3019. On the issue of the publication of the Centers Excom Resolution No. 03-05-99 providing for the Guidelines and Procedures for the Cancellation, Recall and Recovery of Fraudulently Issued Tax Credit Certificates, we find that the resolution is invalid and unenforceable. It authorizes the cancellation of TCCs and TDM which are found to have been granted without legal basis or based on fraudulent documents. The cancellation of the TCCs and TDM is covered by a penal provision of the assailed resolution. Such being the case, it should have been published and filed with the National Administrative Register of the U.P. Law Center in accordance with Secs. 3, 4, and 5, Chapter 2 of Book VII, EO 292 or the Administrative Code of 1987. We explained in People v. Que Po Lay[43] that a rule which carries a penal sanction will bind the public if the public is officially and specifically informed of the contents and penalties prescribed for the breach of the rule. Since Excom Resolution No. 03-05-99 was neither registered with the U.P. Law Center nor published, it is ineffective and unenforceable. Even if the resolution need not be published, the punishment for any alleged fraudulent act in the procurement of the TCCs must not be visited on PSPC, an innocent transferee for value, which has not been shown to have participated in the fraud. Respondent must go after the perpetrators of the fraud. Third Issue: Imposition of surcharges and interests PSPC claims that having no deficiency excise tax liabilities, it may not be liable for the late payment surcharges and annual interests. This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the imposition of a late payment surcharges and for interests, and no need for further discussion on the matter. Fourth Issue: Non-compliance with statutory and procedural due process Finally, PSPC avers that its statutory and procedural right to due process was violated by respondent in the issuance of the assessment. PSPC claims respondent violated RR 12-99 since no pre-assessment notice was issued to PSPC before the November 15, 1999 assessment. Moreover, PSPC argues that the November 15, 1999 assessment effectively deprived it of its statutory right to protest the pre-assessment within 30 days from receipt of the disputed assessment letter. While this has likewise been mooted by our discussion above, it would not be amiss to state that PSPCs rights to substantive and procedural due process have indeed been violated. The facts show that PSPC was not accorded due process before the assessment was levied on it. The Center required PSPC to submit certain sales documents

relative to supposed delivery of IFOs by PSPC to the TCC transferors. PSPC contends that it could not submit these documents as the transfer of the subject TCCs did not require that it be a supplier of materials and/or component supplies to the transferors in a letter dated October 29, 1999 which was received by the Center on November 3, 1999. On the same day, the Center informed PSPC of the cancellation of the subject TCCs and the TDM covering the application of the TCCs to PSPCs excise tax liabilities. The objections of PSPC were brushed aside by the Center and the assessment was issued by respondent on November 15, 1999, without following the statutory and procedural requirements clearly provided under the NIRC and applicable regulations. What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by respondent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference[44] and a preliminary assessment notice, as required.[45] PSPCs November 4, 1999 motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even acted upon. PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and assessment notice. For being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void. Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides: 3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void . The same shall be sent to the taxpayer only by registered mail or by personal delivery. x x x (Emphasis supplied.)

In short, respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued. Respondent must be more circumspect in the exercise of his functions, as this Court aptly held in Roxas v. Court of Tax Appeals: 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 the order to maintain the general publics trust and confidence in the Government this power must be used justly and not treacherously.[46] WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in CTA EB No. 64 is herebyREVERSED and SET ASIDE, and the August 2, 2004 CTA Decision in CTA Case No. 6003 disallowing the assessment is herebyREINSTATED. The assessment of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22, 1998 letter of respondent is canceled and declared without force and effect for lack of legal basis. No pronouncement as to costs. SO ORDERED.

[G.R. No. 132527. July 29, 2005]

COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA, PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI), represented by its Secretary, ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS (FFF), represented by its President, JEREMIAS U. MONTEMAYOR, and BUKLURAN NG MANGGAGAWANG PILIPINO (BMP), represented by its Chairperson, FELIMON C. LAGMAN, petitioners, vs. HON. RUBEN TORRES, in his capacity as Executive Secretary; BASES CONVERSION AND DEVELOPMENT AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC BAY METROPOLITAN AUTHORITY, 88 MART DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS, INC., DFS SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING, SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC., PX CLUB, CLARK TRADING, DEMAGUS TRADING 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 CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL DFS and ZAXXON PHILIPPINES, INC., respondents. DECISION AZCUNA, J.: This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public 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 respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare the following issuances as unconstitutional, illegal, and void: 1. Section 5 of Executive Order No. 80,[1] dated April 3, 1993, regarding the CSEZ. 2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ. 3. Section 4 of BCDA Board Resolution No. 93-05-034,[2] dated May 18, 1993, pertaining to the CSEZ. Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute executive lawmaking, and that they are contrary to Republic Act No. 7227[3] and in violation of the Constitution, particularly Section 1, Article III (equal protection clause), Section 19, Article XII (prohibition of unfair competition and combinations in restraint of trade), and Section 12, Article XII (preferential use of Filipino labor, domestic materials and locally produced goods). The facts are as follows: On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and balanced 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 development of Central Luzon in particular and the country in general. Among the salient provisions are as follows: SECTION 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; (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 Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. The pertinent provision assailed therein is as follows: 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 consultation with the local government units and pertinent government departments for implementation by the CDC. Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted. The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited 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. Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. The assailed provisions of said resolution read, as follows: Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No. 226 and R.A. No. 7042 which shall include, but not limited to, the following: I. As in Subic Economic and Free Port Zone: A. Customs: ... 4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the CSEZ Main Zone.

5.

For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the Philippine Customs territory but not to exceed US$200.00 per month per CDC-registered person, similar to the limits imposed in the Subic SEZ. This privilege shall be enjoyed only once a month. Any excess shall be levied taxes and duties by the Bureau of Customs.

On June 10, 1993, the President issued Executive Order No. 97, Clarifying the Ta x and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. Said issuance in part states, thus: 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. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws. The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws. Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, Further Clarifying the Tax and DutyFree 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 ea ch others 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) (2) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital and equipment. 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 reports 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. 7227s 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 Constitutions 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 clai med 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; Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November 1989 Two Thousand US Dollars (US$2,000); 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 shortor 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]

b.

c.

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 fencedin 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. 46[25] 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. [27] Classification, 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 statutes 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 selfsustaining 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. 7227s policy of developing the SSEZ into a s elf-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. GSIS[31] 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 Taada 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. Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, CarpioMorales, Callejo, Sr., Tinga, Chico-Nazario, and Garcia, JJ., concur.

G.R. No. 91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ,petitioners, vs. PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent. H.B. Basco & Associates for petitioners. Valmonte Law Offices collaborating counsel for petitioners. Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:p A TV ad proudly announces: "The new PAGCOR responding through responsible gaming." But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is allegedly contrary to morals, public policy and order, and because A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law; B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy; C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices; D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo) In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo). The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds mentioned above. The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective. Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the following declared policy Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to centralize and integrate all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to be controlled, administered and supervised by the Government. (b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to fund infrastructure and sociocivic projects, such as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other essential public services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D. 1869) To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified. It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies, and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families. But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution. This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323). As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra). In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the . . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540) Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371) With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised. In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." We have since then applied the exception in many other cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343). Having disposed of the procedural issue, We will now discuss the substantive issues raised. Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power. The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386). Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra) It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of change. What was the reason behind the enactment of P.D. 1869? P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." (2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed

and collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority (Section 13 [2]). Their contention stated hereinabove is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445). (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus: Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked. Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant . . . Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus: Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities mentioned under the preceding section, including, but not limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States

(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides: Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied) The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio." Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function of government. (emphasis supplied) As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539). What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments. As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to empower the local corporation to deal with the subject . . . . In the absence of express grant of power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis supplied) Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo). We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989). The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional. If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827) The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651). Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment. The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256). On the issue of "monopoly," however, the Constitution provides that: Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony) It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide. On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles. In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for enforcement through the courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2) Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine. As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to

imagine how the assailed legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress. Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent,but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of food, drink, exercise, work, and even sex. WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

G.R. Nos. 167274-75

July 21, 2008

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FORTUNE TOBACCO CORPORATION, Respondent. DECISION TINGA, J.: Simple and uncomplicated is the central issue involved, yet whopping is the amount at stake in this case. After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals, Fortune Tobacco Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing specific taxes erroneously collected from its tobacco products. The tax refund is being re-claimed by the Commissioner of Internal Revenue (Commissioner) in this petition. The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed Decision 1 dated 28 September 2004: CAG.R. SP No. 80675 xxxx Petitioner2 is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal address at Fortune Avenue, Parang, Marikina City. Petitioner is the manufacturer/producer of, among others, the following cigarette brands, with tax rate classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to wit: Brand Champion M 100 Salem M 100 Salem M King Camel F King Tax Rate P1.00 P1.00 P1.00 P1.00

Camel Lights Box 20s P1.00 Camel Filters Box 20s P1.00 Winston F Kings Winston Lights P5.00 P5.00

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax pursuant to then 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 ad valorem tax (AVT) system to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under [S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus: 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, assessesed 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 (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: PRESENT SPECIFIC TAX RATE PRIOR TO JAN. 1, 2000 P1.00/cigar NEW SPECIFIC TAX RATE EFFECTIVE JAN. 1, 2000 P1.12/cigar

SECTION 145

ARTICLES (A) (B)Cigarettes packed by machine (1) Net retail price (excluding VAT and excise) exceeds P10.00 per pack (2) Exceeds P10.00 per pack

P12.00/pack

P13.44/ pack

P8.00/pack

P8.96/pack

(3) Net retail price (excluding VAT and excise) is P5.00 to P6.50 per pack (4) Net Retail Price (excluding VAT and excise) is below P5.00 per pack

P5.00/pack

P5.60/pack

P1.00/pack

P1.12/pack

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "( t)hat the 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." For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured and removed in the total amounts of P585,705,250.00. On February 7, 2000, petitioner filed with respondents Appellate Division a claim for refund or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount of P35,651,410.00 On June 21, 2001, petitioner filed with respondents Legal Service a letter dated June 20, 2001 reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on various dates, including the present claim for the month of January 2000 in the amount of P35,651,410.00. As there was no action on the part of the respondent, petitioner 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 claim for refund. In his answer filed on January 16, 2002, respondent raised the following Special and Affirmative Defenses; 4. Petitioners alleged claim for refund is subject to administrative routinary investigati on/examination by the Bureau; 5. The amount of P35,651,410 being claimed by petitioner as alleged overpaid excise tax for the month of January 2000 was not properly documented. 6. In an action for tax refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to 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 CTAs December 4, 2003 decision in CTA Case No. 6612 granting respondents 3 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 ofP35,651,410.00 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 petitioners consolidated motions for reconsideration, thereby denying the respondents 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 Resolution 5 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 courts 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 Tobaccos 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 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. 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 Manila, the net retail price shall mean the price at which the cigarette is sold in five (5) major 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. 11 (Emphasis supplied) Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules and regulations for the effective implementation of the Tax Code, 12 interprets the above-quoted provision and reflects the 12% increase in excise taxes in the following manner: PRESENT SPECIFIC TAX RATES PRIOR TO JAN. 1, 2000 P1.00/cigar NEW SPECIFIC TAX RATE Effective Jan.. 1, 2000 P1.12/cigar

SECTION 145

DESCRIPTION OF ARTICLES (A) (B)Cigarettes packed by Machine (1) Net Retail Price (excluding VAT and Excise) exceeds P10.00 per pack (2) Net Retail Price (excluding VAT and Excise) is P6.51 up to P10.00 per pack (3) Net Retail Price (excluding VAT and excise) is P5.00 to P6.50 per pack (4) Net Retail Price (excluding VAT and excise) is below P5.00 per pack)

P12.00/pack P8.00/pack

P13.44/pack P8.96/pack

P5.00/pack

P5.60/pack

P1.00/pack

P1.12/pack

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 investors 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 OSGs 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 OSGs 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 certain ly 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 Commissioners 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 governments 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 persons 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.

EN BANC CARLOS SUPERDRUG CORP., doing business under the name and style Carlos Superdrug, ELSIE M. CANO, doing business under the name and style Advance Drug, Dr. SIMPLICIO L. YAP, JR., doing business under the name and style City Pharmacy, MELVIN S. DELA SERNA, doing business under the name and style Botica dela Serna, and LEYTE SERV-WELL CORP., doing business under the name and style Leyte Serv-Well Drugstore, Petitioners, - versus G.R. No. 166494 Present: PUNO, C.J., QUISUMBING,* YNARES-SANTIAGO, SANDOVAL-GUTIERREZ,** CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, AZCUNA, TINGA, CHICO-NAZARIO, GARCIA, VELASCO, JR., and NACHURA, JJ.

DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD), DEPARTMENT OF Promulgated: HEALTH (DOH), DEPARTMENT OF FINANCE (DOF), DEPARTMENT June 29, 2007 OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and LOCAL GOVERNMENT (DILG), Respondents. x ---------------------------------------------------------------------------------------- x DECISION

AZCUNA, J.: This is a petition[1] for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,[2] otherwise known as the Expanded Senior Citizens Act of 2003. Petitioners are domestic corporations and proprietors operating drugstores in the Philippines. Public respondents, on the other hand, include the Department of Social Welfare and Development (DSWD), the Department of Health (DOH), the Department of Finance (DOF), the Department of Justice (DOJ), and the Department of Interior and Local Government (DILG) which have been specifically tasked to monitor the drugstores compliance with the law; promulgate the implementing rules and regulations for the effective implementation of the law; and prosecute and revoke the licenses of erring drugstore establishments. The antecedents are as follows: On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,[3] was signed into law by President Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act states: 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 the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens; ... The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. [4]

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of R.A. No. 9257, Rule VI, Article 8 of which states: Article 8. Tax Deduction of Establishments. The establishment may claim the discounts granted under Rule V, Section 4 Discounts for Establishments;[5] Section 9, Medical and Dental Services in Private Facilities[,][6] and Sections 10[7] and 11[8] Air, Sea and Land Transportation as tax deduction based on the net cost of the goods sold or services rendered. Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted; Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended; Provided, finally, that the implementation of the tax deduction shall be subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved by the Department of Finance (DOF).[9] On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines (DSAP) concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as follows: 1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction (under the Expanded Senior Citizens Act). 1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent (20%) discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishment, restaurants and recreation centers and purchase of medicines anywhere in the country, the costs of which may be claimed by the private establishments concerned as tax credit. Effectively, a tax credit is a peso-for-peso deduction from a taxpayers tax liability due to the government of the amount of discounts such establishment has granted to a senior citizen. The establishment recovers the full amount of discount given to a senior citizen and hence, the government shoulders 100% of the discounts granted. It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system, necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover this tax payment from his/her income tax due. The tax credit scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have previously occurred. 1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from gross income, based on the net cost of goods sold or services rendered. Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the government loses in terms of foregone revenues an amount equivalent to the marginal tax rate the said establishment is liable to pay the government. This will be an amount equivalent to 32% of the twenty percent (20%) discounts so granted. The establishment shoulders the remaining portion of the granted discounts. It may be necessary to note that while the burden on [the] government is slightly diminished in terms of its percentage share on the discounts granted to senior citizens, the number of potential establishments that may claim tax deductions, have however, been broadened. Aside from the establishments that may claim tax credits under the old law, more establishments were added under the new law such as: establishments providing medical and dental services, diagnostic and laboratory services, including professional fees of attending doctors in all private hospitals and medical facilities, operators of domestic air and sea transport services, public railways and skyways and bus transport services. A simple illustration might help amplify the points discussed above, as follows: Tax Deduction Gross Sales Less : Cost of goods sold xxxxxx xxxxx Tax Credit xxxxxx xxxxx

Net Sales xxxxx x Less: Operating Expenses: Tax Deduction on Discounts x x x x Other deductions: xxxx Net Taxable Income xxxxx Tax Due xxx Less: Tax Credit -Net Tax Due --

xxxxxx -xxxx xxxxx xxx ______x x xx

As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted from Net Sales together with other deductions which are considered as operating expenses before the Tax Due was computed based on the Net Taxable Income. On the other hand, under a tax credit scheme, the amount of discounts which is the tax credit item, was deducted directly from the tax due amount.[10]

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the Expanded Senio r Citizens Act of 2003[11] was issued by the DOH, providing the grant of twenty percent (20%) discount in the purchase of unbranded generic medicines from all establishments dispensing medicines for the exclusive use of the senior citizens. On November 12, 2004, the DOH issued Administrative Order No 177 [12] amending A.O. No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the purchase of unbranded generic medicines only, but shall extend to both prescription and non-prescription medicines whether branded or generic. Thus, it stated that [t]he grant of twenty percent (20%) discount shall be provided in the purchase of medicines from all establishments dispensing medicines for the exclusive use of the senior citizens. Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on the following grounds:[13] 1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that private property shall not be taken for public use without just compensation; It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states that no person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied of the equal protection of the laws; and The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that makes essential goods, health and other social services available to all people at affordable cost.[14]

2)

3)

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of private property. Compelling drugstore owners and establishments to grant the discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the discount. Examining petitioners arguments, it is apparent that what petitioners are ultimately questio ning is the validity of the tax deduction scheme as a reimbursement mechanism for the twenty percent (20%) discount that they extend to senior citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law[15]to reduce the income prior to the application of the tax rate to compute the amount of tax which is due.[16] Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments concerned. The discounts given would have entered the coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257.

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit.[17] This constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain but the owners loss. The word just is used to intensify the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample.[18] A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation.[19] Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private establishments the burden of partly subsidizing a government program. The Court believes so. The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society.[20] The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. Thus, the Act provides: SEC. 2. Republic Act No. 7432 is hereby amended to read as follows: SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV, Section 4 of the Constitution, it is the duty of the family to take care of its elderly members while the State may design programs of social security for them. In addition to this, Section 10 in the Declaration of Principles and State Policies provides: The State shall provide social justice in all phases of national development. Further, Article XIII, Section 11, provides: The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and children. Consonant with these constitutional principles the following are the declared policies of this Act: ... (f) To recognize the important role of the private sector in the improvement of the welfare of senior citizens and to actively seek their partnership .[21]

To implement the above policy, the law grants a twenty percent discount to senior citizens for medical and dental services, and diagnostic and laboratory fees; admission fees charged by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior citizens may claim the discount as a tax deduction. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. [22] Accordingly, it has been described as the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs. [23] It is [t]he power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same.[24] For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare. [25] Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor. [26]

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their business, because petitioners have not taken time to calculate correctly and come up with a financial report, so that they have not been able to show properly whether or not the tax deduction scheme really works greatly to their disadvantage.[27] In treating the discount as a tax deduction, petitioners insist that they will incur losses because, referring to the DOF Opinion, for every P1.00 senior citizen discount that petitioners would give, P0.68 will be shouldered by them as only P0.32 will be refunded by the government by way of a tax deduction. To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors at P37.57 per tablet, and retails it at P39.60 (or at a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to P7.92, then it would have to sell Norvasc at P31.68 which translates to a loss from capital of P5.89 per tablet. Even if the government will allow a tax deduction, only P2.53 per tablet will be refunded and not the full amount of the discount which is P7.92. In short, only 32% of the 20% discount will be reimbursed to the drugstores. [28] Petitioners computation is flawed. For purposes of reimbursement, the law states that the cost of the discount shall be deducted from gross income,[29] the amount of income derived from all sources before deducting allowable expenses, which will result in net income. Here, petitioners tried to show a loss on a per transaction basis, which should not be the case. An income statement, showing an accounting of petitioners sales, expenses, and net profit (or loss) for a given period could have accurately reflected the effect of the discount on their income. Absent any financial statement, petitioners cannot substantiate their claim that they will be operating at a loss should they give the discount. In addition, the computation was erroneously based on the assumption that their customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the discount. Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of their medicines given the cutthroat nature of the players in the industry. It is a business decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law for being oppressive, simply because they cannot afford to raise their prices for fear of losing their customers to competition. The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing component of the business. While the Constitution protects property rights, petitioners must accept the realities of business and the State, in the exercise of police power, can intervene in the operations of a business which may result in an impairment of property rights in the process. Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the precept for the protection of property, various laws and jurisprudence, particularly on agrarian reform and the regulation of contracts and public utilities, continuously serve as a reminder that the right to property can be relinquished upon the command of the State for the promotion of public good.[30] Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners and the other private establishments concerned. This being the case, the means employed in invoking the active participation of the private sector, in order to achieve the purpose or objective of the law, is reasonably and directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same would be unconscionably detrimental to petitioners, the Court will refrain from quashing a legislative act.[31] WHEREFORE, the petition is DISMISSED for lack of merit.

G.R. No. L-24693

July 31, 1967

ERMITA-MALATE HOTEL AND MOTEL OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU, petitioners-appellees, vs. THE HONORABLE CITY MAYOR OF MANILA, respondent-appellant. VICTOR ALABANZA, intervenor-appellee. Panganiban, Abad and Associates Law Office for respondent-appellant. J. M. Aruego, Tenchavez and Associates for intervenor-appellee. FERNANDO, J.: The principal question in this appeal from a judgment of the lower court in an action for prohibition is whether Ordinance No. 4760 of the City of Manila is violative of the due process clause. The lower court held that it is and adjudged it "unconstitutional, and, therefore, null and void." For reasons to be more specifically set forth, such judgment must be reversed, there being a failure of the requisite showing to sustain an attack against its validity. The petition for prohibition against Ordinance No. 4760 was filed on July 5, 1963 by the petitioners, Ermita-Malate Hotel and Motel Operators Association, one of its members, Hotel del Mar Inc., and a certain Go Chiu, who is "the president and general manager of the second petitioner" against the respondent Mayor of the City of Manila who was sued in his capacity as such "charged with the general power and duty to enforce ordinances of the City of Manila and to give the necessary orders for the faithful execution and enforcement of such ordinances." (par. 1). It was alleged that the petitioner non-stock corporation is dedicated to the promotion and protection of the interest of its eighteen (18) members "operating hotels and motels, characterized as legitimate businesses duly licensed by both national and city authorities, regularly paying taxes, employing and giving livelihood to not less than 2,500 person and representing an investment of more than P3 million."1 (par. 2). It was then alleged that on June 13, 1963, the Municipal Board of the City of Manila enacted Ordinance No. 4760, approved on June 14, 1963 by the then Vice-Mayor Herminio Astorga, who was at the time acting as Mayor of the City of Manila. (par. 3). After which the alleged grievances against the ordinance were set forth in detail. There was the assertion of its being beyond the powers of the Municipal Board of the City of Manila to enact insofar as it would regulate motels, on the ground that in the revised charter of the City of Manila or in any other law, no reference is made to motels; that Section 1 of the challenged ordinance is unconstitutional and void for being unreasonable and violative of due process insofar as it would impose P6,000.00 fee per annum for first class motels and P4,500.00 for second class motels; that the provision in the same section which would require the owner, manager, keeper or duly authorized representative of a hotel, motel, or lodging house to refrain from entertaining or accepting any guest or customer or letting any room or other quarter to any person or persons without his filling up the prescribed form in a lobby open to public view at all times and in his presence, wherein the surname, given name and middle name, the date of birth, the address, the occupation, the sex, the nationality, the length of stay and the number of companions in the room, if any, with the name, relationship, age and sex would be specified, with data furnished as to his residence certificate as well as his passport number, if any, coupled with a certification that a person signing such form has personally filled it up and affixed his signature in the presence of such owner, manager, keeper or duly authorized representative, with such registration forms and records kept and bound together, it also being provided that the premises and facilities of such hotels, motels and lodging houses would be open for inspection either by the City Mayor, or the Chief of Police, or their duly authorized representatives is unconstitutional and void again on due process grounds, not only for being arbitrary, unreasonable or oppressive but also for being vague, indefinite and uncertain, and likewise for the alleged invasion of the right to privacy and the guaranty against self-incrimination; that Section 2 of the challenged ordinance classifying motels into two classes and requiring the maintenance of certain minimum facilities in first class motels such as a telephone in each room, a dining room or, restaurant and laundry similarly offends against the due process clause for being arbitrary, unreasonable and oppressive, a conclusion which applies to the portion of the ordinance requiring second class motels to have a dining room; that the provision of Section 2 of the challenged ordinance prohibiting a person less than 18 years old from being accepted in such hotels, motels, lodging houses, tavern or common inn unless accompanied by parents or a lawful guardian and making it unlawful for the owner, manager, keeper or duly authorized representative of such establishments to lease any room or portion thereof more than twice every 24 hours, runs counter to the due process guaranty for lack of certainty and for its unreasonable, arbitrary and oppressive character; and that insofar as the penalty provided for in Section 4 of the challenged ordinance for a subsequent conviction would, cause the automatic cancellation of the license of the offended party, in effect causing the destruction of the business and loss of its investments, there is once again a transgression of the due process clause. There was a plea for the issuance of preliminary injunction and for a final judgment declaring the above ordinance null and void and unenforceable. The lower court on July 6, 1963 issued a writ of preliminary injunction ordering respondent Mayor to refrain from enforcing said Ordinance No. 4760 from and after July 8, 1963. In the a answer filed on August 3, 1963, there was an admission of the personal circumstances regarding the respondent Mayor and of the fact that petitioners are licensed to engage in the hotel or motel business in the City of

Manila, of the provisions of the cited Ordinance but a denial of its alleged nullity, whether on statutory or constitutional grounds. After setting forth that the petition did fail to state a cause of action and that the challenged ordinance bears a reasonable relation, to a proper purpose, which is to curb immorality, a valid and proper exercise of the police power and that only the guests or customers not before the court could complain of the alleged invasion of the right to privacy and the guaranty against self incrimination, with the assertion that the issuance of the preliminary injunction ex parte was contrary to law, respondent Mayor prayed for, its dissolution and the dismissal of the petition. Instead of evidence being offered by both parties, there was submitted a stipulation of facts dated September 28, 1964, which reads: 1. That the petitioners Ermita-Malate Hotel and Motel Operators Association, Inc. and Hotel del Mar Inc. are duly organized and existing under the laws of the Philippines, both with offices in the City of Manila, while the petitioner Go Chin is the president and general manager of Hotel del Mar Inc., and the intervenor Victor Alabanza is a resident of Baguio City, all having the capacity to sue and be sued; 2. That the respondent Mayor is the duly elected and incumbent City Mayor and chief executive of the City of Manila charged with the general power and duty to enforce ordinances of the City of Manila and to give the necessary orders for the faithful execution and enforcement of such ordinances; 3. That the petitioners are duly licensed to engage in the business of operating hotels and motels in Malate and Ermita districts in Manila; 4. That on June 13, 1963, the Municipal Board of the City of Manila enacted Ordinance No. 4760, which was approved on June 14, 1963, by Vice-Mayor Herminio Astorga, then the acting City Mayor of Manila, in the absence of the respondent regular City Mayor, amending sections 661, 662, 668-a, 668-b and 669 of the compilation of the ordinances of the City of Manila besides inserting therein three new sections. This ordinance is similar to the one vetoed by the respondent Mayor (Annex A) for the reasons stated in its 4th Indorsement dated February 15, 1963 (Annex B); 5. That the explanatory note signed by then Councilor Herminio Astorga was submitted with the proposed ordinance (now Ordinance 4760) to the Municipal Board, copy of which is attached hereto as Annex C; 6. That the City of Manila derived in 1963 an annual income of P101,904.05 from license fees paid by the 105 hotels and motels (including herein petitioners) operating in the City of Manila. 1wph1.t Thereafter came a memorandum for respondent on January 22, 1965, wherein stress was laid on the presumption of the validity of the challenged ordinance, the burden of showing its lack of conformity to the Constitution resting on the party who assails it, citing not only U.S. v. Salaveria, but likewise applicable American authorities. Such a memorandum likewise refuted point by point the arguments advanced by petitioners against its validity. Then barely two weeks later, on February 4, 1965, the memorandum for petitioners was filed reiterating in detail what was set forth in the petition, with citations of what they considered to be applicable American authorities and praying for a judgment declaring the challenged ordinance "null and void and unenforceable" and making permanent the writ of preliminary injunction issued. After referring to the motels and hotels, which are members of the petitioners association, and referring to the alleged constitutional questions raised by the party, the lower court observed: "The only remaining issue here being purely a question of law, the parties, with the nod of the Court, agreed to file memoranda and thereafter, to submit the case for decision of the Court." It does appear obvious then that without any evidence submitted by the parties, the decision passed upon the alleged infirmity on constitutional grounds of the challenged ordinance, dismissing as is undoubtedly right and proper the untenable objection on the alleged lack of authority of the City of Manila to regulate motels, and came to the conclusion that "the challenged Ordinance No. 4760 of the City of Manila, would be unconstitutional and, therefore, null and void." It made permanent the preliminary injunction issued against respondent Mayor and his agents "to restrain him from enforcing the ordinance in question." Hence this appeal. As noted at the outset, the judgment must be reversed. A decent regard for constitutional doctrines of a fundamental character ought to have admonished the lower court against such a sweeping condemnation of the challenged ordinance. Its decision cannot be allowed to stand, consistently with what has hitherto been the accepted standards of constitutional adjudication, in both procedural and substantive aspects. Primarily what calls for a reversal of such a decision is the absence of any evidence to offset the presumption of validity that attaches to a challenged statute or ordinance. As was expressed categorically by Justice Malcolm: "The presumption is all in favor of validity x x x . The action of the elected representatives of the people cannot be lightly set aside. The councilors must, in the very nature of things, be familiar with the necessities of their particular municipality and with all the facts and circumstances which surround the subject and necessitate action. The local legislative body,

by enacting the ordinance, has in effect given notice that the regulations are essential to the well being of the people x x x . The Judiciary should not lightly set aside legislative action when there is not a clear invasion of personal or property rights under the guise of police regulation.2 It admits of no doubt therefore that there being a presumption of validity, the necessity for evidence to rebut it is unavoidable, unless the statute or ordinance is void on its face which is not the case here. The principle has been nowhere better expressed than in the leading case of O'Gorman & Young v. Hartford Fire Insurance Co.,3 where the American Supreme Court through Justice Brandeis tersely and succinctly summed up the matter thus: The statute here questioned deals with a subject clearly within the scope of the police power. We are asked to declare it void on the ground that the specific method of regulation prescribed is unreasonable and hence deprives the plaintiff of due process of law. As underlying questions of fact may condition the constitutionality of legislation of this character, the resumption of constitutionality must prevail in the absence of some factual foundation of record for overthrowing the statute." No such factual foundation being laid in the present case, the lower court deciding the matter on the pleadings and the stipulation of facts, the presumption of validity must prevail and the judgment against the ordinance set aside. Nor may petitioners assert with plausibility that on its face the ordinance is fatally defective as being repugnant to the due process clause of the Constitution. The mantle of protection associated with the due process guaranty does not cover petitioners. This particular manifestation of a police power measure being specifically aimed to safeguard public morals is immune from such imputation of nullity resting purely on conjecture and unsupported by anything of substance. To hold otherwise would be to unduly restrict and narrow the scope of police power which has been properly characterized as the most essential, insistent and the least limitable of powers, 4 extending as it does "to all the great public needs."5 It would be, to paraphrase another leading decision, to destroy the very purpose of the state if it could be deprived or allowed itself to be deprived of its competence to promote public health, public morals, public safety and the genera welfare.6 Negatively put, police power is "that inherent and plenary power in the State which enables it to prohibit all that is hurt full to the comfort, safety, and welfare of society. 7 There is no question but that the challenged ordinance was precisely enacted to minimize certain practices hurtful to public morals. The explanatory note of the Councilor Herminio Astorga included as annex to the stipulation of facts, speaks of the alarming increase in the rate of prostitution, adultery and fornication in Manila traceable in great part to the existence of motels, which "provide a necessary atmosphere for clandestine entry, presence and exit" and thus become the "ideal haven for prostitutes and thrill-seekers." The challenged ordinance then proposes to check the clandestine harboring of transients and guests of these establishments by requiring these transients and guests to fill up a registration form, prepared for the purpose, in a lobby open to public view at all times, and by introducing several other amendatory provisions calculated to shatter the privacy that characterizes the registration of transients and guests." Moreover, the increase in the licensed fees was intended to discourage "establishments of the kind from operating for purpose other than legal" and at the same time, to increase "the income of the city government." It would appear therefore that the stipulation of facts, far from sustaining any attack against the validity of the ordinance, argues eloquently for it. It is a fact worth noting that this Court has invariably stamped with the seal of its approval, ordinances punishing vagrancy and classifying a pimp or procurer as a vagrant;8 provide a license tax for and regulating the maintenance or operation of public dance halls;9 prohibiting gambling;10 prohibiting jueteng;11 and monte;12prohibiting playing of panguingui on days other than Sundays or legal holidays;13 prohibiting the operation of pinball machines;14 and prohibiting any person from keeping, conducting or maintaining an opium joint or visiting a place where opium is smoked or otherwise used,15 all of which are intended to protect public morals. On the legislative organs of the government, whether national or local, primarily rest the exercise of the police power, which, it cannot be too often emphasized, is the power to prescribe regulations to promote the health, morals, peace, good order, safety and general welfare of the people. In view of the requirements of due process, equal protection and other applicable constitutional guaranties however, the exercise of such police power insofar as it may affect the life, liberty or property of any person is subject to judicial inquiry. Where such exercise of police power may be considered as either capricious, whimsical, unjust or unreasonable, a denial of due process or a violation of any other applicable constitutional guaranty may call for correction by the courts. We are thus led to considering the insistent, almost shrill tone, in which the objection is raised to the question of due process.16 There is no controlling and precise definition of due process. It furnishes though a standard to which the governmental action should conform in order that deprivation of life, liberty or property, in each appropriate case, be valid. What then is the standard of due process which must exist both as a procedural and a substantive requisite to free the challenged ordinance, or any governmental action for that matter, from the imputation of legal infirmity sufficient to spell its doom? It is responsiveness to the supremacy of reason, obedience to the dictates of justice. Negatively put, arbitrariness is ruled out and unfairness avoided. To satisfy the due process requirement, official action, to paraphrase Cardozo, must not outrun the bounds of reason and result in sheer oppression. Due process is thus hostile to any official action marred by lack of reasonableness. Correctly it has been identified as freedom from arbitrariness. It is the embodiment of the sporting idea of fair play. 17 It exacts fealty "to those strivings for justice" and

judges the act of officialdom of whatever branch "in the light of reason drawn from considerations of fairness that reflect [democratic] traditions of legal and political thought."18 It is not a narrow or "technical conception with fixed content unrelated to time, place and circumstances,"19 decisions based on such a clause requiring a "close and perceptive inquiry into fundamental principles of our society."20 Questions of due process are not to be treated narrowly or pedantically in slavery to form or phrases.21 It would thus be an affront to reason to stigmatize an ordinance enacted precisely to meet what a municipal lawmaking body considers an evil of rather serious proportion an arbitrary and capricious exercise of authority. It would seem that what should be deemed unreasonable and what would amount to an abdication of the power to govern is inaction in the face of an admitted deterioration of the state of public morals. To be more specific, the Municipal Board of the City of Manila felt the need for a remedial measure. It provided it with the enactment of the challenged ordinance. A strong case must be found in the records, and, as has been set forth, none is even attempted here to attach to an ordinance of such character the taint of nullity for an alleged failure to meet the due process requirement. Nor does it lend any semblance even of deceptive plausibility to petitioners' indictment of Ordinance No. 4760 on due process grounds to single out such features as the increased fees for motels and hotels, the curtailment of the area of freedom to contract, and, in certain particulars, its alleged vagueness. Admittedly there was a decided increase of the annual license fees provided for by the challenged ordinance for hotels and motels, 150% for the former and over 200% for the latter, first-class motels being required to pay a P6,000 annual fee and second-class motels, P4,500 yearly. It has been the settled law however, as far back as 1922 that municipal license fees could be classified into those imposed for regulating occupations or regular enterprises, for the regulation or restriction of non-useful occupations or enterprises and for revenue purposes only. 22 As was explained more in detail in the above Cu Unjieng case: (2) Licenses for non-useful occupations are also incidental to the police power and the right to exact a fee may be implied from the power to license and regulate, but in fixing amount of the license fees the municipal corporations are allowed a much wider discretion in this class of cases than in the former, and aside from applying the well-known legal principle that municipal ordinances must not be unreasonable, oppressive, or tyrannical, courts have, as a general rule, declined to interfere with such discretion. The desirability of imposing restraint upon the number of persons who might otherwise engage in non-useful enterprises is, of course, generally an important factor in the determination of the amount of this kind of license fee. Hence license fees clearly in the nature of privilege taxes for revenue have frequently been upheld, especially in of licenses for the sale of liquors. In fact, in the latter cases the fees have rarely been declared unreasonable.23 Moreover in the equally leading case of Lutz v. Araneta24 this Court affirmed the doctrine earlier announced by the American Supreme Court that taxation may be made to implement the state's police power. Only the other day, this Court had occasion to affirm that the broad taxing authority conferred by the Local Autonomy Act of 1959 to cities and municipalities is sufficiently plenary to cover a wide range of subjects with the only limitation that the tax so levied is for public purposes, just and uniform.25 As a matter of fact, even without reference to the wide latitude enjoyed by the City of Manila in imposing licenses for revenue, it has been explicitly held in one case that "much discretion is given to municipal corporations in determining the amount," here the license fee of the operator of a massage clinic, even if it were viewed purely as a police power measure.26 The discussion of this particular matter may fitly close with this pertinent citation from another decision of significance: "It is urged on behalf of the plaintiffs-appellees that the enforcement of the ordinance could deprive them of their lawful occupation and means of livelihood because they can not rent stalls in the public markets. But it appears that plaintiffs are also dealers in refrigerated or cold storage meat, the sale of which outside the city markets under certain conditions is permitted x x x . And surely, the mere fact, that some individuals in the community may be deprived of their present business or a particular mode of earning a living cannot prevent the exercise of the police power. As was said in a case, persons licensed to pursue occupations which may in the public need and interest be affected by the exercise of the police power embark in these occupations subject to the disadvantages which may result from the legal exercise of that power."27 Nor does the restriction on the freedom to contract, insofar as the challenged ordinance makes it unlawful for the owner, manager, keeper or duly authorized representative of any hotel, motel, lodging house, tavern, common inn or the like, to lease or rent room or portion thereof more than twice every 24 hours, with a proviso that in all cases full payment shall be charged, call for a different conclusion. Again, such a limitation cannot be viewed as a transgression against the command of due process. It is neither unreasonable nor arbitrary. Precisely it was intended to curb the opportunity for the immoral or illegitimate use to which such premises could be, and, according to the explanatory note, are being devoted. How could it then be arbitrary or oppressive when there appears a correspondence between the undeniable existence of an undesirable situation and the legislative attempt at correction. Moreover, petitioners cannot be unaware that every regulation of conduct amounts to curtailment of liberty which as pointed out by Justice Malcolm cannot be absolute. Thus: "One thought which runs through all these different conceptions of liberty is plainly apparent. It is this: 'Liberty' as understood in democracies, is not license; it is 'liberty regulated by law.' Implied in the term is restraint by law for the good of the individual and for the greater good of the peace and order of society and the general well-being. No man can do exactly as he pleases. Every man must renounce unbridled license. The right of the individual is necessarily subject to reasonable restraint by general law for the common good x x x The liberty of the

citizen may be restrained in the interest of the public health, or of the public order and safety, or otherwise within the proper scope of the police power."28 A similar observation was made by Justice Laurel: "Public welfare, then, lies at the bottom of the enactment of said law, and the state in order to promote the general welfare may interfere with personal liberty, with property, and with business and occupations. Persons and property may be subjected to all kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity of the state x x x To this fundamental aim of our Government the rights of the individual are subordinated. Liberty is a blessing without which life is a misery, but liberty should not be made to prevail over authority because then society will fall into anarchy. Neither should authority be made to prevail over liberty because then the individual will fall into slavery. The citizen should achieve the required balance of liberty and authority in his mind through education and personal discipline, so that there may be established the resultant equilibrium, which means peace and order and happiness for all.29 It is noteworthy that the only decision of this Court nullifying legislation because of undue deprivation of freedom to contract, People v. Pomar,30 no longer "retains its virtuality as a living principle. The policy of laissez faire has to some extent given way to the assumption by the government of the right of intervention even in contractual relations affected with public interest.31 What may be stressed sufficiently is that if the liberty involved were freedom of the mind or the person, the standard for the validity of governmental acts is much more rigorous and exacting, but where the liberty curtailed affects at the most rights of property, the permissible scope of regulatory measure is wider. 32 How justify then the allegation of a denial of due process? Lastly, there is the attempt to impugn the ordinance on another due process ground by invoking the principles of vagueness or uncertainty. It would appear from a recital in the petition itself that what seems to be the gravamen of the alleged grievance is that the provisions are too detailed and specific rather than vague or uncertain. Petitioners, however, point to the requirement that a guest should give the name, relationship, age and sex of the companion or companions as indefinite and uncertain in view of the necessity for determining whether the companion or companions referred to are those arriving with the customer or guest at the time of the registry or entering the room With him at about the same time or coming at any indefinite time later to join him; a proviso in one of its sections which cast doubt as to whether the maintenance of a restaurant in a motel is dependent upon the discretion of its owners or operators; another proviso which from their standpoint would require a guess as to whether the "full rate of payment" to be charged for every such lease thereof means a full day's or merely a half-day's rate. It may be asked, do these allegations suffice to render the ordinance void on its face for alleged vagueness or uncertainty? To ask the question is to answer it. From Connally v. General Construction Co.33 toAdderley v. Florida,34 the principle has been consistently upheld that what makes a statute susceptible to such a charge is an enactment either forbidding or requiring the doing of an act that men of common intelligence must necessarily guess at its meaning and differ as to its application. Is this the situation before us? A citation from Justice Holmes would prove illuminating: "We agree to all the generalities about not supplying criminal laws with what they omit but there is no canon against using common sense in construing laws as saying what they obviously mean."35 That is all then that this case presents. As it stands, with all due allowance for the arguments pressed with such vigor and determination, the attack against the validity of the challenged ordinance cannot be considered a success. Far from it. Respect for constitutional law principles so uniformly held and so uninterruptedly adhered to by this Court compels a reversal of the appealed decision. Wherefore, the judgment of the lower court is reversed and the injunction issued lifted forthwith. With costs. Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ., concur. Concepcion, C.J. and Dizon, J., are on leave. January 26, 1910

G.R. No. 5060 THE UNITED STATES, plaintiff-appellee,

vs. LUIS TORIBIO, defendant-appellant. Rodriguez & Del Rosario, for appellant. Attorney-General Villamor, for appellee. CARSON, J.: The evidence of record fully sustains the findings of the trial court that the appellant slaughtered or caused to be slaughtered for human consumption, the carabao described in the information, without a permit from the municipal treasure of the municipality wherein it was slaughtered, in violation of the provisions of sections 30 and 33 of Act No. 1147, an Act regulating the registration, branding, and slaughter of large cattle. It appears that in the town of Carmen, in the Province of Bohol, wherein the animal was slaughtered there is no municipal slaughterhouse, and counsel for appellant contends that under such circumstances the provisions of Act No. 1147 do not prohibit nor penalize the slaughter of large cattle without a permit of the municipal treasure. Sections 30, 31, 32, and 33 of the Act are as follows: SEC. 30. No large cattle shall be slaughtered or killed for food at the municipal slaughterhouse except upon permit secured from the municipal treasure. Before issuing the permit for the slaughter of large cattle for human consumption, the municipal treasurer shall require for branded cattle the production of the original certificate of ownership and certificates of transfer showing title in the person applying for the permit, and for unbranded cattle such evidence as may satisfy said treasurer as to the ownership of the animals for which permit to slaughter has been requested. SEC. 31. No permit to slaughter has been carabaos shall be granted by the municipal treasurer unless such animals are unfit for agricultural work or for draft purposes, and in no event shall a permit be given to slaughter for food any animal of any kind which is not fit for human consumption. SEC. 32. The municipal treasurer shall keep a record of all permits for slaughter issued by him, and such record shall show the name and residence of the owner, and the class, sex, age, brands, knots of radiated hair commonly know as remolinos or cowlicks, and other marks of identification of the animal for the slaughter of which permit is issued and the date on which such permit is issued. Names of owners shall be alphabetically arranged in the record, together with date of permit. A copy of the record of permits granted for slaughter shall be forwarded monthly to the provincial treasurer, who shall file and properly index the same under the name of the owner, together with date of permit. SEC. 33. Any person slaughtering or causing to be slaughtered for human consumption or killing for food at the municipal slaughterhouse any large cattle except upon permit duly secured from the municipal treasurer, shall be punished by a fine of not less than ten nor more than five hundred pesos, Philippine currency, or by imprisonment for not less than one month nor more than six months, or by both such fine and imprisonment, in the discretion of the court. It is contended that the proper construction of the language of these provisions limits the prohibition contained in section 30 and the penalty imposed in section 33 to cases (1) of slaughter of large cattle for human consumption in a municipal slaughter without a permit duly secured from the municipal treasurer, and (2) cases of killing of large cattle for food in a municipal slaughterhouse without a permit duly secured from the municipal treasurer; and it is urged that the municipality of Carmen not being provided with a municipal slaughterhouse, neither the prohibition nor the penalty is applicable to cases of slaughter of large cattle without a permit in that municipality. We are of opinion, however, that the prohibition contained in section 30 refers (1) to the slaughter of large cattle for human consumption, anywhere, without a permit duly secured from the municipal treasurer, and (2) expressly and specifically to the killing for food of large cattle at a municipal slaughterhouse without such permit; and that the penalty provided in section 33 applies generally to the slaughter of large cattle for human consumption, anywhere, without a permit duly secured from the municipal treasurer, and specifically to the killing for food of large cattle at a municipal slaughterhouse without such permit. It may be admitted at once, that the pertinent language of those sections taken by itself and examined apart from the context fairly admits of two constructions: one whereby the phrase at the municipal slaughterhouse may be taken as limiting and restricting both the word slaughtered and the words killed for food in section 30, and the words slaughtering or causing to be slaughtered for human consumption and the words killing for food in section 33; and the other whereby the phrase at the municipal slaughterhouse may be taken as limiting and restricting merely the words killed for food and killing for food as used in those sections. But upon a reading of the whole Act, and keeping in mind the manifest and expressed purpose and object of its enactment, it is very clear that the latter construction is that which should be adopted. The Act primarily seeks to protect the large cattle of the Philippine Islands against theft and to make easy the recovery and return of such cattle to their proper owners when lost, strayed, or stolen. To this end it provides an elaborate and compulsory system for the separate branding and registry of ownership of all such cattle throughout the Islands, whereby owners are enabled readily and easily to establish their title; it prohibits and invalidates all transfers of large cattle unaccompanied by certificates of transfer issued by the proper officer in the municipality where the

contract of sale is made; and it provides also for the disposition of thieves or persons unlawfully in possession, so as to protect the rights of the true owners. All this, manifestly, in order to make it difficult for any one but the rightful owner of such cattle to retain them in his possession or to dispose of them to others. But the usefulness of this elaborate and compulsory system of identification, resting as it does on the official registry of the brands and marks on each separate animal throughout the Islands, would be largely impaired, if not totally destroyed, if such animals were requiring proof of ownership and the production of certificates of registry by the person slaughtering or causing them to be slaughtered, and this especially if the animals were slaughtered privately or in a clandestine manner outside of a municipal slaughterhouse. Hence, as it would appear, sections 30 and 33 prohibit and penalize the slaughter for human consumption or killing for food at a municipal slaughterhouse of such animals without a permit issued by the municipal treasurer, and section 32 provides for the keeping of detailed records of all such permits in the office of the municipal and also of the provincial treasurer. If, however, the construction be placed on these sections which is contended for by the appellant, it will readily be seen that all these carefully worked out provisions for the registry and record of the brands and marks of identification of all large cattle in the Islands would prove in large part abortion, since thieves and persons unlawfully in possession of such cattle, and naturally would, evade the provisions of the law by slaughtering them outside of municipal slaughterhouses, and thus enjoy the fruits of their wrongdoing without exposing themselves to the danger of detection incident to the bringing of the animals to the public slaughterhouse, where the brands and other identification marks might be scrutinized and proof of ownership required. Where the language of a statute is fairly susceptible of two or more constructions, that construction should be adopted which will most tend to give effect to the manifest intent of the lawmaker and promote the object for which the statute was enacted, and a construction should be rejected which would tend to render abortive other provisions of the statute and to defeat the object which the legislator sought to attain by its enactment. We are of opinion, therefore, that sections 30 and 33 of the Act prohibit and penalize the slaughtering or causing to be slaughtered for human consumption of large cattle at any place without the permit provided for in section 30. It is not essential that an explanation be found for the express prohibition in these sections of the killing for food at a municipal slaughterhouse of such animals, despite the fact that this prohibitio n is clearly included in the general prohibition of the slaughter of such animals for human consumption anywhere; but it is not improbable that the requirement for the issue of a permit in such cases was expressly and specifically mentioned out of superabundance of precaution, and to avoid all possibility of misunderstanding in the event that some of the municipalities should be disposed to modify or vary the general provisions of the law by the passage of local ordinances or regulations for the control of municipal slaughterhouse. Similar reasoning applied to the specific provisions of section 31 of the Act leads to the same conclusion. One of the secondary purposes of the law, as set out in that section, is to prevent the slaughter for food of carabaos fit for agricultural and draft purposes, and of all animals unfit for human consumption. A construction which would limit the prohibitions and penalties prescribed in the statute to the killing of such animals in municipal slaughterhouses, leaving unprohibited and unpenalized their slaughter outside of such establishments, so manifestly tends to defeat the purpose and object of the legislator, that unless imperatively demanded by the language of the statute it should be rejected; and, as we have already indicated, the language of the statute is clearly susceptible of the construction which we have placed upon it, which tends to make effective the provisions of this as well as all the other sections of the Act. It appears that the defendant did in fact apply for a permit to slaughter his carabao, and that it was denied him on the ground that the animal was not unfit for agricultural work or for draft purposes. Counsel for appellant contends that the statute, in so far as it undertakes to penalize the slaughter of carabaos for human consumption as food, without first obtaining a permit which can not be procured in the event that the animal is not unfit for agricultural work or draft purposes, is unconstitutional and in violation of the terms of section 5 of the Philippine Bill (Act of Congress, July 1, 1902), which provides that no law shall be enacted which shall deprive any person of life, liberty, or property without due process of law. It is not quite clear from the argument of counsel whether his contention is that this provision of the statute constitutes a taking of property for public use in the exercise of the right of eminent domain without providing for the compensation of the owners, or that it is an undue and unauthorized exercise of the police power of the State. But whatever may be the basis of his contention, we are of opinion, appropriating, with necessary modifications understood, the language of that great jurist, Chief Justice Shaw (in the case of Com. vs. Tewksbury, 11 Met. 55, where the question involved was the constitutionality of a statute prohibiting and penalizing the taking or carrying away by any person, including the owner, of any stones, gravel, or sand, from any of the beaches in the town of Chesea,) that the law in question is not a taking of the property for public use, within the meaning of the constitution, but is a just and legitimate exercise of the power of the legislature to regulate and restrain such particular use of the property as would be inconsistent with or injurious to the rights of the public. All property is acquired and held under the tacit condition that it shall not be so used as to injure the equal rights of others or greatly impair the public rights and interest of the community. It may be conceded that the beneficial use and exclusive enjoyment of the property of all carabao owners in these Islands is to a greater or less degree interfered with by the provisions of the statute; and that, without inquiring what quantum of interest thus passes from the owners of such cattle, it is an interest the deprivation of which detracts from

their right and authority, and in some degree interferes with their exclusive possession and control of their property, so that if the regulations in question were enacted for purely private purpose, the statute, in so far as these regulations are concerned, would be a violation of the provisions of the Philippine Bill relied on be appellant; but we are satisfied that it is not such a taking, such an interference with the right and title of the owners, as is involved in the exercise by the State of the right of eminent domain, so as to entitle these owners to compensation, and that it is no more than a just restrain of an injurious private use of the property, which the legislature had a uthority to impose. In the case of Com. vs. Alger (7 Cush. 53, 84), wherein the doctrine laid down in Com. vs. Tewksbury(supra) was reviewed and affirmed, the same eminent jurist who wrote the former opinion, in distinguishing the exercise of the right of eminent domain from the exercise of the sovereign police powers of the State, said: We think it is settled principle, growing out of the nature of well-ordered civil society, that every holder of property, however absolute and unqualified may be his title, holds it under the implied liability that his use of it may be so regulated that is shall not be injurious to the equal enjoyment of others having an equal right to the enjoyment of their property, nor injurious to the rights of the community. . . . Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment as shall prevent them from being injurious, and to such reasonable restrain and regulations establish by law, as the legislature, under the governing and controlling power vested in them by the constitution, may think necessary and expedient. This is very different from the right of eminent domain, the right of a government to take and appropriate private property to public use, whenever the public exigency requires it; which can be done only on condition of providing a reasonable compensation therefor. The power we allude to is rather the police power, the power vested in the legislature by the constitution, to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same. It is much easier to perceive and realize the existence and sources of this power than to mark its boundaries or prescribe limits to its exercise. Applying these principles, we are opinion that the restrain placed by the law on the slaughter for human consumption of carabaos fit for agricultural work and draft purpose is not an appropriation of property interests to a public use, and is not, therefore, within the principle of the exercise by the State of the right of eminent domain. It is fact a mere restriction or limitation upon a private use, which the legislature deemed to be detrimental to the public welfare. And we think that an examination of the general provisions of the statute in relation to the public interest which it seeks to safeguard and the public necessities for which it provides, leaves no room for doubt that the limitations and restraints imposed upon the exercise of rights of ownership by the particular provisions of the statute under consideration were imposed not for private purposes but, strictly, in the promotion of the general welfare and the public interest in the exercise of the sovereign police power which every State possesses for the general public welfare and which reaches to every species of property within the commonwealth. For several years prior to the enactment of the statute a virulent contagious or infectious disease had threatened the total extinction of carabaos in these Islands, in many sections sweeping away seventy, eighty, and in some cases as much as ninety and even one hundred per cent of these animals. Agriculture being the principal occupation of the people, and the carabao being the work animal almost exclusively in use in the fields as well as for draft purposes, the ravages of the disease with which they were infected struck an almost vital blow at the material welfare of the country. large areas of productive land lay waste for years, and the production of rice, the staple food of the inhabitants of the Islands, fell off to such an extent that the impoverished people were compelled to spend many millions of pesos in its importation, notwithstanding the fact that with sufficient work animals to cultivate the fields the arable rice lands of the country could easily be made to produce a supply more that sufficient for its own needs. The drain upon the resources of the Islands was such that famine soon began to make itself felt, hope sank in the breast of the people, and in many provinces the energies of the breadwinners seemed to be paralyzed by the apparently hopeless struggle for existence with which they were confronted. To meet these conditions, large sums of money were expended by the Government in relieving the immediate needs of the starving people, three millions of dollars were voted by the Congress of the United States as a relief or famine fund, public works were undertaken to furnish employment in the provinces where the need was most pressing, and every effort made to alleviate the suffering incident to the widespread failure of the crops throughout the Islands, due in large measure to the lack of animals fit for agricultural work and draft purposes. Such measures, however, could only temporarily relieve the situation, because in an agricultural community material progress and permanent prosperity could hardly be hoped for in the absence of the work animals upon which such a community must necessarily rely for the cultivation of the fields and the transportation of the products of the fields to market. Accordingly efforts were made by the Government to increase the supply of these animals by importation, but, as appears from the official reports on this subject, hope for the future depended largely on the conservation of those animals which had been spared from the ravages of the diseased, and their redistribution throughout the Islands where the need for them was greatest. At large expense, the services of experts were employed, with a view to the discovery and applications of preventive and curative remedies, and it is hoped that these measures have proved in some degree successful in protecting the

present inadequate supply of large cattle, and that the gradual increase and redistribution of these animals throughout the Archipelago, in response to the operation of the laws of supply and demand, will ultimately results in practically relieving those sections which suffered most by the loss of their work animals. As was to be expected under such conditions, the price of carabaos rapidly increase from the three to five fold or more, and it may fairly be presumed that even if the conservative measures now adopted prove entirely successful, the scant supply will keep the price of these animals at a high figure until the natural increase shall have more nearly equalized the supply to the demand. Coincident with and probably intimately connected with this sudden rise in the price of cattle, the crime of cattle stealing became extremely prevalent throughout the Islands, necessitating the enactment of a special law penalizing with the severest penalties the theft of carabaos and other personal property by roving bands; and it must be assumed from the legislative authority found that the general welfare of the Islands necessitated the enactment of special and somewhat burdensome provisions for the branding and registration of large cattle, and supervision and restriction of their slaughter for food. It will hardly be questioned that the provisions of the statute touching the branding and registration of such cattle, and prohibiting and penalizing the slaughter of diseased cattle for food were enacted in the due and proper exercise of the police power of the State; and we are of opinion that, under all the circumstances, the provision of the statute prohibiting and penalizing the slaughter for human consumption of carabaos fit for work were in like manner enacted in the due and proper exercise of that power, justified by the exigent necessities of existing conditions, and the right of the State to protect itself against the overwhelming disaster incident to the further reduction of the supply of animals fit for agricultural work or draft purposes. It is, we think, a fact of common knowledge in these Islands, and disclosed by the official reports and records of the administrative and legislative departments of the Government, that not merely the material welfare and future prosperity of this agricultural community were threatened by the ravages of the disease which swept away the work animals during the years prior to the enactment of the law under consideration, but that the very life and existence of the inhabitants of these Islands as a civilized people would be more or less imperiled by the continued destruction of large cattle by disease or otherwise. Confronted by such conditions, there can be no doubt of the right of the Legislature to adopt reasonable measures for the preservation of work animals, even to the extent of prohibiting and penalizing what would, under ordinary conditions, be a perfectly legitimate and proper exercise of rights of ownership and control of the private property of the citizen. The police power rests upon necessity and the right of self-protection and if ever the invasion of private property by police regulation can be justified, we think that the reasonable restriction placed upon the use of carabaos by the provision of the law under discussion must be held to be authorized as a reasonable and proper exercise of that power. As stated by Mr. Justice Brown in his opinion in the case of Lawton vs. Steele (152 U.S. 133, 136): The extent and limits of what is known as the police power have been a fruitful subject of discussion in the appellate courts of nearly every State in the Union. It is universally conceded to include everything essential to the public safely, health, and morals, and to justify the destruction or abatement, by summary proceedings, of whatever may be regarded as a public nuisance. Under this power it has been held that the State may order the destruction of a house falling to decay or otherwise endangering the lives of passers-by; the demolition of such as are in the path of a conflagration; the slaughter of diseased cattle; the destruction of decayed or unwholesome food; the prohibition of wooden buildings in cities; the regulation of railways and other means of public conveyance, and of interments in burial grounds; the restriction of objectionable trades to certain localities; the compulsory vaccination of children; the confinement of the insane or those afflicted with contagious deceases; the restraint of vagrants, beggars, and habitual drunkards; the suppression of obscene publications and houses of ill fame; and the prohibition of gambling houses and places where intoxicating liquors are sold. Beyond this, however, the State may interfere wherever the public interests demand it, and in this particular a large discretion is necessarily vested in the legislature to determine, not only what the interests of the public require, but what measures are necessary for the protection of such interests. (Barbier vs. Connolly, 113 U.S. 27; Kidd vs. Pearson, 128 U.S. 1.) To justify the State in thus interposing its authority in behalf of the public, it must appear, first, that the interests of the public generally, as distinguished from those of a particular class, require such interference; and, second, that the means are reasonably necessary for the accomplishment of the purpose, and not unduly oppressive upon individuals. The legislature may not, under the guise of protecting the public interests, arbitrarily interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations. In other words, its determination as to what is a proper exercise of its police powers is not final or conclusive, but is subject to the supervision of the court. From what has been said, we think it is clear that the enactment of the provisions of the statute under consideration was required by the interests of the public generally, as distinguished from those of a particular class; and that the prohibition of the slaughter of carabaos for human consumption, so long as these animals are fit for agricultural work or draft purposes was a reasonably necessary limitation on private ownership, to protect the community from the loss of the services of such animals by their slaughter by improvident owners, tempted either by greed of momentary gain, or by a desire to enjoy the luxury of animal food, even when by so doing the productive power of the community may be measurably and dangerously affected. Chief Justice Redfield, in Thorpe vs. Rutland & Burlington R. R. Co. (27 Vt. 140), said (p. 149) that by this general police power of the State, persons and property are subjected to all kinds of restraints and burdens, in order to secure

the general comfort, health, and prosperity of the State; of the perfect right in the legislature to do which no question ever was, or, upon acknowledge and general principles, ever can be made, so far as natural persons are concerned. And Cooley in his Constitutional Limitations (6th ed., p. 738) says: It would be quite impossible to enumerate all the instances in which the police power is or may be exercised, because the various cases in which the exercise by one individual of his rights may conflict with a similar exercise by others, or may be detrimental to the public order or safety, are infinite in number and in variety. And there are other cases where it becomes necessary for the public authorities to interfere with the control by individuals of their property, and even to destroy it, where the owners themselves have fully observed all their duties to their fellows and to the State, but where, nevertheless, some controlling public necessity demands the interference or destruction. A strong instance of this description is where it becomes necessary to take, use, or destroy the private property of individuals to prevent the spreading of a fire, the ravages of a pestilence, the advance of a hostile army, or any other great public calamity. Here the individual is in no degree in fault, but his interest must yi eld to that necessity which knows no law. The establishment of limits within the denser portions of cities and villages within which buildings constructed of inflammable materials shall not be erected or repaired may also, in some cases, be equivalent to a destruction of private property; but regulations for this purpose have been sustained notwithstanding this result. Wharf lines may also be established for the general good, even though they prevent the owners of water-fronts from building out on soil which constitutes private property. And, whenever the legislature deem it necessary to the protection of a harbor to forbid the removal of stones, gravel, or sand from the beach, they may establish regulations to that effect under penalties, and make them applicable to the owners of the soil equally with other persons. Such regulations are only a just restraint of an injurious use of property, which the legislature have authority to impose. So a particular use of property may sometimes be forbidden, where, by a change of circumstances, and without the fault of the power, that which was once lawful, proper, and unobjectionable has now become a public nuisance, endangering the public health or the public safety. Milldams are sometimes destroyed upon this grounds; and churchyards which prove, in the advance of urban population, to be detrimental to the public health, or in danger of becoming so, are liable to be closed against further use for cemetery purposes. These citations from some of the highest judicial and text-book authorities in the United States clearly indicate the wide scope and extent which has there been given to the doctrine us in our opinion that the provision of the statute in question being a proper exercise of that power is not in violation of the terms of section 5 of the Philippine Bill, which provide that no law shall be enacted which shall deprive any person of life, liberty, or property without due process of law, a provision which itself is adopted from the Constitution of the United States, and is found in substance in the constitution of most if not all of the States of the Union. The judgment of conviction and the sentence imposed by the trial court should be affirmed with the costs of this instance against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Moreland and Elliott, JJ., concur.

G.R. No. L-10255

August 6, 1915

THE UNITED STATES, plaintiff-appellant, vs. SILVESTRE POMPEYA, defendant-appellee. Office of the Solicitor-General Corpus for appellant. Lawrence, Ross and Block for appellee. JOHNSON, J.: On the 1st day of June, 1914, the acting prosecuting attorney of the Province of Iloilo presented the following complaint in the Court of First Instance of said province: "The undersigned fiscal charges Silvestre Pompeya with violation of the municipal ordinance of Iloilo, on the subject of patrol duty, Executive Order No. 1, series of 1914, based on section 40 (m) of the Municipal Code, in the following manner: "That on or about March 20 of the current year, 1914, in the jurisdiction of the municipality of Iloilo, Province of Iloilo, Philippine Islands, the said accused did willfully, illegally, and criminally and without justifiable motive fail to render service on patrol duty; an act performed in violation of the law. "That for this violation the said accused was sentenced by the justice of the peace of Iloilo to a fine of P2 and payment of the costs of the trial, from which judgment said accused appealed to the Court of First Instance.". Upon said complaint the defendant was duly arraigned .Upon arraignment he presented the following demurrer: "The defendant, through his undersigned attorneys, demurs to the complaint filed in this case on the ground that the acts charged therein do not constitute a crime.". In support of said demurrer, the defendant presented the following argument: "The municipal ordinance alleged to be violated is unconstitutional because it is repugnant to the Organic Act of the Philippines, which guarantees the liberty of the citizens.". Upon issues thus presented, the Honorable J. s .Powell, judge, on he 22nd day of August, 1914, after hearing the arguments of the respective parties, sustained said demurrer and ordered the dismissal of said complaint and the cancellation of the bond theretofore given, with costs de oficio. From the order sustaining the demurrer of the lower court, the prosecuting attorney appealed to this court. It appears from the demurrer that the defendant claims that the facts stated in the complaint are not sufficient to constitute a cause of action. In his argument in support of said demurrer it appears that the real basis of said demurrer was the fact that the ordinance upon which said complaint was based was unconstitutional, for the reason that it was contrary to the provisions of the Philippine Bill which guarantees liberty to the citizens of the Philippine Islands. In this court the only question argued by the Attorney-General is whether or not the ordinance upon which said complaint was based (paragraph "m" of section 40 of the Municipal Code) which was adopted in accordance with the provisions of Act No. 1309 is constitutional. Section 40 of Act No. 82 (the Municipal Code) relates to the power of municipal councils. Act No. 1309 amends said section (section 40, paragraph "m") which reads as follows: "(m)With the approval of the provincial governor, when a province or municipality is infested with ladrones or outlaws (the municipal council is empowered): "1. To authorize the municipal president to require able-bodied male residents of the municipality, between the ages of eighteen and fifty years, to assist, for a period not exceeding five days in any one month, in apprehending ladrones, robbers, and other lawbreakers and suspicious characters, and to act as patrols for the protection of the municipality, not exceeding one day in each week. The failure, refusal, or neglect of any such able-bodied man to render promptly the service thus required shall be punishable by a fine not exceeding one hundred pesos or by imprisonment for not more than three months, or by both such fine and imprisonment, in the discretion of the court: Provided, That nothing herein contained shall authorize the municipal president to require such service of officers or men of the Army of Navy of the United States, civil employees of the United States Government, officers and employees of the Insular Government, or the officers or servants of companies or individuals engaged in the business of common carriers on sea or land, or priests, ministers of the gospel, physicians, practicantes, druggists or practicantes de farmacia, actually engaged in business, or lawyers when actually engaged in court proceedings.". Said Act No. 1309 contains some other provisions which are not important in the consideration of the present case.

The question which we have to consider is whether or not the facts stated in the complaint are sufficient to show (a) a cause of action under the said law; and (b) whether or not said law is in violation of the provisions of the Philippine Bill in depriving citizens of their rights therein guaranteed. We deem it advisable to consider the second question first. It becomes important to ascertain the real purpose of said Act (No. 1309) in order to know whether it covers a subject upon which the United States Philippine Commission could legislate. A reading of said Act discloses (1) that it is an amendment of the general law (Act No. 82) for the organization of municipal government; (2) that it is amendment of section 40 of said Act No. 82, by adding thereto paragraph "m;" (3) that said section 40 enumerates some of the powers conferred upon the municipal council; (4) that said amendment confers upon the council additional powers. The amendment empowers the municipal council, by ordinance, to authorize the president: (a) To require able-bodied male residents of the municipality, between the ages of 18 and 55 [50], to assist, for a period not exceeding five days in any month, in apprehending ladrones, robbers, and other lawbreakers and suspicious characters, and to act as patrols for the protection of the municipality, not exceeding one day each week; (b) To require each householder to report certain facts, enumerated in said amendment. The specific purpose of said amendment is to require each able-bodied male resident of the municipality, between the ages of 18 and 55 [50], as well as each householder when so required by the president, to assist in the maintenance of peace and good order in the community, by apprehending ladrones, etc., as well as by giving information of the existence of such persons in the locality. The amendment contains a punishment for those who may be called upon for such service, and who refuse to render the same. Is there anything in the law, organic or otherwise, in force in the Philippine Islands, which prohibits the central Government, or any governmental entity connected therewith, from adopting or enacting rules and regulations for the maintenance of peace and good government? May not the people be called upon, when necessary, to assist, in any reasonable way, to rid the state and each community thereof, of disturbing elements? Do not individuals whose rights are protected by the Government, owe some duty to such, in protecting it against lawbreakers, and the disturbers of the quiet and peace? Are the sacred rights of the individual violated when he is called upon to render assistance for the protection of his protector, the Government, whether it be the local or general government? Does the protection of the individual, the home, and the family, in civilized communities, under established government, depend solely and alone upon the individual? Does not the individual owe something to his neighbor, in return for the protection which the law afford him against encroachment upon his rights, by those who might be inclined so to do? To answer these questions in the negative would, we believe, admit that the individual, in organized governments, in civilized society, where men are governed by law, does not enjoy the protection afforded to the individual by men in their primitive relations. If tradition may be relied upon, the primitive man, living in his tribal relations before the days of constitutions and states, enjoyed the security and assurance of assistance from his fellows when his quiet and peace were violated by malhechores. Even under the feudal system, a system of land holdings by the Teutonic nations of Europe in the eleventh, twelfth, and thirteenth centuries, the feudal lord exercised the right to call upon all his vassals of a certain age to assist in the protection of their individual and collective rights. (Book 2, Cooley's Blackstone's Commentaries, 44; 3 Kent's Commentaries, 487; Hall, Middle Ages; Maine, Ancient Law; Guizot, history of Civilization; Stubbs' Constitutional History of England; Chisholm vs. Georgia, 2 Dall .(U. S.), 419; DePeyster vs.Michael, 6 N. Y., 467.) Each vassal was obliged to render individual assistance in return for the protection afforded by all. The feudal system was carried in to Britain by William the Conqueror in the year 1085 with all of is ancient customs and usages. we find in the days of the "hundreds," which meant a division of the state occupied by one hundred free men, the individual was liable to render service for the protection of all. (Book 3, Cooley's Blackstone's Commentaries, 160, 245, 293, 411.) In these "hundreds" the individual "hundredor," in case of the commission of a crime within the county or by one of the "hundredors," as against another "hundred," was obliged to join the "hue and cry" (hutesium et clamor) in the pursuit of the felon. This purely customary ancient obligation was later made obligatory by statute. (Book 4, Cooley's Blackstone's Commentaries, 294; 3 Edward I., Chapter 9; 4 Edward I., Chapter 2; 13 Edward I., Chapters 1 and 4.). Later the statute provided and directed: "That from thenceforth every county shall be so well kept, that, immediately upon robberies and feloniously committed, fresh suit shall be made from town (pueblo) to town, and from county to county; and that "hue and cry" shall be raised upon the felons, and they keep the town (pueblo) shall follow with "hue and cry," with all the town (pueblo), and the towns (pueblos) near; and so "hue and cry" shall be made from town (pueblo) to town, until they be taken and delivered to the sheriff.". Said statue further provided that in case the "hundred" failed to join the "hue and cry" that it should be liable for the damages done by the malhechores. Later, by statue (27th Elizabeth, chapter 13) it was provided that no "hue and cry"

would be sufficient unless it was made with both horsemen and footmen. The "hue and cry" might be raised by a justice of the peace, or by any peace officer, or by any private person who knew of the commission of the crime. This ancient obligation of the individual to assist in the protection of the peace and good order of his community is still recognized in all well-organized governments in the "posse comitatus" (power of the county, poder del condado). (Book 1 Cooley's Blackstone's Commentaries, 343; Book 4, 122.) Under this power, those persons in the state, county, or town who were charged with the maintenance of peace and good order were bound, ex oficio, to pursue and to take all persons who had violated the law. For that purpose they might command all the male inhabitants of a certain age to assist them. This power is called "posse comitatus" (power of the county). This was a right well recognized at common law. Act No. 1309 is a statutory recognition of such common-law right. Said Act attempts simply to designate the cases and the method when and by which the people of the town (pueblo) may be called upon to render assistance for the protection of the public and the preservation of peace and order. It is an exercise of the police power of the state. Is there anything in the organic or statutory law prohibiting the United States Philippine Commission from adopting the provisions contained in said Act No. 1309? While the statement has its exceptions, we believe, generally speaking, that the United States Commission, and now the Philippine Legislature, may legislate and adopt laws upon all subjects not expressly prohibited by the Organic Law (Act of congress of July 1, 1902) or expressly reserved to Congress. Congress did not attempt to say to the Philippine Legislature what laws it might adopt. Congress contended itself by expressly indicating what laws the Legislature should not adopt, with the requirement that all laws adopted should be reported to it, and with the implied reservation of the right to nullify such laws as might not meet with its approval. Considering the Organic Act (Act of Congress of July 1, 1902) as the real constitution of the United States Government in the Philippine Islands, and its inhibitions upon the power of the Legislature, we believe an analogy may be drawn relating to the difference between the Constitution of the United States and the constitution of the different States, with reference to what laws may be adopted by the different States. While the statement needs much explanation, the general rule is that Congress has authority to legislate only upon the questions expressly stated in the Constitution of the United States, while the state legislature may legislate upon all questions, not expressly conferred upon Congress, nor prohibited in its constitution. In other words, an examination of the Constitution of the United States discloses the subject matter upon which Congress may legislate, while examination of the constitutions of the different States must be made for the purpose of ascertaining upon what subjects the state legislature can not legislate. Stating the rule in another way the Constitution of the United States permits Congress to legislate upon the following subjects; the constitutions of the States prohibit the state legislature from legislating upon the following subjects. Generally, then, the legislature of a State any adopt laws upon any question not expressly delegated to Congress by the Constitution of the United States or prohibited by the constitution of the particular State. We think that is the rule which should be applied to the Philippine Legislature. The Philippine Legislature has power to legislate upon all subjects affecting the people of the Philippine Islands which has not been delegated to Congress or expressly prohibited by said Organic Act. (Gaspar vs. Molina, 5 Phil. Rep., 197; U.S., vs. Bull, 15 Phil. Rep., 7.) The right or power conferred upon the municipalities by Act No. 1309 falls within the police power of the state (U.S .vs. Ling Su Fan, 10 Phil. Rep., 104.) Police power of the state has been variously defined. It has been defined as the power of the government, inherent in every sovereign, and cannot be limited; (License Cases, 5 How. (U.S.), 483). The power vested in the legislature to make such laws as they shall judge to be for the good of the state and its subjects. (Commonwealth vs. Alger, 7 Cush. (Mass.), 53, 85). The power to govern men and things, extending to the protection of the lives, limbs, health, comfort, and quiet of all persons, and the protection of all property within the state. (Thorpe vs. Rutland, etc., Co., 27 Vt., 140, 149.) The authority to establish such rules and regulations for the conduct of all persons as may be conducive to the public interest. (People vs. Budd., 117 N.Y., 1, 14; U.S., vs. Ling Su Fan, supra.) Blackstone, in his valuable commentaries on the common laws, defines police power as "the defenses, regulations, and domestic order of the country, whereby the inhabitants of a state, like members of a well-governed family, are bound to conform their general behaviour to the rules of propriety, good neighborhood, and good manners, and to be decent, industrious, and inoffensive in their respective stations." (4 Blackstone's Co., 162.) The police power of the state may be said to embrace the whole system of internal regulation, by which the state seeks not only to preserve public order and to prevent offenses against the state, but also to establish, for the intercourse of citizen with citizen, those rules of good manners and good neighborhood, which are calculated to prevent a conflict of rights, and to insure to each the uninterrupted enjoyment of his own, so far as is reasonably consistent, with a like enjoyment of the rights of others. The police power of the state includes not only the public health and safety, but also the public welfare, protection against impositions, and generally the public's best best interest. It so extensive and all pervading, that the courts refuse to lay down a general rule defining it, but decide each specific case on its merits. (Harding vs. People, 32 L.R.A., 445.) The police power of the state has been exercised in controlling and regulating private business, even to the extent of the destruction of the property of private persons, when the use of such property became a nuisance to the public

health and convenience. (Slaughter House Cases, 16 Wal (U.S.), 36 Minnesota vs. Barber, 136 U.S., 313; Powell vs. Pennsylvania, 127 U.S., 678; Walling vs. People, 166 U.S., 446; U.S. vs. Ling Su Fan, 10 Phil. Rep., 104.) We are of the opinion, and so hold, that the power exercised under the provisions of Act No. 1309 falls within the police power of the state and that the state was fully authorized and justified in conferring the same upon the municipalities of the Philippine Islands and that, therefore, the provisions of said Act are constitutional and not in violation nor in derogation of the rights of the persons affected thereby. With reference to the first question presented by the appeal, relating to the sufficiency of the complaint, it will be noted that Act No. 1309 authorized the municipal governments to establish ordinances requiring (a) all able bodied male residents, between the the ages of 18 and 55 [50], and (b) all householders, under certain conditions, to do certain things. It will also be noted that the law authorizing the president of the municipality to call upon persons, imposes certain conditions as prerequisites: (1) The person called upon to render such services must be an able-bodied male resident of the municipality; (2) he must be between the ages of 18 and 55 [50], and (3) certain conditions must exist requiring the services of such persons. It will not contended that a nonresident of the municipality would be liable for his refusal to obey the call of the president; neither can it be logically contended that one under the age of 18 or over the age of 55 [50] would incur the penalty of the law by his refusal to obey the command of the president. Moreover, the persons liable for the service mentioned in the law cannot be called upon at the mere whim or caprice of the president. There must be some just and reasonable ground, at least sufficient in the mind of a reasonable man, before the president can call upon the the persons for the service mentioned in the law. The law does not apply to all persons. The law does not apply to every condition. The law applies to special persons and special conditions. A complaint based upon such a law, in order to be free from objection under a demurrer, must show that the person charged belongs to the class of persons to which the law is applicable. For example, under the Opium Law, certain persons are punishable criminally for having opium in their possession. All possessors of opium are not liable under the law. A complaint, therefore, charging a person with the possession of opium, without alleging that he did not belong to the class which are permitted to possess it, would be objectionable under a demurrer, because all persons are not liable. The complaint must show that the one charged wit the possession of the opium was not one of the persons who might legally possess opium. Suppose, for another example, that there was a law providing that all persons who performed manual labor on Sunday should be punished, with a provision that if such labor should be performed out of necessity, the person performing it would not be liable. In such a case, in the complaint, in order to show a good cause of action , it would be necessary to allege that the labor was not performed under necessity. In other words, the complaint, in order to be free from objection raised by a demurrer, must show that the person accused of the crime, in the absence of proof, is punishable under the law. One who performed labor under necessity would not be liable. The complaints, in the foregoing examples, in the absence of an allegation which showed that the party accused did not belong to the exempted class, would not be good. In the absence of such negations, the courts would be unable to impose the penalty of the law, because, perchance, the defendant might belong to the exempt class. The complaint, in a criminal case, must state every fact necessary to make out an offense. (U.S. vs. Cook, 17 Wall. (U.S.), 168.) The complaint must show, on its face that, if the facts alleged are true, an offense has been committed. It must state explicitly and directly every fact and circumstance necessary to constitute an offense. If the statute exempts certain persons, or classes of persons, from liability, then the complaint should show that the person charged does not belong to that class. Even admitting all of the facts in the complaint in the present case, the court would be unable to impose the punishment provided for by law, because it does not show (a) that the defendant was a male citizen of the municipality; (b) that he was an able-bodied citizen; (c) that he was not under 18 years of age nor over 55 [50]; nor (d) that conditions existed which justified the president of the municipality in calling upon him for the services mentioned in the law. For all of the foregoing reasons, the judgment of the lower court is hereby affirmed, with costs. So ordered.

[G.R. No. 158540. August 3, 2005]

SOUTHERN CROSS CEMENT CORPORATION, petitioner, 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, respondents. 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 Decision[9] wherein he expressed the DTIs disagreement with the conclusions of the Tariff Commission, but at the same time, ultimately denying Philcemcors application for safeguard measures on the ground that the he was bound to do so in light of the Tariff Commissions negative findings.[10] Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus[11] seeking to set aside the DTI Decision, as well as the Tariff Commissions 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 Decision[13] penned by Court of Appeals Associate Justice Elvi John Asuncion,[14] partially granted Philcemcors 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 Secretarys discretionary review. It determined that the legislative intent is to grant the DTI Secretary the power to make a final decision on the Tariff Commissions recommendation.[16] On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has no jurisdiction over Philcemcors 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 courts Decision, there was no longer any legal impediment to his deciding Philcemcors 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 ofP20.60/40 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 Secretarys 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 Crosss 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 Courts Second Division, to which the case had been assigned, promulgated itsDecision granting Southern Crosss Petition.[24]The Decision was unanimous, without any separate or concurring opinion. The Court ruled that the Court of Appeals had no jurisdiction over Philcemcors 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 presentPetition. 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 reheard[27] 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 Courts 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 ste p 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 forcertiorari 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] Philcemcors 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 Philcemcors 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 Secretarys 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. [33] The 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 Secretarys ruling imposes a safeguard measure. If, on the other hand, the DTI Secretarys 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 Secretar y 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 i n 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 employees 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 re ach 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.[44] This 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 posit ion 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 questionwhat 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 i n 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 abh orred. 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 questionwhether 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. Ombudsman[45] 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 CTAs 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 Courts observation that the setup proposed by respo ndents 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 Commissions findings as basis. Necessarily then, such negative determination of the Tariff Commission being an integral part of the DTI Secretarys 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 Secretarys actions may be annulled on certiorari, notwithstanding the explicit grant of judicial review over that cabinet members actions under the SMA to the CTA. Finally on this point, Philcemcor argues that assuming this Courts 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 Presidents 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 functions[50] in the legislatures 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 presidential[52] 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 Courts 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 Philcemcors 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 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] Commissions findings . . . is subsequentl y submitted to [the DTI Secretary] for the [DTI Secretary] to impose or not to impose; and that the [DTI Secretary] here

iswho 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 Commissions 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 no t 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 Commissions 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.[62]Certainly, 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 Abons 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 Commissions Chairman which do not even expressly disavow the binding power of the Commissions 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 Courts 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 latters 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 egosof the President. Indeed, in Marc Donnelly & Associates v. Agregado[66] 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 egos 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 Secretary[71], 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 lat ters 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 Commissions 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 CommissionDTI, 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 DOTC[76], 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 Bureaus[78] 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 Commissions 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 s tates, 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 Congresss exercise of its inherent p ower 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 courts. 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 Decisiondeemed inapplicable respondents previous citations of Cario 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 DARapproved 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.[90]The 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 Secretarys mandate to formulate trade policy, in his capacity as the Presidents 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 Blacks 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 Commissions 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 Decisions interpretation of the SMA, particularly of the role of the Tariff Commissionvis--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 expect ations 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. [102] Clearly, 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 priva te 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 Appeals[104] 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 Commissions 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 Commissions determination, administratively revised as it may be, that would serve as the basis for the DTI Secretarys action. However, and fatally for the present petitions, such administrative review cannot be conducted by the DTI Secretary. Even if conceding that the Tariff Commissions findings may be administratively rev iewed, 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 NEDAs 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 Secretarys 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 Commissions 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 Commissions 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 NEDAs 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 Commissions 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. Courts 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 states 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 Taada v. Angara Public respondents allege that the Decision is contrary to our holding in Taada 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 Courts Resolution Philcemcor argues that the granting of Southern Crosss 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 saidDecision 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 Secretarys 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 Secretarys Decision of 5 August 2003 would not have been rendered as well. Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5 August 2003. As a necessary consequence, no further action can be taken on Philcemcors 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 Crosss Petition for Review with the Court of Tax Appeals, as adverted to earlier in this Resolution. SO ORDERED. Puno, Quisumbing, Austria-Martinez, Callejo, Sr., Azcuna, Chico-Nazario, and Garcia, JJ., concur.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiff-appellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee. Ernesto J. Gonzaga for appellant. Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, 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 "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251). From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893). Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400). The decision appealed from is affirmed, with costs against appellant. So ordered. G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners, vs. REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.: Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this action or not. Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of regulating and supervising the sugar industry until it was superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets." Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation. Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed on February 16,1988. Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents: TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388. Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of stock. Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by laches. The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied. P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund as follows: SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund . There is hereby established a fund for the commission for the purpose of financing the growth and

development of the sugar industry and all its components, stabilization of the domestic market including the foreign market to be administered in trust by the Commission and deposited in the Philippine National Bank derived in the manner herein below cited from the following sources: a. Stabilization fund shall be collected as provided for in the various provisions of this Decree. b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for every picul produced and milled every year thereafter. Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees for the purpose of accomplishing and employees for the purpose of accomplishing the efficient performance of the duties of the Commission. Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission. (paragraphing and bold supplied). Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute itself. The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S. 947). No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself ( Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]). Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and necessity and that they are the true and beneficial owners thereof. In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself. The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987. On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that the aforementioned Agreement is of doubtful validity." From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular, owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ... The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry ( Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.). The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra). The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2 The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]). That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers. To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs. This Decision is immediately executory. SO ORDERED. Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur. Fernan, J., took no part.