Consti Tax Case Full

CONGRESSMAN ENRIQUE T.
GARCIA (Second District of Bataan), petitioner,
vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC AND
DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE, and THE ENERGY
REGULATORY BOARD, respondents.
FELICIANO, J.:
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any
other duties, taxes and charges imposed by law on all articles imported into the Philippines, an
additional duty of five percent (5%) ad valorem. This additional duty was imposed across the board on
all imported articles, including crude oil and other oil products imported into the Philippines. This
additional duty was subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad
valorem by the promulgation of Executive Order No. 443, dated 3 January 1991.
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process
required by the Tariff and Customs Code for the imposition of a specific levy on crude oil and other
petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and
Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in
Section 401 of the Tariff and Customs Code, scheduled a public hearing to give interested parties an
opportunity to be heard and to present evidence in support of their respective positions.
Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of
additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except
in the cases of crude oil and other oil products which continued to be subject to the additional duty of
nine percent (9%) ad valorem.
Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on
Special Duty on Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate
action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which
levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other
existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil
and P1.00 per liter of imported oil products.
In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of
Executive Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of
Section 24, Article VI of the 1987 Constitution which provides as follows:
Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are in the
nature of revenue-generating measures.
Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff
and Customs Code, which Section authorizes the President, according to petitioner, to increase, reduce
or remove tariff duties or to impose additional duties only when necessary to protect local industries or
products but not for the purpose of raising additional revenue for the government.
Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475
and 478, and asks us to restrain the implementation of those Executive Orders. We will examine these
questions in that order.
Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did
not render the instant Petition moot and academic. Executive Order No. 517 which is dated 30 April
1992 provides as follows:
Sec. 1. Lifting of the Additional Duty. The additional duty in the nature of ad valorem imposed on all
imported articles prescribed by the provisions of Executive Order No. 443, as amended, is hereby lifted;
Provided, however, that the selected articles covered by HS Heading Nos. 27.09 and 27.10 of Section
104 of the Tariff and Customs Code, as amended, subject of Annex "A" hereof, shall continue to be
subject to the additional duty of nine (9%) percent ad valorem.
Under the above quoted provision, crude oil and other oil products continue to be subject to the
additional duty of nine percent (9%) ad valorem under Executive Order No. 475 and to the special duty
of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under Executive
Order No. 478.
Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the
enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province
of the Legislative rather than the Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are
prohibited to the President, that they must be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) 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, tonage and
wharfage dues, and other duties or imposts within the framework of the national development program
of the Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts . . ."
The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104
and 401, the pertinent provisions thereof. These are the provisions which the President explicitly
invoked in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code
provides in relevant part:
Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import duty
under Section 104 of Presidential Decree No. 34 and all subsequent amendments issued under Executive
Orders and Presidential Decrees are hereby adopted and form part of this Code.
There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the
Section under this section except as otherwise specifically provided for in this Code: Provided, that, the
maximum rate shall not exceed one hundred per cent ad valorem.
The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this
Code shall be subject to periodic investigation by the Tariff Commission and may be revised by the
President upon recommendation of the National Economic and Development Authority.
xxx xxx xxx
(Emphasis supplied)
Section 401 of the same Code needs to be quoted in full:
Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare and/or national security, and subject to the
limitations herein prescribed, the President, upon recommendation of the National Economic and
Development Authority (hereinafter referred to as NEDA), is hereby empowered: (1) to increase, reduce
or remove existing protective rates of import duty (including any necessary change in classification). The
existing rates may be increased or decreased but in no case shall the reduced rate of import duty be
lower than the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty be
higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or to
ban imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports
not exceeding ten (10) per cent ad valorem, whenever necessary; Provided, That upon periodic
investigations by the Tariff Commission and recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section One hundred and four of this Code, including
those subsequently granted pursuant to this section.
b. Before any recommendation is submitted to the President by the NEDA pursuant to the
provisions of this section, except in the imposition of an additional duty not exceeding ten (10) per cent
ad valorem, the Commission shall conduct an investigation in the course of which they shall hold public
hearings wherein interested parties shall be afforded reasonable opportunity to be present, produce
evidence and to be heard. The Commission shall also hear the views and recommendations of any
government office, agency or instrumentality concerned. The Commission shall submit their findings and
recommendations to the NEDA within thirty (30) days after the termination of the public hearings.
c. The power of the President to increase or decrease rates of import duty within the limits fixed in
subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty, the
corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal
competing foreign country for the most recent representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs
import entries as filed in the Bureau of Customs. The Commission or its duly authorized representatives
shall have access to, and the right to copy all liquidated customs import entries and other documents
appended thereto as finally filed in the Commission on Audit.
e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this
section.
f. Any Order issued by the President pursuant to the provisions of this section shall take effect
thirty (30) days after promulgation, except in the imposition of additional duty not exceeding ten (10)
per cent ad valorem which shall take effect at the discretion of the President. (Emphasis supplied)
Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and
401 of the Tariff and Customs Code, by contending that the President is authorized to act under the
Tariff and Customs Code only "to protect local industries and products for the sake of the national
economy, general welfare and/or national security." 2 He goes on to claim that:
E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local industries and
products for the sake of national economy, general welfare and/or national security. On the contrary,
they work in reverse, especially as to crude oil, an essential product which we do not have to protect,
since we produce only minimal quantities and have to import the rest of what we need.
These Executive Orders are avowedly solely to enable the government to raise government finances,
contrary to Sections 24 and 28 (2) of Article VI of the Constitution, as well as to Section 401 of the Tariff
and Customs Code. 3 (Emphasis in the original)
The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of
401 of the Tariff and Customs Code that suggest such a sharp and absolute limitation of authority. The
entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1):
"existing protective rates of import duty," and the second in the proviso found at the end of Section 401
(a): "protection levels granted in Section 104 of this Code . . . . " We believe that the words "protective"
and ''protection" are simply not enough to support the very broad and encompassing limitation which
petitioner seeks to rest on those two (2) words.
In the second place, petitioner's singular theory collides with a very practical fact of which this Court
may take judicial notice that the Bureau of Customs which administers the Tariff and Customs Code,
is one of the two (2) principal traditional generators or producers of governmental revenue, the other
being the Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that
generates lower but still comparable levels of revenue for the government The Philippine
Amusement and Games Corporation [PAGCOR].)
In the third place, customs duties which are assessed at the prescribed tariff rates are very much like
taxes which are frequently imposed for both revenue-raising and for regulatory purposes. 4 Thus, it has
been held that "customs duties" is "the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign
country." 5 The levying of customs duties on imported goods may have in some measure the effect of
protecting local industries where such local industries actually exist and are producing comparable
goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing
governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to
achieve one policy objective only. Most commonly, customs duties, which constitute taxes in the sense
of exactions the proceeds of which become public funds 6 have either or both the generation of
revenue and the regulation of economic or social activity as their moving purposes and frequently, it is
very difficult to say which, in a particular instance, is the dominant or principal objective. In the instant
case, since the Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil consumed
here, the imposition of increased tariff rates and a special duty on imported crude oil and imported oil
products may be seen to have some "protective" impact upon indigenous oil production. For the
effective, price of imported crude oil and oil products is increased. At the same time, it cannot be
gainsaid that substantial revenues for the government are raised by the imposition of such increased
tariff rates or special duty.
In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs
law, is a stiflingly narrow one. Section 401 of the Tariff and Customs Code establishes general standards
with which the exercise of the authority delegated by that provision to the President must be consistent:
that authority must be exercised in "the interest of national economy, general welfare and/or national
security." Petitioner, however, insists that the "protection of local industries" is the only permissible
objective that can be secured by the exercise of that delegated authority, and that therefore "protection
of local industries" is the sum total or the alpha and the omega of "the national economy, general
welfare and/or national security." We find it extremely difficult to take seriously such a confined and
closed view of the legislative standards and policies summed up in Section 401. We believe, for instance,
that the protection of consumers, who after all constitute the very great bulk of our population, is at the
very least as important a dimension of "the national economy, general welfare and national security" as
the protection of local industries. And so customs duties may be reduced or even removed precisely for
the purpose of protecting consumers from the high prices and shoddy quality and inefficient service that
tariff-protected and subsidized local manufacturers may otherwise impose upon the community.
It seems also important to note that tariff rates are commonly established and the corresponding
customs duties levied and collected upon articles and goods which are not found at all and not produced
in the Philippines. The Tariff and Customs Code is replete with such articles and commodities: among
the more interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver
(Chapter 5, 5.14); Olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree
roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter 16, 16.01);
aircraft (Chapter 88, 88.0l); special diagnostic instruments and apparatus for human medicine and
surgery (Chapter 90, Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed
either for revenue purposes purely or perhaps, in certain cases, to discourage any importation of the
items involved. In either case, it is clear that customs duties are levied and imposed entirely apart from
whether or not there are any competing local industries to protect.
Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to
be substantially moved by the desire to generate additional public revenues, are not, for that reason
alone, either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code.
Petitioner has not successfully overcome the presumptions of constitutionality and legality to which
those Executive Orders are entitled. 7
The conclusion we have reached above renders it unnecessary to deal with petitioner's additional
contention that, should Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal,
there should be a roll back of prices of petroleum products equivalent to the "resulting excess money
not be needed to adequately maintain the Oil Price Stabilization Fund (OPSF)." 8
WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby
DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF CUSTOMS, petitioners, vs. HON.

APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig
City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS,
INC., respondents.
DECISION
HERMOSISIMA, JR., J.:
Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of
the Tariff & Customs Code and the National Internal Revenue Code are unconstitutional. This provokes
the issue: Can the Regional Trial Courts declare a law inoperative and without force and effect or
otherwise unconstitutional? If it can, under what circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek
the reversal of the Decision,[1] dated February 16, 1995, of herein public respondent, Hon. Apolinario B.
Santos, Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City.
The following facts, concisely related in the petition[2] of the Office of the Solicitor General, appear to
be undisputed:
"1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in
the manufacture of jewelers (sic) and allied undertakings. Among its members are Hans Brumann, Inc.,
Miladay Jewels Inc., Mercelles, Inc., Solid Gold International Traders inc., Diagem Trading Corporation,
and Private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the
President of the Guild.
2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal
Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission
Order No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and
inventory of all imported articles of Hans Brumann, Inc., and place the same under preventive embargo.
The duration of the mission was from August 8 to August 20, 1988 (Exhibit 1; Exhibit A).
3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR officers proceeded to the
establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that
they were going to make an inventory of the articles involved to see if the proper taxes thereon have
been paid. They then made an inventory of the articles displayed in the cabinets with the assistance of
an employee of the establishment. They listed down the articles, which list was signed by the assistant
employee. They also requested the presentation of proof of necessary payments for excise tax and
value-added tax on said articles (pp, 10-15, TSN April 12,1993, Exhibits 2, 2-A, 3, 3-a).
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the
necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the
establishment, signed a receipt for Goods, Articles, and Things Seized under Authority of the National
Internal Revenue Code (dated August 17, 1988), acknowledging that the articles inventoried have been
seized and left in his possession, and promising not to dispose of the same without authority of the
Commissioner of Internal Revenue pending investigation.[3]
5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory
conducted and a computation of the value-added tax and ad valorem tax on the articles for evaluation
and disposition.[4]
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the
preventive embargo of the articles.[5]
7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio
D. Santos to BIR officers to examine the books of accounts and other accounting records of Hans
Brumann, Inc., for stocktaking investigation for excise tax purposes for the period January 1, 1988 to
present (Exhibit C). In a latter dated October 27, 1988, in connection with the physical count of the
inventory (stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to
prepare and make available to the BIR the documents indicated therein (Exhibit 'D').
8. Hans Brumann, inc., did not produce the documents requested by the BIR.[6]
9. Similar Letters of Authority were issued to BIR officers to examine the books of accounts ans other
accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibit
E, G and N) and Diagem Trading Corporation[7] for stocktaking/investigation for excise tax pirpose for
the period January 1, 1988 to present.
10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired
in the implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the
articles in the establishment.[8] The same is true with respect to Diagem Traders Corporation.[9]
12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc.
filed with the Regional Trial Court, National Capital Judicial Region, Pasig City, Meto Manila, a petition
for declaratory relief with writ of preliminary injunction and/or temporary restraining order against
herein petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736)
praying that Sections 126, 127(a) and (b) and 150 (a) of the National Internal Revenue Code and Hdg. No
71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared
unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or
enjoined from issuing mission orders and other orders of similar nature. x x x
13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x
14. On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including
as petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. x x x
15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.
16. On February 16, 1995, public respondent rendered a decision, the dispositive portion of which reads:
'In view of the foregoing reflections, judgment is hereby rendered, as follows:
1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg, 71.01, 71.02, 71.03,
and 71.04, Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%)
percent tariff and customs duty on natural and cultured pearls and precious or semi-precious stones,
and Section 150 par. (a)the National Internal Revenue Code of 1977, as amended, renumbered and
rearranged by Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls and
other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are
concerned.
2. Enforcement of the same is hereby enjoined.
No cost.
SO ORDERED.
Section 150 (a) of Executive Order No. 273 reads:
SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20%
based on the wholesale price or the value of importation used by the Bureau of Customs in determining
tariff and customs duties; net of the excise tax and value-added tax, of the following goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious
and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted
with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-
plated wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metals used in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term
precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The
term imitation thereof shall include platings and alloys of such metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then
Section 163 (a) of the Tax Code of 1986 which provided that:
SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected,
once only on every original sale, barter, exchange or similar transaction for nominal or valuable
consideration intended to transfer ownership of, or title to, the article herein below enumerated a tax
equivalent to 50% of the gross value in money of the articles so sold, bartered. Exchanged or
transferred, such tax to be paid by the manufacturer or producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious
and semi-precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted
with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-
plated wares, frames or mounting for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metal used in filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term
precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The
term imitations thereof shall include platings and alloys of such metals;
Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section
184(a) of the Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a
10% value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected
to a 70% percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as
amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured
pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991
to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was
filed in the court a quo.
In support of their petition before the lower court, the private respondents submitted a position paper
purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in
comparison to tax rates levied on the same in the Philippines.[10]
The following issues were thus raised therein:
"1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition.
2. Whether the petition states a cuase of action or whether the petition alleges a justiciable controversy
between the parties.
3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the
Tariff and Customs Code are unconstitutional.
4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.
In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction
to take cognizance of the petition since jurisdiction over the nature of the suit is conferred by law and it
is detemine[d] through the allegations in the petition, and that the Court of Tax Appeals ha no
jurisdiction to declare a statute unconstitutional much less issue writs of certiorari and prohibition in
order to correct acts of respondents allegedly committed with grave abuse of discretion amounting to
lack of jurisdiction.
As to the second issue, the public respondent, made the holding that there exist a justiciable
controversy between the parties, agreeing with the statements made in the position paper presented by
the private respondents, and considering these statements to be factual evidence, to wit:
Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and
other precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the
atmospheric cost of taxation is killing the local manufacturing jewelry industry because they cannot
compete with the neighboring and other countries where importation and manufacturing of jewelry is
not taxed heavily, if not at all; that while government incentives and subsidies exist, local manufacturers
cannot avail of the same because officially many of them are unregistered and are unable to produce
the required official documents because they operate underground, outside the tariff and tax structure;
that local jewelry manufacturing is under threat of extinction, otherwise discouraged, while domestic
trading has become more attractive; and as a consequence, neighboring countries, such as Hongkong,
Singapore, Malaysia, Thailand, and other foreign competitors supplying the Philippine market either
through local channels or through the black market for smuggled goods are the ones who are getting
business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are
constantly subjected to bureaucratic harassment instead of being given by the government the
necessary support in order to survive and generate revenue for the government, and most of all fight
competitively not only in the domestic market but in the arena of world market where the real contest
is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court
holds that the petition states a cause of action and there exist a justiciable controversy between the
parties which would require determination of constitutionality of laws imposing excise tax and customs
duty on jewelry.[11] (emphasis ours)
The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and
oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their
position paper, the lower court stated:
The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury
item and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry
manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in
stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast,
imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and
Singapore.
The court elaborates further on the experience of other countries in their treatment of the jewelry
sector.
MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in
Malaysia in 1984. They were removed to encouraged the development of Malaysias jewelry
manufacturing industry and to increase exports of jewelry.
THAILAND
Gems and jewelry are Thailands ninth most important export earner. In the past, the industry was
overlooked by successive administrations much to the dismay of those involved in developing trade.
Prohibitive import duties and sales tax on precious gemstones restricted the growth (sic) of the industry,
resulting in most of the business being unofficial. It was indeed difficult for a government or
businessman to promote an industry which did not officially exist.
Despite these circumstances, Thailands Gem business kept growing up in (sic) businessmen began to
realize its potential. In 1978, the government quietly removed the severe duties on precious stones, but
imposed a sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a
free trade in gemstones and jewelry would increase local manufacturing and exports or if it would mean
more foreign made jewelry pouring into Thailand. However, as time progressed, there were indications
that local manufacturing was indeed being encouraged and the economy was earning more from
exports. The government soon removed the 3% sales tax too. Putting Thailand at par with Hongkong and
Singapore. In these countries, there are no more import duties and sales tax on gems. (Cited in pages 6
and 7 of Exhibit M. The Center for Research and Communication in cooperation with the Guild of
Philippine Jewelers, Inc., June 1986).
To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and other percious
and semi-precious stones compared to other neighboring countries, to wit:
Tariff on imported
Jewelry and (MANUFACTURING) Sales Tax 10% (VAT)
Precious stones Excise Tax
Philippines 3% to 10% to be 20% 10% VAT
applied in stages
Malaysia None None None
Thailand None None None
Singapore None None None
Hongkong None None None
In this connection, the present tariff and tax structure increases manufacturing costs and renders the
local jewelry manufacturers uncompetitive against other countries even before they start manufacturing
and trading. Because of the prohibitive cast(sic) of taxation, most manufacturers source from black
market for smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits
from the (manufacturing) excise tax, they have no documents to present when filing this exemption
because, as pointed out earlier, most of them source their raw materials from the black market, and
since many of them do not legally exist or operate onofficially(sic), or underground, again they have no
records (receipts) to indicate where and when they will utilize such tax credits. (Cited in Exhibit M
Buencamino Report).
Given these constraints, the local manufacturer has no recourse but to the back door for smuggled
goods if only to be able to compete even ineffectively, or cease manufacturing activities and instead
engage in the tradinf (sic) of smuggled finished jewelry.
Worthy of not is the fact that indeed no evidence was adduced by respondents to disprove the
foregoing allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned
statutory provisions confiscatory and destructive of the proprietary right of the petitioners to engage in
business in violation of Section 1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law x x x.[12]
Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon,
since, in his opinion, the same has been rendered moot and academic by the aforementioned
pronouncement.[13]
The petitioners now assail the decision rendered by the public respondent, contending that the latter
has no authority to pass judgment upon the taxation policy of the government. In addition, the
petitioners impugn the decision in question by asserting that there was no showing that the tax laws on
jewelry are confiscatory and desctructive of private respondents proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps
keeping in mind his limitations under the law as a trial judge, did not go so far as to declare the laws in
question to be unconstitutional. However, therein he declared the laws to be inoperative and without
force and effect insofar as the private respondents are concerned. But, respondent judge, in the body of
his decision, unequivocally but wrongly declared the said provisions of law to be violative of Section 1,
Article III of the Constitution. In fact, in their Supplemental Comment on the Petition for Review,[14] the
private respondents insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted
within his authority in passing upon the issues, to wit:
A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass
judgment on the soundness or wisdom of the governments tax policy on jewelry. True, public
respondent, in his questioned decision, observed, inter alia, that indeed government tax policy treats
jewelry as non-essential item, and therefore, taxed heavily; that the present tariff and tax structure
increase manufacturing cost and renders the local jewelry manufacturers uncompetitive against other
countries even before they start manufacturing and trading; that many of the local manufacturers do
not legally exist or operate unofficially or underground; and that the manufacturers have no recourse
but to the back door for smuggled goods if only to be able to compete even if ineffectively or cease
manufacturing activities.
BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the
legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised
before, and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the
National Internal Revenue Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the Tariff
and Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory
provisions affect the constitutional right of private respondents to engage in business.
It is submitted that public respondent confined himself on this issue which is clearly a judicial question.
We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his
decision, that private respondents can still persist in their argument that the former did not overreach
the restrictions dictated upon him by law. There is no doubt in the Courts mind, despite protestations to
the contrary, that respondent judge encroached upon matters properly falling within the province of
legislative functions. In citing as basis for his decision unproven comparative data pertaining to
differences between tax rates of various Asian countries, and concluding that the jewelry industry in the
Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy
regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply because
other countries have adopted such policies, the respondent judge overlooked the fact that such matters
are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this
country, and these reasons, deliberate upon by our legislature, are beyond the reach of judicial
questioning. As held in Macasiano vs. National Housing Authority:[15]
The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To
doubt is to sustain, this presumption is based on the doctrine of separation of powers which enjoins
upon each department a becoming respect for the acts of the other departments. The theory is that as
the joint act of Congress and the President of the Philippines, a law has been carefully studied and
determined to be in accordance with the fundamental law before it was finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC
is not competent to rule.[16] As Cooley observed: Debatable questions are for the legislature to decide.
The courts do not sit to resolve the merits of conflicting issues.[17] In Angara vs. Electoral
Commission,[18] Justice Laurel made it clear that the judiciary does not pass upon question of wisdom,
justice or expediency of legislation. And fittingly so, for in the exercise of judicial power, we are allowed
only to settle actual controversies involving rights which are legally demandable and enfoceable, and
may not annul an act of the political departments simply because we feel it is unwise or impractical.[19]
This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional.
In J. M. Tuason and Co. v. Court of Appeals[20] we said that [p]lainly the Constitution contemplates that
the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it
speaks of appellate review of final judgments of inferior courts in cases where such constitutionality
happens to be in issue. this authority of lower courts to decide questions of constitutionality in the first
instance was reaffirmed in Ynos v. Intermediate Court of Appeals.[21] But this authority does not extend
to deciding questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents.
The arguments they presented focus on the wisdom of the provisions of law which they seek to nullify.
Regional Trial Courts can only look into the validity of a provision, that is, whether or not it has been
passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its
existence. Granting arguendo that the private respondents may have provided convincing arguments
why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they
must resort to for relief, since with the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This Court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment.[22]
As succinctly put in Lim vs. Pacquing:[23] Where a controversy may be settled an a platform other than
one involving constitutional adjudication, the court should exercise becoming modesty and avoid the
constitutional question. As judges, we can only interpret and apply the law and, despite our doubts
about its wisdom, cannot repeal or amend it.[24]
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian
countries. This is meant to convince us that compared to other countries, the tax rates imposed on said
industry in the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the
theory that the tax rates of other countries should be used as a yardstick in determining what may be
the proper subjects of taxation in our own country. It should be pointed out that in imposing the
aforementioned taxes and duties, the State, acting through the legislative and executive branches, is
exercising its sovereign prerogative. It is inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that inequalities which result from singling out of
one particular class for taxation, or exemption, infringe no constitutional limitation.[25]
WHEREFORE, premises considered, the petition is hereby GRANTED, and the DECISION in Civil Case No.
56736 is hereby REVERSED and SET ASIDE. No costs.
BRITISH AMERICAN TOBACCO, G.R. No. 163583
Petitioner,
Present:
Puno, C.J.,
Quisumbing,
Ynares-Santiago,
Carpio,
- versus - Austria-Martinez,
Corona,
Carpio Morales,
Azcuna,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Reyes,
Leonardo-De Castro, and
Brion, JJ.
JOSE ISIDRO N. CAMACHO,
in his capacity as Secretary of
the Department of Finance and

GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of
the Bureau of Internal Revenue,
Respondents.
PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC.,
FORTUNE TOBACCO, CORP., Promulgated:
MIGHTY CORPORATION, and
JT INTERNATIONAL, S.A.,
Respondents-in-Intervention. August 20, 2008
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code
(NIRC), as recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the
NIRC on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue
Memorandum Order No. 6-2003. Petitioner argues that the said provisions are violative of the equal
protection and uniformity clauses of the Constitution.
RA 8240, entitled An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For
Other Purposes, took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax
reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC.
Pargraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of
cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net retail
prices per pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied
in Annex D of the NIRC as the duly registered, existing or active brands of cigarettes.
Paragraph (c) of Section 145, [1] states
SEC. 145. Cigars and cigarettes.
xxxx
(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 Thirteen pesos and forty-four centavos (P13.44) 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 (10.00) per pack, the tax shall be Eight pesos and
ninety-six centavos (P8.96) 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 and sixty centavos
(P5.60) 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 and twelve centavos (P1.12) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market after the
effectivity of this Act shall be taxed under the highest classification of any variant of that brand.
xxxx
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 20
major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise tax and the 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 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 net retail price as of October 1, 1996,
as set forth in Annex D of this Act, shall remain in force until revised by Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed according to their current net retail price while existing
or old brands shall be taxed based on their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,[2]
which classified the existing brands of cigarettes as those duly registered or active brands prior to
January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their
suggested retail price until such time that the appropriate survey to determine their current net retail
price is conducted. Pertinent portion of the regulations reads
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of cigarettes shall include duly registered, existing or active brands of
cigarettes, prior to January 1, 1997.
xxxx
6. New Brands shall mean brands duly registered after January 1, 1997 and shall include duly registered,
inactive brands of cigarette not sold in commercial quantity before January 1, 1997.
SECTION 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing
Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the
current net retail price has not yet been established, the suggested net retail price shall be used to
determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major
supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5)
major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro
Manila) at which the cigarette is sold on retail in reams/cartons, three (3) months after the initial
removal of the new brand to determine the actual net retail price excluding the excise tax and value
added tax which shall then be the basis in determining the specific tax classification. In case the current
net retail price is higher than the suggested net retail price, the former shall prevail. Any difference in
specific tax due shall be assessed and collected inclusive of increments as provided for by the National
Internal Revenue Code, as amended.
In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per
pack.[3] Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise
tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003,[4] amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two years or earlier of the current net retail price of
new brands and variants thereof for the purpose of establishing and updating their tax classification,
thus:
For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof,
their current net retail price shall be reviewed periodically through the conduct of survey or any other
appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the
Commissioner. However, notwithstanding any increase in the current net retail price, the tax
classification of such new brands shall remain in force until the same is altered or changed through the
issuance of an appropriate Revenue Regulations.
Pursuant thereto, Revenue Memorandum Order No. 6-2003[5] was issued on March 11, 2003,
prescribing the guidelines and procedures in establishing current net retail prices of new brands of
cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-2003[6] was issued on August 8, 2003 to implement the
revised tax classification of certain new brands introduced in the market after January 1, 1997, based on
the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike
Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and
P21.23, per pack, respectively.[7] Respondent Commissioner of the Bureau of Internal Revenue thus
recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strikes average net retail
price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61,
a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ
of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the
implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and
Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of
cigarettes, in violation of the equal protection and uniformity provisions of the Constitution.
Respondent Commissioner of Internal Revenue filed an Opposition[8] to the application for the issuance
of a TRO. On September 4, 2003, the trial court denied the application for TRO, holding that the courts
have no authority to restrain the collection of taxes.[9] Meanwhile, respondent Secretary of Finance
filed a Motion to Dismiss,[10] contending that the petition is premature for lack of an actual controversy
or urgent necessity to justify judicial intervention.
In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of
preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003
and Revenue Memorandum Order No. 6-2003.[11] Respondents filed a Motion for Reconsideration[12]
and Supplemental Motion for Reconsideration.[13] At the hearing on the said motions, petitioner and
respondent Commissioner of Internal Revenue stipulated that the only issue in this case is the
constitutionality of the assailed law, order, and regulations.[14]
On May 12, 2004, the trial court rendered a decision[15] upholding the constitutionality of Section 145
of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-
2003. The trial court also lifted the writ of preliminary injunction. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ
of Preliminary Injunction previously issued is hereby lifted and dissolved.
SO ORDERED.[16]
Petitioner brought the instant petition for review directly with this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol
And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC
of 1997, As Amended), took effect on January 1, 2005. The statute, among others,
(1) increased the excise tax rates provided in paragraph (c) of Section 145;
(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net
retail price, until such time that their correct tax bracket is finally determined under a specified period
and, after which, their classification shall remain in force until revised by Congress;
(3) retained Annex D as tax base of those surveyed as of October 1, 1996 including the classification of
brands for the same products which, although not set forth in said Annex D, were registered on or
before January 1, 1997 and were being commercially produced and marketed on or after October 1,
1996, and which continue to be commercially produced and marketed after the effectivity of this Act.
Said classification shall remain in force until revised by Congress; and
(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2,
1997[17] to December 31, 2003, such that said cigarettes shall remain in the classification under which
the BIR has determined them to belong as of December 31, 2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed by
per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.
(2) 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:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be classified according to
their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of
locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on
retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in
other regions, for those with regional markets. At the end of three (3) months from the product launch,
the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the
net retail price as defined herein and determine the correct tax bracket under which a particular new
brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against
the net retail price as of the time of revalidation in order to finally determine the correct tax bracket
under which a particular new brand of cigarettes shall be classified; Provided however, That brands of
cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and
December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has
determined them to belong as of December 31, 2003. Such classification of new brands and brands
introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for
the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in
retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and the 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 at least five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and value-added tax.
as set forth in Annex D, including the classification of brands for the same products which, although not
set forth in said Annex D, were registered and were being commercially produced and marketed on or
after October 1, 1996, and which continue to be commercially produced and marketed after the
effectivity of this Act, shall remain in force until revised by Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner assessed petitioners importation of 911,000 packs
of Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the
total sum of P22,775,000.00.[18]
Hence, petitioner filed a Motion to Admit Attached Supplement[19] and a Supplement[20] to the
petition for review, assailing the constitutionality of RA 9334 insofar as it retained Annex D and praying
for a downward classification of Lucky Strike products at the bracket taxable at P8.96 per pack.
Petitioner contended that the continued use of Annex D as the tax base of existing brands of cigarettes
gives undue protection to said brands which are still taxed based on their price as of October 1996
notwithstanding that they are now sold at the same or even at a higher price than new brands like Lucky
Strike. Thus, old brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are sold
at or more than P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products
are taxed at P26.06 per pack.
In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General
(OSG), argued that the passage of RA 9334, specifically the provision imposing a legislative freeze on the
classification of cigarettes introduced into the market between January 2, 1997 and December 31, 2003,
rendered the instant petition academic. The OSG claims that the provision in Section 145, as amended
by RA 9334, prohibiting the reclassification of cigarettes introduced during said period, cured the
perceived defect of Section 145 considering that, like the cigarettes under Annex D, petitioners brands
and other brands introduced between January 2, 1997 and December 31, 2003, shall remain in the
classification under which the BIR has placed them and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to
Intervene with attached Comment-in-Intervention.[21] This was followed by the Motions for Leave to
Intervene of Fortune Tobacco Corporation,[22] Mighty Corporation, [23] and JT International, S.A., with
their respective Comments-in-Intervention. The Intervenors claim that they are parties-in-interest who
stand to be affected by the ruling of the Court on the constitutionality of Section 145 of the NIRC and its
Annex D because they are manufacturers of cigarette brands which are included in the said Annex.
Hence, their intervention is proper since the protection of their interest cannot be addressed in a
separate proceeding.
According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their
net retail price as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR
from reclassifying cigarettes included in Annex D. It added that the Court has no power to pass upon the
wisdom of the legislature in retaining Annex D in RA 9334; and that the nullification of said Annex would
bring about tremendous loss of revenue to the government, chaos in the collection of taxes, illicit trade
of cigarettes, and cause decline in cigarette demand to the detriment of the farmers who depend on the
tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the
constitutionality of Section 145 and its implementing rules and regulations because it entered into the
cigarette industry fully aware of the existing tax system and its consequences. Petitioner imported
cigarettes into the country knowing that its suggested retail price, which will be the initial basis of its tax
classification, will be confirmed and validated through a survey by the BIR to determine the correct tax
that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have
been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA
which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes.
On August 7, 2006, the OSG manifested that it interposes no objection to the motions for
intervention.[24] Therefore, considering the substantial interest of the intervenors, and in the higher
interest of justice, the Court admits their intervention.
Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in
light of Fortune Tobaccos contention that petitioner should have brought its petition before the Court of
Tax Appeals rather than the regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic
Act No. 9282. Section 7 thereof states, in pertinent part:
Sec. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial; xxx.[25]
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not
include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same.
The determination of whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts. This is within the scope of judicial power, which includes the authority
of the courts to determine in an appropriate action the validity of the acts of the political departments.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and 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.[26]
In Drilon v. Lim,[27] it was held:
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section
187, this authority being embraced in the general definition of the judicial power to determine what are
the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P.
129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is
incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in
his defense the constitutionality of a law he is charged with violating and of the proceedings taken
against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the
Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower
courts in all cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question.
The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of
Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In
fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed
provisions. The determination of whether the assailed law and its implementing rules and regulations
contravene the Constitution is within the jurisdiction of regular courts. The Constitution vests the power
of judicial review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts.[28] Petitioner, therefore, properly filed the subject case before the RTC.
We come now to the issue of whether petitioner is estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune Tobacco raises this objection by pointing out that when
petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a new
brand rather than a variant of an existing brand, and thus subject to a lower specific tax rate, petitioner
executed an undertaking to comply with the procedures under existing regulations for the assessment
of deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal
Revenue, cannot later on turn around when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own
acts and representations, to the prejudice of others who have relied on them.[29] The principle is
codified in Article 1431 of the Civil Code, which provides:
Through estoppel, an admission or representation is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon.
Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:
Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:
(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act or omission be permitted to falsify it.
The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of
the true facts, communicates something to another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication;
third, the other would be harmed materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other
would act upon the information given or that a reasonable person in the actor's position would expect
or foresee such action.[30]
In the early case of Kalalo v. Luz,[31] the elements of estoppel, as related to the party to be estopped,
are: (1) conduct amounting to false representation or concealment of material facts; or at least
calculated to convey the impression that the facts are other than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation that this conduct shall be acted
upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real
facts.
We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all
issuances of the BIR, which at that time it considered as valid, petitioner did not commit any false
misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to
comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject
case praying for the declaration of its unconstitutionality when the circumstances change and the law
results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon
in the past and all that time has not been attacked as unconstitutional is not a ground for considering
petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only
when presented before it in bona fide cases for determination, and the fact that the question has not
been raised before is not a valid reason for refusing to allow it to be raised later.[32]
Now to the substantive issues.
To place this case in its proper context, we deem it necessary to first discuss how the assailed law
operates in order to identify, with precision, the specific provisions which, according to petitioner, have
created a grossly discriminatory classification scheme between old and new brands. The pertinent
portions of RA 8240, as amended by RA 9334, are reproduced below for ready reference:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed by
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.
(2) 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:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
xxxx
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on
cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and
December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has
determined them to belong as of December 31, 2003. Such classification of new brands and brands
introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for
the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in
retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and the 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 at least five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and value-added tax.
as set forth in Annex D, including the classification of brands for the same products which, although not
set forth in said Annex D, were registered and were being commercially produced and marketed on or
after October 1, 1996, and which continue to be commercially produced and marketed after the
effectivity of this Act, shall remain in force until revised by Congress.
As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,[33]
medium-priced,[34] high-priced,[35] and premium-priced[36] tax brackets. When a brand is introduced
in the market, the current net retail price is determined through the aforequoted specified procedure.
The current net retail price is then used to classify under which tax bracket the brand belongs in order to
finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law
pertains to the mechanism where, after a brand is classified based on its current net retail price, the
classification is frozen and only Congress can thereafter reclassify the same. From a practical point of
view, Annex D is merely a by-product of the whole mechanism and philosophy of the assailed law. That
is, the brands under Annex D were also classified based on their current net retail price, the only
difference being that they were the first ones so classified since they were the only brands surveyed as
of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997.[37]
Due to this legislative classification scheme, it is possible that over time the net retail price of a
previously classified brand, whether it be a brand under Annex D or a new brand classified after the
effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of production costs,
manufacturers decision to increase its prices, etc.) to a point that its net retail price pierces the tax
bracket to which it was previously classified.[38] Consequently, even if its present day net retail price
would make it fall under a higher tax bracket, the previously classified brand would continue to be
subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which
were permanently classified under Annex D. As of October 1, 1996, Marlboro had net retail prices
ranging from P6.78 to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus,
pursuant to RA 8240,[39] Marlboro and Philip Morris were classified under the high-priced tax bracket
and subjected to an excise tax rate of P8.96 per pack. Petitioner then presented evidence showing that
after the lapse of about seven years or sometime in 2004, Marlboros and Philip Morris net retail prices
per pack both increased to about P15.59.[40] This meant that they would fall under the premium-priced
tax bracket, with a higher excise tax rate of P13.44 per pack,[41] had they been classified based on their
2004 net retail prices. However, due to the legislative classification freeze, they continued to be
classified under the high-priced tax bracket with a lower excise tax rate. Petitioner thereafter deplores
the fact that its Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights cigarettes,
introduced in the market sometime in 2001 and validated by a BIR survey in 2003, were found to have
net retail prices of P11.53, P11.59 and P10.34,[42] respectively, which are lower than those of Marlboro
and Philip Morris. However, since petitioners cigarettes were newly introduced brands in the market,
they were taxed based on their current net retail prices and, thus, fall under the premium-priced tax
bracket with a higher excise tax rate of P13.44 per pack. This unequal tax treatment between Marlboro
and Philip Morris, on the one hand, and Lucky Strike, on the other, is the crux of petitioners contention
that the legislative classification freeze violates the equal protection and uniformity of taxation clauses
of the Constitution.
It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism
accorded to brands under Annex D, but the entire mechanism and philosophy of the law which freezes
the tax classification of a cigarette brand based on its current net retail price. Stated differently, the
alleged discrimination arising from the legislative classification freeze between the brands under Annex
D and petitioners newly introduced brands arose only because the former were classified based on their
current net retail price as of October 1, 1996 and petitioners newly introduced brands were classified
based on their current net retail price as of 2003. Without this corresponding freezing of the
classification of petitioners newly introduced brands based on their current net retail price, it would be
impossible to establish that a disparate tax treatment occurred between the Annex D brands and
petitioners newly introduced brands.
This clarification is significant because, under these circumstances, a declaration of unconstitutionality

would necessarily entail nullifying the whole mechanism of the law and not just Annex D. Consequently,
if the assailed law is declared unconstitutional on equal protection grounds, the entire method by which
a brand of cigarette is classified would have to be invalidated. As a result, no method to classify brands
under Annex D as well as new brands would be left behind and the whole Section 145 of the NIRC, as
amended, would become inoperative.[43]
To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the
assailed law which freezes the tax classification of a cigarette brand based on its current net retail price
and which, thus, produced different classes of brands based on the time of their introduction in the
market (starting with the brands in Annex D since they were the first brands so classified as of October
1, 1996) as the classification freeze provision.[44]
As thus formulated, the central issue is whether or not the classification freeze provision violates the
equal protection and uniformity of taxation clauses of the Constitution.
In Sison, Jr. v. Ancheta,[45] this Court, through Chief Justice Fernando, explained the applicable standard
in deciding equal protection and uniformity of taxation challenges:
Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the police power or the power of
eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the principle is that equal protection and
security shall be given to every person under circumstances, which if not identical are analogous. If law
be looks upon in terms of burden or charges, those that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group equally binding on the rest." That same
formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by
the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs
of men being governed by that serene and impartial uniformity, which is of the very essence of the idea
of law. There is, however, wisdom, as well as realism, in these words of Justice Frankfurter: "The
equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties,
addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they were the same."
Hence the constant reiteration of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as
to hold "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.'"
Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule
of taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in
Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and
effect in every place where the subject may be found." He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly attainable." The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme
Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, . . . As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." There is quite a similarity
then to the standard of equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation."[46] (Emphasis supplied)
In consonance thereto, we have held that in our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the rational basis test, coupled with a deferential
attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a
clear and unequivocal breach of the Constitution.[47] Within the present context of tax legislation on sin
products which neither contains a suspect classification nor impinges on a fundamental right, the
rational-basis test thus finds application. Under this test, a legislative classification, to survive an equal
protection challenge, must be shown to rationally further a legitimate state interest.[48] The
classifications must be reasonable and rest upon some ground of difference having a fair and substantial
relation to the object of the legislation.[49] Since every law has in its favor the presumption of
constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove
beyond reasonable doubt that the legislative classification is without rational basis.[50] The
presumption of constitutionality can be overcome only by the most explicit demonstration that a
classification is a hostile and oppressive discrimination against particular persons and classes, and that
there is no conceivable basis which might support it.[51]
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal
protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal,
to both present and future conditions; and (4) it applies equally to all those belonging to the same
class.[52]
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the
law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the
time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a
new brand. The current net retail price, similar to what was used to classify the brands under Annex D as
of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced
by RA 9334, the freezing of the tax classifications now expressly applies not just to Annex D brands but
to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that
will be introduced in the future.[53] (However, as will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even prior to the amendments introduced by RA 9334
to RA 8240.) This does not explain, however, why the classification is frozen after its determination
based on current net retail price and how this is germane to the purpose of the assailed law. An
examination of the legislative history of RA 8240 provides interesting answers to this question.
RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by
the Ramos Administration. It was enacted with the following objectives stated in the Sponsorship
Speech of Senator Juan Ponce Enrile (Senator Enrile), viz:
First, to evolve a tax structure which will promote fair competition among the players in the industries
concerned and generate buoyant and stable revenue for the government.
Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected
but equally amongst the various levels of our society that are involved in various markets that are going
to be affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes.
In the case of firms engaged in the industries producing the products that we are about to tax, this
means relating the tax burden to their market share, not only in terms of quantity, Mr. President, but in
terms of value.
In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products
are subject to lower tax rates and higher-priced products are subject to higher tax rates.
Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in
order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion.[54]
In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended
to Congress a shift from the then existing ad valorem taxation system to a specific taxation system with
respect to sin products, including cigarettes. The DOF noted that the ad valorem taxation system was a
source of massive tax leakages because the taxpayer was able to evade paying the correct amount of
taxes through the undervaluation of the price of cigarettes using various marketing arms and dummy
corporations. In order to address this problem, the DOF proposed a specific taxation system where the
cigarettes would be taxed based on volume or on a per pack basis which was believed to be less
susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales
volume of cigarettes, from which it could easily compute the corresponding tax liability of cigarette
manufacturers. Thus, the DOF suggested the use of a three-tiered system which operates in
substantially the same manner as the four-tiered system under RA 8240 as earlier discussed. The
proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which states
(1) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack
exceeds four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty centavos (P7.50);
exceeds three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty centavos
(P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the
effectivity of this Act, cigarettes otherwise subject to tax under this subparagraph shall be taxed under
subparagraph (1) above.
does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso (P1.00).
Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the
domestic market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.
The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof, including the
price levels for purposes of classifying cigarettes packed by machine, shall be revised upward two (2)
years after the effectivity of this Act and every two years thereafter by the Commissioner of Internal
Revenue, subject to the approval of the Secretary of Finance, taking into account the movement of the
consumer price index for cigars and cigarettes as established by the National Statistics Office: provided,
that the increase in taxes and/or price levels shall be equal to the present change in such consumer
price index for the two-year period: provided, further, that the President, upon the recommendation of
the Secretary of Finance, may suspend or defer the adjustment in price levels and tax rates when the
interest of the national economy and general welfare so require, such as the need to obviate
unemployment, and economic and social dislocation: provided, finally, that the revised price levels and
tax rates authorized herein shall in all cases be rounded off to the nearest centavo and shall be in force
and effect on the date of publication thereof in a newspaper of general circulation. x x x (Emphasis
supplied)
What is of particular interest with respect to the proposal of the DOF is that it contained a provision for
the periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey
and reclassification of cigarette brands based on the increase in the consumer price index as determined
by the Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to
prevent inflation from eroding the value of the excise taxes that would be collected from cigarettes over
time by adjusting the tax rate and tax brackets based on the increase in the consumer price index.
Further, under this proposal, old brands as well as new brands introduced thereafter would be subjected
to a resurvey and reclassification based on their respective values at the end of every two years in order
to align them with the adjustment of the excise tax rate and tax brackets due to the movement in the
consumer price index.[55]
Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax
brackets, and the periodic resurvey and reclassification of cigarette brands are concerned, did not gain
approval from Congress. The House and Senate pushed through with their own versions of the excise tax
system on beers and cigarettes both denominated as H.B. No. 7198. For convenience, we shall refer to
the bill deliberated upon by the House as the House Version and that of the Senate as the Senate
Version.
The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier
(Congressman Javier), roundly rejected the DOF proposal. Instead, in its Committee Report submitted to
the plenary, it proposed a different excise tax system which used a specific tax as a basic tax with an ad
valorem comparator. Further, it deleted the proposal to have a periodic adjustment of tax rates and the
tax brackets as well as periodic resurvey and reclassification of cigarette brands, to wit:
The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust
the tax rates to inflation and to keep pace with the expanding needs of government for more revenues.
The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the need for
remedial legislation, the DOF is asking Congress to grant to the Commissioner the power to revise, one,
the specific tax rates: and two, the price levels of beer and cigarettes. What the DOF is asking, Mr.
Speaker, is for Congress to delegate to the Commissioner of Internal Revenue the power to fix the tax
rates and classify the subjects of taxation based on their price levels for purposes of fixing the tax rates.
While we sympathize with the predicament of the DOF, it is not for Congress to abdicate such power.
The power sought to be delegated to be exercised by the Commissioner of Internal Revenue is a
legislative power vested by the Constitution in Congress pursuant to Section 1, Article VI of the
Constitution. Where the power is vested, there it must remain in Congress, a body of representatives
elected by the people. Congress may not delegate such power, much less abdicate it.
xxxx
Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal
Revenue is fraught with ethical implications. The debates on how much revenue will be raised, how
much money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls
of Congress to the secret and non-transparent corridors of unelected agencies of government, the
Department of Finance and the Bureau of Internal Revenue, which are not accountable to our people.
We cannot countenance the shift for ethical reasons, lest we be accused of betraying the trust reposed
on this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of
Internal Revenue which will be triggered by inflation rates based on the consumer price index. Simply
stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on the price
levels of beers and cigarettes as determined by the consumers price index. This is a novel idea, if not
necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer sells at a
price below the consumers price index? Will it be taxed on the basis of the consumers price index which
is over and above its wholesale or retail price as the case may be? This is a weird form of exaction where
the tax is based not on what the brewer or manufacturer actually realized but on an imaginary
wholesale or retail price. This amounts to a taxation based on presumptive price levels and renders the
specific tax a presumptive tax. We hope, the DOF and the BIR will also honor a presumptive tax
payment.
Moreover, specific tax rates based on price levels tied to consumers price index as proposed by the DOF
engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the entry of
new players in the beer and cigarette industries which are presently dominated by shared monopolies. A
new player in these industries will be denied business flexibility to fix its price levels to promote its
product and penetrate the market as the price levels are dictated by the consumer price index. The
proposed tax regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer
and cigarette industries, thus, reversing the governments policy of dismantling monopolies and
combinations in restraint of trade.[56]
For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile
(Senator Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version
consisted of a four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax
bracket adjustment as well as a periodic resurvey and reclassification of brands provision (periodic
adjustment and reclassification provision, for brevity) to be conducted by the DOF in coordination with
the BIR and the National Statistics Office based on the increase in the consumer price index similar to
the one proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to
read as follows:
xxxx
per pack, the tax shall be Twelve pesos (P12.00) per pack;
centavos (P6.50) 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) up to Six
pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
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 this Act shall be taxed under the highest classification of any variant of that brand.
xxx
The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof, including the
net retail prices for purposes of classification, shall be adjusted on the sixth of January three years after
the effectivity of this Act and every three years thereafter. The adjustment shall be in accordance with
the inflation rate measured by the average increase in the consumer price index over the three-year
period. The adjusted tax rates and net price levels shall be in force on the eighth of January.
Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a survey
of retail prices of each brand of cigarettes in coordination with the Bureau of Internal Revenue and the
National Statistics Office.
For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail
in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise tax and the 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 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 in the initial year of implementation of this Act shall be
based on its average net retail price as of October 1, 1996. The said classification by brand shall remain
in force until January 7, 2000.
New brands shall be classified according to their current net retail price.[57] (Emphasis supplied)
During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to
the legality and wisdom of putting a periodic adjustment and reclassification provision:
Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted
upwards based on a system of indexing tied up with the Consumers Price Index (CPI). Although I must
add that we have adopted a similar system in adjusting the personal tax exemption from income tax of
our individual taxpayers.
Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first
time we are trying to put an automatic adjustment. My concern is, why do we propose now this
automatic adjustment? What is the reason that impels the committee? Maybe we can be enlightened
and maybe we shall embrace it forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax
proposal on these products based on a specific tax as a basic tax with an ad valorem comparator. The
Committee on Ways and Means of the Senate has not seen it fit to adopt this system, but it recognized
the possibility that there may be an occasion where the price movement in the country might
unwarrantedly move upwards, in which case, if we peg the government to a specific tax rate of P6.30,
P9.30 and P12.30 for beer, since we are talking of beer, [58] the government might lose in the process.
In order to consider the interest of the government in this, Mr. President, and in order to obviate the
possibility that some of these products categorized under the different tiers with different specific tax
rates from moving upwards and piercing their own tiers and thereby expose themselves to an
incremental tax of higher magnitude, it was felt that we should adopt a system where, in spite of any
escalation in the price of these products in the future, the tax rates could be adjusted upwards so that
none of these products would leave their own tier. That was the basic principle under which we crafted
this portion of the tax proposal.
Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards
the comparator provision in the House of Representatives and we appreciate the reasons given. But we
are under the impression that the House also, aside from the comparator, has an adjustment clause that
is fixed. It has fixed rates for the adjustment. So that one of the basic differences between the Senate
proposed version now and the House version is that, the House of Representatives has manifested its
will and judgment as regards the tax to which we will adjust, whereas the Senate version relegates
fundamentally that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we
might be fixing an amount that is either too high or too low. We cannot foresee the economic trends in
this country over a period of two years, three years, let alone ten years. So we felt that a mechanism
ought to be adopted in order to serve the interest of the government, the interest of the producers, and
the interest of the consuming public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution I think it is
Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways and Means who
made this Chamber very conscious of this provision revenue measures and tariff measures shall
originate exclusively from the House of Representatives.
The reason for this, Mr. President, is, there is a long history why the House of Representatives must
originate judgments on tax. The House members represent specific districts. They represent specific
constituencies, and the whole history of parliamentarism, the whole history of Congress as an institution
is founded on the proposition that the direct representatives of the people must speak about taxes.
Mr. President, while the Senate can concur and can introduce amendments, the proposed change here
is radical. This is the policy difficulty that I wish to clarify with the gentleman because the judgment call
now on the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of
Finance. True, the Secretary of Finance may have been the best finance officer two years ago and now
the best finance officer in Asia, but that does not make him qualified to replace the judgment call of the
House of Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The
computation of the rate is the only thing that was left to the Department of Finance as a tax
implementor of Congress. This is not unusual because we have already, as I said, adopted a system
similar to this. If we adjust the personal exemption of an individual taxpayer, we are in effect adjusting
the applicable tax rate to him.
Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from
the mandate of the Constitution that judgment on revenue must emanate from Congress. Here, it is
shifted to the Department of Finance for no visible or patent reason insofar as I could understand. The
only difference is, who will make the judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the
Constitution is that all revenue measures must emanate from the House. That is all the Constitution
says.
Now, it does not say that the judgment call must belong to the House. The judgment call can belong
both to the House and to the Senate. We can change whatever proposal the House did. Precisely, we are
now crafting a measure, and we are saying that this is the rate subject to an adjustment which we also
provide. We are not giving any unusual power to the Secretary of Finance because we tell him, This is
the formula that you must adopt in arriving at the adjustment so that you do not have to come back to
us.[59]
Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator
Roco also voiced out his concern about the possible abuse and corruption that will arise from the
periodic adjustment and reclassification provision. Continuing
Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different
legal interpretation, we will then now examine the choice. Because his legal interpretation is different
from mine, then the issues becomes: Is it more advantageous that this judgment be exercised by the
House? Should we not concur or modify in terms of the exercise by the House of its power or are we
better off giving this judgment call to the Department of Finance?
Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that even
if we modify the rates identified by Congress, it is better and less susceptible to abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On
page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the conduct
of survey of retail prices of each brand of fermented liquor in coordination with the Bureau of Internal
Revenue and the National Statistics Office.
These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their
noble intentions. x x x[60] (Emphasis supplied)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of
Finance shall direct the conduct of the survey. How? When? Which retail prices and what brand shall he
consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal
Revenue supposed to be doing? What is the National Statistics Office supposed to be doing, and under
what guides and standards?
May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving
the Secretary of Finance, the BIR and the National Statistics Office discretion over a two-year period will
invite corruption and arbitrariness, which is more dangerous than letting the House of Representatives
and this Chamber set the adjustment rate. Why not set the adjustment rate? Why should Congress not
exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this
Chamber and the House of Representatives over a delegated judgment of the Department of Finance.
Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust
the undersecretary. But that is beside the point. Tomorrow, they may not be there.[61] (Emphasis
supplied)
This point was further dissected by the two senators. There was a genuine difference of opinion as to
which system one with a fixed excise tax rate and classification or the other with a periodic adjustment
of excise tax rate and reclassification was less susceptible to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of
exerted pressures because of the understandable impact of this measure on the pockets of the major
players producing these products, the committee felt that perhaps to lessen such pressures, it is best
that we now establish a norm where the tax will be adjusted without incurring too much political
controversy as has happened in the case of this proposal.
Senator Roco: But that is exactly the same reason we say we must rely upon Congress because Congress,
if it is subjected to pressure, at least balances off because of political factors.
When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance
and the Department of Finance is better-suited to withstand the pressure? Or are we saying Let the
Finance Secretary decide whom to yield?
I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and
more corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed period.
Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my
humble opinion, this formulation is less susceptible to pressure because there is a definite point of
reference which is the consumer price index, and that consumer price index is not going to be used only
for this purpose. The CPI is used for a national purpose, and there is less possibility of tinkering with
it.[62]
Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and
reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile
had genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to
both companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have to
adjust our marketing position every two years based on the adjustment clause, the established company
may survive, but the new ones will have tremendous difficulty. Therefore, this provision tends to
indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan companies, but the new companies assuming there may be
new companies and we want to encourage them because of the old point of liberalization will be at a
disadvantage under this situation. If this observation will find receptivity in the policy consideration of
the distinguished Gentleman, maybe we can also further, later on, seek amendments to this automatic
adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to
a new entrant, because a new entrant will not just come in without studying the market. He is a lousy
businessman if he will just come in without studying the market. If he comes in, he will determine at
what retail price level he will market his product, and he will be coming under any of the tiers depending
upon his net retail price. Therefore, I do not see how this particular provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening,
and we will have to look for other ways of resolving the policy options.
Let me just close that particular area of my interpellation, by summarizing the points we were hoping
could be clarified.
1. That the automatic adjustment clause is at best questionable in law.
2. It is corruption-friendly in the sense that it shifts the discretion from the House of Representatives
and this Chamber to the Secretary of Finance, no matter how saintly he may be.
3. There is, although the judgment call of the gentleman disagrees to our view, an anticompetitive
situation that is geared at[63]
After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate
Body because the Senate Version was passed on Third Reading without substantially altering the
periodic adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee level where the Senate Version underwent major
changes. The Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate and ad
valorem comparator as the means to determine the applicable excise tax rate. Thus, the Senates four-
tiered system was retained with minor adjustments as to the excise tax rate per tier. However, the
House Panel prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically
adjust the excise tax rate and tax brackets, and periodically resurvey and reclassify the cigarette brands
based on the increase in the consumer price index.
In lieu thereof, the classification of existing brands based on their average net retail price as of October
1, 1996 was frozen and a fixed across-the-board 12% increase in the excise tax rate of each tier after
three years from the effectivity of the Act was put in place. There is a dearth of discussion in the
deliberations as to the applicability of the freezing mechanism to new brands after their classification is
determined based on their current net retail price. But a plain reading of the text of RA 8240, even
before its amendment by RA 9334, as well as the previously discussed deliberations would readily lead
to the conclusion that the intent of Congress was to likewise apply the freezing mechanism to new
brands. Precisely, Congress rejected the proposal to allow the DOF and BIR to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify cigarettes brands which
would have encompassed old and new brands alike. Thus, it would be absurd for us to conclude that
Congress intended to allow the periodic reclassification of new brands by the BIR after their
classification is determined based on their current net retail price. We shall return to this point when we
tackle the second issue.
In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his
report to the Senate plenary, noted that the fixing of the excise tax rates was done to avoid
confusion.[64] Congressman Javier, for his part, reported to the House plenary the reasons for fixing the
excise tax rate and freezing the classification, thus:
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate
version which seeks to abdicate the power of Congress to tax by pegging the rates as well as the
classification of sin products to consumer price index which practically vests in the Secretary of Finance
the power to fix the rates and to classify the products for tax purposes.[65] (Emphasis supplied)
Congressman Javier later added that the frozen classification was intended to give stability to the
industry as the BIR would be prevented from tinkering with the classification since it would remain
unchanged despite the increase in the net retail prices of the previously classified brands.[66] This would
also assure the industry players that there would be no new impositions as long as the law is
unchanged.[67]
From the foregoing, it is quite evident that the classification freeze provision could hardly be considered
arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer
brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands
based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the
constitutionality of such delegation of power, and likewise, considered the ethical implications thereof.
Curiously, the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-competitive
atmosphere in the market. Yet, as it is, this same criticism is being foisted by petitioner upon the
classification freeze provision.
To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to balance
the same with other state interests. In particular, the questioned provision addressed Congresss
administrative concerns regarding delegating too much authority to the DOF and BIR as this will open
the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived
that a tax system which would give the least amount of discretion to the tax implementers would
address the problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the
Senate Version, the periodic reclassification of brands would tempt the cigarette manufacturers to
manipulate their price levels or bribe the tax implementers in order to allow their brands to be classified
at a lower tax bracket even if their net retail prices have already migrated to a higher tax bracket after
the adjustment of the tax brackets to the increase in the consumer price index. Presumably, this could
be done when a resurvey and reclassification is forthcoming. As briefly touched upon in the
Congressional deliberations, the difference of the excise tax rate between the medium-priced and the
high-priced tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular
brand which sells around 100 million packs per year, this easily translates to P336,000,000.[68] The
incentive for tax avoidance, if not outright tax evasion, would clearly be present. Then again, the tax
implementers may use the power to periodically adjust the tax rate and reclassify the brands as a tool to
unduly oppress the taxpayer in order for the government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these
potential areas of abuse and corruption from both the side of the taxpayer and the government.
Without doubt, the classification freeze provision was an integral part of this overall plan. This is in line
with one of the avowed objectives of the assailed law to simplify the tax administration and compliance
with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax
avoidance scheme, if not outright tax evasion.[69] RA 9334 did not alter this classification freeze
provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the
wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show,
that the administrative concerns in tax administration, which moved Congress to enact the classification
freeze provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may
provide a legitimate, rational basis for legislative classification.[70] In the case at bar, these
administrative concerns in the measurement and collection of excise taxes on sin products are readily
apparent as afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and corruption
from the tax administration of sin products, the legislative deliberations also show that the classification
freeze provision was intended to generate buoyant and stable revenues for government. With the
frozen tax classifications, the revenue inflow would remain stable and the government would be able to
predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay
given the trend in its sales volume over time. The reason for this is that the previously classified
cigarette brands would be prevented from moving either upward or downward their tax brackets
despite the changes in their net retail prices in the future and, as a result, the amount of taxes due from
them would remain predictable. The classification freeze provision would, thus, aid in the revenue
planning of the government.[71]
All in all, the classification freeze provision addressed Congresss administrative concerns in the
simplification of tax administration of sin products, elimination of potential areas for abuse and
corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues.
Consequently, there can be no denial of the equal protection of the laws since the rational-basis test is
amply satisfied.
Going now to the contention of petitioner that the classification freeze provision unduly favors older
brands over newer brands, we must first contextualize the basis of this claim. As previously discussed,
the evidence presented by the petitioner merely showed that in 2004, Marlboro and Philip Morris, on
the one hand, and Lucky Strike, on the other, would have been taxed at the same rate had the
classification freeze provision been not in place. But due to the operation of the classification freeze
provision, Lucky Strike was taxed higher. From here, petitioner generalizes that this differential tax
treatment arising from the classification freeze provision adversely impacts the fairness of the playing
field in the industry, particularly, between older and newer brands. Thus, it is virtually impossible for
new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown
that the net retail prices of other older brands previously classified under this classification system have
already pierced their tax brackets, and, if so, how this has affected the overall competition in the
market. Further, it does not necessarily follow that newer brands cannot compete against older brands
because price is not the only factor in the market as there are other factors like consumer preference,
brand loyalty, etc. In other words, even if the newer brands are priced higher due to the differential tax
treatment, it does not mean that they cannot compete in the market especially since cigarettes contain
addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand
solely due to its unique formulation. It may also be noted that in 2003, the BIR surveyed 29 new
brands[72] that were introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus
negating the sweeping generalization of petitioner that the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the due
process and equal protection clauses, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.[73]
Be that as it may, petitioners evidence does suggest that, at least in 2004, Philip Morris and Marlboro,
older brands, would have been taxed at the same rate as Lucky Strike, a newer brand, due to certain
conditions (i.e., the increase of the older brands net retail prices beyond the tax bracket to which they
were previously classified after the lapse of some time) were it not for the classification freeze provision.
It may be conceded that this has adversely affected, to a certain extent, the ability of petitioner to
competitively price its newer brands vis--vis the subject older brands. Thus, to a limited extent, the
assailed law seems to derogate one of its avowed objectives, i.e. promoting fair competition among the
players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on
equal protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to a limited extent, the states interest in
promoting fair competition among the players in the industry, while pursuing other state interests
regarding the simplification of tax administration of sin products, elimination of potential areas for
abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of
revenues through the classification freeze provision, and whether the questioned provision is the best
means to achieve these state interests, necessarily go into the wisdom of the assailed law which we
cannot inquire into, much less overrule. The classification freeze provision has not been shown to be
precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands
over newer brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal
branch of government and as revealed by the Congressional deliberations, that the enactment of the
questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the
tax administration of sin products. For as long as the legislative classification is rationally related to
furthering some legitimate state interest, as here, the rational-basis test is satisfied and the
constitutional challenge is perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state
interest is superior over another, or which method is better suited to achieve one, some or all of the
states interests, or what these interests should be in the first place. This policy-determining power, by
constitutional fiat, belongs to Congress as it is its function to determine and balance these interests or
choose which ones to pursue. Time and again we have ruled that 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.[74] Thus, the legislative classification under the
classification freeze provision, after having been shown to be rationally related to achieve certain
legitimate state interests and done in good faith, must, perforce, end our inquiry.
Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its avowed
objectives (i.e. promoting fair competition among the players in the industry) would suggest that, by
Congresss own standards, the current excise tax system on sin products is imperfect. But, certainly, we
cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to
achieve all of its stated objectives.[75] This is especially true for tax legislation which simultaneously
addresses and impacts multiple state interests.[76] Absent a clear showing of breach of constitutional
limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be given
sufficient leeway to formulate and experiment with different tax systems to address the complex issues
and problems related to tax administration. Whatever imperfections that may occur, the same should
be addressed to the democratic process to refine and evolve a taxation system which ideally will achieve
most, if not all, of the states objectives.
In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the
method by which the latter sought to achieve the same. But its remedy is with Congress and not this
Court. As succinctly articulated in Vance v. Bradley:[77]
The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will
eventually be rectified by the democratic process, and that judicial intervention is generally
unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not
overturn such a statute unless the varying treatment of different groups or persons is so unrelated to
the achievement of any combination of legitimate purposes that we can only conclude that the
legislature's actions were irrational.[78]
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003,
Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid insofar as
they empower the BIR to reclassify or update the classification of new brands of cigarettes based on
their current net retail prices every two years or earlier. It claims that RA 8240, even prior to its
amendment by RA 9334, did not authorize the BIR to conduct said periodic resurvey and reclassification.
The questioned provisions are found in the following sections of the assailed issuances:
(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, viz:
For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof,
their current net retail price shall be reviewed periodically through the conduct of survey or any other
appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the
Commissioner. However, notwithstanding any increase in the current net retail price, the tax
classification of such new brands shall remain in force until the same is altered or changed through the
issuance of an appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order, for purposes of determining the current retail prices of
new brands of cigarettes and alcohol products introduced in the market on or after January 1, 1997,
shall be undertaken in the following instances:
xxxx
b. For reclassification of new brands of said excisable products that were introduced in the market after
January 1, 1997.
xxxx
4. The determination of the current retail prices of new brands of the aforesaid excisable products shall
be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct, the
appropriate tax reclassification of these brands based on the current net retail prices thereof shall be
determined by a survey to be conducted upon a written directive by the Commissioner.
For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service, Heads,
Excise Tax Areas, and Regional Directors of all Revenue Regions, except Revenue Region Nos. 4, 5, 6, 7, 8
and 9, shall be issued by the Commissioner for the submission of the list of major supermarkets/retail
outlets where the above excisable products are being sold, as well as the list of selected revenue officers
who shall be designated to conduct the said activity(ies).
xxxx
6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to the
Chief, LT Assistance Division II (LTAD II), National Office for consolidation. On the other hand, the results
of the survey conducted in Revenue Regions other than Revenue Region Nos. 4 to 9, shall be submitted
to the Office of the Regional Director for regional consolidation. The consolidated regional survey,
together with the accomplished survey forms shall be transmitted to the Chief, LTAD II for national
consolidation within three (3) days from date of actual receipt from the survey teams. The LTAD II shall
be responsible for the evaluation and analysis of the submitted survey forms and the preparation of the
recommendation for the updating/revision of the tax classification of each brand of cigarettes and
alcohol products. The said recommendation, duly validated by the ACIR, LTS, shall be submitted to the
Commissioner for final review within ten (10) days from the date of actual receipt of complete reports
from all the surveying Offices.
7. Upon final review by the Commissioner of the revised tax classification of the different new brands of
cigarettes and alcohol products, the appropriate revenue regulations shall be prepared and submitted
for approval by the Secretary of Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures on the identification of brands to be surveyed,

supermarkets/retail outlets where the survey shall be conducted, and the personnel selected to conduct
the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands covered by the survey pursuant to the provisions of Item II.2
of this Order containing the complete description of each brand, existing net retail price and the
corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction of
the concerned revenue regions where the survey will be conducted to be used as basis in the issuance of
Mission Orders. Ensure that the minimum number of establishments to be surveyed, as prescribed
under existing revenue laws and regulations, is complied with. In addition, the names and designations
of revenue officers selected to conduct the survey shall be clearly indicated opposite the names of the
establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue
Regulations No. 1-97, dated December 13, 1996, which mandates a one-time classification only.[79]
Upon their launch, new brands shall be initially taxed based on their suggested net retail price.
Thereafter, a survey shall be conducted within three (3) months to determine their current net retail
prices and, thus, fix their official tax classifications. However, the BIR made a turnaround by issuing
Revenue Regulations No. 9-2003, dated February 17, 2003, which partly amended Revenue Regulations
No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier)
based on their current net retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-
2003, dated March 11, 2003, prescribing the guidelines on the implementation of Revenue Regulations
No. 9-2003. This was patent error on the part of the BIR for being contrary to the plain text and
legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the
operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to
update the tax classification of new brands every two years or earlier subject only to its issuance of the
appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau.
Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of
the legislature which cannot be usurped by the former.
More importantly, as previously discussed, the clear legislative intent was for new brands to benefit
from the same freezing mechanism accorded to Annex D brands. To reiterate, in enacting RA 8240,
Congress categorically rejected the DOF proposal and Senate Version which would have empowered the
DOF and BIR to periodically adjust the excise tax rate and tax brackets, and to periodically resurvey and
reclassify cigarette brands. (This resurvey and reclassification would have naturally encompassed both
old and new brands.) It would thus, be absurd for us to conclude that Congress intended to allow the
periodic reclassification of new brands by the BIR after their classification is determined based on their
current net retail price while limiting the freezing of the classification to Annex D brands. Incidentally,
Senator Ralph G. Recto expressed the following views during the deliberations on RA 9334, which later
amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A.
8240], when Congress did not index the brackets, and Congress did not index the rates but only
provided for a one rate increase in the year 2000, we shifted from ad valorem which was based on value
to a system of specific which is based on volume. Congress then, in effect, determined the classification
based on the prices at that particular period of time and classified these products accordingly.
Of course, Congress then decided on what will happen to the new brands or variants of existing brands.
To favor government, a variant would be classified as the highest rate of tax for that particular brand. In
case of a new brand, Mr. President, then the BIR should classify them. But I do not think it was the
intention of Congress then to give the BIR the authority to reclassify them every so often. I do not think
it was the intention of Congress to allow the BIR to classify a new brand every two years, for example,
because it will be arbitrary for the BIR to do so. x x x[80] (Emphasis supplied)
For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing
mechanism is concerned, must be seen merely as underscoring the legislative intent already in place
then, i.e. new brands as being covered by the freezing mechanism after their classification based on
their current net retail prices.
Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will
be recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner
itself, the BIR did not conduct the required market survey within three months from product launch. As
a result, Lucky Strike was never classified based on its actual current net retail price. Petitioner failed to
timely seek redress to compel the BIR to conduct the requisite market survey in order to fix the tax
classification of Lucky Strike. In the meantime, Lucky Strike was taxed based on its suggested net retail
price of P9.90 per pack, which is within the high-priced tax bracket. It was only after the lapse of two
years or in 2003 that the BIR conducted a market survey which was the first time that Lucky Strikes
actual current net retail price was surveyed and found to be from P10.34 to P11.53 per pack, which is
within the premium-priced tax bracket. The case of petitioner falls under a situation where there was no
reclassification based on its current net retail price which would have been invalid as previously
explained. Thus, we cannot grant petitioners prayer for a downward reclassification of Lucky Strike
because it was never reclassified by the BIR based on its actual current net retail price.
It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003
which implemented the revised tax classifications of new brands based on their current net retail prices
through the market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex A of Revenue
Regulations No. 22-2003 lists the result of the market survey and the corresponding recommended tax
classification of the new brands therein aside from Lucky Strike. However, whether these other brands
were illegally reclassified based on their actual current net retail prices by the BIR must be determined
on a case-to-case basis because it is possible that these brands were classified based on their actual
current net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make
any pronouncement as to the validity of the tax classifications of the other brands listed therein.
Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net retail
price of a new brand is determined and how its classification is permanently fixed, to wit:
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January 1,
1997].
locally manufactured or imported cigarettes are intended by the manufacture or importer to be sold on
cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong
as of December 31, 2003. Such classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed
modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by
machine, are invalid insofar as they grant the BIR the power to reclassify or update the classification of
new brands every two years or earlier. Further, these provisions are deemed modified upon the
effectivity of RA 9334 on January 1, 2005 insofar as the manner of determining the permanent
classification of new brands is concerned.
We now tackle the last issue.

Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and regulations
violate the General Agreement on Tariffs and Trade (GATT) of 1947, as amended, specifically, Paragraph
2, Article III, Part II:
2. The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of
any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists
between the assailed law and the GATT in order to prevent triggering the international dispute
settlement mechanism under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all newly introduced brands in the market,
whether imported or locally manufactured. It does not purport to single out imported cigarettes in order
to unduly favor locally produced ones. Further, petitioners evidence was anchored on the alleged
unequal tax treatment between old and new brands which involves a different frame of reference vis--
vis local and imported products. Petitioner has, therefore, failed to clearly prove its case, both factually
and legally, within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze
provision violates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by
the Philippine Senate and under Article VII, Section 21[81] of the Constitution, it merely acquired the
status of a statute.[82] Applying the basic principles of statutory construction in case of irreconcilable
conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a
later enactment by Congress or as a special law dealing with the taxation of sin products. Thus, in Abbas
v. Commission on Elections,[83] we had occasion to explain:
Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law of
the land, being a binding international agreement. The Solicitor General asserts that the Tripoli
Agreement is neither a binding treaty, not having been entered into by the Republic of the Philippines
with a sovereign state and ratified according to the provisions of the 1973 or 1987 Constitutions, nor a
binding international agreement.
We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli
Agreement and its binding effect on the Philippine Government whether under public international or
internal Philippine law. In the first place, it is now the Constitution itself that provides for the creation of
an autonomous region in Muslim Mindanao. The standard for any inquiry into the validity of R.A. No.
6734 would therefore be what is so provided in the Constitution. Thus, any conflict between the
provisions of R.A. No. 6734 and the provisions of the Tripoli Agreement will not have the effect of
enjoining the implementation of the Organic Act. Assuming for the sake of argument that the Tripoli
Agreement is a binding treaty or international agreement, it would then constitute part of the law of the
land. But as internal law it would not be superior to R.A. No. 6734, an enactment of the Congress of the
Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC INTERNATIONAL LAW
320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253
(1829)]. Thus, if at all, R.A. No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent
law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution would result in
the granting of the reliefs sought. (Emphasis supplied)
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati,
Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares
that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by
machine, are INVALID insofar as they grant the BIR the power to reclassify or update the classification of
new brands every two years or earlier.
SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. THE PHILIPPINE CEMENT MANUFACTURERS
CORP., THE SECRETARY OF THE DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE
DEPARTMENT OF FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.
DECISION
TINGA, J.:
Good fences make good neighbors, so observed Robert Frost, the archetype of traditional New England
detachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized
global market.[1] The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition
of countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep.
Act No. 8800, also known as the Safeguard Measures Act (SMA)[2] soon after it joined 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] The wisdom of the policies behind the SMA, however, is not put into question
by the petition at bar. The questions submitted to the Court relate to the means and the procedures
ordained in the law to ensure that the determination of the imposition or non-imposition of a safeguard
measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic corporation engaged in
the business of cement manufacturing, production, importation and exportation. Its principal
stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest
cement manufacturers in Japan.[5]
Private respondent Philippine Cement Manufacturers Corporation[6] (Philcemcor) is an association of

domestic cement manufacturers. It has eighteen (18) members,[7] per Record. While Philcemcor heralds
itself to be an association of domestic cement manufacturers, it appears that considerable equity
holdings, if not controlling interests in at least twelve (12) of its member-corporations, were acquired by
the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex
S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then
Holderfin B.V.).[8]
On 22 May 2001, respondent Department of Trade and Industry (DTI) accepted an application from
Philcemcor, alleging that the importation of gray Portland cement[9] in increased quantities has caused
declines in domestic production, capacity utilization, market share, sales and employment; as well as
caused depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional, then
later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the
application in behalf of twelve (12) of its member-companies.[10]
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical
circumstances existed justifying the imposition of provisional measures.[11] On 7 November 2001, the
DTI issued an Order, imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos
(P20.60) per forty (40) kilogram bag on all importations of gray Portland cement for a period not
exceeding two hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the
implementing Customs Memorandum Order.[12] The corresponding Customs Memorandum Order was
issued on 10 December 2001, to take effect that same day and to remain in force for two hundred (200)
days.[13]
In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a
formal investigation to determine whether or not to impose a definitive safeguard measure on imports
of gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations.
A notice of commencement of formal investigation was published in the newspapers on 21 November
2001. Individual notices were likewise sent to concerned parties, such as Philcemcor, various importers
and exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/builders associations,
industry associations, cement workers groups, consumer groups, non-government organizations and
concerned government agencies.[14] A preliminary conference was held on 27 November 2001,
attended by several concerned parties, including Southern Cross.[15] Subsequently, the Tariff
Commission received several position papers both in support and against Philcemcors application.[16]
The Tariff Commission also visited the corporate offices and manufacturing facilities of each of the
applicant companies, as well as that of Southern Cross and two other cement importers.[17]
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report (Report). Among the
factors studied by the Tariff Commission in its Report were the market share of the domestic
industry,[18] production and sales,[19] capacity utilization,[20] financial performance and
profitability,[21] and return on sales.[22] The Tariff Commission arrived at the following conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the product
under consideration (gray Portland cement) is not the subject of any Philippine obligation or tariff
concession under the WTO Agreement. Nonetheless, such inquiry is governed by the national legislation
(R.A. 8800) and the terms and conditions of the Agreement on Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the
total domestic production of gray Portland cement and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are like to imported
gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absolute
terms and relative to domestic production, starting in 2000. The increase in volume of imports is recent,
sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e.,
serious injury.
6. There is no threat of serious injury that is imminent from imports of gray Portland cement.
7. Causation has become moot and academic in view of the negative determination of the elements of
serious injury and imminent threat of serious injury.[23]
Accordingly, the Tariff Commission made the following recommendation, to wit:
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.[24]
The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel
Roxas II (DTI Secretary) disagreed with the conclusion of the Tariff Commission that there was no serious
injury to the local cement industry caused by the surge of imports.[25] In view of this disagreement, the
DTI requested an opinion from the Department of Justice (DOJ) on the DTI Secretarys scope of options in
acting on the Commissions recommendations. Subsequently, then DOJ Secretary Hernando Perez
rendered an opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of the
Tariff Commissions negative finding, or finding that a definitive safeguard measure should not be
imposed.[26]
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff
Commission, the DTI Secretary noted the DTIs disagreement with the conclusions. However, he also
cited the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff
Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commissions recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:
In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard
duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written
instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder
thereof, as the case may be, previously collected as provisional general safeguard measure within ten
(10) days from the date a final decision has been made; Provided, that the government shall not be
liable for any interest on the amount to be returned. The Secretary shall not accept for consideration
another petition from the same industry, with respect to the same imports of the product under
consideration within one (1) year after the date of rendering such a decision.
The DTI hereby issues the following:

The application for safeguard measures against the importation of gray Portland cement filed by
PHILCEMCOR (Case No. 02-2001) is hereby denied.[27] (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of
Appeals a Petition for Certiorari, Prohibition and Mandamus[28] seeking to set aside the DTI Decision, as
well as the Tariff Commissions Report. Philcemcor likewise applied for a Temporary Restraining
Order/Injunction to enjoin the DTI and the BOC from implementing the questioned Decision and 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.[29]
On 10 June 2002, Southern Cross filed its Comment.[30] It argued that the Court of Appeals had no
jurisdiction over Philcemcors Petition, for it is on the Court of Tax Appeals (CTA) that the SMA conferred
jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard measure.
It likewise argued that Philcemcors resort to the special civil action of certiorari is improper, considering
that what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or grave
abuse of discretion, and that a petition for review with the CTA was available as a plain, speedy and
adequate remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes
a review by the DTI Secretary of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcors application for preliminary injunction, the
Court of Appeals Twelfth Division[31] granted the writ sought in its Resolution dated 21 June 2002.[32]
Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the
provisional measure expired. Despite the lapse of the period, the BOC continued to impose the
provisional measure on all importations of Portland cement made by Southern Cross. The uninterrupted
assessment of the tariff, according to Southern Cross, worked to its detriment to the point that the
continued imposition would eventually lead to its closure.[33]
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002.
Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a
clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier
imposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. The
appeals court failed to take immediate action on Southern Crosss motion despite the four (4) motions
for early resolution the latter filed between September of 2002 and February of 2003. After six (6)
months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on Southern Crosss
Motion for Reconsideration.[34] After Philcemcor filed its Opposition[35] on 13 March 2003, Southern
Cross filed another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for
Reconsideration. Instead, on 5 June 2003, it rendered a Decision,[36] granting in part Philcemcors
petition. The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged
grave abuse of discretion. It refused to annul the findings of the Tariff Commission, citing the rule that
factual findings of administrative agencies are binding upon the courts and its corollary, that courts
should not interfere in matters addressed to the sound discretion and coming under the special
technical knowledge and training of such agencies.[37] Nevertheless, it held that the DTI Secretary is 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.[38] The dispositive portion of the Decision reads:
WHEREFORE, based on the foregoing premises, petitioners prayer to set aside the findings of the Tariff
Commission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April
5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET ASIDE.
Consequently, the case is REMANDED to the public respondent Secretary of Department of Trade and
Industry for a final decision in accordance with RA 8800 and its Implementing Rules and Regulations.
SO ORDERED.[39]
On 23 June 2003, Southern Cross filed the present petition, assailing the appellate courts Decision for
departing from the accepted and usual course of judicial proceedings, and not deciding the substantial
questions in accordance with law and jurisprudence. The petition argues in the main that the Court of
Appeals has no jurisdiction over Philcemcors petition, the proper remedy being 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 conditions warranting the imposition of general safeguard measures are
binding upon the DTI Secretary.
The timely filing of Southern Crosss petition before this Court necessarily prevented the Court of
Appeals Decision from becoming final.[40] Yet on 25 June 2003, the DTI Secretary issued a new Decision,
ruling this time 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.[41] 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.[42] Accordingly, he imposed a definitive
safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard
duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.[43]
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. Prescinding from this action,
Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Crosss
petition, alleging that it deliberately and willfully resorted to forum-shopping. It points out that
Southern Crosss TRO Application seeks to enjoin the DTI Secretarys second decision, while its Petition
before the CTA prays for the annulment of the same decision.[44]
Reiterating its Comment on Southern Crosss Petition for Review, Philcemcor also argues 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.[45]
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on 18
February 2004.[46] 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, (iii) whether a
Temporary Restraining Order is warranted.[47]
During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the
general safeguard measures, Southern Cross was forced to cease operations in the Philippines in
November of 2003.[48]
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Crosss application for provisional relief.
It sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in his
25 June 2003 Decision. The Court did not grant the provisional relief for it would be tantamount to
enjoining the collection of taxes, a peremptory judicial act which is traditionally frowned upon,[49]
unless there is a clear statutory basis for it.[50] In that regard, Section 218 of the Tax Reform Act of 1997
prohibits any court from granting an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by the internal revenue code.[51] A similar philosophy is expressed
by Section 29 of the SMA, which states that the filing of a petition for review before the CTA does not
stop, suspend, or otherwise toll the imposition or collection of the appropriate tariff duties or the
adoption of other appropriate safeguard measures.[52] This evinces a clear legislative intent that the
imposition of safeguard measures, despite the availability of judicial review, should not be enjoined
notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven,
or that sanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of
the 1997 Rules of Civil Procedure in order that sanction may be had is that the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping.[53] The standard implies a malicious
intent to subvert procedural rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over
Philcemcors Petition, discussed the issue of whether or not the DTI Secretary is bound to adopt the
negative recommendation of the Tariff Commission on the application for safeguard measure. The Court
of Appeals maintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on
the part of the DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI
Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no alternative
but to abide by the findings of the Commission on the matter of safeguard measures for the local
cement industry. Abuse of discretion is admittedly within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to
lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary gravely abused his
discretion in wantonly evading to discharge his duty to render an independent determination or
decision in imposing a definitive safeguard measure.[54]
We do not doubt that the Court of Appeals certiorari powers extend to correcting grave abuse of
discretion on the part of an officer exercising judicial or quasi-judicial functions.[55] However, the
special civil action of certiorari is available only when there is no plain, speedy and adequate remedy in
the ordinary course of law.[56] Southern Cross relies on this limitation, stressing that Section 29 of the
SMA is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not
avail of. The Section 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.[57] (Emphasis supplied)
It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review
the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The Court has
long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving
internal revenue and customs duties to such a specialized court.[58] By the very nature of its function,
the CTA is dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject.[59]
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a
case should be clearly conferred and should not be deemed to exist on mere implication.[60]
Concededly, Rep. Act No. 1125, the statute creating the CTA, does not extend to it the power to review
decisions of the DTI Secretary in connection with the imposition of safeguard measures.[61] Of course,
at that time which was before the advent of trade liberalization the notion of safeguard measures or
safety nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of
the DTI Secretary in connection with the imposition of safeguard measures. However, Philcemcor and
the public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary
imposing a safeguard measure, but not when his ruling is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA
jurisdiction over [d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,
commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said duties.[62] Had Rep. Act No. 9282
already been in force at the beginning of the incidents subject of this case, there would have been no
need to make any deeper inquiry as to the extent of the CTAs jurisdiction. But as Rep. Act No. 9282
cannot be applied retroactively to the present case, the question of whether such jurisdiction extends to
a decision not to impose a safeguard measure will have to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, 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. The first two requisites are clearly
present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary
decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision.
The reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents position is that judicial review of the DTI Secretarys ruling is exercised by two
different courts, depending on whether or not it imposes a safeguard measure, and in either case the
court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the
imposition of a safeguard measure it is the CTA which has appellate jurisdiction; otherwise, it is the
Court of Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially,
respondents advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings
of the DTI Secretary on the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused to sanction split
jurisdiction.[63] The power of the DTI Secretary to adopt or withhold a safeguard measure emanates
from the same statutory source, and it boggles the mind why the appeal modality would be such that
one appellate court is qualified if what is to be reviewed is a positive determination, and it is not if what
is appealed is a negative determination. In deciding whether or not to impose a safeguard measure,
provisional or general, the DTI Secretary would be evaluating only one body of facts and applying them
to one set of laws. The reviewing tribunal will be called upon to examine the same facts and the same
laws, whether or not the determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies
of jurisdiction over basically the same subject matterprecisely the split-jurisdiction situation which is
anathema to the orderly administration of justice.[64] The Court cannot accept that such was the
legislative motive especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of judicial review without mention of any
other court that may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision
refers to the Court of Appeals but only in regard to procedural rules and dispositions of appeals from the
CTA to the Court of Appeals.[65]
The principle enunciated in Tejada v. Homestead Property Corporation[66] is applicable to the case at
bar:
The Court agrees with the observation of the [that] when an administrative agency or body is conferred
quasi-judicial functions, all controversies relating to the subject matter pertaining to its specialization
are deemed to be included within the jurisdiction of said administrative agency or body. Split jurisdiction
is not favored.[67]
Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate
jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from
reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such
review authority. Respondents note, on the other hand, that neither did the law expressly grant to the
CTA the power to review a negative determination. However, under the clear text of the law, the CTA is
vested with jurisdiction to review the ruling of the DTI Secretary in connection with the imposition of a
safeguard measure. Had the law been couched instead to incorporate the phrase the ruling imposing a
safeguard measure, then respondents claim would have indisputable merit. Undoubtedly, the phrase in
connection with not only qualifies but clarifies the succeeding phrase imposition of a safeguard
measure. As expounded later, the phrase also encompasses the opposite or converse ruling which is the
non-imposition of a safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc.,[68] the United States Supreme Court, in
interpreting a key provision of the Employee Retirement Security Act of 1974, construed the phrase
relates to in its normal sense which is the same as if it has connection with or reference to.[69] There is
no serious dispute that the phrase in connection with is synonymous to relates to or reference to, and
that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the
acquired connotative meaning of in connection with in common parlance. Consequently, with the use of
the phrase in connection with, Section 29 allows the CTA to review not only the ruling imposing a
safeguard measure, but all other rulings related or have reference to the application for such measure.
Now, let us determine the maximum scope and reach of the phrase in connection with as used in
Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme
Court in New York State Blue Cross Plans v. Travelers Ins.[70] 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.[71] Thus, in the case the US 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.[72] A similar inquiry into the other provisions of
the SMA is in order to determine the scope of review accorded therein to the CTA.[73]
The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-
agricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural
products.[74] Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture
Secretary may be reviewed by the CTA.[75] Thus, the acts of other bodies that were granted some
powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within
thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the
date he made motu proprio initiation, the Secretary shall make a preliminary determination on whether
the increased imports of the product under consideration substantially cause or threaten to cause
serious injury to the domestic industry.[76] Such ruling is crucial since only upon the Secretarys positive
preliminary determination that a threat to the domestic industry exists shall the matter be referred to
the Tariff Commission for formal investigation, this time, to determine whether the general safeguard
measure should be imposed or not.[77] Pursuant to a positive preliminary determination, the Secretary
may also decide that the imposition of a provisional safeguard measure would be warranted under
Section 8 of the SMA.[78] The Secretary is also authorized to decide, after receipt of the report of the
Tariff Commission, whether or not to impose the general safeguard measure, and if in the affirmative,
what general safeguard measures should be applied.[79] Even after the general safeguard measure is
imposed, the Secretary is empowered to extend the safeguard measure,[80] or terminate, reduce or
modify his previous rulings on the general safeguard measure.[81]
With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary,
it follows that he is empowered to rule on several issues. These are the issues which arise in connection
with, or in relation to, the imposition of a safeguard measure. They may arise at different stages the
preliminary investigation stage, the post-formal investigation stage, or the post-safeguard measure
stage yet all these issues do become ripe for resolution because an initiatory action has been taken
seeking the imposition of a safeguard measure. It is the initiatory action for the imposition of a
safeguard measure that sets the wheels in motion, allowing the Secretary to make successive rulings,
beginning with the preliminary determination.
Clearly, therefore, the scope and reach of the phrase in connection with, as intended by Congress,
pertain to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an
application or motu proprio initiation for the imposition of a safeguard measure is taken. Indeed, the
incidents which require resolution come to the fore only because there is an initial application or action
seeking the imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense
and practicality to lump up the questions related to the initiatory application or action for safeguard
measure and to assign only one court and; that is the CTA to initially review all the rulings related to
such initiatory application or action. Both directions Congress put in place by employing the phrase in
connection with in the law.
Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not
doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of its
jurisdiction. On a literal level, such negative ruling is a ruling of the Secretary in connection with the
imposition of a safeguard measure, as it is one of the possible outcomes that may result from the initial
application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in
connection with a safeguard measure, however diverse the outcome may be, arise from the same grant
of jurisdiction on the DTI Secretary by the SMA.[82] The refusal by the DTI Secretary to grant a safeguard
measure involves the same grant of authority, the same statutory prescriptions, and the same degree of
discretion as the imposition by the DTI Secretary of a safeguard measure.
The position of the respondents is one of uncritical literalism[83] incongruent with the animus of the
law. Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of
the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.[84]
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a
negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would
cause inconvenience and absurdity.[85] Adopting the respondents position favoring the CTAs minimal
jurisdiction would unnecessarily lead to illogical and onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing
a safeguard measure but not to those declining to impose the measure. Respondents might argue that
the right to relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question
such ruling through a special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure,
in lieu of an appeal to the CTA. Yet these two reliefs are of differing natures and gravamen. While an
appeal may be predicated on errors of fact or errors of law, a special civil action for certiorari is
grounded on grave abuse of discretion or lack of or excess of jurisdiction on the part of the decider. For
a special civil action for certiorari to succeed, it is not enough that the questioned act of the respondent
is wrong. As the Court clarified in Sempio v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine
the case. There is excess of jurisdiction where, being clothed with the power to determine the case, the
tribunal, board or officer oversteps its/his authority as determined by law. And there is grave abuse of
discretion where the tribunal, board or officer acts in a capricious, whimsical, arbitrary or despotic
manner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is
often resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which
is a mistake of judgment, appeal is the remedy.[86]
It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the
evidence, may either make a negative preliminary determination as he is so empowered under Section 7
of the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the same law.
Adopting the respondents theory, this negative ruling is susceptible to reversal only through a special
civil action for certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on
the rudimentary grounds of errors in fact or in law. Instead, and despite whatever indications that the
DTI Secretary acted with measure and within the bounds of his jurisdiction are, the aggrieved party will
be forced to resort to a gymnastic exercise, contorting the straight and narrow in an effort to
discombobulate the courts into believing that what was within was actually beyond and what was
studied and deliberate actually whimsical and capricious. What then would be the remedy of the party
aggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot
be the special civil action for certiorari, for as the Court held in Silverio v. Court of Appeals: Certiorari is a
remedy narrow in its scope and inflexible in its character. It is not a general utility tool in the legal
workshop.[87]
Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a
way that it places under the CTAs judicial review all rulings of the DTI Secretary, which are connected
with the imposition of a safeguard measure. This is sound and proper in light of the specialized
jurisdiction of the CTA over tax matters. In the same way that a question of whether to tax or not to tax
is properly a tax matter, so is the question of whether to impose or not to impose a definitive safeguard
measure.
On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings
of the DTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of
Appeals. It reads:
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.
This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of
Congress is that the petition conform to the requirements and procedure under Rule 43 of the Rules of
Civil Procedure. Since Congress mandated that the form and procedure adopted be analogous to a
review of a CTA ruling by the Court of Appeals, the legislative contemplation could not have been that
the appeal be directly taken to the Court of Appeals.
Issue of Binding Effect of Tariff
Commissions Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by the Tariff Commission under
the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary
may impose general safeguard measures in the absence of a positive final determination by the Tariff
Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff
Commission do not necessarily constitute a final decision. Section 13 details the procedure for the
adoption of a safeguard measure, as well as the steps to be taken in case there is a negative final
determination. The implication of the Court of Appeals holding is that the DTI Secretary may adopt a
definitive safeguard measure, notwithstanding a negative determination made by the Tariff
Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard
measures may be imposed. However, the most fundamental restriction on the DTI Secretarys power in
that respect is contained in Section 5 of the SMAthat there should first be a positive final determination
of the Tariff Commissionwhich the Court of Appeals curiously all but ignored. Section 5 reads:
Sec. 5. Conditions for the Application of General Safeguard Measures. 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. (emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a
positive final determination. This power lodged in the Tariff Commission, must be distinguished from the
power to impose the general safeguard measure which is properly vested on the DTI Secretary.[88]
All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose
a general safeguard measure on grey Portland cement. First, 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. Second, in the case of non-agricultural products the Secretary
must establish that the application of such safeguard measures is in the public interest.[89] As Southern
Cross argues, Section 5 is quite clear-cut, and it is impossible to finagle a different conclusion even
through overarching methods of statutory construction. There is no safer nor better settled canon of
interpretation that when language is clear and unambiguous it must be held to mean what it plainly
expresses:[90] In the quotable words of an illustrious member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied
without attempted interpretation. The verba legis or plain meaning rule rests on the valid presumption
that the words employed by the legislature in a statute correctly express its intent or will and preclude
the court from construing it differently. The legislature is presumed to know the meaning of the words,
to have used words advisedly, and to have expressed its intent by the use of such words as are found in
the statute.[91]
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,[92] which interprets Section 5
of the law, likewise requires a positive final determination on the part of the Tariff Commission before
the application of the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI
Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to
make a positive final determination. This power, which belongs to the Tariff Commission, must be
distinguished from the power to impose general safeguard measure properly vested on the DTI
Secretary. The distinction is vital, as a positive final determination clearly antecedes, as a condition
precedent, the imposition of a general safeguard measure. At the same time, a positive final
determination does not necessarily result in the imposition of a general safeguard measure. Under
Section 5, notwithstanding the positive final determination of the Tariff Commission, the DTI Secretary is
tasked to decide whether or not that the application of the safeguard measures is in the public interest.
It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the
Tariff Commission does not entail a mere gathering of statistical data. In order to arrive at such
determination, it has to establish causal linkages from the statistics that it compiles and evaluates: after
finding there is an importation in increased quantities of the product in question, that such importation
is a substantial cause of serious threat or injury to the domestic industry.
The Court of Appeals relies heavily on the legislative record of a congressional debate during
deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff
Commission do not bind the DTI Secretary.[93] Yet as explained earlier, the plain meaning of Section 5
emphasizes that only if the Tariff Commission renders a positive determination could the DTI Secretary
impose a safeguard measure. Resort to the congressional records to ascertain legislative intent is not
warranted if a statute is clear, plain and free from ambiguity. The legislature is presumed to know the
meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such
words as are found in the statute.[94]
Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as
legislative debates and proceedings are powerless to vary the terms of the statute when the meaning is
clear.[95] Our holding in Civil Liberties Union v. Executive Secretary[96] on the resort to deliberations of
the constitutional convention to interpret the Constitution is likewise appropriate in ascertaining
statutory intent:
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional
convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may
be had only when other guides fail as said proceedings are powerless to vary the terms of the
Constitution when the meaning is clear. Debates in the constitutional convention "are of value as
showing the views of the individual members, and as indicating the reasons for their votes, but they give
us no light as to the views of the large majority who did not talk xxx. We think it safer to construe the
constitution from what appears upon its face.[97]
Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to
assert a misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal
ruminations, or even the occasional crude witticisms, may improperly acquire the mantle of legislative
intent by the sole virtue of their publication in the authoritative congressional record. Hence, resort to
legislative deliberations is allowable when the statute is crafted in such a manner as to leave room for
doubt on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretarys power to impose a general
safeguard measure by preconditioning such imposition on a positive determination by the Tariff
Commission. Such legislative intent should be given full force and effect, as the executive power to
impose definitive safeguard measures is but a delegated powerthe power of taxation, by nature and by
command of the fundamental law, being a preserve of the legislature.[98] Section 28(2), Article VI of the
1987 Constitution confirms the delegation of legislative power, yet ensures that the prerogative of
Congress to impose limitations and restrictions on the executive exercise of this power:
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.[99]
The safeguard measures which the DTI Secretary may impose under the SMA may take the following
variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in
or the imposition of a tariff-rate quota on the product; (c) a modification or imposition of any
quantitative restriction on the importation of the product into the Philippines; (d) one or more
appropriate adjustment measures, including the provision of trade adjustment assistance; and (e) any
combination of the above-described actions. Except for the provision of trade adjustment assistance,
the measures enumerated by the SMA are essentially imposts, which precisely are the subject of
delegation under Section 28(2), Article VI of the 1987 Constitution.[100]
This delegation of the taxation power by the legislative to the executive is authorized by the
Constitution itself.[101] At the same time, the Constitution also grants the delegating authority
(Congress) the right to impose restrictions and limitations on the taxation power delegated to the
President.[102] The restrictions and limitations imposed by Congress take on the mantle of a
constitutional command, which the executive branch is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President,[103] to impose definitive general
safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution.
However, the law did not grant him full, uninhibited discretion to impose such measures. The DTI
Secretary authority is derived from the SMA; it does not flow from any inherent executive power. Thus,
the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional fiat.[104]
Philcemcor cites our 1912 ruling in Lamb v. Phipps[105] to assert that the DTI Secretary, having the final
decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission and
make an independent judgment thereon. Given the constitutional and statutory limitations governing
the present case, the citation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the
Philippine Islands, whom, as the Court recognized, [t]he statutes of the United States require[d] xxx to
exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing
for the payment of money, the means of procuring testimony upon which he may act.[106]
Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on
the Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited by,
statutory grant. However, in this case, the provision of the Constitution in point expressly recognizes the
authority of Congress to prescribe limitations in the case of tariffs, export/import quotas and other such
safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands
cannot be analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the
SMA.
For that matter, Cario v. Commissioner on Human Rights,[107] likewise cited by Philcemcor, is also
inapplicable owing to the different statutory regimes prevailing over that case and the present petition.
In Cario, the Court ruled that the constitutional power of the Commission on Human Rights (CHR) to
investigate human rights violations did not extend to adjudicating claims on the merits.[108] Philcemcor
claims that the functions of the Tariff Commission being only investigatory, it could neither decide nor
adjudicate.[109]
The applicable law governing the issue in Cario is Section 18, Article XIII of the Constitution, which
delineates the powers and functions of the CHR. The provision does not vest on the CHR the power to
adjudicate cases, but only to investigate all forms of human rights violations.[110] Yet, without
modifying the thorough disquisition of the Court in Cario on the general limitations on the investigatory
power, the precedent is inapplicable because of the difference in the involved statutory frameworks.
The Constitution does not repose binding effect on the results of the CHRs investigation.[111] On the
other hand, through Section 5 of the SMA and under the authority of Section 28(2), Article VI of the
Constitution, Congress did intend to bind the DTI Secretary to the determination made by the Tariff
Commission.[112] It is of no consequence that such determination results from the exercise of
investigatory powers by the Tariff Commission since Congress is well within its constitutional mandate
to limit the authority of the DTI Secretary to impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMAs
Implementing Rules in support of the view that the DTI Secretary may decide independently of the
determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language
of Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions. Rather, Section
13 and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5. [113]
Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its
report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive determination, the Commission shall
recommend to the Secretary an appropriate definitive measure, in the form of:
(a) An increase in, or imposition of, any duty on the imported product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;
(c) A modification or imposition of any quantitative restriction on the importation of the product into
the Philippines;
(d) One or more appropriate adjustment measures, including the provision of trade adjustment
assistance;
(e) Any combination of actions described in subparagraphs (a) to (d).
The Commission may also recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of the product, to alleviate the
injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import
competition.
The general safeguard measure shall be limited to the extent of redressing or preventing the injury and
to facilitate adjustment by the domestic industry from the adverse effects directly attributed to the
increased imports: Provided, however, That when quantitative import restrictions are used, such
measures shall not reduce the quantity of imports below the average imports for the three (3) preceding
representative years, unless clear justification is given that a different level is necessary to prevent or
remedy a serious injury.
A general safeguard measure shall not be applied to a product originating from a developing country if
its share of total imports of the product is less than three percent (3%): Provided, however, That
developing countries with less than three percent (3%) share collectively account for not more than nine
percent (9%) of the total imports.
The decision imposing a general safeguard measure, the duration of which is more than one (1) year,
shall be reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The industry
benefiting from the application of a general safeguard measure shall be required to show positive
adjustment within the allowable period. A general safeguard measure shall be terminated where the
benefiting industry fails to show any improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned government agencies to
implement the appropriate general safeguard measure as determined by the Secretary within fifteen
(15) days from receipt of the report.
In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard
duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written
instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder
thereof, as the case may be, previously collected as provisional general safeguard measure within ten
(10) days from the date a final decision has been made: Provided, That the government shall not be
liable for any interest on the amount to be returned. The Secretary shall not accept for consideration
another petition from the same industry, with respect to the same imports of the product under
consideration within one (1) year after the date of rendering such a decision.
When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be
subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and Customs
Code of the Philippines.
To better comprehend Section 13, note must be taken of the distinction between the investigatory and
recommendatory functions of the Tariff Commission under the SMA.
The word determination, as used in the SMA, pertains to the factual findings on whether there are
increased imports into the country of the product under consideration, and on whether such increased
imports are a substantial cause of serious injury or threaten to substantially cause serious injury to the
domestic industry.[114] The SMA explicitly authorizes the DTI Secretary to make a preliminary
determination,[115] and the Tariff Commission to make the final determination.[116] The distinction is
fundamental, as these functions are not interchangeable. The Tariff Commission makes its
determination only after a formal investigation process, with such investigation initiated only if there is
a positive preliminary determination by the DTI Secretary under Section 7 of the SMA.[117] On the other
hand, the DTI Secretary may impose definitive safeguard measure only if there is a positive final
determination made by the Tariff Commission.[118]
In contrast, a recommendation is a suggested remedial measure submitted by the Tariff Commission

under Section 13 after making a positive final determination in accordance with Section 5. The Tariff
Commission is not empowered to make a recommendation absent a positive final determination on its
part.[119] Under Section 13, the Tariff Commission is required to recommend to the [DTI] Secretary an
appropriate definitive measure.[120] The Tariff Commission may also recommend other actions,
including the initiation of international negotiations to address the underlying cause of the increase of
imports of the products, to alleviate the injury or threat thereof to the domestic industry and to
facilitate positive adjustment to import competition.[121]
The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the
DTI Secretary. Nothing in the SMA mandates 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 based on its positive final determination.[122]
The non-binding force of the Tariff Commissions recommendations is congruent with the command of
Section 28(2), Article VI of the 1987 Constitution that only the President may be empowered by the
Congress to impose appropriate tariff rates, import/export quotas and other similar measures.[123] It is
the DTI Secretary, as alter ego of the President, who under the SMA may impose such safeguard
measures subject to the limitations imposed therein. A contrary conclusion would in essence unduly
arrogate to the Tariff Commission the executive power to impose the appropriate tariff measures. That
is why the SMA empowers the DTI Secretary to adopt safeguard measures other than those
recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a different effect on the
DTI Secretary. Only on the basis of a positive final determination made by the Tariff Commission under
Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is
bound by the determination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13[124] uses the variant word
determined in a different context, as it contemplates the appropriate general safeguard measure as
determined by the Secretary within fifteen (15) days from receipt of the report. Quite plainly, the word
determined in this context pertains to the DTI Secretarys power of choice of the appropriate safeguard
measure, as opposed to the Tariff Commissions power to determine the existence of conditions
necessary for the imposition of any safeguard measure. In relation to Section 5, such choice also relates
to the mandate of the DTI Secretary to establish that the application of safeguard measures is in the
public interest, also within the fifteen (15) day period. Nothing in Section 13 contradicts the instruction
in Section 5 that the DTI Secretary is allowed to impose the general safeguard measures only if there is a
positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned Final Determination by the
Secretary. The assailed Decision and Philcemcor latch on this phraseology to imply that the factual
determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the
DTI Secretary. Of course, implementing rules should conform, not clash, with the law that they seek to
implement, for a regulation which operates to create a rule out of harmony with the statute is a
nullity.[125] Yet imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can
set aside the determination made by the Tariff Commission under the aegis of Section 5. This can be
seen by examining the specific provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the
Secretary shall make a decision, taking into consideration the measures recommended by the
Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days
after making his decision, a written instruction to the heads of the concerned government agencies to
immediately implement the appropriate general safeguard measure as determined by him. Provided,
however, that in the case of non-agricultural products, the Secretary shall first establish that the
imposition of the safeguard measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its
publication in two (2) newspapers of general circulation. He shall also furnish a copy of his Order to the
petitioner and other interested parties, whether affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission
for it is not subordinate to the Department of Trade and Industry (DTI). It falls under the supervision, not
of the DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross),[126] but of the
National Economic Development Authority, an independent planning agency of the government of co-
equal rank as the DTI.[127] As the supervision and control of a Department Secretary is limited to the
bureaus, offices, and agencies under him,[128] the DTI Secretary generally cannot exercise review
authority over actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI
Secretary to alter, amend or modify in any way the determination made by the Tariff Commission. The
most that the DTI Secretary could do to express displeasure over the Tariff Commissions actions is to
ignore its recommendation, but not its determination.
The word determination as used in Rule 13.2 of the Implementing Rules is dissonant with the same word
as employed in the SMA, which in the latter case is undeviatingly in reference to the determination
made by the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2
is explicable as the Rule textually pertains to the power of the DTI Secretary to review the
recommendations of the Tariff Commission, not the latters determination. Indeed, an examination of
the specific provisions show that there is no real conflict to reconcile. Rule 13.2 respects the logical
order imposed by the SMA. The Rule does not remove the essential requirement under Section 5 that a
positive final determination be made by the Tariff Commission before a definitive safeguard measure
may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory
and points to the DTI Secretary as the authority who renders the final decision.[129] At the same time,
Philcemcor asserts that the Tariff Commissions functions are merely investigatory, and as such do not
include the power to decide or adjudicate. These contentions, viewed in the context of the fundamental
requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that a
positive final determination made by the Tariff Commission should first be obtained before the
definitive safeguard measures may be laid down.
Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may
preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court
does not inquire into the wisdom of the legislature but only charts the boundaries of powers and
functions set in its enactments. But then, it is not difficult to see the internal logic of this statutory
framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is
not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of check and balance
involving two different governmental agencies with disparate specializations. The matter of safeguard
measures is of such national importance that a decision either to impose or not to impose then could
have ruinous effects on companies doing business in the Philippines. Thus, it is ideal to put in place a
system which affords all due deliberation and calls to fore various governmental agencies exercising
their particular specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard
measure, it is because such safeguard measure is the exception, rather than the rule. The Philippines is
obliged to observe its obligations under the GATT, under whose framework trade liberalization, not
protectionism, is laid down. Verily, the GATT actually prescribes conditions before a member-country
may impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if that member has determined,
pursuant to the provisions set out below, that such product is being imported into its territory in such
increased quantities, absolute or relative to domestic production, and under such conditions as to cause
or threaten to cause serious injury to the domestic industry that produces like or directly competitive
products.[130]
3. (a) A Member may apply a safeguard measure only following an investigation by the competent
authorities of that Member pursuant to procedures previously established and made public in
consonance with Article X of the GATT 1994. This investigation shall include reasonable public notice to
all interested parties and public hearings or other appropriate means in which importers, exporters and
other interested parties could present evidence and their views, including the opportunity to respond to
the presentations of other parties and to submit their views, inter alia, as to whether or not the
application of a safeguard measure would be in the public interest. The competent authorities shall
publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of
fact and law.[131]
The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down
in Section 5 for a positive final determination are the same conditions provided under the GATT
Agreement on Safeguards for the application of safeguard measures by a member country. Moreover,
the investigatory procedure laid down by the SMA conforms to the procedure required by the GATT
Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent authority to
conduct such investigation. Southern Cross stresses that applying the provision of the GATT Agreement
on Safeguards, the Tariff Commission is clearly empowered to arrive at binding conclusions.[132] We
agree: binding on the DTI Secretary is the Tariff Commissions determinations on whether a product is
imported in increased quantities, absolute or relative to domestic production and whether any such
increase is a substantial cause of serious injury or threat thereof to the domestic industry.[133]
Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the
flaws in the reasoning of the Court of Appeals and in the arguments of the respondents become
apparent. To better understand the dynamics of the procedure set up by the law leading to the
imposition of definitive safeguard measures, a brief step-by-step recount thereof is in order.
1. After the initiation of an action involving a general safeguard measure,[134] the DTI Secretary makes
a preliminary determination whether the increased imports of the product under consideration
substantially cause or threaten to substantially cause serious injury to the domestic industry,[135] and
whether the imposition of a provisional measure is warranted under Section 8 of the SMA.[136] If the
preliminary determination is negative, it is implied that no further action will be taken on the
application.
2. When his preliminary determination is positive, the Secretary immediately transmits the records
covering the application to the Tariff Commission for immediate formal investigation.[137]
3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination.
In the process, it holds public hearings, providing interested parties the opportunity to present evidence
or otherwise be heard.[138] To repeat, Section 5 enumerates what the Tariff Commission is tasked to
determine: (a) whether a product is being imported into the country in increased quantities, irrespective
of whether the product is absolute or relative to the domestic production; and (b) whether the
importation in increased quantities is such that it causes serious injury or threat to the domestic
industry.[139] The findings of the Tariff Commission as to these matters constitute the final
determination, which may be either positive or negative.
4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff
Commission recommends to the [DTI] Secretary an appropriate definitive measure. The Tariff
Commission may also recommend other actions, including the initiation of international negotiations to
address the underlying cause of the increase of imports of the products, to alleviate the injury or threat
thereof to the domestic industry, and to facilitate positive adjustment to import competition.[140]
5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide,
within fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he
impose.
6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot
impose any definitive safeguard measure. Under Section 13, he is instructed instead to return whatever
cash bond was paid by the applicant upon the initiation of the action for safeguard measure.
The Effect of the Courts Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that
the DTI Secretary may impose a general safeguard measure even if there is no positive final
determination from the Tariff Commission. More crucially, the Court of Appeals could not have acquired
jurisdiction over Philcemcors petition for certiorari in the first place, as Section 29 of the SMA properly
vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it
as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretary
imposing the general safeguard measure? We have recognized that any initial judicial review of a DTI
ruling in connection with the imposition of a safeguard measure belongs to the CTA. At the same time,
the Court also recognizes the fundamental principle that a null and void judgment cannot produce any
legal effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary
resulted from the assailed Court of Appeals Decision, even if the latter had not yet become final.
Conversely, it can be concluded that it was because of the putative imprimatur of the Court of Appeals
Decision that the DTI Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003
Decision derives its legal effect from the void Decision of the Court of Appeals, this ruling of the DTI
Secretary is consequently void. The spring cannot rise higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from the appellate courts
Decision for in his own 5 June 2003 Decision, he declared:
From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision.
Thus, there is no legal impediment for the Secretary to decide on the application.[141]
The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of
Appeals to justify his rendering a second Decision. He explicitly invoked the Court of Appeals Decision as
basis for rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would
not have the authority to revoke his previous ruling and render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it
being an attempt to carry out such null judgment. There is therefore no choice but to declare it void as
well, lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter
what the disposition of the 25 June 2003 Decision was, its nullity would be warranted even if the DTI
Secretary chose to uphold his earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision
which is not yet final and actually pending review on appeal. Had it been a judge who attempted to
enforce a decision that is not yet final and executory, he or she would have readily been subjected to
sanction by this Court. The DTI Secretary may be beyond the ambit of administrative review by this
Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty to
the legal order, especially from the instrumentalities and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL
AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED NULL
AND VOID and SET ASIDE. No Costs.
LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its
hospital building constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January
16, 1981 by virtue of Presidential Decree No. 1823.[2] It is the registered owner of a parcel of land,
particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner
Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is
covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City.
Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big
space at the ground floor is being leased to private parties, for canteen and small store spaces, and to
medical or professional practitioners who use the same as their private clinics for their patients whom
they charge for their professional services. Almost one-half of the entire area on the left side of the
building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of
Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual
subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.[3] Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the
hospital building, respectively.[4] On August 25, 1993, the petitioner filed a Claim for Exemption[5] from
real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The
petitioners request was denied, and a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity
patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner
liable for real property taxes.[6]
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity)[7] which ruled that the petitioner was not a charitable institution and
that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it
was not entitled to real property tax exemption under the constitution and the law. The petitioner
sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA.[8]
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS
ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT
ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823,
SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases portions of the land to private
parties, and rents out portions of the hospital to private medical practitioners from which it derives
income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999,
100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or
170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the
government attests to its character as a charitable institution. It contends that the exclusivity required in
the Constitution does not necessarily mean solely. Hence, even if a portion of its real estate is leased out
to private individuals from whom it derives income, it does not lose its character as a charitable
institution, and its exemption from the payment of real estate taxes on its real property. The petitioner
cited our ruling in Herrera v. QC-BAA[9] to bolster its pose. The petitioner further contends that even if
P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from seeking
tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The
petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the
said property is actually, directly and exclusively used for charitable purposes. The respondents noted
that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the
director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical
Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the
property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as
determined by the Commission on Audit; and that instead of complying with the directive of the COA for
the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed
the same on March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner uses
the subsidies granted by the government for charity patients and uses the rest of its income from the
property for the benefit of paying patients, among other purposes. They aver that the petitioner failed
to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved
for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That
before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and
required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is
charged with high hospital bills. And, without these bills being first settled, the poor patient cannot be
allowed to leave the hospital or be discharged without first paying the hospital bills or issue a
promissory note guaranteed and indorsed by an influential agency or person known only to the Center;
that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must undergo a series of interviews and must
submit all the requirements needed by the Center, usually accompanied by endorsement by an
influential agency or person known only to the Center. These facts were heard and admitted by the
Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA. These are the
reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at
the Quezon Institute. Can such practice by the Center be called charitable?[10]
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within
the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real
property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use
and occupation of the properties.[11]
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws,
for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise
lessening the burden of government.[12] It may be applied to almost anything that tend to promote the
well-doing and well-being of social man. It embraces the improvement and promotion of the happiness
of man.[13] The word charitable is not restricted to relief of the poor or sick.[14] The test of a charity
and a charitable organization are in law the same. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for
gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit
of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause
of illness and death in the Philippines, comprising more than 45% of the total annual deaths from all
causes, thus, exacting a tremendous toll on human resources, which ailments are likely to increase and
degenerate into serious lung diseases on account of unabated pollution, industrialization and unchecked
cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early
and adequate medical care, immunization and through prompt and intensive prevention and health
education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts
at preventing, treating and rehabilitating people affected by lung diseases, and to undertake research
and training on the cure and prevention of lung diseases, through a Lung Center which will house and
nurture the above and related activities and provide tertiary-level care for more difficult and
problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial support
towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino
people.[15]
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution
which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in
line with the concern of the government to assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to benefit the people of the Philippines and in
pursuance of the policy of the State to secure the well-being of the people by providing them specialized
health and medical services and by minimizing the incidence of lung diseases in the country and
elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung or
pulmonary ailments and the care of lung patients, including the holding of a series of relevant
congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic,
social, economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and
to collect and publish the findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or
awareness, and the development of fact-finding, information and reporting facilities for and in aid of the
general purposes or objects aforesaid, especially in human lung requirements, general health and
physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical and
technical personnel in the practical and scientific implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung diseases, to encourage
advanced training in matters of the lung and related fields and to support educational programs of value
to general health;
7. To encourage the formation of other organizations on the national, provincial and/or city and local
levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective
programmatic approach on the common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations and
organizations; and to administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in general, to
promote and protect the health of the masses of our people, which has long been recognized as an
economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in
any and all walks of life, including those who are poor and needy, all without regard to or discrimination,
because of race, creed, color or political belief of the persons helped; and to enable them to obtain
treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the
general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and
supplies by purchase, donation, or otherwise and to dispose of and distribute the same in such manner,
and, on such basis as the Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties,
whether real or personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the
powers herein set forth and to do every other act and thing incidental thereto or connected
therewith.[16]
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person,
the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.[17]
As a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.[18] In Congregational Sunday School, etc.
v. Board of Review,[19] the State Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from taxation, by
reason of the fact that those recipients of its benefits who are able to pay are required to do so, where
no profit is made by the institution and the amounts so received are applied in furthering its charitable
purposes, and those benefits are refused to none on account of inability to pay therefor. The
fundamental ground upon which all exemptions in favor of charitable institutions are based is the
benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon
the state to care for and advance the interests of its citizens.[20]
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South
Dakota v. Baker:[21]
[T]he fact that paying patients are taken, the profits derived from attendance upon these patients being
exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor; for it is a matter of common observation amongst those who have gone about at
all amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an
asylum of any kind confined to the reception of objects of charity; and that their honest pride is much
less wounded by being placed in an institution in which paying patients are also received. The fact of
receiving money from some of the patients does not, we think, at all impair the character of the charity,
so long as the money thus received is devoted altogether to the charitable object which the institution is
intended to further.[22]
The money received by the petitioner becomes a part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private profit or benefit.[23]
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of
Equalization of Salt Lake County:[24]
Second, the government subsidy payments are provided to the project. Thus, those payments are like a
gift or donation of any other kind except they come from the government. In both Intermountain Health
Care and the present case, the crux is the presence or absence of material reciprocity. It is entirely
irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the
deficit resulting from the exchange between St. Marks Tower and the tenants by making a contribution
to the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients income
supplements had come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government
rather than private charitable contributions does not dictate the denial of a charitable exemption if the
facts otherwise support such an exemption, as they do here.[25]
In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies
from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those
portions of its real property that are leased to private entities are not exempt from real property taxes
as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for
exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken.[26] As held in Salvation Army v. Hoehn:[27]
An intention on the part of the legislature to grant an exemption from the taxing power of the state will
never be implied from language which will admit of any other reasonable construction. Such an
intention must be expressed in clear and unmistakable terms, or must appear by necessary implication
from the language used, for it is a well settled principle that, when a special privilege or exemption is
claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property
owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from
taxation . [28]
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily
to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations,
contributions, endowments and equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and
benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in
full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of
the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with respect to
equipment purchases made by, or for the Lung Center.[29]
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section
2:
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio
unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the
rule is principle that what is expressed puts an end to that which is implied. Expressium facit cessare
tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by
interpretation or construction, be extended to other matters.
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation.
They are based on the rules of logic and the natural workings of the human mind. They are predicated
upon ones own voluntary act and not upon that of others. They proceed from the premise that the
legislature would not have made specified enumeration in a statute had the intention been not to
restrict its meaning and confine its terms to those expressly mentioned.[30]
The exemption must not be so enlarged by construction since the reasonable presumption is that the
State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to
the very terms of the statute the favor would be intended beyond what was meant.[31]
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from taxation.[32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief Justice
Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: . . . what is
exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational
purposes.[34]
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes.[35]
We note that under the 1935 Constitution, ... all lands, buildings, and improvements used exclusively for
charitable purposes shall be exempt from taxation.[36] However, under the 1973 and the present
Constitutions, for lands, buildings, and improvements of the charitable institution to be considered
exempt, the same should not only be exclusively used for charitable purposes; it is required that such
property be used actually and directly for such purposes.[37]
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect.[38] As this Court held in Province of Abra v.
Hernando:[39]
Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for religious, charitable, or educational
purposes shall be exempt from taxation. The present Constitution added charitable institutions,
mosques, and non-profit cemeteries and required that for the exemption of lands, buildings, and
improvements, they should not only be exclusively but also actually and directly used for religious or
charitable purposes. The Constitution is worded differently. The change should not be ignored. It must
be duly taken into consideration. Reliance on past decisions would have sufficed were the words
actually as well as directly not added. There must be proof therefore of the actual and direct use of the
lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption,
the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution;
and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
Exclusive is defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege exclusively.[40] If
real property is used for one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation.[41] The words dominant use or principal use cannot be substituted
for the words used exclusively without doing violence to the Constitutions and the law.[42] Solely is
synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes.[44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the business
name Elliptical Orchids and Garden Center. Indeed, the petitioners evidence shows that it collected
P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes.[45] On the other hand, the
portions of the land occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the
area thereof which are leased to private persons, and to compute the real property taxes due thereon as
provided for by law.
CESAR BENGZON, QUERUBE MAKALINTAL, LINO M. PATAJO, JOSE LEUTERIO, ET AL., petitioners,
vs.
HON. FRANKLIN N. DRILON, in his capacity as Executive Secretary, HON. GUILLERMO CARAGUE, in his
capacity as Secretary of Department of Budget and Management, and HON. ROSALINA CAJUCOM, in
her capacity as National Treasurer, respondents.
A.M. No. 91-8-225-CA April 15, 1992
REQUEST OF RETIRED JUSTICES MANUEL P. BARCELONA, JUAN P. ENRIQUEZ, JUAN O. REYES, JR. and
GUARDSON R. LOOD FOR READJUSTMENT OF THEIR MONTHLY PENSION.
GUTIERREZ, JR., J.:
The issue in this petition is the constitutionality of the veto by the President of certain provisions in the
General Appropriations Act for the Fiscal Year 1992 relating to the payment of the adjusted pensions of
retired Justices of the Supreme Court and the Court of Appeals.
The petitioners are retired Justices of the Supreme Court and Court of Appeals who are currently
receiving monthly pensions under Republic Act No. 910 as amended by Republic Act No. 1797. They filed
the instant petition on their own behalf and in representation of all other retired Justices of the
Supreme Court and the Court of Appeals similarly situated.
Named respondents are Hon. Franklin Drilon the Executive Secretary, Hon. Guillermo Carague as
Secretary of the Department of Budget and Management, and Hon. Rosalinda Cajucom, the Treasurer of
the Philippines. The respondents are sued in their official capacities, being officials of the Executive
Department involved in the implementation of the release of funds appropriated in the Annual
Appropriations Law.
We treat the Comments of the Office of the Solicitor General (OSG) as an Answer and decide the
petition on its merits.
The factual backdrop of this case is as follows:
On June 20, 1953, Republic Act No, 910 was enacted to provide the retirement pensions of Justices of
the Supreme Court and of the Court of Appeals who have rendered at least twenty (20) years service
either in the Judiciary or in any other branch of the Government or in both, having attained the age of
seventy (70) years or who resign by reason of incapacity to discharge the duties of the office. The retired
Justice shall receive during the residue of his natural life the salary which he was receiving at the time of
his retirement or resignation.
Republic Act No. 910 was amended by Republic Act No. 1797 (approved on June 21, 1957) which
provided that:
Sec. 3-A. In case the salary of Justices of the Supreme Court or of the Court of Appeals is
increased or decreased, such increased or decreased salary shall, for purposes of this Act, be deemed to
be the salary or the retirement pension which a Justice who as of June twelve, nineteen hundred fifty-
four had ceased to be such to accept another position in the Government or who retired was receiving
at the time of his cessation in office. Provided, that any benefits that have already accrued prior to such
increase or decrease shall not be affected thereby.
Identical retirement benefits were also given to the members of the Constitutional Commissions under
Republic Act No. 1568, as amended by Republic Act No. 3595. On November 12, 1974, on the occasion
of the Armed Forces Loyalty Day, President Marcos signed Presidential Decree 578 which extended
similar retirement benefits to the members of the Armed Forces giving them also the automatic
readjustment features of Republic Act No. 1797 and Republic Act No. 3595.
Two months later, however, President Marcos issued Presidential Decree 644 on January 25, 1975
repealing Section 3-A of Republic Act No. 1797 and Republic Act No. 3595 (amending Republic Act No.
1568 and Presidential Decree No. 578) which authorized the adjustment of the pension of the retired
Justices of the Supreme Court, Court of Appeals, Chairman and members of the Constitutional
Commissions and the officers and enlisted members of the Armed Forces to the prevailing rates of
salaries.
Significantly, under Presidential Decree 1638 the automatic readjustment of the retirement pension of
officers and enlisted men was subsequently restored by President Marcos. A later decree Presidential
Decree 1909 was also issued providing for the automatic readjustment of the pensions of members of
the Armed Forces who have retired prior to September 10, 1979.
While the adjustment of the retirement pensions for members of the Armed Forces who number in the
tens of thousands was restored, that of the retired Justices of the Supreme Court and Court of Appeals
who are only a handful and fairly advanced in years, was not.
Realizing the unfairness of the discrimination against the members of the Judiciary and the
Constitutional Commissions, Congress approved in 1990 a bill for the reenactment of the repealed
provisions of Republic Act No. 1797 and Republic Act No. 3595. Congress was under the impression that
Presidential Decree 644 became law after it was published in the Official Gazette on April 7, 1977. In the
explanatory note of House Bill No. 16297 and Senate Bill No. 740, the legislature saw the need to
reenact Republic Act Nos. 1797 and 3595 to restore said retirement pensions and privileges of the
retired Justices and members of the Constitutional Commissions, in order to assure those serving in the
Supreme Court, Court of Appeals and Constitutional Commissions adequate old age pensions even
during the time when the purchasing power of the peso has been diminished substantially by worldwide
recession or inflation. This is underscored by the fact that the petitioner retired Chief Justice, a retired
Associate Justice of the Supreme Court and the retired Presiding Justice are presently receiving monthly
pensions of P3,333.33, P2,666.66 and P2,333.33 respectively.
President Aquino, however vetoed House Bill No. 16297 on July 11, 1990 on the ground that according
to her "it would erode the very foundation of the Government's collective effort to adhere faithfully to
and enforce strictly the policy on standardization of compensation as articulated in Republic Act No.
6758 known as Compensation and Position Classification Act of 1989." She further said that "the
Government should not grant distinct privileges to select group of officials whose retirement benefits
under existing laws already enjoy preferential treatment over those of the vast majority of our civil
service servants."
Prior to the instant petition, however, Retired Court of Appeals Justices Manuel P. Barcelona, Juan P.
Enriquez, Juan O. Reyes, Jr. and Guardson R. Lood filed a letter/petition dated April 22, 1991 which we
treated as Administrative Matter No. 91-8-225-CA. The petitioners asked this Court far a readjustment
of their monthly pensions in accordance with Republic Act No. 1797. They reasoned out that Presidential
Decree 644 repealing Republic Act No. 1797 did not become law as there was no valid publication
pursuant to Taada v. Tuvera, (136 SCRA 27 [1985]) and 146 SCRA 446 [1986]). Presidential Decree 644
promulgated on January 24, 1975 appeared for the first time only in the supplemental issue of the
Official Gazette, (Vol. 74, No. 14) purportedly dated April 4, 1977 but published only on September 5,
1983. Since Presidential Decree 644 has no binding force and effect of law, it therefore did not repeal
Republic Act No. 1797.
In a Resolution dated November 28, 1991 the Court acted favorably on the request. The dispositive
portion reads as follows:
WHEREFORE, the requests of retired Justices Manuel P. Barcelona, Juan P. Enriquez, Juan O. Reyes and
Guardson Lood are GRANTED. It is hereby AUTHORIZED that their monthly pensions be adjusted and
paid on the basis of RA 1797 effective January 1, 1991 without prejudice to the payment on their
pension differentials corresponding to the previous years upon the availability of funds for the purpose.
Pursuant to the above resolution, Congress included in the General Appropriations Bill for Fiscal Year
1992 certain appropriations for the Judiciary intended for the payment of the adjusted pension rates
due the retired Justices of the Supreme Court and Court of Appeals.
The pertinent provisions in House Bill No. 34925 are as follows:
XXVIII. THE JUDICIARY
A. Supreme Court of the Philippines and the Lower Courts.
For general administration, administration of personnel benefits, supervision of courts, adjudication of

constitutional questions appealed and other cases, operation and maintenance of the Judicial and Bar
Council in the Supreme Court, and the adjudication of regional court cases, metropolitan court cases,
municipal trial court cases in Cities, municipal circuit court cases, municipal, court cases, Shari'a district
court cases and Shari'a circuit court cases as indicated hereunder P2,095,651,000
Special Provisions.
1. Augmentation of any Item in the Court's Appropriations. Any savings in the appropriation for the
Supreme Court and the Lower Courts may be utilized by the Chief Justice of the Supreme Court to
augment any item of the Court's appropriations for: (a) printing of decisions and publications of
Philippine Reports; b) commutable terminal leaves of Justices and other personnel of the Supreme Court
and any payment of adjusted pension rates to retired Justices entitled thereto pursuant to
Administrative Matter No. 91-8-225-CA; (c) repair, maintenance, improvement, and other operating
expenses of the courts' books and periodicals; (d) purchase, maintenance and improvement of printing
equipment; e) necessary expenses for the employment of temporary employees, contractual and casual
employees, for judicial administration; f) maintenance and improvement of the Court's Electronic Data
Processing; (g) extraordinary expenses of the Chief Justice, attendance in international conferences and
conduct of training programs; (h) commutable transportation and representation allowances and fringe
benefits for Justices, Clerks of Court, Court Administrator, Chief of Offices and other Court personnel in
accordance with the rates prescribed by law; and (i) compensation of attorneys-de-oficio; PROVIDED,
that as mandated by LOI No. 489 any increases in salary and allowances shall be subject to the usual
procedures and policies as provided for under P.D. No. 985 and other pertinent laws. (page 1071,
General Appropriations Act, FY 1992; Emphasis supplied)
4. Payment of Adjusted Pension Rates to Retired Justices. The amount herein appropriated for
payment of pensions to retired judges and justices shall include the payment of pensions at the adjusted
rates to retired justices of the Supreme Court entitled thereto pursuant to the ruling of the Court in
Administrative Matter No. 91-8-225-C.A. (page 1071, General Appropriations Act, FY 1992).
Activities and Purposes
1. General Administration and Support Services.
a. General administrative Services P 43,515,000
b. Payment of retirement gratuity
of national goverment officials
and employees P 206,717,000
c. Payment of terminal leave benefits to
officials and employees antitled thereto P 55,316,000
d. Payment of pension totired jude
and justice entitled thereto P 22,500,000
(page 1071, General Appropriations Act, FY 1992)
C. COURT OF APPEALS
For general administration, administration
of personnel benefit, benefits and the
adjudication of appealed and other cases
as indicated hereunder P114,615,000
Special Provisions.
1. Authority to Use Savings. Subject to the approval of the Chief Justice of the Supreme Court in
accordance with Section 25(5), Article VI of the Constitution of the Republic of the Philippines, the
Presiding Justice may be authorized to use any savings in any item of the appropriation for the Court of
Appeals for purposes of: (1) improving its compound and facilities; and (2) for augmenting any
deficiency in any item of its appropriation including its extraordinary expenses and payment of adjusted
pension rates to retired justices entitled thereto pursuant to Administrative Matter No. 91-8-225-C.A.
(page 1079, General Appropriations Act, FY 1992; Emphasis supplied)
2. Payment of adjustment Pension Rates to Retired Justices. The amount herein appropriated for
payment of pensions to retired judges and justices shall include the payment of pensions at the adjusted
rates to retired justices of the Court of Appeals entitled thereto pursuant to the Ruling of the Supreme
Court in Administrative Matter No. 91-6-225-C.A. (page 1079 General Appropriations Act, FY 1992).
XL. GENERAL FUND ADJUSTMENT
For general fund adjustment for
operational and special requirements
as indicated hereunder P500,000,000
Special Provisions
1. Use of the Fund. This fund shall be used for:
1.3. Authorized overdrafts and/or valid unbooked obligations, including the payment of back salaries
and related personnel benefits arising from decision of competent authority including the Supreme
Court decision in Administrative Matter No. 91-8-225-C.A. and COA decision in No. 1704." (page 11649
Gen. Appropriations Act, FY 1992; Emphasis supplied)
On January 15, 1992, the President vetoed the underlined portions of Section 1 and the entire Section 4
the Special Provisions for the Supreme Court of the Philippines and the Lower Courts (General
Appropriations Act, FY 1992, page 1071) and the underlined portions of Section 1 and the entire Section
2, of the Special Provisions for the Court of Appeals (page 1079) and the underlined portions of Section
1.3 of Article XLV of the Special Provisions of the General Fund Adjustments (page 1164, General
Appropriations Act, FY 1992).
The reason given for the veto of said provisions is that "the resolution of this Honorable Court in
Administrative Matter No. 91-8-225-CA pursuant to which the foregoing appropriations for the payment
of the retired Justices of the Supreme Court and the Court of Appeals have been enacted effectively
nullified the veto of the President on House Bill No. 16297, the bill which provided for the automatic
increase in the retirement pensions of the Justices of the Supreme Court and the Court of Appeals and
chairmen of the Constitutional Commissions by re-enacting Republic Act No. 1797 and Republic Act No.
3595. The President's veto of the aforesaid provisions was further justified by reiterating the earlier
reasons for vetoing House Bill No. 16297: "they would erode the very foundation of our collective effort
to adhere faithfully to and enforce strictly the policy and standardization of compensation. We should
not permit the grant of distinct privileges to select group of officials whose retirement pensions under
existing laws already enjoy preferential treatment over those of the vast majority of our civil servants."
Hence, the instant petition filed by the petitioners with the assertions that:
1) The subject veto is not an item veto;
2) The veto by the Executive is violative of the doctrine of separation of powers;
3) The veto deprives the retired Justices of their rights to the pensions due them;
4) The questioned veto impairs the Fiscal Autonomy guaranteed by the Constitution.
Raising similar grounds, the petitioners in AM-91-8-225-CA, brought to the attention of this Court that
the veto constitutes no legal obstacle to the continued payment of the adjusted pensions pursuant to
the Court's resolution.
On February 14, 1992, the Court resolved to consolidate Administrative Matter No. 91-8-225-CA with
G.R. No. 103524.
The petitioners' contentions are well-taken.
It cannot be overstressed that in a constitutional government such as ours, the rule of law must prevail.
The Constitution is the basic and paramount law to which all other laws must conform and to which all
persons including the highest official of this land must defer. From this cardinal postulate, it follows that
the three branches of government must discharge their respective functions within the limits of
authority conferred by the Constitution. Under the principle of separation of powers, neither Congress,
the President nor the Judiciary may encroach on fields allocated to the other branches of government.
The legislature is generally limited to the enactment of laws, the executive to the enforcement of laws
and the judiciary to their interpretation and application to cases and controversies.
The Constitution expressly confers or the judiciary the power to maintain inviolate what it decrees. As
the guardian of the Constitution we cannot shirk the duty of seeing to it that the officers in each branch
of government do not go beyond their constitutionally allocated boundaries and that the entire
Government itself or any of its branches does not violate the basic liberties of the people. The essence
of this judicial duty was emphatically explained by Justice Laurel in the leading case of Angara v.
Electoral Commission, (63 Phil. 139 [1936]) to wit:
The Constitution is a definition of the powers of government. Who is to determine the nature, scope
and extent of such powers? The Constitution itself has provided for the instrumentality of the judiciary
as the rational way. And when the judiciary mediates to allocate constitutional boundaries it does not
assert any superiority over the other department, it does not in reality nullify or invalidate an act of the
legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to
determine conflicting claims of authority under the Constitution and to establish for the parties in an
actual controversy the rights which that instrument secures and guarantees to them. (Emphasis
supplied) The act of the Executive in vetoing the particular provisions is an exercise of a constitutionally
vested power. But even as the Constitution grants the power, it also provides limitations to its exercise.
The veto power is not absolute.
The pertinent provision of the Constitution reads:
The President shall have the power to veto any particular item or items in an appropriation, revenue or
tariff bill but the veto shall not affect the item or items to which he does not object. (Section 27(2),
Article VI, Constitution)
The OSG is correct when it states that the Executive must veto a bill in its entirety or not at all. He or she
cannot act like an editor crossing out specific lines, provisions, or paragraphs in a bill that he or she
dislikes. In the exercise of the veto power, it is generally all or nothing. However, when it comes to
appropriation, revenue or tariff bills, the Administration needs the money to run the machinery of
government and it can not veto the entire bill even if it may contain objectionable features. The
President is, therefore, compelled to approve into law the entire bill, including its undesirable parts. It is
for this reason that the Constitution has wisely provided the "item veto power" to avoid inexpedient
riders being attached to an indispensable appropriation or revenue measure.
The Constitution provides that only a particular item or items may be vetoed. The power to disapprove
any item or items in an appropriate bill does not grant the authority to veto a part of an item and to
approve the remaining portion of the same item. (Gonzales v. Macaraig, Jr., 191 SCRA 452, 464 [1990])
We distinguish an item from a provision in the following manner:
The terms item and provision in budgetary legislation and practice are concededly different. An item in a
bill refers to the particulars, the details, the distinct and severable parts . . . of the bill (Bengzon, supra,
at 916.) It is an indivisible sum of money dedicated to a stated purpose (Commonwealth v. Dodson, 11
S.E. 2d 120, 124, 125, etc., 176 Va. 281) The United States Supreme Court, in the case of Bengzon v.
Secretary of Justice (299 U.S. 410, 414, 57 Ct. 252, 81 L. Ed, 312) declared "that an "tem" of an
appropriation bill obviously means an item which in itself is a specific appropriation of money, not some
general provision of law, which happens to be put into an appropriation bill." (id. at page 465)
We regret having to state that misimpressions or unfortunately wrong advice must have been the basis
of the disputed veto.
The general fund adjustment is an item which appropriates P500,000,000.00 to enable the Government
to meet certain unavoidable obligations which may have been inadequately funded by the specific items
for the different branches, departments, bureaus, agencies, and offices of the government.
The President did not veto this item. What were vetoed were methods or systems placed by Congress to
insure that permanent and continuing obligations to certain officials would be paid when they fell due.
An examination of the entire sections and the underlined portions of the law which were vetoed will
readily show that portions of the item have been chopped up into vetoed and unvetoed parts. Less than
all of an item has been vetoed. Moreover, the vetoed portions are not items. They are provisions.
Thus, the augmentation of specific appropriations found inadequate to pay retirement payments, by
transferring savings from other items of appropriation is a provision and not an item. It gives power to
the Chief Justice to transfer funds from one item to another. There is no specific appropriation of money
involved.
In the same manner, the provision which states that in compliance with decisions of the Supreme Court
and the Commission on Audit, funds still undetermined in amount may be drawn from the general fund
adjustment is not an item. It is the "general fund adjustment" itself which is the item. This was not
touched. It was not vetoed.
More ironic is the fact that misinformation led the Executive to believe that the items in the 1992
Appropriations Act were being vetoed when, in fact, the veto struck something else.
What were really vetoed are:
(1) Republic Act No. 1797 enacted as early as June 21, 1957; and
(2) The Resolution of the Supreme Court dated November 28, 1991 in Administrative Matter No.
91-8-225-CA.
We need no lengthy justifications or citations of authorities to declare that no President may veto the
provisions of a law enacted thirty-five (35) years before his or her term of office. Neither may the
President set aside or reverse a final and executory judgment of this Court through the exercise of the
veto power.
A few background facts may be reiterated to fully explain the unhappy situation.
Republic Act No. 1797 provided for the adjustment of pensions of retired Justices which privilege was
extended to retired members of Constitutional Commissions by Republic Act No. 3595.
On January 25, 1975, President Marcos issued Presidential Decree No. 644 which repealed Republic Acts
1797 and 3595. Subsequently, automatic readjustment of pensions for retired Armed Forces officers and
men was surreptitiously restored through Presidential Decree Nos. 1638 and 1909.
It was the impression that Presidential Decree No. 644 had reduced the pensions of Justices and
Constitutional Commissioners which led Congress to restore the repealed provisions through House Bill
No. 16297 in 1990. When her finance and budget advisers gave the wrong information that the
questioned provisions in the 1992 General Appropriations Act were simply an attempt to overcome her
earlier 1990 veto, she issued the veto now challenged in this petition.
It turns out, however, that P.D. No. 644 never became valid law. If P.D. No. 644 was not law, it follows
that Rep. Act No. 1797 was not repealed and continues to be effective up to the present. In the same
way that it was enforced from 1951 to 1975, so should it be enforced today.
House Bill No. 16297 was superfluous as it tried to restore benefits which were never taken away validly.
The veto of House Bill No. 16297 in 1991 did not also produce any effect. Both were based on erroneous
and non-existent premises.
From the foregoing discussion, it can be seen that when the President vetoed certain provisions of the
1992 General Appropriations Act, she was actually vetoing Republic Act No. 1797 which, of course, is
beyond her power to accomplish.
Presidential Decree No. 644 which purportedly repealed Republic Act No. 1717 never achieved that
purpose because it was not properly published. It never became a law.
The case of Tada v. Tuvera (134 SCRA 27 [1985]and 146 SCRA 446 [1986]) specifically requires that "all
laws shall immediately upon their approval or as soon thereafter as possible, be published in full in the
Official Gazette, to become effective only after fifteen days from their publication, or on another date
specified by the legislature, in accordance with Article 2 of the Civil Code." This was the Court's answer
to the petition of Senator Lorenzo Taada and other opposition leaders who challenged the validity of
Marcos' decrees which, while never published, were being enforced. Secret decrees are anathema in a
free society.
In support of their request, the petitioners in Administrative Matter No. 91-9-225-CA secured
certification from Director Lucita C. Sanchez of the National Printing Office that the April 4, 1977
Supplement to the Official Gazette was published only on September 5, 1983 and officially released on
September 29, 1983.
On the issue of whether or not Presidential Decree 644 became law, the Court has already categorically
spoken in a definitive ruling on the matter, to wit:
xxx xxx xxx
PD 644 was promulgated by President Marcos on January 24, 1975, but was not immediately or soon
thereafter published although preceding and subsequent decrees were duly published in the Official
Gazette. It now appears that it was intended as a secret decree "NOT FOR PUBLICATION" as the notation
on the face of the original copy thereof plainly indicates (Annex B). It is also clear that the decree was
published in the back-dated Supplement only after it was challenged in the Taada case as among the
presidential decrees that had not become effective for lack of the required publication. The petition was
filed on May 7, 1983, four months before the actual publication of the decree.
It took more than eight years to publish the decree after its promulgation in 1975. Moreover, the
publication was made in bad faith insofar as it purported to show that it was done in 1977 when the
now demonstrated fact is that the April 4, 1977 supplement was actually published and released only in
September 1983. The belated publication was obviously intended to refute the petitioner's claim in the
Taada case and to support the Solicitor General's submission that the petition had become moot and
academic.
xxx xxx xxx
We agree that PD 644 never became a law because it was not validly published and that, consequently,
it did not have the effect of repealing RA 1797. The requesting Justices (including Justice Lood, whose
request for the upgrading of his pension was denied on January 15, 1991) are therefore entitled to be
paid their monthly pensions on the basis of the latter measure, which remains unchanged to date.
The Supreme Court has spoken and it has done so with finality, logically and rightly so as to assure
stability in legal relations, and avoid confusion. (see Ver v. Quetullo, 163 SCRA 80 [1988]) Like other
decisions of this Court, the ruling and principles set out in the Court resolution constitute binding
precedent. (Bulig-Bulig Kita Kamaganak Association, et al. v. Sulpicio Lines, Inc., Regional Trial Court,
etc., G.R. 847500 16 May 1989, En Banc, Minute Resolution)
The challenged veto has far-reaching implications which the Court can not countenance as they
undermine the principle of separation of powers. The Executive has no authority to set aside and
overrule a decision of the Supreme Court.
We must emphasize that the Supreme Court did not enact Rep. Act No. 1797. It is not within its powers
to pass laws in the first place. Its duty is confined to interpreting or defining what the law is and whether
or not it violates a provision of the Constitution.
As early as 1953, Congress passed a law providing for retirement pensions to retired Justices of the
Supreme Court and the Court of Appeals. This law was amended by Republic Act 1797 in 1957. Funds
necessary to pay the retirement pensions under these statutes are deemed automatically appropriated
every year.
Thus, Congress included in the General Appropriations Act of 1992, provisions identifying funds and
savings which may be used to pay the adjusted pensions pursuant to the Supreme Court Resolution. As
long as retirement laws remain in the statute book, there is an existing obligation on the part of the
government to pay the adjusted pension rate pursuant to RA 1797 and AM-91-8-225-CA.
Neither may the veto power of the President be exercised as a means of repealing RA 1797. This is
arrogating unto the Presidency legislative powers which are beyond its authority. The President has no
power to enact or amend statutes promulgated by her predecessors much less to repeal existing laws.
The President's power is merely to execute the laws as passed by Congress.
II
There is a matter of greater consequence arising from this petition. The attempt to use the veto power
to set aside a Resolution of this Court and to deprive retirees of benefits given them by Rep. Act No.
1797 trenches upon the constitutional grant of fiscal autonomy to the Judiciary.
Sec. 3, Art. VIII mandates that:
Sec. 3 The Judiciary shall enjoy fiscal autonomy. Appropriations for the Judiciary may not be reduced
by the legislature below the amount appropriated for the previous year and, after approval, shall be
automatically and regularly released.
We can not overstress the importance of and the need for an independent judiciary. The Court has on
various past occasions explained the significance of judicial independence. In the case of De la Llana v.
Alba (112 SCRA 294 [1982]), it ruled:
It is a cardinal rule of faith of our constitutional regime that it is the people who are endowed with
rights, to secure which a government is instituted. Acting as it does through public officials, it has to
grant them either expressly or implicitly certain powers. These they exercise not for their own benefit
but for the body politic. . . .
A public office is a public trust. That is more than a moral adjuration. It is a legal imperative. The law may
vest in a public official certain rights. It does so to enable them to perform his functions and fulfill his
responsibilities more efficiently. . . . It is an added guarantee that justices and judges can administer
justice undeterred by any fear of reprisal or untoward consequence. Their judgments then are even
more likely to be inspired solely by their knowledge of the law and the dictates of their conscience, free
from the corrupting influence of base or unworthy motives. The independence of which they are
assured is impressed with a significance transcending that of a purely personal right. (At pp. 338-339)
The exercise of the veto power in this case may be traced back to the efforts of the Department of
Budget and Management (DBM) to ignore or overlook the plain mandate of the Constitution on fiscal
autonomy. The OSG Comment reflects the same truncated view of the provision.
We have repeatedly in the past few years called the attention of DBM that not only does it allocate less
than one percent (1%) of the national budget annually for the 22,769 Justices, Judges, and court
personnel all over the country but it also examines with a fine-toothed come how we spend the funds
appropriated by Congress based on DBM recommendations.
The gist of our position papers and arguments before Congress is as follows:
The DBM requires the Supreme Court, with Constitutional Commissions, and the Ombudsman to submit
budget proposals in accordance with parameters it establishes. DBM evaluates the proposals, asks each
agency to defend its proposals during DBM budget hearings, submits its own version of the proposals to
Congress without informing the agency of major alterations and mutilations inflicted on their proposals,
and expects each agency to defend in Congress proposals not of the agency's making.
After the general appropriations bill is passed by Congress and signed into law by the President, the tight
and officious control by DBM continues. For the release of appropriated funds, the Judiciary,
Constitutional Commissions, and Ombudsman are instructed through "guidelines", how to prepare Work
and Financial Plans and requests for monthly allotments. The DBM evaluates and approves these plans
and requests and on the basis of its approval authorizes the release of allotments with corresponding
notices of cash allocation. These notices specify the maximum withdrawals each month which the
Supreme Court, the Commissions and the Ombudsman may make from the servicing government bank.
The above agencies are also required to submit to DBM monthly, quarterly and year-end budget
accountability reports to indicate their performance, physical and financial operations and income,
The DBM reserves to itself the power to review the accountability reports and when importuned for
needed funds, to release additional allotments to the agency. Since DBM always prunes the budget
proposals to below subsistence levels and since emergency situations usually occur during the fiscal
year, the Chief Justices, Chairmen of the Commissions, and Ombudsman are compelled to make
pilgrimages to DBM for additional funds to tide their respective agencies over the emergency.
What is fiscal autonomy?
As envisioned in the Constitution, the fiscal autonomy enjoyed by the Judiciary, the Civil Service
Commission, the Commission on Audit, the Commission on Elections, and the Office of the Ombudsman
contemplates a guarantee on full flexibility to allocate and utilize their resources with the wisdom and
dispatch that their needs require. It recognizes the power and authority to levy, assess and collect fees,
fix rates of compensation not exceeding the highest rates authorized by law for compensation and pay
plans of the government and allocate and disburse such sums as may be provided by law or prescribed
by them in the course of the discharge of their functions.
Fiscal autonomy means freedom from outside control. If the Supreme Court says it needs 100
typewriters but DBM rules we need only 10 typewriters and sends its recommendations to Congress
without even informing us, the autonomy given by the Constitution becomes an empty and illusory
platitude.
The Judiciary, the Constitutional Commissions, and the Ombudsman must have the independence end
flexibility needed in the discharge of their constitutional duties. The imposition of restrictions and
constraints on the manner the independent constitutional offices allocate and utilize the funds
appropriated for their operations is anathema to fiscal autonomy and violative not only of the express
mandate of the Constitution but especially as regards the Supreme Court, of the independence and
separation of powers upon which the entire fabric of our constitutional system is based. In the interest
of comity and cooperation, the Supreme Court, Constitutional Commissions, and the Ombudsman have
so far limited their objections to constant reminders. We now agree with the petitioners that this grant
of autonomy should cease to be a meaningless provision.
In the case at bar, the veto of these specific provisions in the General Appropriations Act is tantamount
to dictating to the Judiciary how its funds should be utilized, which is clearly repugnant to fiscal
autonomy. The freedom of the Chief Justice to make adjustments in the utilization of the funds
appropriated for the expenditures of the judiciary, including the use of any savings from any particular
item to cover deficits or shortages in other items of the Judiciary is withheld. Pursuant to the
Constitutional mandate, the Judiciary must enjoy freedom in the disposition of the funds allocated to it
in the appropriations law. It knows its priorities just as it is aware of the fiscal restraints. The Chief
Justice must be given a free hand on how to augment appropriations where augmentation is needed.
Furthermore, in the case of Gonzales v. Macaraig (191 SCRA 452 [1990]), the Court upheld the authority
of the President and other key officials to augment any item or any appropriation from savings in the
interest of expediency and efficiency. The Court stated that:
There should be no question, therefore, that statutory authority has, in fact, been granted. And once
given, the heads of the different branches of the Government and those of the Constitutional
Commissions are afforded considerable flexibility in the use of public funds and resources (Demetria v.
Alba, supra). The doctrine of separation of powers is in no way endangered because the transfer is made
within a department (or branch of government) and not from one department (branch) to another.
The Constitution, particularly Article VI, Section 25(5) also provides:
Sec. 25. (5) No law shall be passed authorizing any transfer of appropriations; however, the President,
the President of the Senate, the Speaker of the House of Representatives, the Chief Justice of the
Supreme Court, and the heads of Constitutional Commissions may, by law, be authorized to augment
any item in the general appropriations law for their respective offices from savings in other items of
their respective appropriations.
In the instant case, the vetoed provisions which relate to the use of savings for augmenting items for the
payment of the pension differentials, among others, are clearly in consonance with the abovestated
pronouncements of the Court. The veto impairs the power of the Chief Justice to augment other items
in the Judiciary's appropriation, in contravention of the constitutional provision on "fiscal autonomy."
III
Finally, it can not be denied that the retired Justices have a vested right to the accrued pensions due
them pursuant to RA 1797.
The right to a public pension is of statutory origin and statutes dealing with pensions have been enacted
by practically all the states in the United States (State ex rel. Murray v, Riley, 44 Del 505, 62 A2d 236),
and presumably in most countries of the world. Statutory provisions for the support of Judges or Justices
on retirement are founded on services rendered to the state. Where a judge has complied with the
statutory prerequisite for retirement with pay, his right to retire and draw salary becomes vested and
may not, thereafter, be revoked or impaired. (Gay v. Whitehurst, 44 So ad 430)
Thus, in the Philippines, a number of retirement laws have been enacted, the purpose of which is to
entice competent men and women to enter the government service and to permit them to retire
therefrom with relative security, not only those who have retained their vigor but, more so, those who
have been incapacitated by illness or accident. (In re: Amount of the Monthly Pension of Judges and
Justices Starting From the Sixth Year of their Retirement and After the Expiration of the Initial Five-year
Period of Retirement, (190 SCRA 315 [1990]).
As early as 1953, Rep. Act No. 910 was enacted to grant pensions to retired Justices of the Supreme
Court and Court of Appeals.
This was amended by RA 1797 which provided for an automatic adjustment of the pension rates.
Through the years, laws were enacted and jurisprudence expounded to afford retirees better benefits.
P.D. No. 1438, for one, was promulgated on June 10, 1978 amending RA 910 providing that the lump
sum of 5 years gratuity to which the retired Justices of the Supreme Court and Court of Appeals were
entitled was to be computed on the basis of the highest monthly aggregate of transportation, living and
representation allowances each Justice was receiving on the date of his resignation. The Supreme Court
in a resolution dated October 4, 1990, stated that this law on gratuities covers the monthly pensions of
retired Judges and Justices which should include the highest monthly aggregate of transportation, living
and representation allowances the retiree was receiving on the date of retirement. (In Re: Amount of
the Monthly Pension of Judges and Justices, supra)
The rationale behind the veto which implies that Justices and Constitutional officers are unduly favored
is, again, a misimpression.
Immediately, we can state that retired Armed Forces officers and enlisted men number in the tens of
thousands while retired Justices are so few they can be immediately identified. Justices retire at age 70
while military men retire at a much younger age some retired Generals left the military at age 50 or
earlier. Yet the benefits in Rep. Act No. 1797 are made to apply equally to both groups. Any ideas arising
from an alleged violation of the equal protection clause should first be directed to retirees in the military
or civil service where the reason for the retirement provision is not based on indubitable and
constitutionally sanctioned grounds, not to a handful of retired Justices whose retirement pensions are
founded on constitutional reasons.
The provisions regarding retirement pensions of justices arise from the package of protections given by
the Constitution to guarantee and preserve the independence of the Judiciary.
The Constitution expressly vests the power of judicial review in this Court. Any institution given the
power to declare, in proper cases, that act of both the President and Congress are unconstitutional
needs a high degree of independence in the exercise of its functions. Our jurisdiction may not be
reduced by Congress. Neither may it be increased without our advice and concurrence. Justices may not
be removed until they reach age 70 except through impeachment. All courts and court personnel are
under the administrative supervision of the Supreme Court. The President may not appoint any Judge or
Justice unless he or she has been nominated by the Judicial and Bar Council which, in turn, is under the
Supreme Court's supervision. Our salaries may not be decreased during our continuance in office. We
cannot be designated to any agency performing administrative or quasi-judicial functions. We are
specifically given fiscal autonomy. The Judiciary is not only independent of, but also co-equal and
coordinate with the Executive and Legislative Departments. (Article VIII and section 30, Article VI,
Constitution)
Any argument which seeks to remove special privileges given by law to former Justices of this Court and
the ground that there should be no "grant of distinct privileges" or "preferential treatment" to retired
Justices ignores these provisions of the Constitution and, in effect, asks that these Constitutional
provisions on special protections for the Judiciary be repealed. The integrity of our entire constitutional
system is premised to a large extent on the independence of the Judiciary. All these provisions are
intended to preserve that independence. So are the laws on retirement benefits of Justices.
One last point.
The Office of the Solicitor General argues that:
. . . Moreover, by granting these benefits to retired Justices implies that public funds, raised from taxes
on other citizens, will be paid off to select individuals who are already leading private lives and have
ceased performing public service. Said the United States Supreme Court, speaking through Mr. Justice
Miller: "To lay with one hand the power of the government on the property of the citizen, and with the
other to bestow upon favored individuals . . . is nonetheless a robbery because it is done under the
forms of law . . ." (Law Association V. Topeka, 20 Wall. 655) (Comment, p. 16)
The above arguments are not only specious, impolite and offensive; they certainly are unbecoming of an
office whose top officials are supposed to be, under their charter, learned in the law.
Chief Justice Cesar Bengzon and Chief Justice Querube Makalintal, Justices J.B.L. Reyes, Cecilia Muoz
Palma, Efren Plana, Vicente Abad Santos, and, in fact, all retired Justices of the Supreme Court and the
Court of Appeals may no longer be in the active service. Still, the Solicitor General and all lawyers under
him who represent the government before the two courts and whose predecessors themselves
appeared before these retirees, should show some continuing esteem and good manners toward these
Justices who are now in the evening of their years.
All that the retirees ask is to be given the benefits granted by law. To characterize them as engaging in
"robbery" is intemperate, abrasive, and disrespectful more so because the argument is unfounded.
If the Comment is characteristic of OSG pleadings today, then we are sorry to state that the then quality
of research in that institution has severely deteriorated.
In the first place, the citation of the case is, wrong. The title is not LAW Association v. Topeka but
Citizen's Savings and Loan Association of Cleveland, Ohio v. Topeka City (20 Wall. 655; 87 U.S. 729; 22
Law. Ed. 455 [1874]. Second, the case involved the validity of a statute authorizing cities and counties to
issue bonds for the purpose of building bridges, waterpower, and other public works to aid private
railroads improve their services. The law was declared void on the ground that the right of a
municipality to impose a tax cannot be used for private interests.
The case was decided in 1874. The world has turned over more than 40,000 times since that ancient
period. Public use is now equated with public interest. Public money may now be used for slum
clearance, low-cost housing, squatter resettlement, urban and agrarian reform where only private
persons are the immediate beneficiaries. What was "robbery" in 1874 is now called "social justice."
There is nothing about retirement benefits in the cited case. Obviously, the OSG lawyers cited from an
old textbook or encyclopedia which could not even spell "loan" correctly. Good lawyers are expected to
go to primary sources and to use only relevant citations.
The Court has been deluged with letters and petitions by former colleagues in the Judiciary requesting
adjustments in their pensions just so they would be able to cope with the everyday living expenses not
to mention the high cost of medical bills that old age entails. As Justice Cruz aptly stated in Teodoro J.
Santiago v. COA, (G.R. No. 92284, July 12, 1991);
Retirement laws should be interpreted liberally in favor of the retiree because their intention is to
provide for his sustenance, and hopefully even comfort, when he no longer has the stamina to continue
earning his livelihood. After devoting the best years of his life to the public service, he deserves the
appreciation of a grateful government as best concretely expressed in a generous retirement gratuity
commensurate with the value and length of his services. That generosity is the least he should expect
now that his work is done and his youth is gone. Even as he feels the weariness in his bones and
glimpses the approach of the lengthening shadows, he should be able to luxuriate in the thought that he
did his task well, and was rewarded for it.
For as long as these retired Justices are entitled under laws which continue to be effective, the
government can not deprive them of their vested right to the payment of their pensions.
WHEREFORE, the petition is hereby GRANTED. The questioned veto is SET ASIDE as illegal and
unconstitutional. The vetoed provisions of the 1992 Appropriations Act are declared valid and
subsisting. The respondents are ordered to automatically and regularly release pursuant to the grant of
fiscal autonomy the funds appropriated for the subject pensions as well as the other appropriations for
the Judiciary. The resolution in Administrative Matter No. 91-8-225-CA dated November 28, 1991 is
likewise ordered to be implemented as promulgated.

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CONGRESSMAN ENRIQUE T.

GARCIA (Second District of Bataan), petitioner,

xxx xxx xxx

Section 401 of the same Code needs to be quoted in full:

Sec. 401. Flexible Clause.

COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF CUSTOMS, petitioners, vs. HON.

HERMOSISIMA, JR., J.:

'In view of the foregoing reflections, judgment is hereby rendered, as follows:

2. Enforcement of the same is hereby enjoined.

Section 150 (a) of Executive Order No. 273 reads:

The following issues were thus raised therein:

Jewelry and (MANUFACTURING) Sales Tax 10% (VAT)

Precious stones Excise Tax

Philippines 3% to 10% to be 20% 10% VAT

Malaysia None None None

Thailand None None None

Singapore None None None

Hongkong None None None

We rule in favor of the petitioners.

BRITISH AMERICAN TOBACCO, G.R. No. 163583

Leonardo-De Castro, and

JOSE ISIDRO N. CAMACHO,

in his capacity as Secretary of

the Department of Finance and

in his capacity as Commissioner of

the Bureau of Internal Revenue,

PHILIP MORRIS PHILIPPINES

FORTUNE TOBACCO, CORP., Promulgated:

MIGHTY CORPORATION, and

Respondents-in-Intervention. August 20, 2008

Paragraph (c) of Section 145, [1] states

SEC. 145. Cigars and cigarettes.

SECTION 2. Definition of Terms.

Pertinent portions, of RA 9334, provides:

SEC. 145. Cigars and Cigarettes.

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Sec. 7. Jurisdiction. The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

In Drilon v. Lim,[27] it was held:

Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:

Now to the substantive issues.

SEC. 145. Cigars and Cigarettes.

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

This clarification is significant because, under these circumstances, a declaration of unconstitutionality

SEC. 142. Cigars and cigarettes.

SEC. 142. Cigars and cigarettes.

Pressing this point, Senator Roco continued his query:

1. That the automatic adjustment clause is at best questionable in law.

We answer in the negative.

We now tackle the second issue.

II. POLICIES AND GUIDELINES

Large Taxpayers Assistance Division II

1. Perform the following preparatory procedures on the identification of brands to be surveyed,

b. On the tax reclassification of new brands

There is merit to the contention.

We now tackle the last issue.

Private respondent Philippine Cement Manufacturers Corporation[6] (Philcemcor) is an association of

Accordingly, the Tariff Commission made the following recommendation, to wit:

The DTI hereby issues the following:

Propriety of the Temporary Restraining Order