G.R. No.
L-28896 February 17, 1988 protest and it was only then that he accepted
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX
APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It
is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.
The main issue in this case is whether or not
the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed
by private respondent Algue as legitimate
business expenses in its income tax returns.
The corollary issue is whether or not the
appeal of the private respondent from the
decision of the Collector of Internal Revenue
was made on time and in accordance with
law.
We deal first with the procedural question.
The record shows that on January 14, 1965,
the private respondent, a domestic
corporation engaged in engineering,
construction and other allied activities,
received a letter from the petitioner assessing
it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958
and 1959.1 On January 18, 1965, Algue flied a
letter of protest or request for reconsideration,
which letter was stamp received on the same
day in the office of the petitioner. 2 On March
12, 1965, a warrant of distraint and levy was
presented to the private respondent, through
its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the
pending protest. 3 A search of the protest in
the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who
deferred service of the warrant. 4 On April 7,
1965, Atty. Guevara was finally informed that
the BIR was not taking any action on the
Jeremiah 29:11
the warrant of distraint and levy earlier sought
to be served.5 Sixteen days later, on April 23,
1965, Algue filed a petition for review of the
decision of the Commissioner of Internal
Revenue with the Court of Tax Appeals.6
The above chronology shows that the petition
was filed seasonably. According to Rep. Act
No. 1125, the appeal may be made within
thirty days after receipt of the decision or
ruling challenged.7 It is true that as a rule the
warrant of distraint and levy is "proof of the
finality of the assessment" 8 and renders
hopeless a request for
reconsideration," 9 being "tantamount to an
outright denial thereof and makes the said
request deemed rejected." 10 But there is a
special circumstance in the case at bar that
prevents application of this accepted doctrine.
The proven fact is that four days after the
private respondent received the petitioner's
notice of assessment, it filed its letter of
protest. This was apparently not taken into
account before the warrant of distraint and
levy was issued; indeed, such protest could
not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a
copy of the protest that it was, if at all,
considered by the tax authorities. During the
intervening period, the warrant was premature
and could therefore not be served.
As the Court of Tax Appeals correctly
noted," 11 the protest filed by private
respondent was not pro forma and was based
on strong legal considerations. It thus had the
effect of suspending on January 18, 1965,
when it was filed, the reglementary period
which started on the date the assessment was
received, viz., January 14, 1965. The period
started running again only on April 7, 1965,
when the private respondent was definitely
informed of the implied rejection of the said
protest and the warrant was finally served on
it. Hence, when the appeal was filed on April
23, 1965, only 20 days of the reglementary
period had been consumed.
Now for the substantive question.
1
The petitioner contends that the claimed
deduction of P75,000.00 was properly
disallowed because it was not an ordinary
reasonable or necessary business expense.
The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that
the said amount had been legitimately paid by
the private respondent for actual services
rendered. The payment was in the form of
promotional fees. These were collected by the
Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of
the properties of the Philippine Sugar Estate
Development Company.
Parenthetically, it may be observed that the
petitioner had Originally claimed these
promotional fees to be personal holding
company income 12 but later conformed to the
decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the
amount was earned through the joint efforts of
the persons among whom it was distributed It
has been established that the Philippine
Sugar Estate Development Company had
earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation,
inducing other persons to invest in
it.14 Ultimately, after its incorporation largely
through the promotion of the said persons,
this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as
agent a commission of P126,000.00, and it
was from this commission that the P75,000.00
promotional fees were paid to the aforenamed
individuals.16
There is no dispute that the payees duly
reported their respective shares of the fees in
their income tax returns and paid the
corresponding taxes thereon.17 The Court of
Tax Appeals also found, after examining the
evidence, that no distribution of dividends was
involved.18
The petitioner claims that these payments are
fictitious because most of the payees are
Jeremiah 29:11
members of the same family in control of
Algue. It is argued that no indication was
made as to how such payments were made,
whether by check or in cash, and there is not
enough substantiation of such payments. In
short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by
involving an imaginary deduction.
We find that these suspicions were
adequately met by the private respondent
when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that
the payments were not made in one lump sum
but periodically and in different amounts as
each payee's need arose. 19 It should be
remembered that this was a family corporation
where strict business procedures were not
applied and immediate issuance of receipts
was not required. Even so, at the end of the
year, when the books were to be closed, each
payee made an accounting of all of the fees
received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed
to be informal. This arrangement was
understandable, however, in view of the close
relationship among the persons in the family
corporation.
We agree with the respondent court that the
amount of the promotional fees was not
excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to
the private respondent was
P125,000.00. 21After deducting the said fees,
Algue still had a balance of P50,000.00 as
clear profit from the transaction. The amount
of P75,000.00 was 60% of the total
commission. This was a reasonable
proportion, considering that it was the payees
who did practically everything, from the
formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the
Sugar Estate properties. This finding of the
respondent court is in accord with the
following provision of the Tax Code:
SEC. 30. Deductions from
gross income.--In computing
net income there shall be
allowed as deductions —
(a) Expenses:
2
 (1) In general.--All the ordinary
and necessary expenses paid
or incurred during the taxable
year in carrying on any trade
or business, including a
reasonable allowance for
salaries or other compensation
for personal services actually
rendered; ... 22
and Revenue Regulations No. 2, Section 70
(1), reading as follows:
SEC. 70. Compensation for
personal services.--Among the
ordinary and necessary
expenses paid or incurred in
carrying on any trade or
business may be included a
reasonable allowance for
salaries or other compensation
for personal services actually
rendered. The test of
deductibility in the case of
compensation payments is
whether they are reasonable
and are, in fact, payments
purely for service. This test
and deductibility in the case of
compensation payments is
whether they are reasonable
and are, in fact, payments
purely for service. This test
and its practical application
may be further stated and
illustrated as follows:
Any amount paid in the form of
compensation, but not in fact
as the purchase price of
services, is not deductible. (a)
An ostensible salary paid by a
corporation may be a
distribution of a dividend on
stock. This is likely to occur in
the case of a corporation
having few stockholders,
Practically all of whom draw
salaries. If in such a case the
salaries are in excess of those
ordinarily paid for similar
services, and the excessive
payment correspond or bear a
Jeremiah 29:11
close relationship to the
stockholdings of the officers of
employees, it would seem
likely that the salaries are not
paid wholly for services
rendered, but the excessive
payments are a distribution of
earnings upon the stock. . . .
(Promulgated Feb. 11, 1931,
30 O.G. No. 18, 325.)
It is worth noting at this point that most of the
payees were not in the regular employ of
Algue nor were they its controlling
stockholders. 23
The Solicitor General is correct when he says
that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the
present case, however, we find that the onus
has been discharged satisfactorily. The
private respondent has proved that the
payment of the fees was necessary and
reasonable in the light of the efforts exerted by
the payees in inducing investors and
prominent businessmen to venture in an
experimental enterprise and involve
themselves in a new business requiring
millions of pesos. This was no mean feat and
should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for
civilization society. Without taxes, the
government would be paralyzed for lack of the
motive power to activate and operate it.
Hence, despite the natural reluctance to
surrender part of one's hard earned income to
the taxing authorities, every person who is
able to must contribute his share in the
running of the government. The government
for its part, is expected to respond in the form
of tangible and intangible benefits intended to
improve the lives of the people and enhance
their moral and material values. This symbiotic
relationship is the rationale of taxation and
should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the
seat of power.
But even as we concede the inevitability and
indispensability of taxation, it is a requirement
in all democratic regimes that it be exercised
3
reasonably and in accordance with the
prescribed procedure. If it is not, then the
taxpayer has a right to complain and the
courts will then come to his succor. For all the
awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer
can demonstrate, as it has here, that the law
has not been observed.

We hold that the appeal of the private

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

ACCORDINGLY, the appealed decision of the

Court of Tax Appeals is AFFIRMED in
toto, without costs.

SO ORDERED.

4
Jeremiah 29:11
G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented
by SORIAMONT STEAMSHIP AGENCIES
INC., and COURT OF TAX
APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private
respondent Tokyo Shipping Co. Ltd., is
entitled to a refund or tax credit for amounts
representing pre-payment of income and
common carrier's taxes under the National
Internal Revenue Code, section 24 (b) (2), as
amended.1
Private respondent is a foreign corporation
represented in the Philippines by Soriamont
Steamship Agencies, Incorporated. It owns
and operates tramper vessel M/V Gardenia. In
December 1980, NASUTRA2 chartered M/V
Gardenia to load 16,500 metric tons of raw
sugar in the Philippines.3 On December 23,
1980, Mr. Edilberto Lising, the operations
supervisor of Soriamont Agency,4 paid the
required income and common carrier's taxes
in the respective sums of FIFTY-NINE
THOUSAND FIVE HUNDRED TWENTY-
THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-
SEVEN THOUSAND SIX HUNDRED
NINETEEN PESOS (P47,619.00), or a total of
ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and
SEVENTY-FIVE CENTAVOS (P107,142.75)
based on the expected gross receipts of the
vessel.5 Upon arriving, however, at Guimaras
Port of Iloilo, the vessel found no sugar for
loading. On January 10, 1981, NASUTRA and
private respondent's agent mutually agreed to
have the vessel sail for Japan without any
cargo.
Claiming the pre-payment of income and
common carrier's taxes as erroneous since no
receipt was realized from the charter
Jeremiah 29:11
agreement, private respondent instituted a
claim for tax credit or refund of the sum ONE
HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and
SEVENTY-FIVE CENTAVOS (P107,142.75)
before petitioner Commissioner of Internal
Revenue on March 23, 1981. Petitioner failed
to act promptly on the claim, hence, on May
14, 1981, private respondent filed a petition
for review6 before public respondent Court of
Tax Appeals.
Petitioner contested the petition. As special
and affirmative defenses, it alleged the
following: that taxes are presumed to have
been collected in accordance with law; that in
an action for refund, the burden of proof is
upon the taxpayer to show that taxes are
erroneously or illegally collected, and the
taxpayer's failure to sustain said burden is
fatal to the action for refund; and that claims
for refund are construed strictly against tax
claimants.7
After trial, respondent tax court decided in
favor of the private respondent. It held:
It has been shown in this case
that 1) the petitioner has
complied with the mentioned
statutory requirement by
having filed a written claim for
refund within the two-year
period from date of payment;
2) the respondent has not
issued any deficiency
assessment nor disputed the
correctness of the tax returns
and the corresponding
amounts of prepaid income
and percentage taxes; and 3)
the chartered vessel sailed out
of the Philippine port with
absolutely no cargo laden on
board as cleared and certified
by the Customs authorities;
nonetheless 4) respondent's
apparent bit of reluctance in
validating the legal merit of the
claim, by and large, is tacked
upon the "examiner who is
investigating petitioner's claim
for refund which is the subject
5
 matter of this case has not yet
submitted his report. Whether
or not respondent will present
his evidence will depend on
the said report of the
examiner." (Respondent's
Manifestation and Motion
dated September 7, 1982). Be
that as it may the case was
submitted for decision by
respondent on the basis of the
pleadings and records and by
petitioner on the evidence
presented by counsel sans the
respective memorandum.
An examination of the records
satisfies us that the case
presents no dispute as to
relatively simple material facts.
The circumstances obtaining
amply justify petitioner's
righteous indignation to a more
expeditious action.
Respondent has offered no
reason nor made effort to
submit any controverting
documents to bash that patina
of legitimacy over the claim.
But as might well be, towards
the end of some two and a half
years of seeming impotent
anguish over the pendency,
the respondent Commissioner
of Internal Revenue would
furnish the satisfaction of
ultimate solution by
manifesting that "it is now his
turn to present evidence,
however, the Appellate
Division of the BIR has already
recommended the approval of
petitioner's claim for refund
subject matter of this petition.
The examiner who examined
this case has also
recommended the refund of
petitioner's claim. Without
prejudice to withdrawing this
case after the final approval of
petitioner's claim, the Court
ordered the resetting to
September 7, 1983." (Minutes
Jeremiah 29:11
of June 9, 1983 Session of the
Court) We need not fashion
any further issue into an
apparently settled legal
situation as far be it from a
comedy of errors it would be
too much of a stretch to hold
and deny the refund of the
amount of prepaid income and
common carrier's taxes for
which petitioner could no
longer be made accountable.
On August 3, 1984, respondent court denied
petitioner's motion for reconsideration, hence,
this petition for review on certiorari.
Petitioner now contends: (1) private
respondent has the burden of proof to support
its claim of refund; (2) it failed to prove that it
did not realize any receipt from its charter
agreement; and (3) it suppressed evidence
when it did not present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law.
It is section 24 (b) (2) of the National Internal
Revenue Code which at that time provides as
follows:
A corporation organized,
authorized, or existing under
the laws of any foreign
country, engaged in trade or
business within the
Philippines, shall be taxable as
provided in subsection (a) of
this section upon the total net
income derived in the
preceding taxable year from all
sources within the
Philippines: Provided,
however, That international
carriers shall pay a tax of two
and one-half per cent (2 1/2%)
on their gross Philippine
billings: "Gross Philippine
Billings" include gross revenue
realized from uplifts anywhere
in the world by any
international carrier doing
6
 business in the Philippines of
passage documents sold
therein, whether for
passenger, excess baggage or
mail, provided the cargo or
mail originates from the
Philippines. The gross revenue
realized from the said cargo or
mail include the gross freight
charge up to final destination.
Gross revenue from chartered
flights originating from the
Philippines shall likewise form
part of "Gross Philippine
Billings" regardless of the
place or payment of the
passage documents . . . . .
Pursuant to this provision, a resident foreign
corporation engaged in the transport of cargo
is liable for taxes depending on the amount of
income it derives from sources within the
Philippines. Thus, before such a tax liability
can be enforced the taxpayer must be shown
to have earned income sourced from the
Philippines.
We agree with petitioner that a claim for
refund is in the nature of a claim for
exemption8 and should be construed
in strictissimi juris against the
taxpayer.9 Likewise, there can be no
disagreement with petitioner's stance that
private respondent has the burden of proof to
establish the factual basis of its claim for tax
refund.
The pivotal issue involves a question of fact —
whether or not the private respondent was
able to prove that it derived no receipts from
its charter agreement, and hence is entitled to
a refund of the taxes it pre-paid to the
government.
The respondent court held that sufficient
evidence has been adduced by the private
respondent proving that it derived no receipt
from its charter agreement with NASUTRA.
This finding of fact rests on a rational basis,
and hence must be sustained. Exhibits "E",
"F," and "G" positively show that the tramper
vessel M/V "Gardenia" arrived in Iloilo on
January 10, 1981 but found no raw sugar to
Jeremiah 29:11
load and returned to Japan without any cargo
laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District
Collector of Customs, Port of Iloilo while
Exhibit "F" is the Certification by the Officer-in-
Charge, Export Division of the Bureau of
Customs Iloilo. The correctness of the
contents of these documents regularly issued
by officials of the Bureau of Customs cannot
be doubted as indeed, they have not been
contested by the petitioner. The records also
reveal that in the course of the proceedings in
the court a quo, petitioner hedged and hawed
when its turn came to present evidence. At
one point, its counsel manifested that the BIR
examiner and the appellate division of the BIR
have both recommended the approval of
private respondent's claim for refund. The
same counsel even represented that the
government would withdraw its opposition to
the petition after final approval of private
respondents' claim. The case dragged on but
petitioner never withdrew its opposition to the
petition even if it did not present evidence at
all. The insincerity of petitioner's stance drew
the sharp rebuke of respondent court in its
Decision and for good reason. Taxpayers owe
honesty to government just as government
owes fairness to taxpayers.
In its last effort to retain the money
erroneously prepaid by the private
respondent, petitioner contends that private
respondent suppressed evidence when it did
not present its charter agreement with
NASUTRA. The contention cannot succeed. It
presupposes without any basis that the
charter agreement is prejudicial evidence
against the private respondent. 10 Allegedly, it
will show that private respondent earned a
charter fee with or without transporting its
supposed cargo from Iloilo to Japan. The
allegation simply remained an allegation and
no court of justice will regard it as truth.
Moreover, the charter agreement could have
been presented by petitioner itself thru the
proper use of a subpoena duces tecum. It
never did either because of neglect or
because it knew it would be of no help to
bolster its position. 11 For whatever reason, the
petitioner cannot take to task the private
respondent for not presenting what it
mistakenly calls "suppressed evidence."
7
We cannot but bewail the unyielding stance
taken by the government in refusing to refund
the sum of ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY TWO
PESOS AND SEVENTY FIVE CENTAVOS
(P107,142.75) erroneously prepaid by private
respondent. The tax was paid way back in
1980 and despite the clear showing that it was
erroneously paid, the government succeeded
in delaying its refund for fifteen (15) years.
After fifteen (15) long years and the expenses
of litigation, the money that will be finally
refunded to the private respondent is just
worth a damaged nickel. This is not, however,
the kind of success the government,
especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by
our taxpayers from the BIR and the duty
demands that BIR should refund without any
unreasonable delay what it has erroneously
collected. Our ruling in Roxas v. Court of Tax
Appeals 12 is apropos to recall:

The power of taxation is

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

IN VIEW HEREOF, the assailed decision of

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

SO ORDERED.

8
Jeremiah 29:11
BPI-FAMILY SAVINGS BANK,
Inc., petitioner, vs. COURT OF
APPEALS, COURT OF TAX
APPEALS and the
COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
PANGANIBAN, J.:
If the State expects its taxpayers to
observe fairness and honesty in
paying their taxes, so must it apply
the same standard against itself in
refunding excess payments. When
it is undisputed that a taxpayer is
entitled to a refund, the State
should not invoke technicalities to
keep money not belonging to it. No
one, not even the State, should
enrich oneself at the expense of
another.
The Case
Before us is a Petition for Review
assailing the March 31, 1995
Decision of the Court of
Appeals (CA) in CA-GR SP No.
[1]
34240, which affirmed the
December 24, 1993 Decision of [2]
the Court of Tax Appeals (CTA).
The CA disposed as follows:
"WHEREFORE,
foregoing premises
considered, the petition
is hereby DISMISSED
for lack of merit."
[3]
Jeremiah 29:11
On the other hand, the dispositive
portion of the CTA Decision
affirmed by the CA reads as follows:
"WHEREFORE, in
[view of] all the
foregoing, Petitioners
claim for refund is
hereby DENIED and
this Petition for Review
is DISMISSED for lack
of merit." [4]
Also assailed is the November 8,
1995 CA Resolution denying
[5]
reconsideration.
The Facts
The facts of this case were
summarized by the CA in this wise:
"This case involves a
claim for tax refund in
the amount
of P112,491.00
representing petitioners
tax withheld for the year
1989.
In its Corporate Annual
Income Tax Return for
the year 1989, the
following items are
reflected:
Income..........................
...P1,017,931,831.00
Deductions....................
....P1,026,218,791.00
9
 Net Income "On October 11, 1990,
(Loss).................(P8,28 petitioner filed a written
6,960.00) claim for refund in the
Taxable Income amount of P112,491.00
(Loss).............P8,286,9 with the respondent
60.00 Commissioner of
Internal Revenue
Less: alleging that it did not
apply the 1989
1988 Tax refundable amount of
Credit......... P297,492.00 (including
......P185,0 P112,491.00) to its
01.00 1990 Annual Income
1989 Tax Tax Return or other tax
Credit......... liabilities due to the
......P112,4 alleged business losses
91.00 it incurred for the same
year.
TOTAL
AMOUNT...................... "Without waiting for
P297,492.00 respondent
REFUNDABLE Commissioner of
Internal Revenue to act
"It appears from the on the claim for refund,
foregoing 1989 Income petitioner filed a petition
Tax Return that for review with
petitioner had a total respondent Court of
refundable amount of Tax Appeals, seeking
P297,492 inclusive of the refund of the
the P112,491.00 being amount of P112,491.00.
claimed as tax refund in
the present case. "The respondent Court
However, petitioner of Tax Appeals
declared in the same dismissed petitioners
1989 Income Tax petition on the ground
Return that the said that petitioner failed to
total refundable amount present as evidence its
of P297,492.00 will be Corporate Annual
applied as tax credit to Income Tax Return for
the succeeding taxable 1990 to establish the
year. fact that petitioner had

10
Jeremiah 29:11
 not yet credited the
amount of P297,492.00
(inclusive of the amount
P112,491.00 which is
the subject of the
present controversy) to
its 1990 income tax
liability.
"Petitioner filed a
motion for
reconsideration,
however, the same was
denied by respondent
court in its Resolution
dated May 6, 1994." [6]
As earlier noted, the CA affirmed
the CTA. Hence, this Petition.[7]
Ruling of the Court of Appeals
In affirming the CTA, the Court of
Appeals ruled as follows:
"It is incumbent upon
the petitioner to show
proof that it has not
credited to its 1990
Annual income Tax
Return, the amount of
P297,492.00 (including
P112,491.00), so as to
refute its previous
declaration in the 1989
Income Tax Return that
the said amount will be
applied as a tax credit
in the succeeding year
of 1990. Having failed
Jeremiah 29:11
to submit such
requirement, there is no
basis to grant the claim
for refund. x x x
"Tax refunds are in the
nature of tax
exemptions. As such,
they are regarded as in
derogation of sovereign
authority and to be
construed strictissimi
juris against the person
or entity claiming the
exemption. In other
words, the burden of
proof rests upon the
taxpayer to establish by
sufficient and
competent evidence its
entitlement to the claim
for refund."[8]
Issue
In their Memorandum, respondents
identify the issue in this wise:
"The sole issue to be
resolved is whether or
not petitioner is entitled
to the refund of
P112,491.00,
representing excess
creditable withholding
tax paid for the taxable
year 1989." [9]
11
 The Courts Ruling
The Petition is meritorious.
Main Issue: Petitioner Entitled to
Refund
It is undisputed that petitioner had
excess withholding taxes for the
year 1989 and was thus entitled to
a refund amounting to P112,491.
Pursuant to Section 69 of the 1986
[10]
Tax Code which states that a
corporation entitled to a refund may
opt either (1) to obtain such refund
or (2) to credit said amount for the
succeeding taxable year, petitioner
indicated in its 1989 Income Tax
Return that it would apply the said
amount as a tax credit for the
succeeding taxable year, 1990.
Subsequently, petitioner informed
the Bureau of Internal Revenue
(BIR) that it would claim the amount
as a tax refund, instead of applying
it as a tax credit. When no action
from the BIR was forthcoming,
petitioner filed its claim with the
Court of Tax Appeals.
The CTA and the CA, however,
denied the claim for tax refund.
Since petitioner declared in its 1989
Income Tax Return that it would
apply the excess withholding tax as
a tax credit for the following year,
the Tax Court held that petitioner
was presumed to have done so.
The CTA and the CA ruled that
petitioner failed to overcome this
Jeremiah 29:11
presumption because it did not
present its 1990 Return, which
would have shown that the amount
in dispute was not applied as a tax
credit. Hence, the CA concluded
that petitioner was not entitled to a
tax refund.
We disagree with the Court of
Appeals. As a rule, the factual
findings of the appellate court are
binding on this Court. This rule,
however, does not apply
where, inter alia, the judgment is
premised on a misapprehension of
facts, or when the appellate court
failed to notice certain relevant facts
which if considered would justify a
different conclusion. This case is
[11]
one such exception.
In the first place, petitioner
presented evidence to prove its
claim that it did not apply the
amount as a tax credit. During the
trial before the CTA, Ms. Yolanda
Esmundo, the manager of
petitioners accounting department,
testified to this fact. It likewise
presented its claim for refund and a
certification issued by Mr. Gil
Lopez, petitioners vice-president,
stating that the amount of P112,491
"has not been and/or will not be
automatically credited/offset against
any succeeding quarters income tax
liabilities for the rest of the calendar
year ending December 31, 1990."
Also presented were the quarterly
returns for the first two quarters of
1990.
12
The Bureau of Internal Revenue, for
its part, failed to controvert
petitioners claim. In fact, it
presented no evidence at all.
Because it ought to know the tax
records of all taxpayers, the CIR
could have easily disproved
petitioners claim. To repeat, it did
not do so.
More important, a copy of the Final
Adjustment Return for 1990 was
attached to petitioners Motion for
Reconsideration filed before the
CTA. A final adjustment return
[12]
shows whether a corporation
incurred a loss or gained a profit
during the taxable year. In this
case, that Return clearly showed
that petitioner incurred P52,480,173
as net loss in 1990. Clearly, it could
not have applied the amount in
dispute as a tax credit.
Again, the BIR did not controvert
the veracity of the said return. It did
not even file an opposition to
petitioners Motion and the 1990
Final Adjustment Return attached
thereto. In denying the Motion for
Reconsideration, however, the CTA
ignored the said Return. In the
same vein, the CA did not pass
upon that significant document.
True, strict procedural rules
generally frown upon the
submission of the Return after the
trial. The law creating the Court of
Tax Appeals, however, specifically
provides that proceedings before it
"shall not be governed strictly by
Jeremiah 29:11
the technical rules of
evidence." The paramount
[13]
consideration remains the
ascertainment of truth. Verily, the
quest for orderly presentation of
issues is not an absolute. It should
not bar courts from considering
undisputed facts to arrive at a just
determination of a controversy.
In the present case, the Return
attached to the Motion for
Reconsideration clearly showed
that petitioner suffered a net loss in
1990. Contrary to the holding of the
CA and the CTA, petitioner could
not have applied the amount as a
tax credit. In failing to consider the
said Return, as well as the other
documentary evidence presented
during the trial, the appellate court
committed a reversible error.
It should be stressed that the
rationale of the rules of procedure is
to secure a just determination of
every action. They are tools
designed to facilitate the attainment
of justice. But there can be no just
[14]
determination of the present action
if we ignore, on grounds of strict
technicality, the Return submitted
before the CTA and even before
this Court. To repeat, the
[15]
undisputed fact is that petitioner
suffered a net loss in 1990;
accordingly, it incurred no tax
liability to which the tax credit could
be applied. Consequently, there is
no reason for the BIR and this Court
13
to withhold the tax refund which
rightfully belongs to the petitioner.
Public respondents maintain that
what was attached to petitioners
Motion for Reconsideration was not
the final adjustment Return, but
petitioners first two quarterly returns
for 1990. This allegation is wrong.
[16]
An examination of the records
shows that the 1990 Final
Adjustment Return was attached to
the Motion for Reconsideration. On
the other hand, the two quarterly
returns for 1990 mentioned by
respondent were in fact attached to
the Petition for Review filed before
the CTA. Indeed, to rebut
respondents specific contention,
petitioner submitted before us its
Surrejoinder, to which was attached
the Motion for Reconsideration and
Exhibit "A" thereof, the Final
Adjustment Return for 1990. [17]
CTA Case No. 4897
Petitioner also calls the attention of
this Court, as it had done before the
CTA, to a Decision rendered by the
Tax Court in CTA Case No. 4897,
involving its claim for refund for the
year 1990. In that case, the Tax
Court held that "petitioner suffered
a net loss for the taxable year 1990
x x x." Respondent, however,
[18]
urges this Court not to take judicial
notice of the said case. [19]
As a rule, "courts are not authorized
to take judicial notice of the
contents of the records of other
Jeremiah 29:11
cases, even when such cases have
been tried or are pending in the
same court, and notwithstanding
the fact that both cases may have
been heard or are actually pending
before the same judge." [20]
Be that as it may, Section 2, Rule
129 provides that courts may take
judicial notice of matters ought to be
known to judges because of their
judicial functions. In this case, the
Court notes that a copy of the
Decision in CTA Case No. 4897
was attached to the Petition for
Review filed before this Court.
Significantly, respondents do not
claim at all that the said Decision
was fraudulent or nonexistent.
Indeed, they do not even dispute
the contents of the said Decision,
claiming merely that the Court
cannot take judicial notice thereof.
To our mind, respondents
reasoning underscores the
weakness of their case. For if they
had really believed that petitioner is
not entitled to a tax refund, they
could have easily proved that it did
not suffer any loss in 1990. Indeed,
it is noteworthy that respondents
opted not to assail
the fact appearing therein -- that
petitioner suffered a net loss in
1990 in the same way that
it refused to controvert the same
fact established by petitioners other
documentary exhibits.
In any event, the Decision in CTA
Case No. 4897 is not the sole basis
14
of petitioners case. It is merely one Decision and Resolution of the
more bit of information showing the Court of
stark truth: petitioner did not use its Appeals REVERSED and SET ASI
1989 refund to pay its taxes for DE. The Commissioner of Internal
1990. Revenue is ordered to refund to
petitioner the amount of P112,491
Finally, respondents argue that tax as excess creditable taxes paid in
refunds are in the nature of tax 1989. No costs.
exemptions and are to be
construed strictissimi juris against SO ORDERED.
the claimant. Under the facts of this
case, we hold that petitioner has
established its claim. Petitioner may
have failed to strictly comply with
the rules of procedure; it may have
even been negligent. These
circumstances, however, should not
compel the Court to disregard this
cold, undisputed fact: that petitioner
suffered a net loss in 1990, and that
it could not have applied the
amount claimed as tax credits.

Substantial justice, equity and fair

play are on the side of petitioner.
Technicalities and legalisms,
however exalted, should not be
misused by the government to keep
money not belonging to it and
thereby enrich itself at the expense
of its law-abiding citizens. If the
State expects its taxpayers to
observe fairness and honesty in
paying their taxes, so must it apply
the same standard against itself in
refunding excess payments of such
taxes. Indeed, the State must lead
by its own example of honor, dignity
and uprightness.

WHEREFORE, the Petition is

hereby GRANTED and the assailed
15
Jeremiah 29:11
G.R. No. L-18330 July 31, 1963
JOSE DE BORJA, petitioner-appellee,
vs.
VICENTE G. GELLA, ET AL., respondents-
appellants.
David Guevara for petitioner-appellee.
Office of the Solicitor General for respondent-
appellant Treasurer of the Philippines.
Assistant City Fiscal H. A. Avendano for
respondent-appellant Treasurer of Pasay City.
BAUTISTA ANGELO, J.:
Jose de Borja has been delinquent in the
payment of his real estate taxes since 1958
for properties located in the City of Manila and
Pasay City and has offered to pay them with
two negotiable, certificates of indebtedness
Nos. 3064 and 3065 in the amounts of
P793.40 and P717.69, respectively. Borja
was, however, a mere assignee of the
aforesaid negotiable certificates, the
applicants for backpay rights covered by them
being respectively Rafael Vizcaya and Pablo
Batario Luna.
The offers to pay the estate taxes in question
were rejected by the city treasurers of both
Manila and Pasay cities on the ground of their
limited negotiability under Section 2, Republic
Act No. 304, as amended by Republic Act
800, and in the case of the city treasurer of
Manila on the further ground that he was
ordered not to accept them by the city mayor,
for which reason Borja was prompted to bring
the question to the Treasurer of the
Philippines who opined, among others, that
the negotiable certificates cannot be accepted
as payment of real estate taxes inasmuch as
the law provides for their acceptance from
their backpay holder only or the original
applicant himself, but not his assignee. In his
letter of April 29, 1960 to the Treasurer of the
Philippines, however, Borja entertained hope
that the certificates would be accepted for
payment in view of the fact that they are
already long past due and redeemable, but his
hope was frustrated. So on June 30, 1960,
Borja filed an action against the treasurers of
both the City of Manila and Pasay City, as well
Jeremiah 29:11
as the Treasurer of the Philippines, to impel
them to execute an act which the law
allegedly requires them to perform, to wit: to
accept the above-mentioned certificates of
indebtedness considering that they were
already due and redeemable so as not to
deprive him illegally of his privilege to pay his
obligation to the government thru such means.
Respondents in due time filed their answer
setting up the reasons for their refusal to
accept the certificates, and after the requisite
trial was held, the court a quo rendered
judgment the dispositive part of which reads:
WHEREFORE, the treasurers of the
City of Manila and Pasay City, their
agents and other persons acting in
their behalf are hereby enjoined from
including petitioner's properties in the
payment of real estate, taxes, and to
sell them at public auction and
respondent Treasurer of the
Philippines, and the treasurers of the
City of Manila and Pasay City are
hereby ordered to accept petitioner's
Negotiable Certificates of
Indebtedness Nos. 3064 and 3065 in
the sums of P793.40 and P717.39 in
payment of real estate taxes of his
properties in the City of Manila and
Pasay City, respectively, without
costs.
Respondents took this appeal on purely
questions of law.1äw phï1.ñët
Reduced to bare essentials, the 12 errors
assigned by appellants may be boiled down to
the following: (a) has appellee the right to
apply to the payment of his real estate taxes
to the government of Manila and Pasay cities
the certificates of indebtedness he holds while
appellants have the correlative legal duty to
accept the certificates in payment of said
taxes?; (b) can compensation be invoked to
extinguish appellee's real estate tax liability
between the latter's obligation and the credit
represented by said certificates of
indebtedness?
16
Anent the first issue, the pertinent legal
provision to be reckoned with is Section 2 of
Republic Act No. 304, as amended by
Republic Act No. 800, which in part reads:
SEC. 2. The Treasurer of the
Philippines shall, upon application,
and within one year from the approval
of this Act, and under such rules and
regulations as may be promulgated by
the Secretary of Finance,
acknowledge and file requests for the
recognition of the right to the salaries
and wages as provided in section one
hereof, and notice of such
acknowledgment shall be issued to
the applicant which shall state the total
amount of such salaries or wages due
to the applicant, and certify that it shall
be redeemed by the Government of
the Philippines within ten years from
the date of their issuance without
interest: Provided, that upon
application . . . a certificate of
indebtedness may be issued by the
Treasurer of the Philippines covering
the whole or part of the total salaries
or wages the right to which has been
duly acknowledged and recognized,
provided that the face value of such
certificate of indebtedness shall not
exceed the amount that the applicant
may need for the payment of
(1) obligations subsisting at the time of
the approval of this Act for which the
applicant may directly be liable to the
Government or to any of its branches
or instrumentalities, or the
corporations owned or controlled by
the Government, or to any citizen of
the Philippines, who may be willing to
accept the same for such settlement;
(2) his taxes; . . . and Provided, also,
That any person who is not an alien,
bank or other financial institution at
least sixty per centum of whose capital
is owned by Filipinos may,
notwithstanding any provision of its
charter, articles of incorporation, by-
laws, or rules and regulations to the
contrary, accept or discount at not
more than three and one-half per
centum per annum for ten years a
Jeremiah 29:11
negotiable certificate of indebtedness
which shall be issued by the Treasurer
of the Philippines upon application by
a holder of a back pay
acknowledgment. . . . .
To begin with, it cannot be contended that
appellants are in duty bound to accept the
negotiable certificates of indebtedness held by
appellee in payment of his real estate taxes
for the simple reason that they were not
obligations subsisting at the time of the
approval of Republic Act No. 304 which took
effect on June 18, 1948. It should be noted
that the real estate taxes in question have
reference to those due in 1958 and
subsequent years. The law is explicit that in
order that a certificate may be used in
payment of an obligation the same must be
subsisting at the time of its approval even if
we hold that a tax partakes of this character,
neither can it be contended that appellee can
compel the government to accept the alleged
certificates of indebtedness in payment of his
real estate taxes under proviso No. 2
abovequoted also for the reason that in order
that such payment may be allowed the tax
must be owed by the applicant himself . This
is the correct implication that may be drawn
from the use by the law of the words "his
taxes". Verily, the right to use the backpay
certificate in settlement of taxes is given only
to the applicant and not to any holder of any
negotiable certificate to whom the law only
gives the right to have it discounted by a
Filipino citizen or corporation under certain
limitations. Here appellee is not himself the
applicant of the certificate, in question. He is
merely an assignee thereof, or a subsequent
holder whose right is at most to have it
discounted upon maturity — or to negotiate it
in the meantime. A fortiori, it may be included
that, not having the right to use said
certificates to pay his taxes, appellee cannot
compel appellants to accept them as he
requests in the present petition for
mandamus. As a consequence, we cannot but
hold that mandamus does not lie against
appellants because they have in no way
neglected to perform an act enjoined upon
them by law as a duty, nor have they
unlawfully excluded appellee from the use or
enjoyment of a right to which be is entitled.1
17
We are aware of the cases2 cited by the
court a quo wherein the government banking
institutions were ordered to accept the
backpay certificates of petitioners in payment
of their indebtedness to them, but they are not
here in point because in the cases mentioned
the petitioners were applicants and original
holders of the corresponding backpay
certificates. Here appellee is not.
With regard to the second issue, i.e., whether
compensation can be invoked insofar as the
two obligations are concerned, Articles 1278
and 1279 of the new Civil Code provide:
ART. 1278. Compensation shall take
place when two persons, in their own
right, are creditors and debtors of
each other.
ART. 1279. In order that
compensation may be proper, it is
necessary:
(1) That each one of the obligors be
bound principally, and that he be at
the same time a principal creditor of
the other;
(2) That both debts consist in a sum of
money, or if the things due are
consumable, they be of the same kind,
and also of the same quality if the
latter has been stated;
owed by appellee are due to the City of Manila
and Pasay City, each one of which having a
distinct and separate personality from our
Republic. With regard to the certificates, the
creditor is the appellee while the debtor is the
Republic of the Philippines. And with regard to
the taxes, the creditors are the City of Manila
and Pasay City while the debtor is the
appellee. It appears, therefore, that each one
of the obligors concerning the two obligations
is not at the same time the principal creditor of
the other. It cannot also be said for certain
that the certificates are already due. Although
on their faces the certificates issued to
appellee state that they are redeemable on
June 18, 1958, yet the law does not say that
they are redeemable from its approval on
June 18, 1948 but "within ten years from the
date of issuance" of the certificates. There is
no certainty, therefore, when the certificates
are really redeemable within the meaning of
the law. Since the requisites for the
accomplishment of legal compensation cannot
be fulfilled, the latter cannot take place with
regard to the two obligations as found by the
court a quo.
WHEREFORE, the decision appealed from is
reversed. The petition for mandamus is
dismissed. The injunction issued against
respondents-appellants is hereby lifted. No
costs.

(3) That the two debts be due;

(4) That they two liquidated and

demandable;

(5) That over neither of them there be

any retention or controversy,
commenced by third persons and
communicated in due time to the
debtor.

It is clear from the above legal provisions that

compensation cannot be effected with regard
to the two obligations in question. In the first
place, the debtor insofar as the certificates of
indebtedness are concerned is the Republic of
the Philippines, whereas the real estate taxes

18
Jeremiah 29:11
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as
Executive Secretary; ROBERTO DE
OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and
their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR
OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT
OF FINANCE; THE COMMISSIONERS OF
THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP
PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and
OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her
capacity as Commissioner of Internal
Revenue; HON. TEOFISTO T. GUINGONA,
JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in
his capacity as Secretary of
Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND
BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
Jeremiah 29:11
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA,
CIRILO A. RIGOS, ERME CAMBA, EMILIO
C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE
TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL,
MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM
FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE
SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF
CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and
COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE
PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her
capacity as the Commissioner of Internal
Revenue, HON. TEOFISTO T. GUINGONA,
JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in
his capacity as Secretary of
Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS
ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
19
vs.
HON. ROBERTO B. DE OCAMPO, as the
Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of
our decision dismissing the petitions filed in
these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax
Law. The motions, of which there are 10 in all,
have been filed by the several petitioners in
these cases, with the exception of the
Philippine Educational Publishers Association,
Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the
respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in
G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544,
and Juan T. David, petitioner in G.R. No.
115525, each filed a reply. In turn the Solicitor
General filed on June 1, 1995 a rejoinder to
the PPI's reply.
On June 27, 1995 the matter was submitted
for resolution.
I. Power of the Senate to propose
amendments to revenue bills. Some of the
petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber
of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by
them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives
as required by Art. VI, §24 of the Constitution.
Although they admit that H. No. 11197 was
filed in the House of Representatives where it
passed three readings and that afterward it
was sent to the Senate where after first
Jeremiah 29:11
reading it was referred to the Senate Ways
and Means Committee, they complain that the
Senate did not pass it on second and third
readings. Instead what the Senate did was to
pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner
Tolentino adds that what the Senate
committee should have done was to amend H.
No. 11197 by striking out the text of the bill
and substituting it with the text of S. No. 1630.
That way, it is said, "the bill remains a House
bill and the Senate version just becomes the
text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only
instance in which the Senate proposed an
amendment to a House revenue bill by
enacting its own version of a revenue bill. On
at least two occasions during the Eighth
Congress, the Senate passed its own version
of revenue bills, which, in consolidation with
House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE
OMNIBUS INVESTMENTS CODE OF 1987
BY EXTENDING FROM FIVE (5) YEARS TO
TEN YEARS THE PERIOD FOR TAX AND
DUTY EXEMPTION AND TAX CREDIT ON
CAPITAL EQUIPMENT) which was approved
by the President on April 10, 1992. This Act is
actually a consolidation of H. No. 34254,
which was approved by the House on January
29, 1992, and S. No. 1920, which was
approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX
EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES)
which was approved by the President on May
22, 1992. This Act is a consolidation of H. No.
22232, which was approved by the House of
Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate
on October 21, 1991.
On the other hand, the Ninth
Congress passed revenue laws which were
also the result of the consolidation of House
20
and Senate bills. These are the following, with PRESCRIBE THE PLACE
indications of the dates on which the laws FOR PAYMENT OF
were approved by the President and dates the INTERNAL REVENUE TAXES
separate bills of the two chambers of BY LARGE TAXPAYERS,
Congress were respectively passed: AMENDING FOR THIS
PURPOSE CERTAIN
1. R.A. NO. 7642 PROVISIONS OF THE
NATIONAL INTERNAL
AN ACT INCREASING THE REVENUE CODE, AS
PENALTIES FOR TAX AMENDED (February 24,
EVASION, AMENDING FOR 1993)
THIS PURPOSE THE
PERTINENT SECTIONS OF House Bill No. 1470, October
THE NATIONAL INTERNAL 20, 1992
REVENUE CODE (December
28, 1992). Senate Bill No. 35, November
19, 1992
House Bill No. 2165, October
5, 1992 4. R.A. NO. 7649

Senate Bill No. 32, December AN ACT REQUIRING THE

7, 1992 GOVERNMENT OR ANY OF
ITS POLITICAL
2. R.A. NO. 7643 SUBDIVISIONS,
INSTRUMENTALITIES OR
AN ACT TO EMPOWER THE AGENCIES INCLUDING
COMMISSIONER OF GOVERNMENT-OWNED OR
INTERNAL REVENUE TO CONTROLLED
REQUIRE THE PAYMENT OF CORPORATIONS (GOCCS)
THE VALUE-ADDED TAX TO DEDUCT AND
EVERY MONTH AND TO WITHHOLD THE VALUE-
ALLOW LOCAL ADDED TAX DUE AT THE
GOVERNMENT UNITS TO RATE OF THREE PERCENT
SHARE IN VAT REVENUE, (3%) ON GROSS PAYMENT
AMENDING FOR THIS FOR THE PURCHASE OF
PURPOSE CERTAIN GOODS AND SIX PERCENT
SECTIONS OF THE (6%) ON GROSS RECEIPTS
NATIONAL INTERNAL FOR SERVICES RENDERED
REVENUE CODE (December BY CONTRACTORS (April 6,
28, 1992) 1993)

House Bill No. 1503, House Bill No. 5260, January

September 3, 1992 26, 1993

Senate Bill No. 968, December Senate Bill No. 1141, March
7, 1992 30, 1993

3. R.A. NO. 7646 5. R.A. NO. 7656

AN ACT AUTHORIZING THE AN ACT REQUIRING

COMMISSIONER OF GOVERNMENT-OWNED OR
INTERNAL REVENUE TO CONTROLLED

21
Jeremiah 29:11
 CORPORATIONS TO
DECLARE DIVIDENDS
UNDER CERTAIN
CONDITIONS TO THE
NATIONAL GOVERNMENT,
AND FOR OTHER
PURPOSES (November 9,
1993)
House Bill No. 11024,
November 3, 1993
Senate Bill No. 1168,
November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING
FURTHER THE STRUCTURE
AND ADMINISTRATION OF
THE DOCUMENTARY
STAMP TAX, AMENDING
FOR THE PURPOSE
CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED, ALLOCATING
FUNDS FOR SPECIFIC
PROGRAMS, AND FOR
OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31,
1993
Senate Bill No. 1330,
November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX
ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF
STOCK LISTED AND
TRADED THROUGH THE
LOCAL STOCK EXCHANGE
OR THROUGH INITIAL
PUBLIC OFFERING,
AMENDING FOR THE
PURPOSE THE NATIONAL
INTERNAL REVENUE CODE,
AS AMENDED, BY
Jeremiah 29:11
INSERTING A NEW SECTION
AND REPEALING CERTAIN
SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187,
November 3, 1993
Senate Bill No. 1127, March
23, 1994
Thus, the enactment of S. No. 1630 is not the
only instance in which the Senate, in the
exercise of its power to propose amendments
to bills required to originate in the House,
passed its own version of a House revenue
measure. It is noteworthy that, in the particular
case of S. No. 1630, petitioners Tolentino and
Roco, as members of the Senate, voted to
approve it on second and third readings.
On the other hand, amendment by
substitution, in the manner urged by petitioner
Tolentino, concerns a mere matter of form.
Petitioner has not shown what substantial
difference it would make if, as the Senate
actually did in this case, a separate bill like S.
No. 1630 is instead enacted as a substitute
measure, "taking into Consideration . .
. H.B. 11197."
Indeed, so far as pertinent, the Rules of the
Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one
amendment to the original
amendment shall be
considered.
No amendment by substitution
shall be entertained unless the
text thereof is submitted in
writing.
22
 Any of said amendments may
be withdrawn before a vote is
taken thereon.
§69. No amendment which
seeks the inclusion of a
legislative provision foreign to
the subject matter of a bill
(rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall
not be amended by
substituting it with another
which covers a subject distinct
from that proposed in the
original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention
that, with regard to revenue bills, the
Philippine Senate possesses less power than
the U.S. Senate because of textual
differences between constitutional provisions
giving them the power to propose or concur
with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue
shall originate in the House of
Representatives; but the
Senate may propose or concur
with amendments as on other
Bills.
Art. VI, §24 of our Constitution reads:
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.
The addition of the word "exclusively" in the
Philippine Constitution and the decision to
drop the phrase "as on other Bills" in the
Jeremiah 29:11
American version, according to petitioners,
shows the intention of the framers of our
Constitution to restrict the Senate's power to
propose amendments to revenue bills.
Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate"
and "the words 'as in any other bills' (sic) were
eliminated so as to show that these bills were
not to be like other bills but must be treated as
a special kind."
The history of this provision does not support
this contention. The supposed indicia of
constitutional intent are nothing but the relics
of an unsuccessful attempt to limit the power
of the Senate. It will be recalled that the 1935
Constitution originally provided for a
unicameral National Assembly. When it was
decided in 1939 to change to a bicameral
legislature, it became necessary to provide for
the procedure for lawmaking by the Senate
and the House of Representatives. The work
of proposing amendments to the Constitution
was done by the National Assembly, acting as
a constituent assembly, some of whose
members, jealous of preserving the
Assembly's lawmaking powers, sought to
curtail the powers of the proposed Senate.
Accordingly they proposed the following
provision:
All bills appropriating public
funds, revenue or tariff bills,
bills of local application, and
private bills shall originate
exclusively in the Assembly,
but the Senate may propose or
concur with amendments. In
case of disapproval by the
Senate of any such bills, the
Assembly may repass the
same by a two-thirds vote of
all its members, and
thereupon, the bill so repassed
shall be deemed enacted and
may be submitted to the
President for corresponding
action. In the event that the
Senate should fail to finally act
on any such bills, the
Assembly may, after thirty
days from the opening of the
next regular session of the
23
 same legislative term,
reapprove the same with a
vote of two-thirds of all the
members of the Assembly.
And upon such reapproval, the
bill shall be deemed enacted
and may be submitted to the
President for corresponding
action.
The special committee on the revision of laws
of the Second National Assembly vetoed the
proposal. It deleted everything after the first
sentence. As rewritten, the proposal was
approved by the National Assembly and
embodied in Resolution No. 38, as amended
by Resolution No. 73. (J. ARUEGO, KNOW
YOUR CONSTITUTION 65-66 (1950)). The
proposed amendment was submitted to the
people and ratified by them in the elections
held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the
1935 Constitution, from which Art. VI, §24 of
the present Constitution was derived. It
explains why the word "exclusively" was
added to the American text from which the
framers of the Philippine Constitution
borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat
of the proposal, the power of the Senate to
propose amendments must be understood to
be full, plenary and complete "as on other
Bills." Thus, because revenue bills are
required to originate exclusively in the House
of Representatives, the Senate cannot enact
revenue measures of its own without such
bills. After a revenue bill is passed and sent
over to it by the House, however, the Senate
certainly can pass its own version on the
same subject matter. This follows from the
coequality of the two chambers of Congress.
That this is also the understanding of book
authors of the scope of the Senate's power to
concur is clear from the following
commentaries:
The power of the Senate to
propose or concur with
amendments is apparently
without restriction. It would
seem that by virtue of this
Jeremiah 29:11
power, the Senate can
practically re-write a bill
required to come from the
House and leave only a trace
of the original bill. For
example, a general revenue
bill passed by the lower house
of the United States Congress
contained provisions for the
imposition of an inheritance
tax . This was changed by the
Senate into a corporation tax.
The amending authority of the
Senate was declared by the
United States Supreme Court
to be sufficiently broad to
enable it to make the
alteration. [Flint v. Stone Tracy
Company, 220 U.S. 107, 55 L.
ed. 389].
(L. TAÑADA AND F.
CARREON, POLITICAL LAW
OF THE PHILIPPINES 247
(1961))
The above-mentioned bills are
supposed to be initiated by the
House of Representatives
because it is more numerous
in membership and therefore
also more representative of
the people. Moreover, its
members are presumed to be
more familiar with the needs of
the country in regard to the
enactment of the legislation
involved.
The Senate is, however,
allowed much leeway in the
exercise of its power to
propose or concur with
amendments to the bills
initiated by the House of
Representatives. Thus, in one
case, a bill introduced in the
U.S. House of Representatives
was changed by the Senate to
make a proposed inheritance
tax a corporation tax. It is also
accepted practice for the
Senate to introduce what is
24
 known as an amendment by
substitution, which may
entirely replace the bill initiated
in the House of
Representatives.
(I. CRUZ, PHILIPPINE
POLITICAL LAW 144-145
(1993)).
In sum, while Art. VI, §24 provides that all
appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of
local application, and private bills must
"originate exclusively in the House of
Representatives," it also adds, "but the
Senate may propose or concur with
amendments." In the exercise of this power,
the Senate may propose an entirely new bill
as a substitute measure. As petitioner
Tolentino states in a high school text, a
committee to which a bill is referred may do
any of the following:
(1) to endorse the bill without
changes; (2) to make changes
in the bill omitting or adding
sections or altering its
language; (3) to make and
endorse an entirely new bill as
a substitute, in which case it
will be known as a committee
bill; or (4) to make no report at
all.
(A. TOLENTINO, THE
GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment
of bills which are required to originate in the
House by prescribing that the number of the
House bill and its other parts up to the
enacting clause must be preserved although
the text of the Senate amendment may be
incorporated in place of the original body of
the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form.
S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No.
11197 as any which the Senate could have
made.
Jeremiah 29:11
II. S. No. 1630 a mere amendment of
H. No. 11197. Petitioners' basic error is that
they assume that S. No. 1630 is
an independent and distinct bill. Hence their
repeated references to its certification that it
was passed by the Senate "in substitution of
S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying
that there is something substantially different
between the reference to S. No. 1129 and the
reference to H. No. 11197. From this premise,
they conclude that R.A. No. 7716 originated
both in the House and in the Senate and that
it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630
was passed by both houses of Congress."
In point of fact, in several instances the
provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding
provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to
the basic petition of petitioner Tolentino, while
showing differences between the two bills, at
the same time indicates that the provisions of
the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not
have enacted S. No. 1630. Because the
Senate bill was a mere amendment of the
House bill, H. No. 11197 in its original form did
not have to pass the Senate on second and
three readings. It was enough that after it was
passed on first reading it was referred to the
Senate Committee on Ways and Means.
Neither was it required that S. No. 1630 be
passed by the House of Representatives
before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was
done in the case of H. No. 11197 and S. No.
1630. When the House bill and Senate bill,
which became R.A. No. 1405 (Act prohibiting
the disclosure of bank deposits), were referred
to a conference committee, the question was
raised whether the two bills could be the
subject of such conference, considering that
the bill from one house had not been passed
by the other and vice versa. As Congressman
Duran put the question:
25
 MR. DURAN. Therefore, I
raise this question of order as
to procedure: If a House bill is
passed by the House but not
passed by the Senate, and a
Senate bill of a similar nature
is passed in the Senate but
never passed in the House,
can the two bills be the subject
of a conference, and can a law
be enacted from these two
bills? I understand that the
Senate bill in this particular
instance does not refer to
investments in government
securities, whereas the bill in
the House, which was
introduced by the Speaker,
covers two subject matters:
not only investigation of
deposits in banks but also
investigation of investments in
government securities. Now,
since the two bills differ in their
subject matter, I believe that
no law can be enacted.
Ruling on the point of order raised, the chair
(Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of
the conference committee is in
order. It is precisely in cases
like this where a conference
should be had. If the House bill
had been approved by the
Senate, there would have
been no need of a conference;
but precisely because the
Senate passed another bill on
the same subject matter, the
conference committee had to
be created, and we are now
considering the report of that
committee.
(2 CONG. REC. NO. 13, July
27, 1955, pp. 3841-42
(emphasis added))
III. The President's certification. The fallacy in
thinking that H. No. 11197 and S. No. 1630
are distinct and unrelated measures also
Jeremiah 29:11
accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President
separately certified to the need for the
immediate enactment of these measures, his
certification was ineffectual and void. The
certification had to be made of the version of
the same revenue bill which at the
moment was being considered. Otherwise, to
follow petitioners' theory, it would be
necessary for the President to certify as many
bills as are presented in a house of Congress
even though the bills are merely versions of
the bill he has already certified. It is enough
that he certifies the bill which, at the time he
makes the certification, is under consideration.
Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which
had to be certified. For that matter on June 1,
1993 the President had earlier certified H. No.
9210 for immediate enactment because it was
the one which at that time was being
considered by the House. This bill was later
substituted, together with other bills, by H. No.
11197.
As to what Presidential certification can
accomplish, we have already explained in the
main decision that the phrase "except when
the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, §26 (2)
qualifies not only the requirement that "printed
copies [of a bill] in its final form [must be]
distributed to the members three days before
its passage" but also the requirement that
before a bill can become a law it must have
passed "three readings on separate days."
There is not only textual support for such
construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution
originally provided:
(2) No bill shall be passed by
either House unless it shall
have been printed and copies
thereof in its final form
furnished its Members at least
three calendar days prior to its
passage, except when the
President shall have certified
to the necessity of its
immediate enactment. Upon
the last reading of a bill, no
26
 amendment thereof shall be
allowed and the question upon
its passage shall be taken
immediately thereafter, and
the yeas and nays entered on
the Journal.
When the 1973 Constitution was adopted, it
was provided in Art. VIII, §19 (2):
(2) No bill shall become a law
unless it has passed three
readings on separate days,
and printed copies thereof in
its final form have been
distributed to the Members
three days before its passage,
except when the Prime
Minister certifies to the
necessity of its immediate
enactment to meet a public
calamity or emergency. Upon
the last reading of a bill, no
amendment thereto shall be
allowed, and the vote thereon
shall be taken immediately
thereafter, and
the yeas and nays entered in
the Journal.
This provision of the 1973 document, with
slight modification, was adopted in Art. VI, §26
(2) of the present Constitution, thus:
(2) No bill passed by either
House shall become a law
unless it has passed three
readings on separate days,
and printed copies thereof in
its final form have been
distributed to its Members
three days before its passage,
except when the President
certifies to the necessity of its
immediate enactment to meet
a public calamity or
emergency. Upon the last
reading of a bill, no
amendment thereto shall be
allowed, and the vote thereon
shall be taken immediately
thereafter, and
Jeremiah 29:11
the yeas and nays entered in
the Journal.
The exception is based on the prudential
consideration that if in all cases three readings
on separate days are required and a bill has
to be printed in final form before it can be
passed, the need for a law may be rendered
academic by the occurrence of the very
emergency or public calamity which it is
meant to address.
Petitioners further contend that a "growing
budget deficit" is not an emergency, especially
in a country like the Philippines where budget
deficit is a chronic condition. Even if this were
the case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less
urgent or the situation calling for its enactment
any less an emergency.
Apparently, the members of the Senate
(including some of the petitioners in these
cases) believed that there was an urgent need
for consideration of S. No. 1630, because they
responded to the call of the President by
voting on the bill on second and third readings
on the same day. While the judicial
department is not bound by the Senate's
acceptance of the President's certification, the
respect due coequal departments of the
government in matters committed to them by
the Constitution and the absence of a clear
showing of grave abuse of discretion caution a
stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630
received thorough consideration in the Senate
where it was discussed for six days. Only its
distribution in advance in its final printed form
was actually dispensed with by holding the
voting on second and third readings on the
same day (March 24, 1994). Otherwise,
sufficient time between the submission of the
bill on February 8, 1994 on second reading
and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on
separate days is required is said to be two-
fold: (1) to inform the members of Congress of
27
what they must vote on and (2) to give them
notice that a measure is progressing through
the enacting process, thus enabling them and
others interested in the measure to prepare
their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p.
282 (1972)). These purposes were
substantially achieved in the case of R.A. No.
7716.
IV. Power of Conference Committee. It is
contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood,
Integrity and Nationalism, Inc. (MABINI)) that
in violation of the constitutional policy of full
public disclosure and the people's right to
know (Art. II, §28 and Art. III, §7) the
Conference Committee met for two days in
executive session with only the conferees
present.
As pointed out in our main decision, even in
the United States it was customary to hold
such sessions with only the conferees and
their staffs in attendance and it was only in
1975 when a new rule was adopted requiring
open sessions. Unlike its American
counterpart, the Philippine Congress has not
adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United
States, before the adoption of the rule in 1975,
at least staff members were present. These
were staff members of the Senators and
Congressmen, however, who may be
presumed to be their confidential men, not
stenographers as in this case who on the last
two days of the conference were excluded.
There is no showing that the conferees
themselves did not take notes of their
proceedings so as to give petitioner
Kilosbayan basis for claiming that even in
secret diplomatic negotiations involving state
interests, conferees keep notes of their
meetings. Above all, the public's right to know
was fully served because the Conference
Committee in this case submitted a report
showing the changes made on the differing
versions of the House and the Senate.
Jeremiah 29:11
Petitioners cite the rules of both houses which
provide that conference committee reports
must contain "a detailed, sufficiently explicit
statement of the changes in or other
amendments." These changes are shown in
the bill attached to the Conference Committee
Report. The members of both houses could
thus ascertain what changes had been made
in the original bills without the need of a
statement detailing the changes.
The same question now presented was raised
when the bill which became R.A. No. 1400
(Land Reform Act of 1955) was reported by
the Conference Committee. Congressman
Bengzon raised a point of order. He said:
MR. BENGZON. My point of
order is that it is out of order to
consider the report of the
conference committee
regarding House Bill No.
2557 by reason of the
provision of Section 11, Article
XII, of the Rules of this House
which provides specifically that
the conference report must be
accompanied by a detailed
statement of the effects of the
amendment on the bill of the
House. This conference
committee report is not
accompanied by that detailed
statement, Mr. Speaker.
Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor
Leader, answered:
MR. TOLENTINO. Mr.
Speaker, I should just like to
say a few words in connection
with the point of order raised
by the gentleman from
Pangasinan.
There is no question about the
provision of the Rule cited by
the gentleman from
Pangasinan, but this provision
applies to those cases where
28
 only portions of the bill have
been amended. In this case
before us an entire bill is
presented; therefore, it can be
easily seen from the reading of
the bill what the provisions are.
Besides, this procedure has
been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was
saying, Mr. Speaker, we have
to look into the reason for the
provisions of the Rules, and
the reason for the requirement
in the provision cited by the
gentleman from Pangasinan is
when there are only certain
words or phrases inserted in or
deleted from the provisions of
the bill included in the
conference report, and we
cannot understand what those
words and phrases mean and
their relation to the bill. In that
case, it is necessary to make a
detailed statement on how
those words and phrases will
affect the bill as a whole; but
when the entire bill itself is
copied verbatim in the
conference report, that is not
necessary. So when the
reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p.
4056. (emphasis added))
Congressman Tolentino was sustained by the
chair. The record shows that when the ruling
was appealed, it was upheld by viva voce and
when a division of the House was called, it
was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a
conference committee to insert new provisions
as long as these are germane to the subject of
the conference. As this Court held
in Philippine Judges Association v. Prado, 227
Jeremiah 29:11
SCRA 703 (1993), in an opinion written by
then Justice Cruz, the jurisdiction of the
conference committee is not limited to
resolving differences between the Senate and
the House. It may propose an entirely new
provision. What is important is that its report is
subsequently approved by the respective
houses of Congress. This Court ruled that it
would not entertain allegations that, because
new provisions had been added by the
conference committee, there was thereby a
violation of the constitutional injunction that
"upon the last reading of a bill, no amendment
thereto shall be allowed."
Applying these principles, we
shall decline to look into the
petitioners' charges that an
amendment was made upon
the last reading of the bill that
eventually became R.A. No.
7354 and that copies thereof in
its final form were not
distributed among the
members of each House. Both
the enrolled bill and the
legislative journals certify that
the measure was duly
enacted i.e., in accordance
with Article VI, Sec. 26 (2) of
the Constitution. We are
bound by such official
assurances from a coordinate
department of the government,
to which we owe, at the very
least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following
description of conference committees in the
Philippines in a 1979 study:
Conference committees may
be of two types: free or
instructed. These committees
may be given instructions by
their parent bodies or they
may be left without
instructions. Normally the
conference committees are
without instructions, and this is
why they are often critically
29
 referred to as "the little
legislatures." Once bills have
been sent to them, the
conferees have almost
unlimited authority to change
the clauses of the bills and in
fact sometimes introduce new
measures that were not in the
original legislation. No minutes
are kept, and members'
activities on conference
committees are difficult to
determine. One congressman
known for his idealism put it
this way: "I killed a bill on
export incentives for my
interest group [copra] in the
conference committee but I
could not have done so
anywhere else." The
conference committee submits
a report to both houses, and
usually it is accepted. If the
report is not accepted, then
the committee is discharged
and new members are
appointed.
(R. Jackson, Committees in
the Philippine Congress, in
COMMITTEES AND
LEGISLATURES: A
COMPARATIVE ANALYSIS
163 (J. D. LEES AND M.
SHAW, eds.)).
In citing this study, we pass no judgment on
the methods of conference committees. We
cite it only to say that conference committees
here are no different from their counterparts in
the United States whose vast powers we
noted in Philippine Judges Association
v. Prado, supra. At all events, under Art. VI,
§16(3) each house has the power "to
determine the rules of its proceedings,"
including those of its committees. Any
meaningful change in the method and
procedures of Congress or its committees
must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197.
PAL maintains that R.A. No. 7716 violates Art.
VI, §26 (1) of the Constitution which provides
Jeremiah 29:11
that "Every bill passed by Congress shall
embrace only one subject which shall be
expressed in the title thereof." PAL contends
that the amendment of its franchise by the
withdrawal of its exemption from the VAT is
not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a
franchise tax of 2% on its gross revenue "in
lieu of all other taxes, duties, royalties,
registration, license and other fees and
charges of any kind, nature, or description,
imposed, levied, established, assessed or
collected by any municipal, city, provincial or
national authority or government agency, now
or in the future."
PAL was exempted from the payment of the
VAT along with other entities by §103 of the
National Internal Revenue Code, which
provides as follows:
§103. Exempt transactions. —
The following shall be exempt
from the value-added tax:
xxx xxx xxx
(q) Transactions which are
exempt under special laws or
international agreements to
which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain
exemptions, including that granted to PAL, by
amending §103, as follows:
§103. Exempt transactions. —
The following shall be exempt
from the value-added tax:
xxx xxx xxx
(q) Transactions which are
exempt under special laws,
except those granted under
Presidential Decree Nos. 66,
529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the
title of R.A. No. 7716 which reads:
30
 AN ACT RESTRUCTURING PHILIPPINE POSTAL CORPORATION,
THE VALUE-ADDED TAX DEFINING ITS POWERS, FUNCTIONS AND
(VAT) SYSTEM, WIDENING RESPONSIBILITIES, PROVIDING FOR
ITS TAX BASE AND REGULATION OF THE INDUSTRY AND
ENHANCING ITS FOR OTHER PURPOSES CONNECTED
ADMINISTRATION, AND FOR THEREWITH. It contained a provision
THESE PURPOSES repealing all franking privileges. It was
AMENDING AND contended that the withdrawal of franking
REPEALING THE RELEVANT privileges was not expressed in the title of the
PROVISIONS OF THE law. In holding that there was sufficient
NATIONAL INTERNAL description of the subject of the law in its title,
REVENUE CODE, AS including the repeal of franking privileges, this
AMENDED, AND FOR Court held:
OTHER PURPOSES.
To require every end and
By stating that R.A. No. 7716 seeks to means necessary for the
"[RESTRUCTURE] THE VALUE-ADDED TAX accomplishment of the general
(VAT) SYSTEM [BY] WIDENING ITS TAX objectives of the statute to be
BASE AND ENHANCING ITS expressed in its title would not
ADMINISTRATION, AND FOR THESE only be unreasonable but
PURPOSES AMENDING AND REPEALING would actually render
THE RELEVANT PROVISIONS OF THE legislation impossible. [Cooley,
NATIONAL INTERNAL REVENUE CODE, AS Constitutional Limitations, 8th
AMENDED AND FOR OTHER PURPOSES," Ed., p. 297] As has been
Congress thereby clearly expresses its correctly explained:
intention to amend any provision of the NIRC
which stands in the way of accomplishing the The details of a
purpose of the law. legislative act
need not be
PAL asserts that the amendment of its specifically
franchise must be reflected in the title of the stated in its
law by specific reference to P.D. No. 1590. It title, but matter
is unnecessary to do this in order to comply germane to the
with the constitutional requirement, since it is subject as
already stated in the title that the law seeks to expressed in
amend the pertinent provisions of the NIRC, the title, and
among which is §103(q), in order to widen the adopted to the
base of the VAT. Actually, it is the bill which accomplishme
becomes a law that is required to express in nt of the object
its title the subject of legislation. The titles of in view, may
H. No. 11197 and S. No. 1630 in fact properly be
specifically referred to §103 of the NIRC as included in the
among the provisions sought to be amended. act. Thus, it is
We are satisfied that sufficient notice had proper to
been given of the pendency of these bills in create in the
Congress before they were enacted into what same act the
is now R.A. machinery by
No. 7716. which the act is
to be enforced,
In Philippine Judges Association to prescribe
v. Prado, supra, a similar argument as that the penalties
now made by PAL was rejected. R.A. No. for its
7354 is entitled AN ACT CREATING THE infraction, and

31
Jeremiah 29:11
 to remove
obstacles in
the way of its
execution. If
such matters
are properly
connected with
the subject as
expressed in
the title, it is
unnecessary
that they
should also
have special
mention in the
title. (Southern
Pac. Co. v.
Bartine, 170
Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious
liberty. We have held that, as a general
proposition, the press is not exempt from the
taxing power of the State and that what the
constitutional guarantee of free press prohibits
are laws which single out the press or target a
group belonging to the press for special
treatment or which in any way discriminate
against the press on the basis of the content
of the publication, and R.A. No. 7716 is none
of these.
Now it is contended by the PPI that by
removing the exemption of the press from the
VAT while maintaining those granted to
others, the law discriminates against the
press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional."
With respect to the first contention, it would
suffice to say that since the law granted the
press a privilege, the law could take back the
privilege anytime without offense to the
Constitution. The reason is simple: by granting
exemptions, the State does not forever waive
the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax
Jeremiah 29:11
burden to which other businesses have long
ago been subject. It is thus different from the
tax involved in the cases invoked by the PPI.
The license tax in Grosjean v. American Press
Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was
found to be discriminatory because it was laid
on the gross advertising receipts only of
newspapers whose weekly circulation was
over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in
Louisiana. These large papers were critical of
Senator Huey Long who controlled the state
legislature which enacted the license tax. The
censorial motivation for the law was thus
evident.
On the other hand, in Minneapolis Star &
Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax
was found to be discriminatory because
although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax
on the privilege of using, storing or consuming
tangible goods, the press was not. Instead,
the press was exempted from both taxes. It
was, however, later made to pay a special use
tax on the cost of paper and ink which made
these items "the only items subject to the use
tax that were component of goods to be sold
at retail." The U.S. Supreme Court held that
the differential treatment of the press
"suggests that the goal of regulation is not
related to suppression of expression, and
such goal is presumptively unconstitutional." It
would therefore appear that even a law that
favors the press is constitutionally suspect.
(See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions
previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to
PAL, petroleum concessionaires, enterprises
registered with the Export Processing Zone
Authority, and many more are likewise totally
withdrawn, in addition to exemptions which
are partially withdrawn, in an effort to broaden
the base of the tax.
The PPI says that the discriminatory treatment
of the press is highlighted by the fact that
transactions, which are profit oriented,
32
continue to enjoy exemption under R.A. No.
7716. An enumeration of some of these
transactions will suffice to show that by and
large this is not so and that the exemptions
are granted for a purpose. As the Solicitor
General says, such exemptions are granted,
in some cases, to encourage agricultural
production and, in other cases, for the
personal benefit of the end-user rather than
for profit. The exempt transactions are:
(a) Goods for consumption or
use which are in their original
state (agricultural, marine and
forest products, cotton seeds
in their original state,
fertilizers, seeds, seedlings,
fingerlings, fish, prawn
livestock and poultry feeds)
and goods or services to
enhance agriculture (milling of
palay, corn, sugar cane and
raw sugar, livestock, poultry
feeds, fertilizer, ingredients
used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use
(household and personal
effects of citizens returning to
the Philippines) or for
professional use, like
professional instruments and
implements, by persons
coming to the Philippines to
settle here.
(c) Goods subject to excise tax
such as petroleum products or
to be used for manufacture of
petroleum products subject to
excise tax and services
subject to percentage tax.
(d) Educational services,
medical, dental, hospital and
veterinary services, and
services rendered under
employer-employee
relationship.
Jeremiah 29:11
(e) Works of art and similar
creations sold by the artist
himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons
not VAT-registered.
(h) Goods or services with
gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter
that the law does not discriminate against the
press because "even nondiscriminatory
taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in
support of this assertion the following
statement in Murdock v. Pennsylvania, 319
U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is
"nondiscriminatory" is
immaterial. The protection
afforded by the First
Amendment is not so
restricted. A license tax
certainly does not acquire
constitutional validity because
it classifies the privileges
protected by the First
Amendment along with the
wares and merchandise of
hucksters and peddlers and
treats them all alike. Such
equality in treatment does not
save the ordinance. Freedom
of press, freedom of speech,
freedom of religion are in
preferred position.
The Court was speaking in that case of
a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the
press is unconstitutional because it lays a
33
prior restraint on the exercise of its right.
Hence, although its application to others, such
those selling goods, is valid, its application to
the press or to religious groups, such as the
Jehovah's Witnesses, in connection with the
latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite
another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court
in American Bible Society v. City of Manila,
101 Phil. 386 (1957) which invalidated a city
ordinance requiring a business license fee on
those engaged in the sale of general
merchandise. It was held that the tax could
not be imposed on the sale of bibles by the
American Bible Society without restraining the
free exercise of its right to propagate.
The VAT is, however, different. It is not a
license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or
exchange of goods or properties or the sale or
exchange of services and the lease of
properties purely for revenue purposes. To
subject the press to its payment is not to
burden the exercise of its right any more than
to make the press pay income tax or subject it
to general regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc.
claims that although it sells bibles, the
proceeds derived from the sales are used to
subsidize the cost of printing copies which are
given free to those who cannot afford to pay
so that to tax the sales would be to increase
the price, while reducing the volume of sale.
Granting that to be the case, the resulting
burden on the exercise of religious freedom is
so incidental as to make it difficult to
differentiate it from any other economic
imposition that might make the right to
disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument,
to increase the tax on the sale of vestments
would be to lay an impermissible burden on
the right of the preacher to make a sermon.
Jeremiah 29:11
On the other hand the registration fee of
P1,000.00 imposed by §107 of the NIRC, as
amended by §7 of R.A. No. 7716, although
fixed in amount, is really just to pay for the
expenses of registration and enforcement of
provisions such as those relating to
accounting in §108 of the NIRC. That the PBS
distributes free bibles and therefore is not
liable to pay the VAT does not excuse it from
the payment of this fee because it also sells
some copies. At any rate whether the PBS is
liable for the VAT must be decided in concrete
cases, in the event it is assessed this tax by
the Commissioner of Internal Revenue.
VII. Alleged violations of the due process,
equal protection and contract clauses and the
rule on taxation. CREBA asserts that R.A. No.
7716 (1) impairs the obligations of contracts,
(2) classifies transactions as covered or
exempt without reasonable basis and (3)
violates the rule that taxes should be uniform
and equitable and that Congress shall "evolve
a progressive system of taxation."
With respect to the first contention, it is
claimed that the application of the tax to
existing contracts of the sale of real property
by installment or on deferred payment basis
would result in substantial increases in the
monthly amortizations to be paid because of
the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did
not anticipate at the time he entered into the
contract.
The short answer to this is the one given by
this Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs,
but none of them show that a lawful tax on a
new subject, or an increased tax on an old
one, interferes with a contract or impairs its
obligation, within the meaning of the
Constitution. Even though such taxation may
affect particular contracts, as it may increase
the debt of one person and lessen the security
of another, or may impose additional burdens
upon one class and release the burdens of
another, still the tax must be paid unless
prohibited by the Constitution, nor can it be
said that it impairs the obligation of any
existing contract in its true legal sense." (La
Insular v. Machuca Go-Tauco and Nubla Co-
34
Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal
order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968))
Contracts must be understood as having been
made in reference to the possible exercise of
the rightful authority of the government and no
obligation of contract can extend to the defeat
of that authority. (Norman v. Baltimore and
Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No.
7716 exempts such transactions as the sale of
agricultural products, food items, petroleum,
and medical and veterinary services, it grants
no exemption on the sale of real property
which is equally essential. The sale of real
property for socialized and low-cost housing is
exempted from the tax, but CREBA claims
that real estate transactions of "the less
poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
The sale of food items, petroleum, medical
and veterinary services, etc., which are
essential goods and services was already
exempt under §103, pars. (b) (d) (1) of the
NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No.
7716 granted exemption to these transactions,
while subjecting those of petitioner to the
payment of the VAT. Moreover, there is a
difference between the "homeless poor" and
the "homeless less poor" in the example given
by petitioner, because the second group or
middle class can afford to rent houses in the
meantime that they cannot yet buy their own
homes. The two social classes are thus
differently situated in life. "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 a singling out of one particular class for
taxation, or exemption infringe no
constitutional limitation.'" (Lutz v. Araneta, 98
Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 371 (1988)).
Jeremiah 29:11
Finally, it is contended, for the reasons
already noted, that R.A. No. 7716 also
violates Art. VI, §28(1) which provides that
"The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that
all taxable articles or kinds of property of the
same class be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation. To satisfy this
requirement it is enough that the statute or
ordinance applies equally to all persons, forms
and corporations placed in similar situation.
(City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided in E.O.
No. 273 long before R.A. No. 7716 was
enacted. R.A. No. 7716 merely expands the
base of the tax. The validity of the original
VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas,
Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely,
that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting
the challenge to the law, this Court held:
As the Court sees it, EO 273
satisfies all the requirements
of a valid tax. It is uniform. . . .
The sales tax adopted in EO
273 is applied similarly on all
goods and services sold to the
public, which are not exempt,
at the constant rate of 0% or
10%.
The disputed sales tax is also
equitable. It is imposed only on
sales of goods or services by
persons engaged in business
with an aggregate gross
annual sales exceeding
P200,000.00. Small corner
sari-sari stores are
consequently exempt from its
35
 application. Likewise exempt (R.A. No. 7716, §4, amending §103 of the
from the tax are sales of farm NIRC).
and marine products, so that
the costs of basic food and Thus, the following transactions involving
other necessities, spared as basic and essential goods and services are
they are from the incidence of exempted from the VAT:
the VAT, are expected to be
relatively lower and within the (a) Goods for consumption or
reach of the general public. use which are in their original
state (agricultural, marine and
(At 382-383) forest products, cotton seeds
in their original state,
The CREBA claims that the VAT is regressive. fertilizers, seeds, seedlings,
A similar claim is made by the Cooperative fingerlings, fish, prawn
Union of the Philippines, Inc. (CUP), while livestock and poultry feeds)
petitioner Juan T. David argues that the law and goods or services to
contravenes the mandate of Congress to enhance agriculture (milling of
provide for a progressive system of taxation palay, corn sugar cane and
because the law imposes a flat rate of 10% raw sugar, livestock, poultry
and thus places the tax burden on all feeds, fertilizer, ingredients
taxpayers without regard to their ability to pay. used for the manufacture of
feeds).
The Constitution does not really prohibit the
imposition of indirect taxes which, like the (b) Goods used for personal
VAT, are regressive. What it simply provides consumption or use
is that Congress shall "evolve a progressive (household and personal
system of taxation." The constitutional effects of citizens returning to
provision has been interpreted to mean simply the Philippines) and or
that "direct taxes are . . . to be preferred [and] professional use, like
as much as possible, indirect taxes should be professional instruments and
minimized." (E. FERNANDO, THE implements, by persons
CONSTITUTION OF THE PHILIPPINES 221 coming to the Philippines to
(Second ed. (1977)). Indeed, the mandate to settle here.
Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales (c) Goods subject to excise tax
taxes, which perhaps are the oldest form of such as petroleum products or
indirect taxes, would have been prohibited to be used for manufacture of
with the proclamation of Art. VIII, §17(1) of the petroleum products subject to
1973 Constitution from which the present Art. excise tax and services
VI, §28(1) was taken. Sales taxes are also subject to percentage tax.
regressive.
(d) Educational services,
Resort to indirect taxes should medical, dental, hospital and
be minimized but not avoided entirely because veterinary services, and
it is difficult, if not impossible, to avoid them by services rendered under
imposing such taxes according to the employer-employee
taxpayers' ability to pay. In the case of the relationship.
VAT, the law minimizes the regressive effects
of this imposition by providing for zero (e) Works of art and similar
rating of certain transactions (R.A. No. 7716, creations sold by the artist
§3, amending §102 (b) of the NIRC), while himself.
granting exemptions to other transactions.

36
Jeremiah 29:11
 (f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons
not VAT-registered.
(h) Goods or services with
gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are
subject to the VAT are those which involve
goods and services which are used or availed
of mainly by higher income groups. These
include real properties held primarily for sale
to customers or for lease in the ordinary
course of trade or business, the right or
privilege to use patent, copyright, and other
similar property or right, the right or privilege
to use industrial, commercial or scientific
equipment, motion picture films, tapes and
discs, radio, television, satellite transmission
and cable television time, hotels, restaurants
and similar places, securities, lending
investments, taxicabs, utility cars for rent,
tourist buses, and other common carriers,
services of franchise grantees of telephone
and telegraph.
The problem with CREBA's petition is that it
presents broad claims of constitutional
violations by tendering issues not at retail but
at wholesale and in the abstract. There is no
fully developed record which can impart to
adjudication the impact of actuality. There is
no factual foundation to show in
the concrete the application of the law
to actual contracts and exemplify its effect on
property rights. For the fact is that petitioner's
members have not even been assessed the
VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked
which are no different from those dealt with in
advisory opinions.
The difficulty confronting
petitioner is thus apparent. He
Jeremiah 29:11
alleges arbitrariness. A mere
allegation, as here, does not
suffice. There must be a
factual foundation of such
unconstitutional taint.
Considering that petitioner
here would condemn such a
provision as void on its face,
he has not made out a case.
This is merely to adhere to the
authoritative doctrine that
where the due process and
equal protection clauses are
invoked, 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.
(Sison, Jr. v. Ancheta, 130
SCRA at 661)
Adjudication of these broad claims must await
the development of a concrete case. It may be
that postponement of adjudication would
result in a multiplicity of suits. This need not
be the case, however. Enforcement of the law
may give rise to such a case. A test case,
provided it is an actual case and not an
abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an
adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no
different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII,
§1, ¶2 to decide whenever a claim is made
that "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." This duty
can only arise if an actual case or controversy
is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and
all that Art. VIII, §1, ¶2 can plausibly mean is
that in the exercise of that jurisdiction we have
37
the judicial power to determine questions of
grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII,
§1, ¶2 is "judicial power," which is "the power
of a court to hear and decide cases pending
between parties who have the right to sue and
be sued in the courts of law and equity" (Lamb
v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive
power. This power cannot be directly
appropriated until it is apportioned among
several courts either by the Constitution, as in
the case of Art. VIII, §5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No.
296) and the Judiciary Reorganization Act of
1980 (B.P. Blg. 129). The power thus
apportioned constitutes the court's
"jurisdiction," defined as "the power conferred
by law upon a court or judge to take
cognizance of a case, to the exclusion of all
others." (United States v. Arceo, 6 Phil. 29
(1906)) Without an actual case coming within
its jurisdiction, this Court cannot inquire into
any allegation of grave abuse of discretion by
the other departments of the government.
VIII. Alleged violation of policy towards
cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that
the present Constitution embodies provisions
on cooperatives. To subject cooperatives to
the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of
income taxes and sales taxes but in 1984,
because of the crisis which menaced the
national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives
exemption from income and sales taxes until
December 31, 1991, but, in the same year,
E.O. No. 93 revoked the exemption; and that
finally in 1987 the framers of the Constitution
"repudiated the previous actions of the
government adverse to the interests of the
cooperatives, that is, the repeated revocation
of the tax exemption to cooperatives and
Jeremiah 29:11
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax
exemptions," by providing the following in Art.
XII:
§1. The goals of the national
economy are a more equitable
distribution of opportunities,
income, and wealth; a
sustained increase in the
amount of goods and services
produced by the nation for the
benefit of the people; and an
expanding productivity as the
key to raising the quality of life
for all, especially the
underprivileged.
The State shall promote
industrialization and full
employment based on sound
agricultural development and
agrarian reform, through
industries that make full and
efficient use of human and
natural resources, and which
are competitive in both
domestic and foreign markets.
However, the State shall
protect Filipino enterprises
against unfair foreign
competition and trade
practices.
In the pursuit of these goals,
all sectors of the economy and
all regions of the country shall
be given optimum opportunity
to develop. Private
enterprises, including
corporations, cooperatives,
and similar collective
organizations, shall be
encouraged to broaden the
base of their ownership.
§15. The Congress shall
create an agency to promote
the viability and growth of
cooperatives as instruments
for social justice and economic
development.
38
Petitioner's contention has no merit. In the first
place, it is not true that P.D. No. 1955 singled
out cooperatives by withdrawing their
exemption from income and sales taxes under
P.D. No. 175, §5. What P.D. No. 1955, §1 did
was to withdraw the exemptions and
preferential treatments theretofore granted to
private business enterprises in general, in
view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008,
§2 had restored the tax exemptions of
cooperatives in 1986, the exemption was
again repealed by E.O. No. 93, §1, but then
again cooperatives were not the only ones
whose exemptions were withdrawn. The
withdrawal of tax incentives applied to all,
including government and private entities. In
the second place, the Constitution does not
really require that cooperatives be granted tax
exemptions in order to promote their growth
and viability. Hence, there is no basis for
petitioner's assertion that the government's
policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges
was concerned, and that it was to put an end
to this indecision that the constitutional
provisions cited were adopted. Perhaps as a
matter of policy cooperatives should be
granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not
grant exemption and there is no discrimination
to cooperatives, no violation of any
constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying
that under the Constitution cooperatives are
exempt from taxation. Such theory is contrary
to the Constitution under which only the
following are exempt from taxation: charitable
institutions, churches and parsonages, by
reason of Art. VI, §28 (3), and non-stock, non-
profit educational institutions by reason of Art.
XIV, §4 (3).
CUP's further ground for seeking the
invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law
because electric cooperatives are exempted
from the VAT. The classification between
electric and other cooperatives (farmers
cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests
on a congressional determination that there is
Jeremiah 29:11
greater need to provide cheaper electric
power to as many people as possible,
especially those living in the rural areas, than
there is to provide them with other necessities
in life. We cannot say that such classification
is unreasonable.
We have carefully read the various arguments
raised against the constitutional validity of
R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement
pending resolution of these cases. We have
now come to the conclusion that the law
suffers from none of the infirmities attributed
to it by petitioners and that its enactment by
the other branches of the government does
not constitute a grave abuse of discretion. Any
question as to its necessity, desirability or
expediency must be addressed to Congress
as the body which is electorally responsible,
remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of
the liberties and welfare of the people in quite
as great a degree as are the courts."
(Missouri, Kansas & Texas Ry. Co. v. May,
194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)).
It is not right, as petitioner in G.R. No. 115543
does in arguing that we should enforce the
public accountability of legislators, that those
who took part in passing the law in question
by voting for it in Congress should later thrust
to the courts the burden of reviewing
measures in the flush of enactment. This
Court does not sit as a third branch of the
legislature, much less exercise a veto power
over legislation.
WHEREFORE, the motions for
reconsideration are denied with finality and
the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
39
G.R. No. 112024 January 28, 1999
PHILIPPINE BANK OF
COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,
COURT OF TAX APPEALS and COURT OF
APPEALS, respondent.
QUISUMBING, J.:
This petition for review assails the
Resolution 1 of the Court of Appeals dated
September 22, 1993 affirming the
Decision2 and a Resolution 3 of the Court Of
Tax Appeals which denied the claims of the
petitioner for tax refund and tax credits,
and disposing as follows:
IN VIEW OF ALL, THE
FOREGOING, the instant
petition for review, is DENIED
due course. The Decision of
the Court of Tax Appeals
dated May 20, 1993 and its
resolution dated July 20, 1993,
are hereby AFFIRMED in toto.
SO ORDERED.4
The Court of Tax Appeals earlier ruled as
follows:
WHEREFORE, Petitioner's
claim for refund/tax credits of
overpaid income tax for 1985
in the amount of
P5,299,749.95 is hereby
denied for having been filed
beyond the reglementary
period. The 1986 claim for
refund amounting to
P234,077.69 is likewise denied
since petitioner has opted and
in all likelihood automatically
credited the same to the
succeeding year. The petition
for review is dismissed for lack
of merit.
Jeremiah 29:11
SO ORDERED.5
The facts on record show the antecedent
circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications
(PBCom), a commercial banking corporation
duly organized under Philippine laws, filed its
quarterly income tax returns for the first and
second quarters of 1985, reported profits, and
paid the total income tax of P5,016,954.00.
The taxes due were settled by applying
PBCom's tax credit memos and accordingly,
the Bureau of Internal Revenue (BIR) issued
Tax Debit Memo Nos. 0746-85 and 0747-85
for P3,401,701.00 and P1,615,253.00,
respectively.
Subsequently, however, PBCom suffered
losses so that when it filed its Annual Income
Tax Returns for the year-ended December 31,
1986, the petitioner likewise reported a net
loss of P14,129,602.00, and thus declared no
tax payable for the year.
But during these two years, PBCom earned
rental income from leased properties. The
lessees withheld and remitted to the BIR
withholding creditable taxes of P282,795.50 in
1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the
Commissioner of Internal Revenue, among
others, for a tax credit of P5,016,954.00
representing the overpayment of taxes in the
first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a
claim for refund of creditable taxes withheld by
their lessees from property rentals in 1985 for
P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent
Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November
18, 1988 before the Court of Tax Appeals
(CTA). The petition was docketed as CTA
Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal
Revenue."
40
The losses petitioner incurred as per the
summary of petitioner's claims for refund and
tax credit for 1985 and 1986, filed before the
Court of Tax Appeals, are as follows:
1985 1986
——— ———
likewise denied on the assumption that it was
automatically credited by PBCom against its
tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for
Reconsideration of the CTA's decision but the
same was denied due course for lack of
merit. 6

Net Income (Loss) Thereafter, PBCom filed a petition for review

(P25,317,288.00) of said decision and resolution of the CTA with
(P14,129,602.00) the Court of Appeals. However on September
22, 1993, the Court of Appeals affirmed in
Tax Due NIL NIL toto the CTA's resolution dated July 20, 1993.
Hence this petition now before us.
Quarterly tax.
The issues raised by the petitioner are:
Payments Made 5,016,954.00
— I. Whether
taxpayer
PBCom —
Tax Withheld at Source
which relied in
282,795.50 234,077.69
good faith on
the formal
———————— ————— assurances of
—— BIR in RMC
No. 7-85 and
Excess Tax Payments did not
P5,299,749.50* P234,077.69 immediately
file with the
=============== CTA a petition
============= for review
asking for the
* CTA's refund/tax
decision credit of its
reflects 1985-86
PBCom's 1985 excess
tax claim as quarterly
P5,299,749.95. income tax
A forty five payments —
centavo can be
difference was prejudiced by
noted. the subsequent
BIR rejection,
On May 20, 1993, the CTA rendered a applied
decision which, as stated on the outset, retroactivity, of
denied the request of petitioner for a tax its assurances
refund or credit in the sum amount of in RMC No. 7-
P5,299,749.95, on the ground that it was filed 85 that the
beyond the two-year reglementary period prescriptive
provided for by law. The petitioner's claim for period for the
refund in 1986 amounting to P234,077.69 was refund/tax
credit of

41
Jeremiah 29:11
 excess availed of tax-
quarterly crediting that
income tax year.8
payments is
not two years Simply stated, the main question is: Whether
but ten (10).7 or not the Court of Appeals erred in denying
the plea for tax refund or tax credits on the
II. Whether the ground of prescription, despite petitioner's
Court of reliance on RMC No. 7-85, changing the
Appeals prescriptive period of two years to ten years?
seriously erred
in affirming the Petitioner argues that its claims for refund and
CTA decision tax credits are not yet barred by prescription
which denied relying on the applicability of Revenue
PBCom's claim Memorandum Circular No. 7-85 issued on
for the refund April 1, 1985. The circular states that overpaid
of P234,077.69 income taxes are not covered by the two-year
income tax prescriptive period under the tax Code and
overpaid in that taxpayers may claim refund or tax credits
1986 on the for the excess quarterly income tax with the
mere BIR within ten (10) years under Article 1144 of
speculation, the Civil Code. The pertinent portions of the
without proof, circular reads:
that there were
taxes due in REVENUE MEMORANDUM
1987 and that CIRCULAR NO. 7-85
PBCom
SUBJECT: PROCESSING OF REFUND OR TAX
CREDIT OF EXCESS CORPORATE INCOME TAX
RESULTING FROM THE FILING OF THE FINAL
ADJUSTMENT RETURN.

TO: All Internal Revenue corporations file claims for

Officers and Others recovery of overpaid income
Concerned. tax with the Court of Tax
Appeals within the two-year
Sec. 85 And 86 Of the period from the date of
National Internal Revenue payment, in accordance with
Code provide: sections 292 and 295 of the
National Internal Revenue
xxx xxx xxx Code. It is obvious that the
filing of the case in court is to
preserve the judicial right of
The foregoing provisions are
the corporation to claim the
implemented by Section 7 of
refund or tax credit.
Revenue Regulations Nos. 10-
77 which provide;
It should he noted, however,
that this is not a case of
xxx xxx xxx
erroneously or illegally paid tax
under the provisions of
It has been observed, Sections 292 and 295 of the
however, that because of the Tax Code.
excess tax payments,

42
Jeremiah 29:11
 In the above provision of the
Regulations the corporation
may request for the refund of
the overpaid income tax or
claim for automatic tax credit.
To insure prompt action on
corporate annual income tax
returns showing refundable
amounts arising from overpaid
quarterly income taxes, this
Office has promulgated
Revenue Memorandum Order
No. 32-76 dated June 11,
1976, containing the
procedure in processing said
returns. Under these
procedures, the returns are
merely pre-audited which
consist mainly of checking
mathematical accuracy of the
figures of the return. After
which, the refund or tax credit
is granted, and, this procedure
was adopted to facilitate
immediate action on cases like
this.
provisions of Section 86 of the
Tax Code within 10 years from
the date of payment
considering that it is an
obligation created by law
(Article 1144 of the Civil
Code).9 (Emphasis supplied.)
Petitioner argues that the government is
barred from asserting a position contrary to its
declared circular if it would result to injustice
to taxpayers. Citing ABS CBN Broadcasting
Corporation vs. Court of Tax
Appeals 10 petitioner claims that rulings or
circulars promulgated by the Commissioner of
Internal Revenue have no retroactive effect if
it would be prejudicial to taxpayers, In ABS-
CBN case, the Court held that the government
is precluded from adopting a position
inconsistent with one previously taken where
injustice would result therefrom or where there
has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the
National Internal Revenue Code explicitly
provides for this rules as follows:

In this regard, therefore, there Sec. 246 Non-retroactivity of

is no need to file petitions for rulings— Any revocation,
review in the Court of Tax modification or reversal of any
Appeals in order to preserve of the rules and regulations
the right to claim refund or tax promulgated in accordance
credit the two year period. As with the preceding section or
already stated, actions hereon any of the rulings or circulars
by the Bureau are immediate promulgated by the
after only a cursory pre-audit Commissioner shall not be
of the income tax returns. given retroactive application if
Moreover, a taxpayer may the revocation, modification or
recover from the Bureau of reversal will be prejudicial to
Internal Revenue excess the taxpayers except in the
income tax paid under the following cases:

a). where the taxpayer deliberately misstates or omits

material facts from his return or in any document
required of him by the Bureau of Internal Revenue;

b). where the facts subsequently gathered by the

Bureau of Internal Revenue are materially different
from the facts on which the ruling is based;

c). where the taxpayer acted in bad faith

43
Jeremiah 29:11
 . administrative body enforced to collect taxes,
its functions should not be unduly delayed or
Respondent Commissioner of Internal hampered by incidental matters.
Revenue, through Solicitor General, argues
that the two-year prescriptive period for filing Sec. 230 of the National Internal Revenue
tax cases in court concerning income tax Code (NIRC) of 1977 (now Sec. 229, NIRC of
payments of Corporations is reckoned from 1997) provides for the prescriptive period for
the date of filing the Final Adjusted Income filing a court proceeding for the recovery of tax
Tax Return, which is generally done on April erroneously or illegally collected, viz.:
15 following the close of the calendar year. As
precedents, respondent Commissioner cited Sec. 230. Recovery of tax
cases which adhered to this principle, to erroneously or illegally
wit ACCRA Investments Corp. vs. Court of collected. — No suit or
Appeals, et al., 11 and Commissioner of proceeding shall be
Internal Revenue vs. TMX Sales, Inc., et maintained in any court for the
al.. 12 Respondent Commissioner also states recovery of any national
that since the Final Adjusted Income Tax internal revenue tax hereafter
Return of the petitioner for the taxable year alleged to have been
1985 was supposed to be filed on April 15, erroneously or illegally
1986, the latter had only until April 15, 1988 to assessed or collected, or of
seek relief from the court. Further, respondent any penalty claimed to have
Commissioner stresses that when the been collected without
petitioner filed the case before the CTA on authority, or of any sum
November 18, 1988, the same was filed alleged to have been
beyond the time fixed by law, and such failure excessive or in any manner
is fatal to petitioner's cause of action. wrongfully collected, until a
claim for refund or credit has
After a careful study of the records and been duly filed with the
applicable jurisprudence on the matter, we Commissioner; but such suit or
find that, contrary to the petitioner's proceeding may be
contention, the relaxation of revenue maintained, whether or not
regulations by RMC 7-85 is not warranted as it such tax, penalty, or sum has
disregards the two-year prescriptive period set been paid under protest or
by law. duress.

Basic is the principle that "taxes are the In any case, no such suit or
lifeblood of the nation." The primary purpose proceedings shall begun after
is to generate funds for the State to finance the expiration of two years
the needs of the citizenry and to advance the from the date of payment of
common weal. 13 Due process of law under the the tax or penalty regardless of
Constitution does not require judicial any supervening cause that
proceedings in tax cases. This must may arise after
necessarily be so because it is upon taxation payment; Provided however,
that the government chiefly relies to obtain the That the Commissioner may,
means to carry on its operations and it is of even without a written claim
utmost importance that the modes adopted to therefor, refund or credit any
enforce the collection of taxes levied should tax, where on the face of the
be summary and interfered with as little as return upon which payment
possible. 14 was made, such payment
appears clearly to have been
From the same perspective, claims for refund erroneously paid. (Emphasis
or tax credit should be exercised within the supplied)
time fixed by law because the BIR being an

44
Jeremiah 29:11
The rule states that the taxpayer may file a
claim for refund or credit with the
Commissioner of Internal Revenue, within two
(2) years after payment of tax, before any suit
in CTA is commenced. The two-year
prescriptive period provided, should be
computed from the time of filing the
Adjustment Return and final payment of the
tax for the year.
In Commissioner of Internal Revenue vs.
Philippine American Life Insurance Co., 15 this
Court explained the application of Sec. 230 of
1977 NIRC, as follows:
Clearly, the prescriptive period
of two years should
commence to run only from
the time that the refund is
ascertained, which can only be
determined after a final
adjustment return is
accomplished. In the present
case, this date is April 16,
1984, and two years from this
date would be April 16, 1986. .
. . As we have earlier said in
the TMX Sales case, Sections
68. 16 69, 17 and 70 18 on
Quarterly Corporate Income
Tax Payment and Section 321
should be considered in
conjunction with it 19
When the Acting Commissioner of Internal
Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years
on claims of excess quarterly income tax
payments, such circular created a clear
inconsistency with the provision of Sec. 230 of
1977 NIRC. In so doing, the BIR did not
simply interpret the law; rather it legislated
guidelines contrary to the statute passed by
Congress.
It bears repeating that Revenue
memorandum-circulars are considered
administrative rulings (in the sense of more
specific and less general interpretations of tax
laws) which are issued from time to time by
the Commissioner of Internal Revenue. It is
widely accepted that the interpretation placed
upon a statute by the executive officers,
Jeremiah 29:11
whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such
interpretation is not conclusive and will be
ignored if judicially found to be
erroneous. 20 Thus, courts will not
countenance administrative issuances that
override, instead of remaining consistent and
in harmony with the law they seek to apply
and implement. 21
In the case of People vs. Lim, 22 it was held
that rules and regulations issued by
administrative officials to implement a law
cannot go beyond the terms and provisions of
the latter.
Appellant contends that
Section 2 of FAO No. 37-1 is
void because it is not only
inconsistent with but is
contrary to the provisions and
spirit of Act. No 4003 as
amended, because whereas
the prohibition prescribed in
said Fisheries Act was for any
single period of time not
exceeding five years duration,
FAO No 37-1 fixed no period,
that is to say, it establishes an
absolute ban for all time. This
discrepancy between Act No.
4003 and FAO No. 37-1 was
probably due to an oversight
on the part of Secretary of
Agriculture and Natural
Resources. Of course, in case
of discrepancy, the basic Act
prevails, for the reason that
the regulation or rule issued to
implement a law cannot go
beyond the terms and
provisions of the
latter. . . . In this connection,
the attention of the technical
men in the offices of
Department Heads who draft
rules and regulation is called
to the importance and
necessity of closely following
the terms and provisions of the
law which they intended to
implement, this to avoid any
possible misunderstanding or
45
 confusion as in the present
case.23
Further, fundamental is the rule that the State
cannot be put in estoppel by the mistakes or
errors of its officials or agents. 24 As pointed
out by the respondent courts, the nullification
of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an
administrative interpretation which is not in
harmony with Sec. 230 of 1977 NIRC. for
being contrary to the express provision of a
statute. Hence, his interpretation could not be
given weight for to do so would, in effect,
amend the statute.
It is likewise argued that the
Commissioner of Internal
Revenue, after promulgating
RMC No. 7-85, is estopped by
the principle of non-
retroactively of BIR rulings.
Again We do not agree. The
Memorandum Circular, stating
that a taxpayer may recover
the excess income tax paid
within 10 years from date of
payment because this is an
obligation created by law, was
issued by the Acting
Commissioner of Internal
Revenue. On the other hand,
the decision, stating that the
taxpayer should still file a
claim for a refund or tax credit
and corresponding petition fro
review within the
two-year prescription period,
and that the lengthening of the
period of limitation on refund
from two to ten years would be
adverse to public policy and
run counter to the positive
mandate of Sec. 230, NIRC, -
was the ruling and judicial
interpretation of the Court of
Tax Appeals. Estoppel has no
application in the case at bar
because it was not the
Commissioner of Internal
Revenue who denied
petitioner's claim of refund or
tax credit. Rather, it was the
Jeremiah 29:11
Court of Tax Appeals who
denied (albeit correctly) the
claim and in effect, ruled that
the RMC No. 7-85 issued by
the Commissioner of Internal
Revenue is an administrative
interpretation which is out of
harmony with or contrary to
the express provision of a
statute (specifically Sec. 230,
NIRC), hence, cannot be given
weight for to do so would in
effect amend the statute.25
Art. 8 of the Civil Code 26 recognizes judicial
decisions, applying or interpreting statutes as
part of the legal system of the country. But
administrative decisions do not enjoy that
level of recognition. A memorandum-circular
of a bureau head could not operate to vest a
taxpayer with shield against judicial action.
For there are no vested rights to speak of
respecting a wrong construction of the law by
the administrative officials and such wrong
interpretation could not place the Government
in estoppel to correct or overrule the
same. 27 Moreover, the non-retroactivity of
rulings by the Commissioner of Internal
Revenue is not applicable in this case
because the nullity of RMC No. 7-85 was
declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it
must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a
claim for exemption and should be construed
in strictissimi juris against the taxpayer.28
On the second issue, the petitioner alleges
that the Court of Appeals seriously erred in
affirming CTA's decision denying its claim for
refund of P234,077.69 (tax overpaid in 1986),
based on mere speculation, without proof, that
PBCom availed of the automatic tax credit in
1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of
the 1997 NIRC) provides that any excess of
the total quarterly payments over the actual
income tax computed in the adjustment or
final corporate income tax return, shall
either(a) be refunded to the corporation, or (b)
may be credited against the estimated
46
quarterly income tax liabilities for the quarters appealed from is AFFIRMED, with COSTS
of the succeeding taxable year. against the petitioner.
1âw phi 1.nêt

The corporation must signify in its annual SO ORDERED.

corporate adjustment return (by marking the
option box provided in the BIR form) its
intention, whether to request for a refund or
claim for an automatic tax credit for the
succeeding taxable year. To ease the
administration of tax collection, these
remedies are in the alternative, and the choice
of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed

refund of income tax over-paid
in 1986 — the Court of Tax
Appeals, after examining the
adjusted final corporate annual
income tax return for taxable
year 1986, found out that
petitioner opted to apply for
automatic tax credit. This was
the basis used (vis-avis the
fact that the 1987 annual
corporate tax return was not
offered by the petitioner as
evidence) by the CTA in
concluding that petitioner had
indeed availed of and applied
the automatic tax credit to the
succeeding year, hence it can
no longer ask for refund, as to
[sic] the two remedies of
refund and tax credit are
alternative. 30

That the petitioner opted for an automatic tax

credit in accordance with Sec. 69 of the 1977
NIRC, as specified in its 1986 Final Adjusted
Income Tax Return, is a finding of fact which
we must respect. Moreover, the 1987 annual
corporate tax return of the petitioner was not
offered as evidence to contovert said fact.
Thus, we are bound by the findings of fact by
respondent courts, there being no showing of
gross error or abuse on their part to disturb
our reliance thereon. 31

WHEREFORE, the, petition is hereby

DENIED, The decision of the Court of Appeals

47
Jeremiah 29:11
 [G.R. No. 120082. September 11,
1996]
MACTAN CEBU
INTERNATIONAL AIRPORT
AUTHORITY, petitioner, vs.
HON. FERDINAND J.
MARCOS, in his capacity
as the Presiding Judge of
the Regional Trial Court,
Branch 20, Cebu City, THE
CITY OF CEBU,
represented by its Mayor,
HON. TOMAS R. OSMEA,
and EUSTAQUIO B.
CESA, respondents.
DECISION
DAVIDE, JR., J.:
For review under Rule 45 of the
Rules of Court on a pure question of
law are the decision of 22 March
1995[1] of the Regional Trial Court
(RTC) of Cebu City, Branch 20,
dismissing the petition for
declaratory relief in Civil Case No.
CEB-16900, entitled Mactan Cebu
International Airport Authority vs.
City of Cebu, and its order of 4 May
1995[2]denying the motion to
reconsider the decision.
We resolved to give due course
to this petition for it raises issues
dwelling on the scope of the taxing
power of local government units and
the limits of tax exemption privileges
of government-owned and
controlled corporations.
Jeremiah 29:11
The uncontradicted factual
antecedents are summarized in the
instant petition as follows:
Petitioner Mactan Cebu International
Airport Authority (MCIAA) was
created by virtue of Republic Act No.
6958, mandated to principally
undertake the economical, efficient and
effective control, management and
supervision of the Mactan International
Airport in the Province of Cebu and the
Lahug Airport in Cebu City, x x x and
such other airports as may be
established in the Province of Cebu x x
x (Sec. 3, RA 6958). It is also
mandated to:
a) encourage, promote and develop
international and domestic air traffic in
the Central Visayas and Mindanao
regions as a means of making the
regions centers of international trade
and tourism, and accelerating the
development of the means of
transportation and communication in
the country; and,
b) upgrade the services and facilities of
the airports and to formulate
internationally acceptable standards of
airport accommodation and service.
Since the time of its creation, petitioner
MCIAA enjoyed the privilege of
exemption from payment of realty
taxes in accordance with Section 14 of
its Charter:
Sec. 14. Tax Exemptions. -- The
Authority shall be exempt from realty
taxes imposed by the National
48
Government or any of its political
subdivisions, agencies and
instrumentalities x x x.
On October 11, 1994, however, Mr.
Eustaquio B. Cesa, Officer-in-Charge,
Office of the Treasurer of the City of
Cebu, demanded payment for realty
taxes on several parcels of land
belonging to the petitioner (Lot Nos.
913-G, 743, 88 SWO, 948-A, 989-A,
474, 109(931), I-M, 918, 919, 913-F,
941, 942, 947, 77 Psd., 746 and 991-
A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the
total amount of P2,229,078.79.
Petitioner objected to such demand for
payment as baseless and unjustified,
claiming in its favor the aforecited
Section 14 of RA 6958 which exempts
it from payment of realty taxes. It was
also asserted that it is an
instrumentality of the government
performing governmental functions,
citing Section 133 of the Local
Government Code of 1991 which puts
limitations on the taxing powers of
local government units:
Section 133. Common Limitations on
the Taxing Powers of Local
Government Units. -- Unless otherwise
provided herein, the exercise of the
taxing powers of provinces, cities,
municipalities, and barangays shall not
extend to the levy of the following:
a) x x x
xxx
Jeremiah 29:11
o) Taxes, fees or charges of any kind on
the National Government, its agencies
and instrumentalities, and local
government units. (underscoring
supplied)
Respondent City refused to cancel and
set aside petitioners realty tax account,
insisting that the MCIAA is a
government-controlled corporation
whose tax exemption privilege has
been withdrawn by virtue of Sections
193 and 234 of the Local Government
Code that took effect on January 1,
1992:
Section 193. Withdrawal of Tax
Exemption Privilege. Unless otherwise
provided in this Code, tax exemptions
or incentives granted to, or presently
enjoyed by all persons whether natural
or juridical, including government-
owned or controlled corporations,
except local water districts,
cooperatives duly registered under RA
No. 6938, non-stock and non-profit
hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this
Code. (underscoring supplied)
xxx
Section 234. Exemptions from Real
Property Taxes. x x x
(a) x x x
xxx
(e) x x x
49
Except as provided herein, any
exemption from payment of real
property tax previously granted to, or
presently enjoyed by all persons,
whether natural or juridical, including
government-owned or controlled
corporations are hereby withdrawn
upon the effectivity of this Code.
As the City of Cebu was about to issue
a warrant of levy against the properties
of petitioner, the latter was compelled
to pay its tax account under protest and
thereafter filed a Petition for
Declaratory Relief with the Regional
Trial Court of Cebu, Branch 20,
on December 29, 1994. MCIAA
basically contended that the taxing
powers of local government units do
not extend to the levy of taxes or fees
of any kind on an instrumentality of the
national government. Petitioner insisted
that while it is indeed a government-
owned corporation, it nonetheless
stands on the same footing as an
agency or instrumentality of the
national government by the very nature
of its powers and functions.
Respondent City, however, asserted
that MCIAA is not an instrumentality
of the government but merely a
government-owned corporation
performing proprietary functions. As
such, all exemptions previously granted
to it were deemed withdrawn by
operation of law, as provided under
Sections 193 and 234 of the Local
Government Code when it took effect
on January 1, 1992.[3]
Jeremiah 29:11
The petition for declaratory relief
was docketed as Civil Case No.
CEB-16900.
In its decision of 22 March
1995,[4] the trial court dismissed the
petition in light of its findings, to wit:
A close reading of the New Local
Government Code of 1991 or RA 7160
provides the express cancellation and
withdrawal of exemption of taxes by
government-owned and controlled
corporation per Sections after the
effectivity of said Code on January 1,
1992, to wit: [proceeds to quote
Sections 193 and 234]
Petitioners claimed that its real
properties assessed by respondent City
Government of Cebu are exempted
from paying realty taxes in view of the
exemption granted under RA 6958 to
pay the same (citing Section 14 of RA
6958).
However, RA 7160 expressly provides
that All general and special laws, acts,
city charters, decrees [sic], executive
orders, proclamations and
administrative regulations, or part of
parts thereof which are inconsistent
with any of the provisions of this Code
are hereby repealed or modified
accordingly. (/f/, Section 534, RA
7160).
With that repealing clause in RA 7160,
it is safe to infer and state that the tax
exemption provided for in RA 6958
creating petitioner had been expressly
50
repealed by the provisions of the New
Local Government Code of 1991.
So that petitioner in this case has to pay
the assessed realty tax of its properties
effective after January 1, 1992 until the
present.
This Courts ruling finds expression to
give impetus and meaning to the
overall objectives of the New Local
Government Code of 1991, RA 7160. It
is hereby declared the policy of the
State that the territorial and political
subdivisions of the State shall enjoy
genuine and meaningful local
autonomy to enable them to attain their
fullest development as self-reliant
communities and make them more
effective partners in the attainment of
national goals. Toward this end, the
State shall provide for a more
responsive and accountable local
government structure instituted through
a system of decentralization whereby
local government units shall be given
more powers, authority,
responsibilities, and resources. The
process of decentralization shall
proceed from the national government
to the local government units. x x x[5]
Its motion for reconsideration
having been denied by the trial court
in its 4 May 1995 order, the
petitioner filed the instant petition
based on the following assignment
of errors:
I. RESPONDENT JUDGE ERRED
IN FAILING TO RULE THAT
THE PETITIONER IS VESTED
WITH GOVERNMENT
Jeremiah 29:11
POWERS AND FUNCTIONS
WHICH PLACE IT IN THE
SAME CATEGORY AS AN
INSTRUMENTALITY OR
AGENCY OF THE
GOVERNMENT.
II. RESPONDENT JUDGE ERRED
IN RULING THAT PETITIONER
IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE
CITY OF CEBU.
Anent the first assigned error,
the petitioner asserts that although it
is a government-owned or controlled
corporation, it is mandated to
perform functions in the same
category as an instrumentality of
Government. An instrumentality of
Government is one created to
perform governmental functions
primarily to promote certain aspects
of the economic life of the
people.[6]Considering its task not
merely to efficiently operate and
manage the Mactan-Cebu
International Airport, but more
importantly, to carry out the
Government policies of promoting
and developing the Central Visayas
and Mindanao regions as centers of
international trade and tourism, and
accelerating the development of the
means of transportation and
communication in the country,[7] and
that it is an attached agency of the
Department of Transportation and
Communication (DOTC),[8] the
petitioner may stand in [sic] the
same footing as an agency or
instrumentality of the national
government. Hence, its tax
exemption privilege under Section
51
14 of its Charter cannot be
considered withdrawn with the
passage of the Local Government
Code of 1991 (hereinafter LGC)
because Section 133 thereof
specifically states that the `taxing
powers of local government units
shall not extend to the levy of taxes
or fees or charges of any kind on the
national government, its agencies
and instrumentalities.
As to the second assigned error,
the petitioner contends that being an
instrumentality of the National
Government, respondent City of
Cebu has no power nor authority to
impose realty taxes upon it in
accordance with the aforesaid
Section 133 of the LGC, as
explained in Basco vs. Philippine
Amusement and Gaming
Corporation: [9]
Local governments have no power to
tax instrumentalities of the National
Government. PAGCOR is a
government owned or controlled
corporation with an original charter, PD
1869. All of its shares of stock are
owned by the National Government. . .
. 140)
PAGCOR has a dual role, to operate
and regulate gambling casinos. The
latter role is governmental, which
places it in the category of an agency or
instrumentality of the
Government. Being an instrumentality
of the Government, PAGCOR should
be and actually is exempt from local
taxes. Otherwise, its operation might be
Jeremiah 29:11
burdened, impeded or subjected to
control by a mere Local government.
The states have no power by taxation or
otherwise, to retard, impede, burden or
in any manner control the operation of
constitutional laws enacted by
Congress to carry into execution the
powers vested in the federal
government. (McCulloch v. Maryland,
4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the
supremacy of the National Government
over local governments.
Justice Holmes, speaking for the
Supreme Court, made reference to the
entire absence of power on the part of
the States to touch, in that way
(taxation) at least, the instrumentalities
of the United States
(Johnson v. Maryland, 254 US 51) and
it can be agreed that no state or political
subdivision can regulate a federal
instrumentality in such a way as to
prevent it from consummating its
federal responsibilities, or even to
seriously burden it in the
accomplishment of them. (Antieau,
Modern Constitutional Law, Vol. 2, p.
Otherwise, mere creatures of the State
can defeat National policies thru
extermination of what local authorities
may perceive to be undesirable
activities or enterprise using the power
to tax as a tool for regulation
(U.S. v. Sanchez, 340 US 42). The
power to tax which was called by
Justice Marshall as the power to
52
destroy (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an
instrumentality or creation of the very
entity which has the inherent power to
wield it. (underscoring supplied)
It then concludes that the
respondent Judge cannot therefore
correctly say that the questioned
provisions of the Code do not
contain any distinction between a
government corporation performing
governmental functions as against
one performing merely proprietary
ones such that the exemption
privilege withdrawn under the said
Code would apply to all government
corporations. For it is clear from
Section 133, in relation to Section
234, of the LGC that the legislature
meant to exclude instrumentalities of
the national government from the
taxing powers of the local
government units.
In its comment, respondent City
of Cebu alleges that as a local
government unit and a political
subdivision, it has the power to
impose, levy, assess, and collect
taxes within its jurisdiction. Such
power is guaranteed by the
Constitution[10] and enhanced further
by the LGC. While it may be true that
under its Charter the petitioner was
exempt from the payment of realty
taxes,[11] this exemption was
withdrawn by Section 234 of the
LGC. In response to the petitioners
claim that such exemption was not
repealed because being an
instrumentality of the National
Jeremiah 29:11
Government, Section 133 of the
LGC prohibits local government
units from imposing taxes, fees, or
charges of any kind on it, respondent
City of Cebu points out that the
petitioner is likewise a government-
owned corporation, and Section 234
thereof does not distinguish between
government-owned or controlled
corporations performing
governmental and purely proprietary
functions. Respondent City of Cebu
urges this Court to apply by analogy
its ruling that the Manila International
Airport Authority is a government-
owned corporation,[12]and to reject
the application of Basco because it
was promulgated . . . before the
enactment and the signing into law
of R.A. No. 7160, and was not,
therefore, decided in the light of the
spirit and intention of the framers of
the said law.
As a general rule, the power to
tax is an incident of sovereignty and
is unlimited in its range,
acknowledging in its very nature no
limits, so that security against its
abuse is to be found only in the
responsibility of the legislature which
imposes the tax on the constituency
who are to pay it. Nevertheless,
effective limitations thereon may be
imposed by the people through their
Constitutions.[13] Our Constitution,
for instance, provides that the rule of
taxation shall be uniform and
equitable and Congress shall evolve
a progressive system of
taxation. So potent indeed is the
[14]
power that it was once opined that
53
the power to tax involves the power
to destroy.[15] Verily, taxation is a
destructive power which interferes
with the personal and property rights
of the people and takes from them a
portion of their property for the
support of
government. Accordingly,
statutes must be construed strictly
against the government and liberally
in favor of the taxpayer.[16] But since
taxes are what we pay for civilized
society,[17] or are the lifeblood of the
nation, the law frowns against
exemptions from taxation and
statutes granting tax exemptions are
thus construed strictissimi
juris against the taxpayer and
liberally in favor of the taxing
authority.[18] A claim of exemption
from tax payments must be clearly
shown and based on language in the
law too plain to
mistaken. Elsewise
[19] stated,
taxation is the rule, exemption
therefrom is
exception. However, if the grantee
[20]
of the exemption is a political
subdivision or instrumentality, the
rigid rule of construction does not
apply because the practical effect of
the exemption is merely to reduce
the amount of money that has to be
handled by the government in the
course of its operations.[21]
The power to tax is primarily
vested in the Congress; however, in
our jurisdiction, it may be exercised
by local legislative bodies, no longer
merely by virtue of a valid delegation
as before, but pursuant to direct
Jeremiah 29:11
authority conferred by Section 5,
Article X of the Constitution.[22] Under
the latter, the exercise of the power
may be subject to such guidelines
and limitations as the Congress may
provide which, however, must be
the consistent with the basic policy of
tax local autonomy.
There can be no question that
under Section 14 of R.A. No. 6958
the petitioner is exempt from the
payment of realty taxes imposed by
the National Government or any of
its political subdivisions, agencies,
and instrumentalities. Nevertheless,
since taxation is the rule and
exemption therefrom the exception,
the exemption may thus be
withdrawn at the pleasure of the
taxing authority. The only exception
to this rule is where the exemption
was granted to private parties based
be
on material consideration of a
mutual nature, which then becomes
contractual and is thus covered by
the
the non-impairment clause of the
Constitution.[23]
The LGC, enacted pursuant to
Section 3, Article X of the
Constitution, provides for the
exercise by local government units
of their power to tax, the scope
thereof or its limitations, and the
exemptions from taxation.
Section 133 of the LGC
prescribes the common limitations
on the taxing powers of local
government units as follows:
54
SEC. 133. Common Limitations on the
Taxing Power of Local Government
Units. Unless otherwise provided
herein, the exercise of the taxing
powers of provinces, cities,
municipalities, and barangays shall not
extend to the levy of the following:
(a) Income tax, except when levied
on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance,
gifts, legacies and other
acquisitions mortis causa,
except as otherwise provided
herein;
(d) Customs duties, registration
fees of vessel and wharfage on
wharves, tonnage dues, and all
other kinds of customs fees,
charges and dues except
wharfage on wharves
constructed and maintained by
the local government unit
concerned;
(e) Taxes, fees and charges and
other impositions upon goods
carried into or out of, or passing
through, the territorial
jurisdictions of local government
units in the guise of charges for
wharfage, tolls for bridges or
otherwise, or other taxes, fees or
charges in any form whatsoever
upon such goods
merchandise;
(f) Taxes, fees or charges on
agricultural and aquatic products
when sold by marginal farmers
or fishermen;
(g) Taxes on business enterprises
certified to by the Board of
Investments as pioneer or non-
pioneer for a period of six (6) and
Jeremiah 29:11
four (4) years, respectively from
the date of registration;
(h) Excise taxes on articles
enumerated under the National
Internal Revenue Code, as
amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value-added tax
(VAT) on sales, barters or
exchanges or similar
transactions on goods or
services except as otherwise
provided herein;
(j) Taxes on the gross receipts of
transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common
carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way
of reinsurance or retrocession;
(l) Taxes, fees or charges for the
registration of motor vehicles
and for the issuance of all kinds
of licenses or permits for the
driving thereof, except, tricycles;
(m) Taxes, fees, or other charges
on Philippine products actually
exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on
Countryside and Barangay
Business Enterprises and
cooperatives duly registered
or under R.A. No. 6810 and
Republic Act Numbered Sixty-
nine hundred thirty-eight (R.A.
No. 6938) otherwise known as
the Cooperatives Code of the
Philippines respectively; and
(o) TAXES, FEES OR CHARGES
OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS
AGENCIES AND
INSTRUMENTALITIES, AND
55
 LOCAL GOVERNMENT
UNITS. (emphasis supplied)
Needless to say, the last item (item
o) is pertinent to this case. The
taxes, fees or charges referred to
are of any kind; hence, they include
all of these, unless otherwise
provided by the LGC.The term taxes
is well understood so as to need no
further elaboration, especially in light
of the above enumeration. The term
fees means charges fixed by law or
ordinance for the regulation or
inspection of business or
activity, while
[24] charges are
pecuniary liabilities such as rents or
fees against persons or property.[25]
Among the taxes enumerated in
the LGC is real property tax, which is
governed by Section 232. It reads as
follows:
SEC. 232. Power to Levy Real Property
Tax. A province or city or a
municipality within the Metropolitan
Manila Area may levy an annual ad
valorem tax on real property such as
land, building, machinery, and other
improvements not hereafter specifically
exempted.
Section 234 of the LGC provides
for the exemptions from payment of
real property taxes and withdraws
previous exemptions therefrom
granted to natural and juridical
persons, including government-
owned and controlled corporations,
except as provided therein. It
provides:
Jeremiah 29:11
SEC. 234. Exemptions from Real
Property Tax. The following are
exempted from payment of the real
property tax:
(a) Real property owned by the
Republic of the Philippines or
any of its political subdivisions
except when the beneficial use
thereof had been granted, for
consideration or otherwise, to a
taxable person;
(b) Charitable institutions,
churches, parsonages or
convents appurtenant thereto,
mosques, nonprofit or religious
cemeteries and all lands,
buildings and improvements
actually, directly, and exclusively
used for religious, charitable or
educational purposes;
(c) All machineries and equipment
that are actually, directly and
exclusively used by local water
districts and government-owned
or controlled corporations
engaged in the supply and
distribution of water and/or
generation and transmission of
electric power;
(d) All real property owned by duly
registered cooperatives as
provided for under R.A. No.
6938; and
(e) Machinery and equipment used
for pollution control and
environmental protection.
Except as provided herein, any
exemption from payment of real
property tax previously granted to, or
presently enjoyed by, all persons,
whether natural or juridical, including
all government-owned or controlled
corporations are hereby withdrawn
upon the effectivity of this Code.
56
 These exemptions are based on
the ownership, character, and use of
the property. Thus:
(a) Ownership
Exemptions. Exemptions from
real property taxes on the basis
of ownership are real properties
owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a
municipality, (v) a barangay, and
(vi) registered cooperatives.
(b) Character
Exemptions. Exempted from real
property taxes on the basis of
their character are: (i) charitable
institutions, (ii) houses and
temples of prayer like churches,
parsonages or convents
appurtenant thereto, mosques,
and (iii) non-profit or religious
cemeteries.
(c) Usage exemptions. Exempted
from real property taxes on the
basis of the actual, direct and
exclusive use to which they are
devoted are: (i) all lands,
buildings and improvements
which are actually directly and
exclusively used for religious,
charitable or educational
purposes; (ii) all machineries and
equipment actually, directly and
exclusively used by local water
districts or by government-
owned or controlled corporations
engaged in the supply and
distribution of water and/or
generation and transmission of
electric power; and (iii) all
machinery and equipment used
for pollution control and
environmental protection.
To help provide a healthy environment
in the midst of the modernization of the
country, all machinery and equipment
for pollution control and environmental
Jeremiah 29:11
protection may not be taxed by local
governments.
2. Other Exemptions Withdrawn. All
other exemptions previously granted to
natural or juridical persons including
government-owned or controlled
corporations are withdrawn upon the
effectivity of the Code.[26]
Section 193 of the LGC is the
general provision on withdrawal of
tax exemption privileges. It provides:
SEC. 193. Withdrawal of Tax
Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions
or incentives granted to, or presently
enjoyed by all persons, whether natural
or juridical, including government-
owned or controlled corporations,
except local water districts,
cooperatives duly registered under R.A.
6938, non-stock and non-profit
hospitals and educational institutions,
are hereby withdrawn upon the
effectivity of this Code.
On the other hand, the LGC
authorizes local government units to
grant tax exemption
privileges. Thus, Section 192
thereof provides:
SEC. 192. Authority to Grant Tax
Exemption Privileges.-- Local
government units may, through
ordinances duly approved, grant tax
exemptions, incentives or reliefs under
such terms and conditions as they may
deem necessary.
57
 The foregoing sections of the
LGC speak of: (a) the limitations on
the taxing powers of local
government units and the
exceptions to such limitations; and
(b) the rule on tax exemptions and
the exceptions thereto. The use
of exceptions or provisos in these
sections, as shown by the following
clauses:
(1) unless otherwise provided
herein in the opening paragraph
of Section 133;
(2) Unless otherwise provided in
this Code in Section 193;
(3) not hereafter specifically
exempted in Section 232; and
(4) Except as provided herein in the
last paragraph of Section 234
initially hampers a ready
understanding of the sections. Note,
too, that the aforementioned clause
in Section 133 seems to be
inaccurately worded. Instead of the
clause unless otherwise
provided herein, with the herein to
mean, of course, the section, it
should have used the clause unless
otherwise provided in this Code. The
former results in absurdity since the
section itself enumerates what are
beyond the taxing powers of local
government units and, where
exceptions were intended, the
exceptions are explicitly indicated in
the next. For instance, in item (a)
which excepts income taxes when
levied on banks and other financial
institutions; item (d) which excepts
wharfage on wharves constructed
and maintained by the local
Jeremiah 29:11
government unit concerned; and
item (1) which excepts taxes, fees
and charges for the registration and
issuance of licenses or permits for
the driving of tricycles. It may also be
observed that within the body itself
of the section, there are exceptions
which can be found only in other
parts of the LGC, but the section
interchangeably uses therein the
clause except as otherwise provided
herein as in items (c) and (i), or the
clause except as provided in this
Code in item (j). These clauses
would be obviously unnecessary or
mere surplusages if the opening
clause of the section were Unless
otherwise provided in this Code
instead of Unless otherwise
provided herein. In any event, even
if the latter is used, since under
Section 232 local government units
have the power to levy real property
tax, except those exempted
therefrom under Section 234, then
Section 232 must be deemed to
qualify Section 133.
Thus, reading together Sections
133, 232, and 234 of the LGC, we
conclude that as a general rule, as
laid down in Section 133, the taxing
powers of local government units
cannot extend to the levy of, inter
alia, taxes, fees and charges of any
kind on the National Government, its
agencies and instrumentalities, and
local government units; however,
pursuant to Section 232, provinces,
cities, and municipalities in the
Metropolitan Manila Area may
impose the real property tax except
58
on, inter alia, real property owned by
the Republic of the Philippines or
any of its political subdivisions
except when the beneficial use
thereof has been granted, for
consideration or otherwise, to a
taxable person, as provided in item
(a) of the first paragraph of Section
234.
As to tax exemptions or
incentives granted to or presently
enjoyed by natural or juridical
persons, including government-
owned and controlled corporations,
Section 193 of the LGC prescribes
the general rule, viz., they
are withdrawn upon the effectivity of
the LGC, except those granted to
local water districts, cooperatives
duly registered under R.A. No. 6938,
non-stock and non-profit hospitals
and educational institutions, and
unless otherwise provided in the
LGC. The latter proviso could refer
to Section 234 which enumerates
the properties exempt from real
property tax. But the last paragraph
of Section 234 further qualifies the
retention of the exemption insofar as
real property taxes are concerned by
limiting the retention only to those
enumerated therein; all others not
included in the enumeration lost the
privilege upon the effectivity of the
LGC. Moreover, even as to real
property owned by the Republic of
the Philippines or any of its political
subdivisions covered by item (a) of
the first paragraph of Section 234,
the exemption is withdrawn if the
beneficial use of such property has
Jeremiah 29:11
been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of
Section 234 unequivocally withdrew,
upon the effectivity of the LGC,
exemptions from payment of real
property taxes granted to natural or
juridical persons, including
government-owned or controlled
corporations, except as provided in
the said section, and the petitioner
is, undoubtedly, a government-
owned corporation, it necessarily
follows that its exemption from such
tax granted it in Section 14 of its
Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary
can only be justified if the petitioner
can seek refuge under any of the
exceptions provided in Section 234,
but not under Section 133, as it now
asserts, since, as shown above, the
said section is qualified by Sections
232 and 234.
In short, the petitioner can no
longer invoke the general rule in
Section 133 that the taxing powers
of the local government units cannot
extend to the levy of:
(o) taxes, fees or charges of any kind on
the National Government, its agencies
or instrumentalities, and local
government units.
It must show that the parcels of land
in question, which are real property,
are any one of those enumerated in
Section 234, either by virtue of
ownership, character, or use of the
property.Most likely, it could only be
59
the first, but not under any explicit
provision of the said section, for
none exists. In light of the petitioners
theory that it is an instrumentality of
the Government, it could only be
within the first item of the first
paragraph of the section by
expanding the scope of the term
Republic of the Philippines to
embrace its instrumentalities and
agencies. For expediency, we quote:
(a) real property owned by the Republic
of the Philippines, or any of its political
subdivisions except when the beneficial
use thereof has been granted, for
consideration or otherwise, to a taxable
person.
This view does not persuade
us. In the first place, the petitioners
claim that it is an instrumentality of
the Government is based on Section
133(o), which expressly mentions
the word instrumentalities; and, in
the second place, it fails to consider
the fact that the legislature used the
phrase National Government, its
agencies and instrumentalities in
Section 133(o), but only the phrase
Republic of the Philippines or any of
its political subdivisions in Section
234(a).
The terms Republic of the
Philippines and National
Government are not
interchangeable. The former is
broader and synonymous with
Government of the Republic of the
Philippines which the Administrative
Code of 1987 defines as the
Jeremiah 29:11
corporate governmental entity
through which the functions of
government are exercised
throughout the Philippines,
including, save as the contrary
appears from the context, the
various arms through which political
authority is made affective in the
Philippines, whether pertaining to
the autonomous regions, the
provincial, city, municipal or
barangay subdivisions or other
forms of local government.[27] These
autonomous regions, provincial, city,
municipal or barangay subdivisions
are the political subdivisions.[28]
On the other hand, National
Government refers to the entire
machinery of the central
government, as distinguished from
the different forms of local
governments.[29] The National
Government then is composed of
the three great departments: the
executive, the legislative and the
judicial.[30]
An agency of the Government
refers to any of the various units of
the Government, including a
department, bureau, office,
instrumentality, or government-
owned or controlled corporation, or a
local government or a distinct unit
therein;[31] while an instrumentality
refers to any agency of the National
Government, not integrated within
the department framework, vested
with special functions or jurisdiction
by law, endowed with some if not all
corporate powers, administering
60
special funds, and enjoying
operational autonomy, usually
through a charter. This term includes
regulatory agencies, chartered
institutions and government-owned
and controlled corporations.[32]
If Section 234(a) intended to
extend the exception therein to the
withdrawal of the exemption from
payment of real property taxes under
the last sentence of the said section
to the agencies and instrumentalities
of the National Government
mentioned in Section 133(o), then it
should have restated the wording of
the latter. Yet, it did not. Moreover,
that Congress did not wish to
expand the scope of the exemption
in Section 234(a) to include real
property owned by other
instrumentalities or agencies of the
government including government-
owned and controlled corporations is
further borne out by the fact that the
source of this exemption is Section
40(a) of P.D. No. 464, otherwise
known as The Real Property Tax
Code, which reads:
SEC. 40. Exemptions from Real
Property Tax. The exemption shall be
as follows:
(a) Real property owned by the
Republic of the Philippines or any of its
political subdivisions and any
government-owned or controlled
corporation so exempt by its
charter: Provided, however, That this
exemption shall not apply to real
property of the above-mentioned
Jeremiah 29:11
entities the beneficial use of which has
been granted, for consideration or
otherwise, to a taxable person.
Note that as reproduced in Section
234(a), the phrase and any
government-owned or controlled
corporation so exempt by its charter
was excluded. The justification for
this restricted exemption in Section
234(a) seems obvious: to limit
further tax exemption privileges,
especially in light of the general
provision on withdrawal of tax
exemption privileges in Section 193
and the special provision on
withdrawal of exemption from
payment of real property taxes in the
last paragraph of Section
234. These policy considerations
are consistent with the State policy
to ensure autonomy to local
governments[33] and the objective of
the LGC that they enjoy genuine and
meaningful local autonomy to enable
them to attain their fullest
development as self-reliant
communities and make them
effective partners in the attainment
of national goals.[34] The power to tax
is the most effective instrument to
raise needed revenues to finance
and support myriad activities of local
government units for the delivery of
basic services essential to the
promotion of the general welfare and
the enhancement of peace,
progress, and prosperity of the
people. It may also be relevant to
recall that the original reasons for
the withdrawal of tax exemption
61
privileges granted to government-
owned and controlled corporations
and all other units of government
were that such privilege resulted in
serious tax base erosion and
distortions in the tax treatment of
similarly situated enterprises, and
there was a need for these entities to
share in the requirements of
development, fiscal or otherwise, by
paying the taxes and other charges
due from them.[35]
The crucial issues then to be
addressed are: (a) whether the
parcels of land in question belong to
the Republic of the Philippines
whose beneficial use has been
granted to the petitioner, and (b)
whether the petitioner is a taxable
person.
Section 15 of the petitioners
Charter provides:
Sec. 15. Transfer of Existing Facilities
and Intangible Assets. All existing
public airport facilities, runways, lands,
buildings and other properties, movable
or immovable, belonging to or
presently administered by the airports,
and all assets, powers, rights, interests
and privileges relating on airport works
or air operations, including all
equipment which are necessary for the
operations of air navigation, aerodrome
control towers, crash, fire, and rescue
facilities are hereby transferred to the
Authority: Provided, however, that the
operations control of all equipment
necessary for the operation of radio
aids to air navigation, airways
Jeremiah 29:11
communication, the approach control
office, and the area control center shall
be retained by the Air Transportation
Office. No equipment, however, shall
be removed by the Air Transportation
Office from Mactan without the
concurrence of the Authority. The
Authority may assist in the
maintenance of the Air Transportation
Office equipment.
The airports referred to are the
Lahug Air Port in Cebu City and the
Mactan International Airport in the
Province of Cebu,[36] which belonged
to the Republic of the Philippines,
then under the Air Transportation
Office (ATO).[37]
It may be reasonable to assume
that the term lands refer to lands in
Cebu City then administered by the
Lahug Air Port and includes the
parcels of land the respondent City
of Cebu seeks to levy on for real
property taxes. This section involves
a transfer of the lands, among other
things, to the petitioner and not just
the transfer of the beneficial use
thereof, with the ownership being
retained by the Republic of the
Philippines.
This transfer is actually an
absolute conveyance of the
ownership thereof because the
petitioners authorized capital stock
consists of, inter alia, the value of
such real estate owned and/or
administered by the
airports. Hence, the petitioner is
[38]
now the owner of the land in
62
question and the exception in constitutional mandate and national
Section 234(c) of the LGC is policy, no one can doubt its wisdom.
inapplicable.
WHEREFORE, the instant
Moreover, the petitioner cannot petition is DENIED. The challenged
claim that it was never a taxable decision and order of the Regional
person under its Charter. It was only Trial Court of Cebu, Branch 20, in
exempted from the payment of real Civil Case No. CEB-16900 are
property taxes. The grant of the AFFIRMED.
privilege only in respect of this tax is
No pronouncement as to costs.
conclusive proof of the legislative
intent to make it a taxable person SO ORDERED.
subject to all taxes, except real
property tax.
Finally, even if the petitioner was
originally not a taxable person for
purposes of real property tax, in light
of the foregoing disquisitions, it had
already become, even if it be
conceded to be an agency or
instrumentality of the Government, a
taxable person for such purpose in
view of the withdrawal in the last
paragraph of Section 234 of
exemptions from the payment of real
property taxes, which, as earlier
adverted to, applies to the petitioner.
Accordingly, the position taken
by the petitioner is
untenable. Reliance on Basco vs.
Philippine Amusement and Gaming
Corporation[39] is unavailing since it
was decided before the effectivity of
the LGC. Besides, nothing can
prevent Congress from decreeing
that even instrumentalities or
agencies of the Government
performing governmental functions
may be subject to tax. Where it is
done precisely to fulfill a

63
Jeremiah 29:11
G.R. No. L-30232 July 29, 1988 dated February 20, 1969 (Ibid., p. 35). Hence,
the instant petition.
LUZON STEVEDORING
CORPORATION, petitioner-appellant, This Court, in a Resolution dated March 13,
vs. 1969, gave due course to the petition (Ibid., p.
COURT OF TAX APPEALS and the 40). Petitioner-appellant raised three (3)
HONORABLE COMMISSIONER OF assignments of error, to wit:
INTERNAL REVENUE, respondents-
appellees. I

H. San Luis & V.L. Simbulan for petitioner- The lower court erred in
appellant. holding that the petitioner-
appellant is engaged in
business as stevedore, the
work of unloading and loading
PARAS, J.: of a vessel in port, contrary to
the evidence on record.
This is a petition for review of the October 21, 1968 Decision * of
the Court of Tax Appeals in CTA Case No. 1484, "Luzon
Stevedoring Corporation v. Hon. Ramon Oben, Commissioner,
II
Bureau of Internal Revenue", denying the various claims for tax
refund; and the February 20, 1969 Resolution of the same court
denying the motion for reconsideration.
The lower court erred in not
holding that the business in
which petitioner-appellant is
Herein petitioner-appellant, in 1961 and 1962,
engaged, is part and parcel of
for the repair and maintenance of its tugboats,
the shipping industry.
imported various engine parts and other
equipment for which it paid, under protest, the
assessed compensating tax. Unable to secure III
a tax refund from the Commissioner of
Internal Revenue, on January 2, 1964, it filed The lower court erred in not
a Petition for Review (Rollo, pp. 14-18) with allowing the refund sought by
the Court of Tax Appeals, docketed therein as petitioner-appellant.
CTA Case No. 1484, praying among others,
that it be granted the refund of the amount of The instant petition is without merit.
P33,442.13. The Court of Tax Appeals,
however, in a Decision dated October 21, The pivotal issue in this case is whether or not
1969 (Ibid., pp. 22-27), denied the various petitioner's tugboats" can be interpreted to be
claims for tax refund. The decretal portion of included in the term "cargo vessels" for
the said decision reads: purposes of the tax exemption provided for in
Section 190 of the National Internal Revenue
WHEREFORE, finding Code, as amended by Republic Act No. 3176.
petitioner's various claims for
refund amounting to Said law provides:
P33,442.13 without sufficient
legal justification, the said Sec. 190. Compensating tax.
claims have to be, as they are — ... And Provided further,
hereby, denied. With costs That the tax imposed in this
against petitioner. section shall not apply to
articles to be used by the
On January 24, 1969, petitioner-appellant filed importer himself in the
a Motion for Reconsideration (Ibid., pp. 28- manufacture or preparation of
34), but the same was denied in a Resolution articles subject to specific tax

64
Jeremiah 29:11
 or those for consignment
abroad and are to form part
thereof or to articles to be
used by the importer himself
as passenger and/or cargo
vessel, whether coastwise or
oceangoing, including engines
and spare parts of said vessel.
....
Petitioner contends that tugboats are
embraced and included in the term cargo
vessel under the tax exemption provisions of
Section 190 of the Revenue Code, as
amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat
and a barge loaded with cargoes with the
former towing the latter for loading and
unloading of a vessel in part, constitute a
single vessel. Accordingly, it concludes that
the engines, spare parts and equipment
imported by it and used in the repair and
maintenance of its tugboats are exempt from
compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees
counter that petitioner-appellant's "tugboats"
are not "Cargo vessel" because they are
neither designed nor used for carrying and/or
transporting persons or goods by themselves
but are mainly employed for towing and
pulling purposes. As such, it cannot be
claimed that the tugboats in question are used
in carrying and transporting passengers or
cargoes as a common carrier by water, either
coastwise or oceangoing and, therefore, not
within the purview of Section 190 of the Tax
Code, as amended by Republic Act No. 3176
(Brief for Respondents-Appellees, pp. 45).
This Court has laid down the rule that "as the
power of taxation is a high prerogative of
sovereignty, the relinquishment is never
presumed and any reduction or dimunition
thereof with respect to its mode or its rate,
must be strictly construed, and the same must
be coached in clear and unmistakable terms
in order that it may be applied." (84 C.J.S. pp.
659-800), More specifically stated, the general
rule is that any claim for exemption from the
tax statute should be strictly construed against
the taxpayer (Acting Commissioner of
Customs v. Manila Electric Co. et al., 69
Jeremiah 29:11
SCRA 469 [1977] and Commissioner of
Internal Revenue v. P.J. Kiener Co. Ltd., et
al., 65 SCRA 142 [1975]).
As correctly analyzed by the Court of Tax
Appeals, in order that the importations in
question may be declared exempt from the
compensating tax, it is indispensable that the
requirements of the amendatory law be
complied with, namely: (1) the engines and
spare parts must be used by the importer
himself as a passenger and/or cargo, vessel;
and (2) the said passenger and/or cargo
vessel must be used in coastwise or
oceangoing navigation (Decision, CTA Case
No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals,
the amendatory provisions of Republic Act No.
3176 limit tax exemption from the
compensating tax to imported items to be
used by the importer himself as operator of
passenger and/or cargo vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax
Appeals, a tugboat is defined as follows:
A tugboat is a strongly built,
powerful steam or power
vessel, used for towing and,
now, also used for attendance
on vessel. (Webster New
International Dictionary, 2nd
Ed.)
A tugboat is a diesel or steam
power vessel designed
primarily for moving large
ships to and from piers for
towing barges and lighters in
harbors, rivers and canals.
(Encyclopedia International
Grolier, Vol. 18, p. 256).
A tug is a steam vessel built
for towing, synonymous with
tugboat. (Bouvier's Law
Dictionary.) (Rollo, p. 24).
Under the foregoing definitions, petitioner's
tugboats clearly do not fall under the
categories of passenger and/or cargo vessels.
65
Thus, it is a cardinal principle of statutory
construction that where a provision of law
speaks categorically, the need for
interpretation is obviated, no plausible
pretense being entertained to justify non-
compliance. All that has to be done is to apply
it in every case that falls within its terms
(Allied Brokerage Corp. v. Commissioner of
Customs, L-27641, 40 SCRA 555 [1971];
Quijano, etc. v. DBP, L-26419, 35 SCRA 270
[1970]).
As a matter of principle, this Court will not set
aside the conclusion reached by an agency
such as the Court of Tax Appeals, which is, by
the very nature of its function, dedicated
exclusively to the study and consideration of
tax problems and has necessarily developed
an expertise on the subject unless there has
been an abuse or improvident exercise of
authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1981]), which is not
present in the instant case.

And, even if construction and interpretation of PREMISES CONSIDERED, the instant

the law is insisted upon, following another petition is DISMISSED and the decision of the
fundamental rule that statutes are to be Court of Tax Appeals is AFFIRMED.
construed in the light of purposes to be
achieved and the evils sought to be remedied SO ORDERED.
(People v. Purisima etc., et al., L-42050-66,
86 SCRA 544 [1978], it will be noted that the
legislature in amending Section 190 of the Tax
Code by Republic Act 3176, as appearing in
the records, intended to provide incentives
and inducements to bolster the shipping
industry and not the business of stevedoring,
as manifested in the sponsorship speech of
Senator Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's
transactions, the Court of Tax Appeals found
that no evidence was adduced by petitioner-
appellant that tugboats are passenger and/or
cargo vessels used in the shipping industry as
an independent business. On the contrary,
petitioner-appellant's own evidence supports
the view that it is engaged as a stevedore,
that is, the work of unloading and loading of a
vessel in port; and towing of barges containing
cargoes is a part of petitioner's undertaking as
a stevedore. In fact, even its trade name is
indicative that its sole and principal business
is stevedoring and lighterage, taxed under
Section 191 of the National Internal Revenue
Code as a contractor, and not an entity which
transports passengers or freight for hire which
is taxed under Section 192 of the same Code
as a common carrier by water (Decision, CTA
Case No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be

no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.

66
Jeremiah 29:11
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON
AUDIT, HONORABLE COMMISSIONER
BARTOLOME C. FERNANDEZ and
HONORABLE COMMISSIONER ALBERTO
P. CRUZ, respondents.
that petitioner cannot avail of the right to offset
any amount that it may be required under the
law to remit to the OPSF against any amount
that it may receive by way of reimbursement
therefrom are sufficient to bring this petition
within Rule 65 of the Rules of Court, and,
considering further the importance of the
issues raised, the error in the designation of
the remedy pursued will, in this instance, be
excused.

The issues raised revolve around the OPSF

DAVIDE, JR., J.: created under Section 8 of Presidential
Decree (P.D.) No. 1956, as amended by
This is a petition erroneously brought under Executive Order (E.O.) No. 137. As amended,
Rule 44 of the Rules of Court 1 questioning the said Section 8 reads as follows:
authority of the Commission on Audit (COA) in
disallowing petitioner's claims for Sec. 8 . There is hereby
reimbursement from the Oil Price Stabilization created a Trust Account in the
Fund (OPSF) and seeking the reversal of said books of accounts of the
Commission's decision denying its claims for Ministry of Energy to be
recovery of financing charges from the Fund designated as Oil Price
and reimbursement of underrecovery arising Stabilization Fund (OPSF) for
from sales to the National Power Corporation, the purpose of minimizing
Atlas Consolidated Mining and Development frequent price changes
Corporation (ATLAS) and Marcopper Mining brought about by exchange
Corporation (MAR-COPPER), preventing it rate adjustments and/or
from exercising the right to offset its changes in world market
remittances against its reimbursement vis-a- prices of crude oil and
vis the OPSF and disallowing its claims which imported petroleum products.
are still pending resolution before the Office of The Oil Price Stabilization
Energy Affairs (OEA) and the Department of Fund may be sourced from
Finance (DOF). any of the following:

Pursuant to the 1987 Constitution, 2 any a) Any

decision, order or ruling of the Constitutional increase in the
Commissions 3 may be brought to this Court tax collection
on certiorari by the aggrieved party within from ad
thirty (30) days from receipt of a copy thereof. valorem tax or
The certiorari referred to is the special civil customs duty
action for certiorari under Rule 65 of the Rules imposed on
of Court. 4 petroleum
products
Considering, however, that the allegations that subject to tax
the COA acted with: under this
(a) total lack of jurisdiction in completely Decree arising
ignoring and showing absolutely no respect from exchange
for the findings and rulings of the administrator rate
of the fund itself and in disallowing a claim adjustment, as
may be
which is still pending resolution at the OEA
level, and (b) "grave abuse of discretion and determined by
completely without jurisdiction" 5 in declaring the Minister of
Finance in

67
Jeremiah 29:11
 consultation peso costs
with the Board paid by oil
of Energy; companies in
the importation
b) Any of crude oil and
increase in the petroleum
tax collection products is
as a result of less than the
the lifting of tax peso costs
exemptions of computed
government using the
corporations, reference
as may be foreign
determined by exchange rate
the Minister of as fixed by the
Finance in Board of
consultation Energy.
with the Board
of Energy; The Fund herein created shall
be used for the following:
c) Any
additional 1) To
amount to be reimburse the
imposed on oil companies
petroleum for cost
products to increases in
augment the crude oil and
resources of imported
the Fund petroleum
through an products
appropriate resulting from
Order that may exchange rate
be issued by adjustment
the Board of and/or
Energy increase in
requiring world market
payment by prices of crude
persons or oil;
companies
engaged in the 2) To
business of reimburse the
importing, oil companies
manufacturing for possible
and/or cost under-
marketing recovery
petroleum incurred as a
products; result of the
reduction of
d) Any domestic
resulting peso prices of
cost petroleum
differentials in products. The
case the actual magnitude of

68
Jeremiah 29:11
 the Finance. "Cost
underrecovery, underrecovery"
if any, shall be shall include
determined by the following:
the Ministry of
i. Reduction in oil company take as directed by the
Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession
of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result

of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry

of Finance to result in cost underrecovery.

The Oil Price Stabilization additional tax on petroleum products

Fund (OPSF) shall be
administered by the Ministry of
Energy.
The material operative facts of this case, as
gathered from the pleadings of the parties, are
not disputed.
On 2 February 1989, the COA sent a letter to
Caltex Philippines, Inc. (CPI), hereinafter
referred to as Petitioner, directing the latter to
remit to the OPSF its collection, excluding that
unremitted for the years 1986 and 1988, of the
authorized under the aforesaid Section 8 of
P.D. No. 1956 which, as of 31 December
1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all
of its claims for reimbursement from the OPSF
shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter
to petitioner informing it that partial verification
with the OEA showed that the grand total of its
unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
1986 —

P233,190,916.00
1987 — 335,065,650.00
1988 — 719

directing
, it to remit the same, with interest and
surcharges
4 thereon, within sixty (60) days
from
1 receipt of the letter; advising it that the
COA
2 will hold in abeyance the audit of all its
claims
, for reimbursement from the OPSF; and
directing
2 it to desist from further offsetting the
taxes
5 collected against outstanding claims in
1989
4 and subsequent periods. 7
.
0 its letter of 3 May 1989, petitioner
In
0
requested the COA for an early release of its
;
reimbursement certificates from the OPSF
covering claims with the Office of Energy
Affairs since June 1987 up to March 1989,

69
Jeremiah 29:11
invoking in support thereof COA Circular No.
89-299 on the lifting of pre-audit of
government transactions of national
government agencies and government-owned
or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's
request for the early release of the reimbursement certificates
from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the
OPSF to facilitate COA's audit action on the reimbursement
claims. 9
By way of a reply, petitioner, in a letter dated
31 May 1989, submitted to the COA a
proposal for the payment of the collections
and the recovery of claims, since the outright
payment of the sum of P1.287 billion to the
OEA as a prerequisite for the processing of
said claims against the OPSF will cause a
very serious impairment of its cash
position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate

monitoring of payments and reimbursements will be administered by
the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be conducted
expeditiously.

(4) The review of current claims (1989) will be conducted

expeditiously to preclude further accumulation of reimbursement from
OPSF.

On 7 June 1989, the COA, with the Chairman pursuant to P.D. 1956, as
taking no part, handed down Decision No. 921 amended by E.O. No. 137, S.
accepting the above-stated proposal but 1987, and the latter reiterating
prohibiting petitioner from further offsetting the same directive but further
remittances and reimbursements for the advising the firms to desist
current and ensuing years. 11 Decision No. 921 from offsetting collections
reads: against their claims with the
notice that "this Commission
This pertains to the within will hold in abeyance the audit
separate requests of Mr. of all . . . claims for
Manuel A. Estrella, President, reimbursement from the
Petron Corporation, and Mr. OPSF."
Francis Ablan, President and
Managing Director, Caltex It appears that under letters of
(Philippines) Inc., for authority issued by the
reconsideration of this Chairman, Energy Regulatory
Commission's adverse action Board, the aforenamed oil
embodied in its letters dated companies were allowed to
February 2, 1989 and March 9, offset the amounts due to the
1989, the former directing Oil Price Stabilization Fund
immediate remittance to the against their outstanding
Oil Price Stabilization Fund of claims from the said Fund for
collections made by the firms the calendar years 1987 and

70
Jeremiah 29:11
 1988, pending with the then
Ministry of Energy, the
government entity charged
with administering the OPSF.
This Commission, however,
expressing serious doubts as
to the propriety of the
offsetting of all types of
reimbursements from the
OPSF against all categories of
remittances, advised these oil
companies that such offsetting
was bereft of legal basis.
Aggrieved thereby, these
companies now seek
reconsideration and in support
thereof clearly manifest their
intent to make arrangements
for the remittance to the Office
of Energy Affairs of the
amount of collections
equivalent to what has been
previously offset, provided that
this Commission authorizes
the Office of Energy Affairs to
prepare the corresponding
checks representing
reimbursement from the
OPSF. It is alleged that the
implementation of such an
arrangement, whereby the
remittance of collections due
to the OPSF and the
reimbursement of claims from
the Fund shall be made within
a period of not more than one
week from each other, will
benefit the Fund and not
unduly jeopardize the
continuing daily cash
requirements of these firms.
Upon a circumspect evaluation
of the circumstances herein
obtaining, this Commission
perceives no further
objectionable feature in the
proposed arrangement,
provided that 15% of whatever
amount is due from the Fund
is retained by the Office of
Energy Affairs, the same to be
answerable for suspensions or
Jeremiah 29:11
disallowances, errors or
discrepancies which may be
noted in the course of audit
and surcharges for late
remittances without prejudice
to similar future retentions to
answer for any deficiency in
such surcharges, and provided
further that no offsetting of
remittances and
reimbursements for the current
and ensuing years shall be
allowed.
Pursuant to this decision, the COA, on 18
August 1989, sent the following letter to
Executive Director Wenceslao R. De la Paz of
the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission
on Audit Decision No. 921
dated June 7, 1989, and
based on our initial verification
of documents submitted to us
by your Office in support of
Caltex (Philippines), Inc.
offsets (sic) for the year 1986
to May 31, 1989, as well as its
outstanding claims against the
Oil Price Stabilization Fund
(OPSF) as of May 31, 1989,
we are pleased to inform your
Office that Caltex (Philippines),
Inc. shall be required to remit
to OPSF an amount of
P1,505,668,906, representing
remittances to the OPSF
which were offset against its
claims reimbursements (net of
unsubmitted claims). In
addition, the Commission
hereby authorize (sic) the
Office of Energy Affairs (OEA)
to cause payment of
P1,959,182,612 to Caltex,
representing claims initially
allowed in audit, the details of
which are presented
hereunder: . . .
71
 As presented in the foregoing Review of the provisions of
computation the disallowances P.D. 1596 as amended by
totalled P387,683,535, which E.O. 137 seems to indicate
included P130,420,235 that recovery of financing
representing those claims charges by oil companies is
disallowed by OEA, details of not among the items for which
which is (sic) shown in the OPSF may be utilized.
Schedule 1 as summarized as Therefore, it is our view that
follows: recovery of financing charges
has no legal basis. The
Disallowance mechanism for such claims
of COA is provided in DOF Circular 1-
Particulars 87.
Amount
b. Product Sales –– Sales to
Recovery of International Vessels/Airlines
financing
charges BOE Resolution No. 87-01
P162,728,475 dated February 7, 1987 as
/a implemented by OEA Order
Product sales No. 87-03-095 indicating that
48,402,398 /b (sic) February 7, 1987 as the
Inventory effectivity date that (sic) oil
losses companies should pay OPSF
Borrow loan impost on export sales of
arrangement petroleum products. Effective
14,034,786 /c February 7, 1987 sales to
Sales to international vessels/airlines
Atlas/Marcopp should not be included as part
er 32,097,083 of its domestic sales.
/d Changing the effectivity date of
Sales to NPC the resolution from February 7,
558 1987 to October 20, 1987 as
—————— covered by subsequent ERB
P257,263,300 Resolution No. 88-12 dated
November 18, 1988 has
Disallowances allowed Caltex to include in
of OEA their domestic sales volumes
130,420,235 to international vessels/airlines
—————— and claim the corresponding
——— ——— reimbursements from OPSF
——— during the period. It is our
Total opinion that the effectivity of
P387,683,535 the said resolution should be
February 7, 1987.
The reasons for the
disallowances are discussed c. Inventory losses ––
hereunder: Settlement of Ad Valorem

a. Recovery of Financing We reviewed the system of

Charges handling Borrow and Loan
(BLA) transactions including
the related BLA agreement, as

72
Jeremiah 29:11
 they affect the claims for
reimbursements of ad
valorem taxes. We observed
that oil companies immediately
settle ad valorem taxes for
BLA transaction (sic). Loan
balances therefore are not tax
paid inventories of Caltex
subject to reimbursements but
those of the borrower. Hence,
we recommend reduction of
the claim for July, August, and
November, 1987 amounting to
P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17,
1984 provides that "I hereby
order and direct the
suspension of payment of all
taxes, duties, fees, imposts
and other charges whether
direct or indirect due and
payable by the copper mining
companies in distress to the
national and local
governments." It is our opinion
that LOI 1416 which
implements the exemption
from payment of OPSF
imposts as effected by OEA
has no legal basis.
Furthermore, we wish to
emphasize that payment to
Caltex (Phil.) Inc., of the
amount as herein authorized
shall be subject to availability
of funds of OPSF as of May
31, 1989 and applicable
auditing rules and regulations.
With regard to the
disallowances, it is further
informed that the aggrieved
party has 30 days within which
to appeal the decision of the
Commission in accordance
with law.
On 8 September 1989, petitioner filed an
Omnibus Request for the Reconsideration of
the decision based on the following grounds: 13
Jeremiah 29:11
A) COA-DISALLOWED
CLAIMS ARE AUTHORIZED
UNDER EXISTING RULES,
ORDERS, RESOLUTIONS,
CIRCULARS ISSUED BY THE
DEPARTMENT OF FINANCE
AND THE ENERGY
REGULATORY BOARD
PURSUANT TO EXECUTIVE
ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE
INTERPRETATIONS IN THE
COURSE OF EXERCISE OF
EXECUTIVE POWER BY
DEPARTMENT OF FINANCE
AND ENERGY
REGULATORY BOARD ARE
LEGAL AND SHOULD BE
RESPECTED AND APPLIED
UNLESS DECLARED NULL
AND VOID BY COURTS OR
REPEALED BY
LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR
RETENTION OF OFFSET
ARRANGEMENT, AS
AUTHORIZED BY THE
EXECUTIVE BRANCH OF
GOVERNMENT, REMAINS
VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the
COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with
Chairman Domingo taking no part and with
Commissioner Fernandez dissenting in part,
handed down Decision No. 1171 affirming the
disallowance for recovery of financing
charges, inventory losses, and sales to
MARCOPPER and ATLAS, while allowing the
recovery of product sales or those arising from
73
export sales. 15 Decision No. 1171 reads as refinancing
follows: their import
bills from the
Anent the recovery normal 30-day
of financing charges you payment term
contend that Caltex Phil. Inc. up to the
has the .authority to recover desired 360
financing charges from the days. This
OPSF on the basis of refinancing of
Department of Finance (DOF) importations
Circular 1-87, dated February carried
18, 1987, which allowed oil additional
companies to "recover cost of costs
financing working capital (financing
associated with crude oil charges) which
shipments," and provided a then became,
schedule of reimbursement in due to
terms of peso per barrel. It government
appears that on November 6, mandate, an
1989, the DOF issued a inherent part of
memorandum to the President the cost of the
of the Philippines explaining purchases of
the nature of these financing our country's
charges and justifying their oil
reimbursement as follows: requirement.

As part of your We beg to disagree with such

program to contention. The justification
promote that financing charges
economic increased oil costs and the
recovery, . . . schedule of reimbursement
oil companies rate in peso per barrel (Exhibit
(were 1) used to support alleged
authorized) to increase (sic) were not
refinance their validated in our independent
imports of inquiry. As manifested in
crude oil and Exhibit 2, using the same
petroleum formula which the DOF used in
products from arriving at the reimbursement
the normal rate but using comparable
trade credit of percentages instead of pesos,
30 days up to the ineluctable conclusion is
360 days from that the oil companies are
date of loading actually gaining rather than
... losing from the extension of
Conformably . . credit because such extension
., the oil enables them to invest the
companies collections in marketable
deferred their securities which have much
foreign higher rates than those they
exchange incur due to the extension. The
remittances for Data we used were obtained
purchases by from CPI (CALTEX)

74
Jeremiah 29:11
 Management and can easily created to aid distressed
be verified from our records. mining companies but rather to
help the domestic oil industry
With respect to product sales by stabilizing oil prices.
or those arising from sales to
international vessels or Unsatisfied with the decision, petitioner filed
airlines, . . ., it is believed that on 28 March 1990 the present petition
export sales (product sales) wherein it imputes to the COA the commission
are entitled to claim refund of the following errors: 16
from the OPSF.
I
As regard your claim
for underrecovery arising from RESPONDENT
inventory losses, . . . It is the COMMISSION ERRED IN
considered view of this DISALLOWING RECOVERY
Commission that the OPSF is OF FINANCING CHARGES
not liable to refund such surtax FROM THE OPSF.
on inventory losses because
these are paid to BIR and not II
OPSF, in view of which CPI
(CALTEX) should seek refund
RESPONDENT
from BIR. . . .
COMMISSION ERRED IN
DISALLOWING
Finally, as regards the sales to CPI's 17 CLAIM FOR
Atlas and Marcopper, it is REIMBURSEMENT OF
represented that you are UNDERRECOVERY ARISING
entitled to claim recovery from FROM SALES TO NPC.
the OPSF pursuant to LOI
1416 issued on July 17, 1984,
III
since these copper mining
companies did not pay CPI
(CALTEX) and OPSF imposts RESPONDENT
which were added to the COMMISSION ERRED IN
selling price. DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON
SALES TO ATLAS AND
Upon a circumspect
MARCOPPER.
evaluation, this Commission
believes and so holds that the
CPI (CALTEX) has no IV
authority to claim
reimbursement for this RESPONDENT
uncollected OPSF impost COMMISSION ERRED IN
because LOI 1416 dated July PREVENTING CPI FROM
17, 1984, which exempts EXERCISING ITS LEGAL
distressed mining companies RIGHT TO OFFSET ITS
from "all taxes, duties, import REMITTANCES AGAINST ITS
fees and other charges" was REIMBURSEMENT VIS-A-
issued when OPSF was not VIS THE OPSF.
yet in existence and could not
have contemplated OPSF V
imposts at the time of its
formulation. Moreover, it is
evident that OPSF was not

75
Jeremiah 29:11
 RESPONDENT take as
COMMISSION ERRED IN directed by the
DISALLOWING CPI's CLAIMS Board of
WHICH ARE STILL PENDING Energy without
RESOLUTION BY (SIC) THE the
OEA AND THE DOF. corresponding
reduction in the
In the Resolution of 5 April 1990, this Court landed cost of
required the respondents to comment on the oil inventories
petition within ten (10) days from notice. 18 in the
possession of
On 6 September 1990, respondents COA and the oil
Commissioners Fernandez and Cruz, assisted companies at
by the Office of the Solicitor General, filed the time of the
their Comment. 19 price change;

This Court resolved to give due course to this ii. Reduction in

petition on 30 May 1991 and required the internal ad
parties to file their respective Memoranda valorem taxes
within twenty (20) days from notice. 20 as a result of
foregoing
government
In a Manifestation dated 18 July 1991, the
mandated
Office of the Solicitor General prays that the
price
Comment filed on 6 September 1990 be
reductions;
considered as the Memorandum for
respondents. 21
iii. Other
factors as may
Upon the other hand, petitioner filed its
be determined
Memorandum on 14 August 1991.
by the Ministry
of Finance to
I. Petitioner dwells lengthily on its first result in cost
assigned error contending, in support thereof, underrecovery.
that:
the "other factors" mentioned therein that may
(1) In view of the expanded role of the OPSF be determined by the Ministry (now
pursuant to Executive Order No. 137, which Department) of Finance may include financing
added a second purpose, to wit: charges for "in essence, financing charges
constitute unrecovered cost of acquisition of
2) To reimburse the oil crude oil incurred by the oil companies," as
companies for possible cost explained in the 6 November 1989
underrecovery incurred as a Memorandum to the President of the
result of the reduction of Department of Finance; they "directly translate
domestic prices of petroleum to cost underrecovery in cases where the
products. The magnitude of money market placement rates decline and at
the underrecovery, if any, shall the same time the tax on interest income
be determined by the Ministry increases. The relationship is such that the
of Finance. "Cost presence of underrecovery or overrecovery is
underrecovery" shall include directly dependent on the amount and extent
the following: of financing charges."

i. Reduction in (2) The claim for recovery of financing

oil company charges has clear legal and factual basis; it

76
Jeremiah 29:11
was filed on the basis of Department of January 1987,
Finance Circular No. oil companies
1-87, dated 18 February 1987, which shall be
provides: allowed to
recover
To allow oil companies to financing
recover the costs of financing charges
working capital associated with directly from
crude oil shipments, the the OPSF per
following guidelines on the barrel of crude
utilization of the Oil Price oil based on
Stabilization Fund pertaining to the following
the payment of the foregoing schedule:
(sic) exchange risk premium
and recovery of financing
charges will be implemented:

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

2. In addition,
for shipments
loaded after

77
Jeremiah 29:11
 reduce the foreign exchange r
risk premium accruing to the B
Oil Price Stabilization Fund a
(OPSF). Such a reduction r
would allow the industry to r
recover partly associated e
financing charges on crude oil l
imports. Accordingly, the
Less than 180 OPSF foreign exchange risk
days None fee shall be reduced to a flat
180 days to charge of 1% for the first six
239 days 1.90 (6) months plus 1/32% of 1%
241 (sic) days per month thereafter up to a
to 299 4.02 maximum period of one year,
300 days to effective January 1, 1987. In
369 (sic) days addition, since the prevailing
6.16 company take would still leave
360 days or unrecovered financing
more 8.28 charges, reimbursement may
be secured from the OPSF in
The above accordance with the provisions
rates shall be of the attached Department of
subject to Finance circular. 23
review every
sixty Acting on this letter, the OEA issued on 4 May
days. 22 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign
Pursuant to this circular, the Department of exchange risk fee and the recovery of
Finance, in its letter of 18 February 1987, financing charges from the OPSF, to wit:
advised the Office of Energy Affairs as
follows: B. FINANCE CHARGES

HON. VICENTE T. PATERNO 1. Oil

Deputy Executive Secretary companies
For Energy Affairs shall be
Office of the President allowed to
Makati, Metro Manila recover
financing
Dear Sir: charges
directly from
the OPSF for
This refers to the letters of the
both crude and
Oil Industry dated December
product
4, 1986 and February 5, 1987
shipments
and subsequent discussions
loaded after
held by the Price Review
January 1,
committee on February 6,
1987 based on
1987.
the following
rates:
On the basis of the
representations made, the
Less than 180 days None
Department of Finance
180 days to 239 days 1.90
recognizes the necessity to
240 days to 229 (sic) days 4.02

78
Jeremiah 29:11
300 days to 359 days 6.16 form of
360 days to more 8.28 reimbursement
certificate
2. The above (Annex A) to
rates shall be be issued by
subject to the Office of
review every Energy Affairs.
sixty days. 24 The said
certificate may
Then on 22 November 1988, the Department be used to
of Finance issued Circular No. 4-88 imposing offset against
further guidelines on the recoverability of amounts
financing charges, to wit: payable to the
OPSF. The oil
companies
Following are the
may also
supplemental rules to
redeem said
Department of Finance
certificates in
Circular No. 1-87 dated
cash if not
February 18, 1987 which
utilized, subject
allowed the recovery of
to availability of
financing charges directly from
funds. 25
the Oil Price Stabilization
Fund. (OPSF):
The OEA disseminated this Circular to all oil
companies in its Memorandum Circular No.
1. The Claim
88-12-017. 26
for
reimbursement
shall be on a The COA can neither ignore these issuances
per shipment nor formulate its own interpretation of the laws
basis. in the light of the determination of executive
agencies. The determination by the
Department of Finance and the OEA that
2. The claim
financing charges are recoverable from the
shall be filed
OPSF is entitled to great weight and
with the Office
consideration. 27 The function of the COA,
of Energy
particularly in the matter of allowing or
Affairs together
disallowing certain expenditures, is limited to
with the claim
the promulgation of accounting and auditing
on peso cost
rules for, among others, the disallowance of
differential for
irregular, unnecessary, excessive,
a particular
extravagant, or unconscionable expenditures,
shipment and
or uses of government funds and properties. 28
duly certified
supporting
documents (3) Denial of petitioner's claim for
providedfor reimbursement would be inequitable.
under Ministry Additionally, COA's claim that petitioner is
of Finance No. gaining, instead of losing, from the extension
11-85. of credit, is belatedly raised and not supported
by expert analysis.
3. The
reimbursement In impeaching the validity of petitioner's
shall be on the assertions, the respondents argue that:

79
Jeremiah 29:11
 1. The Constitution gives the
COA discretionary power to
disapprove irregular or
unnecessary government
expenditures and as the
monetary claims of petitioner
are not allowed by law, the
COA acted within its
jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No.
137 do not allow
reimbursement of financing
charges from the OPSF;
3. Under the principle
of ejusdem generis, the "other
factors" mentioned in the
second purpose of the OPSF
pursuant to E.O. No. 137 can
only include "factors which are
of the same nature or
analogous to those
enumerated;"
4. In allowing reimbursement
of financing charges from
OPSF, Circular No. 1-87 of the
Department of Finance
violates P.D. No. 1956 and
E.O. No. 137; and
5. Department of Finance rules
and regulations implementing
P.D. No. 1956 do not likewise
allow reimbursement of
financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first
be resolved in view of its primacy, We find the
theory of petitioner –– that such does not
extend to the disallowance of irregular,
unnecessary, excessive, extravagant, or
unconscionable expenditures, or use of
government funds and properties, but only to
the promulgation of accounting and auditing
rules for, among others, such disallowance ––
to be untenable in the light of the provisions of
the 1987 Constitution and related laws.
Jeremiah 29:11
Section 2, Subdivision D, Article IX of the
1987 Constitution expressly provides:
Sec. 2(l). The Commission on
Audit shall have the power,
authority, and duty to examine,
audit, and settle all accounts
pertaining to the revenue and
receipts of, and expenditures
or uses of funds and property,
owned or held in trust by, or
pertaining to, the Government,
or any of its subdivisions,
agencies, or instrumentalities,
including government-owned
and controlled corporations
with original charters, and on a
post-audit basis: (a)
constitutional bodies,
commissions and offices that
have been granted fiscal
autonomy under this
Constitution; (b) autonomous
state colleges and universities;
(c) other government-owned or
controlled corporations and
their subsidiaries; and (d) such
non-governmental entities
receiving subsidy or equity,
directly or indirectly, from or
through the government, which
are required by law or the
granting institution to submit to
such audit as a condition of
subsidy or equity. However,
where the internal control
system of the audited
agencies is inadequate, the
Commission may adopt such
measures, including temporary
or special pre-audit, as are
necessary and appropriate to
correct the deficiencies. It shall
keep the general accounts, of
the Government and, for such
period as may be provided by
law, preserve the vouchers
and other supporting papers
pertaining thereto.
(2) The Commission shall
have exclusive authority,
subject to the limitations in this
80
 Article, to define the scope of
its audit and examination,
establish the techniques and
methods required therefor, and
promulgate accounting and
auditing rules and regulations,
including those for the
prevention and disallowance of
irregular, unnecessary,
excessive, extravagant, or,
unconscionable expenditures,
or uses of government funds
and properties.
These present powers, consistent with the
declared independence of the
Commission, 30 are broader and more
extensive than that conferred by the 1973
Constitution. Under the latter, the Commission
was empowered to:
Examine, audit, and settle, in
accordance with law and
regulations, all accounts
pertaining to the revenues,
and receipts of, and
expenditures or uses of funds
and property, owned or held in
trust by, or pertaining to, the
Government, or any of its
subdivisions, agencies, or
instrumentalities including
government-owned or
controlled corporations, keep
the general accounts of the
Government and, for such
period as may be provided by
law, preserve the vouchers
pertaining thereto; and
promulgate accounting and
auditing rules and regulations
including those for the
prevention of irregular,
unnecessary, excessive, or
extravagant expenditures or
uses of funds and property. 31
Upon the other hand, under the 1935
Constitution, the power and authority of the
COA's precursor, the General Auditing Office,
were, unfortunately, limited; its very role was
markedly passive. Section 2 of Article XI
thereofprovided:
Jeremiah 29:11
Sec. 2. The Auditor General
shall examine, audit, and settle
all accounts pertaining to the
revenues and receipts from
whatever source, including
trust funds derived from bond
issues; and audit, in
accordance with law and
administrative regulations, all
expenditures of funds or
property pertaining to or held
in trust by the Government or
the provinces or municipalities
thereof. He shall keep the
general accounts of the
Government and the preserve
the vouchers pertaining
thereto. It shall be the duty of
the Auditor General to bring to
the attention of the proper
administrative officer
expenditures of funds or
property which, in his opinion,
are irregular, unnecessary,
excessive, or extravagant. He
shall also perform such other
functions as may be
prescribed by law.
As clearly shown above, in respect to
irregular, unnecessary, excessive or
extravagant expenditures or uses of funds, the
1935 Constitution did not grant the Auditor
General the power to issue rules and
regulations to prevent the same. His was
merely to bring that matter to the attention of
the proper administrative officer.
The ruling on this particular point, quoted by
petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no
longer controlling as the two (2) were decided
in the light of the 1935 Constitution.
There can be no doubt, however, that the
audit power of the Auditor General under the
1935 Constitution and the Commission on
Audit under the 1973 Constitution authorized
them to disallow illegal expenditures of funds
or uses of funds and property. Our present
Constitution retains that same power and
authority, further strengthened by the
definition of the COA's general jurisdiction in
81
Section 26 of the Government Auditing Code
of the Philippines 34 and Administrative Code
of 1987. 35 Pursuant to its power to promulgate
accounting and auditing rules and regulations
for the prevention of irregular, unnecessary,
excessive or extravagant expenditures or
uses of funds, 36 the COA promulgated on 29
March 1977 COA Circular No. 77-55. Since
the COA is responsible for the enforcement of
the rules and regulations, it goes without
saying that failure to comply with them is a
ground for disapproving the payment of the
proposed expenditure. As observed by one of
the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however,
that whereas under Article XI,
Section 2, of the 1935
Constitution the Auditor
General could not correct
"irregular, unnecessary,
excessive or extravagant"
expenditures of public funds
but could only "bring [the
matter] to the attention of the
proper administrative officer,"
under the 1987 Constitution,
as also under the 1973
Constitution, the Commission
on Audit can "promulgate
accounting and auditing rules
and regulations including
those for the prevention and
disallowance of irregular,
unnecessary, excessive,
extravagant, or
unconscionable expenditures
or uses of government funds
and properties." Hence, since
the Commission on Audit must
ultimately be responsible for
the enforcement of these rules
and regulations, the failure to
comply with these regulations
can be a ground for
disapproving the payment of a
proposed expenditure.
Indeed, when the framers of the last two (2)
Constitutions conferred upon the COA a more
active role and invested it with broader and
more extensive powers, they did not intend
Jeremiah 29:11
merely to make the COA a toothless tiger, but
rather envisioned a dynamic, effective,
efficient and independent watchdog of the
Government.
The issue of the financing charges boils down
to the validity of Department of Finance
Circular No. 1-87, Department of Finance
Circular No. 4-88 and the implementing
circulars of the OEA, issued pursuant to
Section 8, P.D. No. 1956, as amended by
E.O. No. 137, authorizing it to determine
"other factors" which may result in cost
underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following
the doctrine of ejusdem generis, financing
charges are not included in "cost
underrecovery" and, therefore, cannot be
considered as one of the "other factors."
Section 8 of P.D. No. 1956, as amended by
E.O. No. 137, does not explicitly define what
"cost underrecovery" is. It merely states what
it includes. Thus:
. . . "Cost underrecovery" shall
include the following:
i. Reduction in oil company
takes as directed by the Board
of Energy without the
corresponding reduction in the
landed cost of oil inventories in
the possession of the oil
companies at the time of the
price change;
ii. Reduction in internal ad
valorem taxes as a result of
foregoing government
mandated price reductions;
iii. Other factors as may be
determined by the Ministry of
Finance to result in cost
underrecovery.
These "other factors" can include only those
which are of the same class or nature as the
two specifically enumerated in subparagraphs
(i) and (ii). A common characteristic of both is
82
that they are in the nature of government
mandated price reductions. Hence, any other
factor which seeks to be a part of the
enumeration, or which could qualify as a cost
underrecovery, must be of the same class or
nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No.
137 intended to grant the Department of
Finance broad and unrestricted authority to
determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that
"[w]here general words follow an enumeration
of persons or things, by words of a particular
and specific meaning, such general words are
not to be construed in their widest extent, but
are held to be as applying only to persons or
things of the same kind or class as those
specifically mentioned. 38 A reading of
subparagraphs (i) and (ii) easily discloses that
they do not have a common characteristic.
The first relates to price reduction as directed
by the Board of Energy while the second
refers to reduction in internal ad valoremtaxes.
Therefore, subparagraph (iii) cannot be limited
by the enumeration in these subparagraphs.
What should be considered for purposes of
determining the "other factors" in
subparagraph (iii) is the first sentence of
paragraph (2) of the Section which explicitly
allows cost underrecovery only if such were
incurred as a result of the reduction of
domestic prices of petroleum products.
Although petitioner's financing losses, if
indeed incurred, may constitute cost
underrecovery in the sense that such were
incurred as a result of the inability to fully
offset financing expenses from yields in
money market placements, they do not,
however, fall under the foregoing provision of
P.D. No. 1956, as amended, because the
same did not result from the reduction of the
domestic price of petroleum products. Until
paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress,
this Court can do nothing. The duty of this
Court is not to legislate, but to apply or
interpret the law. Be that as it may, this Court
wishes to emphasize that as the facts in this
Jeremiah 29:11
case have shown, it was at the behest of the
Government that petitioner refinanced its oil
import payments from the normal 30-day trade
credit to a maximum of 360 days. Petitioner
could be correct in its assertion that owing to
the extended period for payment, the financial
institution which refinanced said payments
charged a higher interest, thereby resulting in
higher financing expenses for the petitioner. It
would appear then that equity considerations
dictate that petitioner should somehow be
allowed to recover its financing losses, if any,
which may have been sustained because it
accommodated the request of the
Government. Although under Section 29 of
the National Internal Revenue Code such
losses may be deducted from gross income,
the effect of that loss would be merely to
reduce its taxable income, but not to actually
wipe out such losses. The Government then
may consider some positive measures to help
petitioner and others similarly situated to
obtain substantial relief. An amendment, as
aforestated, may then be in order.
Upon the other hand, to accept petitioner's
theory of "unrestricted authority" on the part of
the Department of Finance to determine or
define "other factors" is to uphold an undue
delegation of legislative power, it clearly
appearing that the subject provision does not
provide any standard for the exercise of the
authority. It is a fundamental rule that
delegation of legislative power may be
sustained only upon the ground that some
standard for its exercise is provided and that
the legislature, in making the delegation, has
prescribed the manner of the exercise of the
delegated authority. 39
Finally, whether petitioner gained or lost by
reason of the extensive credit is rendered
irrelevant by reason of the foregoing
disquisitions. It may nevertheless be stated
that petitioner failed to disprove COA's claim
that it had in fact gained in the process.
Otherwise stated, petitioner failed to
sufficiently show that it incurred a loss. Such
being the case, how can petitioner claim for
reimbursement? It cannot have its cake and
eat it too.
83
II. Anent the claims arising from sales to the
National Power Corporation, We find for the
petitioner. The respondents themselves admit
in their Comment that underrecovery arising
from sales to NPC are reimbursable because
NPC was granted full exemption from the
payment of taxes; to prove this, respondents
trace the laws providing for such
exemption. 40 The last law cited is the Fiscal
Incentives Regulatory Board's Resolution No.
17-87 of 24 June 1987 which provides, in part,
"that the tax and duty exemption privileges of
the National Power Corporation, including
those pertaining to its domestic purchases of
petroleum and petroleum products . . . are
restored effective March 10, 1987." In a
(1) That the
Fund shall be
used to
reimburse the
oil companies
for (a) cost
increases of
imported crude
oil and finished
petroleum
products
resulting from
foreign
exchange rate
adjustments
and/or
increases in
Hence, petitioner can recover its claim arising
from sales of petroleum products to the
National Power Corporation.
III. With respect to its claim for reimbursement
on sales to ATLAS and MARCOPPER,
petitioner relies on Letter of Instruction (LOI)
1416, dated 17 July 1984, which ordered the
suspension of payments of all taxes, duties,
fees and other charges, whether direct or
indirect, due and payable by the copper
mining companies in distress to the national
government. Pursuant to this LOI, then
Minister of Energy, Hon. Geronimo Velasco,
issued Memorandum Circular No. 84-11-22
advising the oil companies that Atlas
Consolidated Mining Corporation and
Jeremiah 29:11
Memorandum issued on 5 October 1987 by
the Office of the President, NPC's tax
exemption was confirmed and approved.
Furthermore, as pointed out by respondents,
the intention to exempt sales of petroleum
products to the NPC is evident in the recently
passed Republic Act No. 6952 establishing
the Petroleum Price Standby Fund to support
the OPSF. 41 The pertinent part of Section 2,
Republic Act No. 6952 provides:
Sec. 2. Application of the Fund
shall be subject to the
following conditions:
world market
prices of crude
oil; (b) cost
underrecovery
incurred as a
result of fuel oil
sales to the
National Power
Corporation
(NPC); and (c)
other cost
underrecoverie
s incurred as
may be finally
decided by the
Supreme
Court; . . .
Marcopper Mining Corporation are among
those declared to be in distress.
In denying the claims arising from sales to
ATLAS and MARCOPPER, the COA, in its 18
August 1989 letter to Executive Director
Wenceslao R. de la Paz, states that "it is our
opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as
effected by OEA has no legal basis;" 42 in its
Decision No. 1171, it ruled that "the CPI
(CALTEX) (Caltex) has no authority to claim
reimbursement for this uncollected impost
because LOI 1416 dated July 17, 1984, . . .
was issued when OPSF was not yet in
existence and could not have contemplated
OPSF imposts at the time of its
formulation." 43 It is further stated that:
84
"Moreover, it is evident that OPSF was not
created to aid distressed mining companies
but rather to help the domestic oil industry by
stabilizing oil prices."
In sustaining COA's stand, respondents
vigorously maintain that LOI 1416 could not
have intended to exempt said distressed
mining companies from the payment of OPSF
dues for the following reasons:
a. LOI 1416 granting the
alleged exemption was issued
on July 17, 1984. P.D. 1956
creating the OPSF was
promulgated on October 10,
1984, while E.O. 137,
amending P.D. 1956, was
issued on February 25, 1987.
b. LOI 1416 was issued in
1984 to assist distressed
copper mining companies in
line with the government's
effort to prevent the collapse of
the copper industry. P.D No.
1956, as amended, was
issued for the purpose of
minimizing frequent price
changes brought about by
exchange rate adjustments
and/or changes in world
market prices of crude oil and
imported petroleum product's;
and
c. LOI 1416 caused the
"suspension of all taxes,
duties, fees, imposts and other
charges, whether direct or
indirect, due and payable by
the copper mining companies
in distress to the Notional and
Local Governments . . ." On
the other hand, OPSF dues
are not payable by (sic)
distressed copper companies
but by oil companies. It is to be
noted that the copper mining
companies do not pay OPSF
dues. Rather, such imposts
are built in or already
Jeremiah 29:11
incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416
suspends the payment of taxes by distressed
mining companies, it does not accord
petitioner the same privilege with respect to its
obligation to pay OPSF dues.
We concur with the disquisitions of the
respondents. Aside from such reasons,
however, it is apparent that LOI 1416 was
never published in the Official Gazette 45 as
required by Article 2 of the Civil Code, which
reads:
Laws shall take effect after
fifteen days following the
completion of their publication
in the Official Gazette, unless
it is otherwise provided. . . .
In applying said provision, this Court ruled in
the case of Tañada vs. Tuvera: 46
WHEREFORE, the Court
hereby orders respondents to
publish in the Official Gazette
all unpublished presidential
issuances which are of general
application, and unless so
published they shall have no
binding force and effect.
Resolving the motion for reconsideration of
said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:
We hold therefore that all
statutes, including those of
local application and private
laws, shall be published as a
condition for their effectivity,
which shall begin fifteen days
after publication unless a
different effectivity date is fixed
by the legislature.
Covered by this rule are
presidential decrees and
executive orders promulgated
by the President in the
85
 exercise of legislative powers
whenever the same are validly
delegated by the legislature or,
at present, directly conferred
by the Constitution.
Administrative rules and
regulations must also be
published if their purpose is to
enforce or implement existing
laws pursuant also to a valid
delegation.
xxx xxx xxx
WHEREFORE, it is hereby
declared that all laws as above
defined shall immediately upon
their approval, or as soon
thereafter as possible, be
published in full in the Official
Gazette, to become effective
only after fifteen days from
their publication, or on another
date specified by the
legislature, in accordance with
Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or
effect as it was never published in the Official
Gazette after its issuance or at any time after
the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later
amended by Executive Order No. 200, issued
on 18 June 1987. As amended, the said
provision now reads:
Laws shall take effect after
fifteen days following the
completion of their publication
either in the Official Gazette or
in a newspaper of general
circulation in the Philippines,
unless it is otherwise provided.
We are not aware of the publication of LOI
1416 in any newspaper of general circulation
pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI
1416 has force and effect, petitioner's claim
must still fail. Tax exemptions as a general
Jeremiah 29:11
rule are construed strictly against the grantee
and liberally in favor of the taxing
authority. 48The burden of proof rests upon the
party claiming exemption to prove that it is in
fact covered by the exemption so claimed.
The party claiming exemption must therefore
be expressly mentioned in the exempting law
or at least be within its purview by clear
legislative intent.
In the case at bar, petitioner failed to prove
that it is entitled, as a consequence of its
sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI
1416. Though LOI 1416 may suspend the
payment of taxes by copper mining
companies, it does not give petitioner the
same privilege with respect to the payment of
OPSF dues.
IV. As to COA's disallowance of the amount of
P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final
and definitive ruling thereon; accordingly, it
was premature for COA to disallow it. By
doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other
hand, contend that said amount was already
disallowed by the OEA for failure to
substantiate it. 50 In fact, when OEA submitted
the claims of petitioner for pre-audit, the
abovementioned amount was already
excluded.
An examination of the records of this case
shows that petitioner failed to prove or
substantiate its contention that the amount of
P130,420,235.00 is still pending before the
OEA and the DOF. Additionally, We find no
reason to doubt the submission of
respondents that said amount has already
been passed upon by the OEA. Hence, the
ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is
whether or not the amounts due to the OPSF
from petitioner may be offset against
petitioner's outstanding claims from said fund.
Petitioner contends that it should be allowed
to offset its claims from the OPSF against its
contributions to the fund as this has been
86
allowed in the past, particularly in the years This alleged lack of a public purpose behind
1987 and 1988. 51 OPSF exactions distinguishes such from a
tax. Hence, the ruling in the Francia case is
Furthermore, petitioner cites, as bases for inapplicable.
offsetting, the provisions of the New Civil
Code on compensation and Section 21, Book Lastly, petitioner cites R.A. No. 6952 creating
V, Title I-B of the Revised Administrative Code the Petroleum Price Standby Fund to support
which provides for "Retention of Money for the OPSF; the said law provides in part that:
Satisfaction of Indebtedness to
Government." 52 Petitioner also mentions Sec. 2. Application of the fund
communications from the Board of Energy shall be subject to the
and the Department of Finance that following conditions:
supposedly authorize compensation.
xxx xxx xxx
Respondents, on the other hand,
citing Francia vs. IAC and (3) That no
Fernandez, 53 contend that there can be no amount of the
offsetting of taxes against the claims that a Petroleum
taxpayer may have against the government, Price Standby
as taxes do not arise from contracts or Fund shall be
depend upon the will of the taxpayer, but are used to pay
imposed by law. Respondents also allege that any oil
petitioner's reliance on Section 21, Book V, company
Title I-B of the Revised Administrative Code, which has an
is misplaced because "while this provision outstanding
empowers the COA to withhold payment of a obligation to
government indebtedness to a person who is the
also indebted to the government and apply the Government
government indebtedness to the satisfaction without said
of the obligation of the person to the obligation
government, like authority or right to make being offset
compensation is not given to the private first, subject to
person." 54 The reason for this, as stated the
in Commissioner of Internal Revenue requirements
vs. Algue, Inc., 55 is that money due the of
government, either in the form of taxes or compensation
other dues, is its lifeblood and should be or offset under
collected without hindrance. Thus, instead of the Civil Code.
giving petitioner a reason for compensation or
set-off, the Revised Administrative Code
We find no merit in petitioner's contention that
makes it the respondents' duty to collect
the OPSF contributions are not for a public
petitioner's indebtedness to the OPSF.
purpose because they go to a special fund of
the government. Taxation is no longer
Refuting respondents' contention, petitioner envisioned as a measure merely to raise
claims that the amounts due from it do not revenue to support the existence of the
arise as a result of taxation because "P.D. government; taxes may be levied with a
1956, amended, did not create a source of regulatory purpose to provide means for the
taxation; it instead established a special fund . rehabilitation and stabilization of a threatened
. .," 56 and that the OPSF contributions do not industry which is affected with public interest
go to the general fund of the state and are not as to be within the police power of the
used for public purpose, i.e., not for the state. 57 There can be no doubt that the oil
support of the government, the administration industry is greatly imbued with public interest
of law, or the payment of public expenses.

87
Jeremiah 29:11
as it vitally affects the general welfare. Any
unregulated increase in oil prices could hurt
the lives of a majority of the people and cause
economic crisis of untold proportions. It would
have a chain reaction in terms of, among
others, demands for wage increases and
upward spiralling of the cost of basic
commodities. The stabilization then of oil
prices is of prime concern which the state, via
its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No.
137, explicitly provides that the source of
OPSF is taxation. No amount of semantical
juggleries could dim this fact.
It is settled that a taxpayer may not offset
taxes due from the claims that he may have
against the government. 58Taxes cannot be the
subject of compensation because the
government and taxpayer are not mutually
creditors and debtors of each other and a
claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-
off. 59
We may even further state that technically, in
respect to the taxes for the OPSF, the oil
companies merely act as agents for the
Government in the latter's collection since the
taxes are, in reality, passed unto the end-
users –– the consuming public. In that
capacity, the petitioner, as one of such
companies, has the primary obligation to
account for and remit the taxes collected to
the administrator of the OPSF. This duty
stems from the fiduciary relationship between
the two; petitioner certainly cannot be
considered merely as a debtor. In respect,
therefore, to its collection for the OPSF vis-a-
vis its claims for reimbursement, no
compensation is likewise legally feasible.
Firstly, the Government and the petitioner
cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no
proof that petitioner's claim is already due and
liquidated. Under Article 1279 of the Civil
Code, in order that compensation may be
proper, it is necessary that:
(1) each one of the obligors be
bound principally, and that he
Jeremiah 29:11
be at the same time a principal
creditor of the other;
(2) both debts consist in a sum
of :money, or if the things due
are consumable, they be of the
same kind, and also of the
same quality if the latter has
been stated;
(3) the two (2) debts be due;
(4) they be liquidated and
demandable;
(5) over neither of them there
be any retention or
controversy, commenced by
third persons and
communicated in due time to
the debtor.
That compensation had been the practice in
the past can set no valid precedent. Such a
practice has no legal basis. Lastly, R.A. No.
6952 does not authorize oil companies to
offset their claims against their OPSF
contributions. Instead, it prohibits the
government from paying any amount from the
Petroleum Price Standby Fund to oil
companies which have outstanding
obligations with the government, without said
obligation being offset first subject to the rules
on compensation in the Civil Code.
WHEREFORE, in view of the
foregoing, judgment is hereby rendered
AFFIRMING the challenged decision of the
Commission on Audit, except that portion
thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from
sales to the National Power Corporation,
which is hereby allowed.
With costs against petitioner.
SO ORDERED.
88
G.R. No. 99886 March 31, 1993
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as
Executive Secretary; JESUS ESTANISLAO,
in his capacity as Secretary of Finance;
WENCESLAO DELA PAZ, in his capacity
as Head of the Office of Energy Affairs;
REX V. TANTIONGCO, and the ENERGY
REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
The petitioner seeks the
corrective,1 prohibitive and coercive remedies
provided by Rule 65 of the Rules of
Court,2upon the following posited
grounds, viz.:3
1) the invalidity of the "TRUST ACCOUNT" in
the books of account of the Ministry of Energy
(now, the Office of Energy Affairs), created
pursuant to § 8, paragraph 1, of P.D. No.
1956, as amended, "said creation of a trust
fund being contrary to Section 29 (3), Article
VI of the . . Constitution;4
2) the unconstitutionality of § 8, paragraph 1
(c) of P.D. No. 1956, as amended by
Executive Order No. 137, for "being an undue
and invalid delegation of legislative power . . to
the Energy Regulatory Board;"5
3) the illegality of the reimbursements to oil
companies, paid out of the Oil Price
Stabilization Fund,6 because it contravenes §
8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated
December 10, 1990 and the necessity of a
rollback of the pump prices and petroleum
products to the levels prevailing prior to the
said Order.
Jeremiah 29:11
It will be recalled that on October 10, 1984,
President Ferdinand Marcos issued P.D. 1956
creating a Special Account in the General
Fund, designated as the Oil Price Stabilization
Fund (OPSF). The OPSF was designed to
reimburse oil companies for cost increases in
crude oil and imported petroleum products
resulting from exchange rate adjustments and
from increases in the world market prices of
crude oil.
Subsequently, the OPSF was reclassified into
a "trust liability account," in virtue of E.O.
1024,7 and ordered released from the National
Treasury to the Ministry of Energy. The same
Executive Order also authorized the
investment of the fund in government
securities, with the earnings from such
placements accruing to the fund.
President Corazon C. Aquino, amended P.D.
1956. She promulgated Executive Order No.
137 on February 27, 1987, expanding the
grounds for reimbursement to oil companies
for possible cost underrecovery incurred as a
result of the reduction of domestic prices of
petroleum products, the amount of the
underrecovery being left for determination by
the Ministry of Finance.
Now, the petition alleges that the status of the
OPSF as of March 31, 1991 showed a
"Terminal Fund Balance deficit" of some
P12.877 billion;8 that to abate the worsening
deficit, "the Energy Regulatory Board . . issued
an Order on December 10, 1990, approving the increase in
pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in
a span of six (6) months, but this notwithstanding, the
respondents — Oscar Orbos, in his capacity as Executive
Secretary; Jesus Estanislao, in his capacity as Secretary of
Finance; Wenceslao de la Paz, in his capacity as Head of the
Office of Energy Affairs; Chairman Rex V. Tantiongco and the
Energy Regulatory Board — "are poised to accept, process and
pay claims not authorized under P.D. 1956."9
The petition further avers that the creation of
the trust fund violates §
29(3), Article VI of the Constitution, reading as
follows:
(3) All money collected on any
tax levied for a special
purpose shall be treated as a
special fund and paid out for
89
 such purposes only. If the
purpose for which a special
fund was created has been
fulfilled or abandoned, the
balance, if any, shall be
transferred to the general
funds of the Government.
The petitioner argues that "the monies
collected pursuant to . . P.D. 1956, as
amended, must be treated as a 'SPECIAL
FUND,' not as a 'trust account' or a 'trust fund,'
and that "if a special tax is collected for a
specific purpose, the revenue generated
therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and
not channeled to another government
objective." 10 Petitioner further points out that
since "a 'special fund' consists of monies
collected through the taxing power of a
State, such amounts belong to the State,
although the use thereof is limited to the
special purpose/objective for which it was
created." 11
He also contends that the "delegation of
legislative authority" to the ERB violates § 28
(2). Article VI of the Constitution, viz.:
(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, tonnage and wharfage
dues, and other duties or
imposts within the framework
of the national development
program of the Government;
and, inasmuch as the delegation
relates to the exercise of the power of
taxation, "the limits, limitations and
restrictions must be quantitative, that
is, the law must not only specify how
to tax, who (shall) be taxed (and) what
the tax is for, but also impose a
specific limit on how much to tax." 12
The petitioner does not suggest that a "trust
account" is illegal per se, but maintains that
Jeremiah 29:11
the monies collected, which form part of the
OPSF, should be maintained in a special
account of the general fund for the reason that
the Constitution so provides, and because
they are, supposedly, taxes levied for a
special purpose. He assumes that the Fund is
formed from a tax undoubtedly because a
portion thereof is taken from collections of ad
valorem taxes and the increases thereon.
It thus appears that the challenge posed by
the petitioner is premised primarily on the view
that the powers granted to the ERB under
P.D. 1956, as amended, partake of the nature
of the taxation power of the State. The
Solicitor General observes that the "argument
rests on the assumption that the OPSF is a
form of revenue measure drawing from a
special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in
the Court's view, not quite correct.
To address this critical misgiving in the
position of the petitioner on these issues, the
Court recalls its holding in Valmonte v. Energy
Regulatory Board, et al. 14 —
The foregoing arguments
suggest the presence of
misconceptions about the
nature and functions of the
OPSF. The OPSF is a "Trust
Account" which was
established "for the purpose of
minimizing the frequent price
changes brought about by
exchange rate adjustment
and/or changes in world
market prices of crude oil and
imported petroleum
products." 15 Under P.D. No.
1956, as amended by
Executive Order No. 137 dated
27 February 1987, this Trust
Account may be funded from
any of the following sources:
a) Any
increase in the
tax collection
from ad
valorem tax or
customs duty
90
 imposed on business of
petroleum importing,
products subje manufacturing
ct to tax under and/or
this marketing
Decree arising petroleum
from exchange products;
rate
adjustment, as d) Any
may be resulting peso
determined by cost
the Minister of differentials in
Finance in case the actual
consultation peso costs
with the Board paid by oil
of Energy; companies in
the importation
b) Any of crude oil and
increase in the petroleum
tax collection products is
as a result of less than the
the lifting of tax peso costs
exemptions of computed
government using the
corporations, reference
as may be foreign
determined by exchange rate
the Minister of as fixed by the
Finance in Board of
consultation Energy.
with the Board
of Energy: xxx xxx xxx

c) Any The fact that the world market

additional prices of oil, measured by the
amount to be spot market in Rotterdam, vary
imposed on from day to day is of judicial
petroleum notice. Freight rates for
products to hauling crude oil and
augment the petroleum products from
resources of sources of supply to the
the Fund Philippines may also vary from
through an time to time. The exchange
appropriate rate of the peso vis-a-vis the
Order that may U.S. dollar and other
be issued by convertible foreign currencies
the Board of also changes from day to day.
Energy These fluctuations in world
requiring market prices and in tanker
payment of rates and foreign exchange
persons or rates would in a completely
companies free market translate into
engaged in the corresponding adjustments in

91
Jeremiah 29:11
 domestic prices of oil and
petroleum products with
sympathetic frequency. But
domestic prices which vary
from day to day or even only
from week to week would
result in a chaotic market with
unpredictable effects upon the
country's economy in
general. The OPSF was
established precisely to protect
local consumers from the
adverse consequences that
such frequent oil price
adjustments may have upon
the economy. Thus, the OPSF
serves as a pocket, as it were,
into which a portion of the
purchase price of oil and
petroleum products paid by
consumers as well as some
tax revenues are inputted and
from which amounts are drawn
from time to time to reimburse
oil companies, when
appropriate situations arise, for
increases in, as well as
underrecovery of, costs of
crude importation. The OPSF
is thus a buffer mechanism
through which the domestic
consumer prices of oil and
petroleum products are
stabilized, instead of
fluctuating every so often, and
oil companies are allowed to
recover those portions of their
costs which they would not
otherwise recover given the
level of domestic prices
existing at any given time. To
the extent that some tax
revenues are also put into it,
the OPSF is in effect a device
through which the domestic
prices of petroleum products
are subsidized in part. It
appears to the Court that the
establishment and
maintenance of the OPSF is
well within that pervasive and
non-waivable power and
responsibility of the
Jeremiah 29:11
government to secure the
physical and economic
survival and well-being of the
community, that
comprehensive sovereign
authority we designate as the
police power of the State. The
stabilization, and subsidy of
domestic prices of petroleum
products and fuel oil — clearly
critical in importance
considering, among other
things, the continuing high
level of dependence of the
country on imported crude oil
— are appropriately regarded
as public purposes.
Also of relevance is this Court's ruling in
relation to the sugar stabilization fund the
nature of which is not far different from the
OPSF. In Gaston v. Republic Planters
Bank, 16 this Court upheld the legality of the
sugar stabilization fees and explained their
nature and character, viz.:
The stabilization fees collected
are in the nature of a tax,
which is within the power of
the State to impose for the
promotion of the sugar
industry (Lutz v. Araneta, 98
Phil. 148). . . . The tax
collected is not in a pure
exercise of the taxing power. It
is levied with a regulatory
purpose, to provide a means
for the stabilization of the
sugar industry. The levy is
primarily in the exercise of the
police power of the State (Lutz
v. Araneta, supra).
xxx xxx xxx
The stabilization fees in
question are levied by the
State upon sugar millers,
planters and producers for a
special purpose — that of
"financing the growth and
development of the sugar
industry and all its
92
 components, stabilization of
the domestic market including
the foreign market." The fact
that the State has taken
possession of moneys
pursuant to law is sufficient to
constitute them state funds,
even though they are held for
a special purpose (Lawrence
v. American Surety Co. 263
Mich. 586, 249 ALR 535, cited
in 42 Am Jur Sec. 2, p. 718).
Having been levied for a
special purpose, the revenues
collected are to be treated as a
special fund, to be, in the
language of the statute,
"administered in trust" for the
purpose intended. Once the
purpose has been fulfilled or
abandoned, the balance if any,
is to be transferred to the
general funds of the
Government. That is the
essence of the trust intended
(SEE 1987 Constitution, Article
VI, Sec. 29(3), lifted from the
1935 Constitution, Article VI,
Sec. 23(1). 17
The character of the
Stabilization Fund as a special
kind of fund is emphasized by
the fact that the funds are
deposited in the Philippine
National Bank and not in the
Philippine Treasury, moneys
from which may be paid out
only in pursuance of an
appropriation made by law
(1987) Constitution, Article VI,
Sec. 29 (3), lifted from the
1935 Constitution, Article VI,
Sec. 23(1). (Emphasis
supplied).
Hence, it seems clear that while the funds
collected may be referred to as taxes, they are
exacted in the exercise of the police power of
the State. Moreover, that the OPSF is a
special fund is plain from the special treatment
given it by E.O. 137. It is segregated from the
general fund; and while it is placed in what the
Jeremiah 29:11
law refers to as a "trust liability account," the
fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is
satisfied that these measures comply with the
constitutional description of a "special fund."
Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of
legislative power, the Court finds that the
provision conferring the authority upon the
ERB to impose additional amounts on
petroleum products provides a sufficient
standard by which the authority must be
exercised. In addition to the general policy of
the law to protect the local consumer by
stabilizing and subsidizing domestic pump
rates, § 8(c) of P.D. 1956 18 expressly
authorizes the ERB to impose additional
amounts to augment the resources of the
Fund.
What petitioner would wish is the fixing of
some definite, quantitative restriction, or "a
specific limit on how much to tax." 19 The Court
is cited to this requirement by the petitioner on
the premise that what is involved here is the
power of taxation; but as already discussed,
this is not the case. What is here involved is
not so much the power of taxation as police
power. Although the provision authorizing the
ERB to impose additional amounts could be
construed to refer to the power of taxation, it
cannot be overlooked that the overriding
consideration is to enable the delegate to act
with expediency in carrying out the objectives
of the law which are embraced by the police
power of the State.
The interplay and constant fluctuation of the
various factors involved in the determination
of the price of oil and petroleum products, and
the frequently shifting need to either augment
or exhaust the Fund, do not conveniently
permit the setting of fixed or rigid parameters
in the law as proposed by the petitioner. To do
so would render the ERB unable to respond
effectively so as to mitigate or avoid the
undesirable consequences of such fluidity. As
such, the standard as it is expressed, suffices
to guide the delegate in the exercise of the
delegated power, taking account of the
circumstances under which it is to be
exercised.
93
For a valid delegation of power, it is essential
that the law delegating the power must be (1)
complete in itself, that is it must set forth the
policy to be executed by the delegate and (2)
it must fix a standard — limits of which
are sufficiently determinate or determinable —
to which the delegate must conform. 20
. . . As pointed out in Edu v.
Ericta: "To avoid the taint of
unlawful delegation, there
must be a standard, which
implies at the very least that
the legislature itself
determines matters of principle
and lays down fundamental
policy. Otherwise, the charge
of complete abdication may be
hard to repel. A standard thus
defines legislative policy,
marks its limits, maps out its
boundaries and specifies the
public agency to apply it. It
indicates the circumstances
under which the legislative
command is to be effected. It
is the criterion by which the
legislative purpose may be
carried out. Thereafter, the
executive or administrative
office designated may in
pursuance of the above
guidelines promulgate
supplemental rules and
regulations. The standard may
either be express or implied. If
the former, the non-delegation
objection is easily met. The
standard though does not
have to be spelled out
specifically. It could be implied
from the policy and purpose of
the act considered as a
whole. 21
It would seem that from the above-quoted
ruling, the petition for prohibition should fail.
The standard, as the Court has already
stated, may even be implied. In that light,
there can be no ground upon which to sustain
the petition, inasmuch as the challenged law
sets forth a determinable standard which
Jeremiah 29:11
guides the exercise of the power granted to
the ERB. By the same token, the proper
exercise of the delegated power may be
tested with ease. It seems obvious that what
the law intended was to permit the additional
imposts for as long as there exists a need to
protect the general public and the petroleum
industry from the adverse consequences of
pump rate fluctuations. "Where the standards
set up for the guidance of an administrative
officer and the action taken are in fact
recorded in the orders of such officer, so that
Congress, the courts and the public are
assured that the orders in the judgment of
such officer conform to the legislative
standard, there is no failure in the
performance of the legislative functions." 22
This Court thus finds no serious impediment
to sustaining the validity of the legislation; the
express purpose for which the imposts are
permitted and the general objectives and
purposes of the fund are readily discernible,
and they constitute a sufficient standard upon
which the delegation of power may be
justified.
In relation to the third question — respecting
the illegality of the reimbursements to oil
companies, paid out of the Oil Price
Stabilization Fund, because allegedly in
contravention of § 8, paragraph 2 (2) of P.D.
1956, amended 23 — the Court finds for the
petitioner.
The petition assails the payment of certain
items or accounts in favor of the petroleum
companies (i.e., inventory losses, financing
charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by
law. Petitioner contends that "these claims are
not embraced in the enumeration in § 8 of
P.D. 1956 . . since none of them was
incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and
since these items are reimbursements for
which the OPSF should not have responded,
the amount of the P12.877 billion deficit
"should be reduced by P5,277.2 million." 25 It is
argued "that under the principle of ejusdem
generis . . . the term 'other factors' (as used in
§ 8 of P.D. 1956) . . can only include such
'other factors' which necessarily result in the
94
reduction of domestic prices of petroleum
products." 26
The Solicitor General, for his part, contends
that "(t)o place said (term) within the restrictive
confines of the rule of ejusdem generis would
reduce (E.O. 137) to a meaningless
provision."
This Court, in Caltex Philippines, Inc. v. The
Honorable Commissioner on Audit, et
al., 27 passed upon the application of ejusdem
generis to paragraph 2 of § 8 of P.D.
1956, viz.:
The rule of ejusdem
generis states that "[w]here
words follow an enumeration
of persons or things, by words
of a particular and specific
meaning, such general words
are not to be construed in their
widest extent, but are held to
be as applying only to persons
or things of the same kind or
class as those specifically
mentioned." 28 A reading of
subparagraphs (i) and (ii)
easily discloses that they do
not have a common
characteristic. The first relates
to price reduction as directed
by the Board of Energy while
the second refers to reduction
in internal ad valorem taxes.
Therefore, subparagraph (iii)
cannot be limited by the
enumeration in these
subparagraphs. What should
be considered for purposes of
determining the "other factors"
in subparagraph (iii) is the first
sentence of paragraph (2) of
the Section which explicitly
allows the cost underrecovery
only if such were incurred as
a result of the reduction of
domestic prices of petroleum
products.
The Court thus holds, that the reimbursement
of financing charges is not authorized by
paragraph 2 of § 8 of P.D. 1956, for the
Jeremiah 29:11
reason that they were not incurred as a result
of the reduction of domestic prices of
petroleum products. Under the same
provision, however, the payment of inventory
losses is upheld as valid, being clearly a result
of domestic price reduction, when oil
companies incur a cost underrecovery for yet
unsold stocks of oil in inventory acquired at a
higher price.
Reimbursement for cost underrecovery from
the sales of oil to the National Power
Corporation is equally permissible, not as
coming within the provisions of P.D. 1956, but
in virtue of other laws and regulations as held
in Caltex 29 and which have been pointed to by
the Solicitor General. At any rate, doubts
about the propriety of such reimbursements
have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price
Standby Fund, § 2 of which specifically
authorizes the reimbursement of "cost
underrecovery incurred as a result of fuel oil
sales to the National Power Corporation."
Anent the overpayment refunds mentioned by
the petitioner, no substantive discussion has
been presented to show how this is prohibited
by P.D. 1956. Nor has the Solicitor General
taken any effort to defend the propriety of this
refund. In fine, neither of the parties, beyond
the mere mention of overpayment refunds,
has at all bothered to discuss the arguments
for or against the legality of the so-called
overpayment refunds. To be sure, the
absence of any argument for or against the
validity of the refund cannot result in its
disallowance by the Court. Unless the
impropriety or illegality of the overpayment
refund has been clearly and specifically
shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on
the remaining issue, the same having been
rendered moot and academic. As of date
hereof, the pump rates of gasoline have been
reduced to levels below even those prayed for
in the petition.
WHEREFORE, the petition is GRANTED
insofar as it prays for the nullification of the
reimbursement of financing charges, paid
95
pursuant to E.O. 137, and DISMISSED in all
other respects.

SO ORDERED.

96
Jeremiah 29:11

G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART
TAIT, ET AL, plaintiffs-appellants,
vs.
VENANCIO CONCEPCION, as Acting
Collector of Internal Revenue, defendant-
appellee.
Aitken and De Selms for appellants.
Attorney-General Avanceña for appellee.
TRENT, J.:
Francis A. Churchill and Stewart Tait,
copartners doing business under the firm
name and style of the Mercantile Advertising
Agency, owners of a sign or billboard
containing an area of 52 square meters
constructed on private property in the city of
Manila and exposed to public view, were
taxes thereon P104. The tax was paid under
protest and the plaintiffs having exhausted all
their administrative remedies instituted the
present action under section 140 of Act No.
2339 against the Collector of Internal
Revenue to recover back the amount thus
paid. From a judgment dismissing the
complaint upon the merits, with costs, the
plaintiffs appealed.

Section 100 of Act No. 2339, passed February It is now urged that the trial court erred:
27, 1914, effective July 1, 1914, imposed an
annual tax of P4 per square meter upon
(1) In not holding that the tax as
"electric signs, billboards, and spaces used for
imposed by virtue of Act No. 2339, as
posting or displaying temporary signs, and all
amended by Act No. 2432, as
signs displayed on premises not occupied by
amended by Act No. 2445, constitutes
buildings." This section was subsequently
deprivation of property without
amended by Act No. 2432, effective January
compensation or due process of law,
1, 1915, by reducing the tax on such signs,
because it is confiscatory and unjustly
billboards, etc., to P2 per square meter or
discriminatory and (2) in not holding
fraction thereof. Section 26 of Act No. 2432
that the said tax is void for lack of
was in turn amended by Act No. 2445, but this
uniformity, because it is not graded
amendment does not in any way affect the
according to value; because the
questions involved in the case under
classification on which it is based on
consideration. The taxes imposed by Act No.
any reasonable ground; and
2432, as amended, were ratified by the
furthermore, because it constitutes
Congress of the United States on March 4,
double taxation.
1915. The ratifying clause reads as follows:
We will first inquire whether the tax in question
The internal-revenue taxes imposed
is confiscatory as to the business of the
by the Philippine Legislature under the
plaintiff Upon this point the lower court, in
law enacted by that body on
accepting the testimony of the plaintiff,
December twenty-third, nineteen
Churchill, to the effect that "the billboard in
hundred and fourteen (Act No. 2432),
question cost P300 to construct, that its
as amended by the law enacted by it
annual gross earning power is P268, and that
on January sixteenth, nineteen
the annual tax is P104," found "that for a five
hundred and fifteen (Act No. 2445),
years' period the gross income from the
are hereby legalized and ratified, and
billboard would be P1,340, and that the
the collection of all such taxes
expenditures for original construction and
heretofore or hereafter is hereby
taxes would amount to P820, leaving a
legalized, ratified and confirmed as
balance of P520," held that "unless the tax
fully to all intents and purposes as if
equals or exceeds the gross income, the court
the same had by prior Act of Congress
would hardly be justified in declaring the tax
been specifically authorized and
confiscatory." These findings of fact and
directed.
conclusions of law are attacked upon the
ground that the court failed to take into-

97
Jeremiah 29:11
consideration the pertinent facts that the
annual depreciation of the billboard is 20 per
cent; that at the end of five years the capital of
P300 would be completely lost; that the
plaintiffs are entitled to receive a reasonable
rate of interest on this capital; and that there
should be charged against the billboard its
proportion of the overhead charges such as
labor, management, maintenance, rental of
office premises, rental or purchase of ground
space for board, repair, paints, oils, etc.,
resulting in an actual loss per year on the
business, instead of an apparent profit of
P520 for five years, or P44 for one year. If
these contentions rested upon a sound basis
it might be said that the tax is, in a sense,
confiscatory; but they do not, as we will
attempt to show from the evidence of record.
The plaintiff Churchill testified in part as
follows:
Q. In your opinion, Mr.
Churchill, state what you would think
of the rates that are charged by you
for advertising purposes in connection
with this board; could they be raised?
— would testify to the same effect. The parties,
A. No.
Q. Why? —
A. The business wouldn't allow
it; the business wouldn't afford it; and
otherwise it would mean bankruptcy to
try to increase it.
Q. Who couldn't afford it?
Explain it fully Mr. Churchill? —
A. The merchants couldn't
afford to pay more. On cross-
examination:
Q. It is a fact, it is not, Mr.
Churchill, that since the passage of
Act No. 2339 you have never made
any attempt to raise the advertising
rates? —
Jeremiah 29:11
A. It would be impossible to
raise them.
Q. My question is: You have
never made any attempt to raise
them? —
A. We have talked it over with
the merchants and talked over the
price on the event of a tax being put at
a reasonable amount, about putting up
some increase.
Q. But you have never made
an actual attempt to increase your
rates? —
A. I would consider that an
actual attempt.
Q. You have never fixed the
rate higher than it is now? —
A. No; no.
It was agreed that Tait, the other plaintiff,
plaintiffs and defendant, further agreed "that a
number of persons have voluntarily and
without protest paid the taxes imposed by
section 100 of Act No. 2339, as amended by
Act No. 2432, and in turn amended by Act No.
2445."
It will thus be seen that the contention that the
rates charged for advertising cannot be raised
is purely hypothetical, based entirely upon the
opinion of the plaintiffs, unsupported by actual
test, and that the plaintiffs themselves admit
that a number of other persons have
voluntarily and without protest paid the tax
herein complained of. Under these
circumstances, can it be held as a matter of
fact that the tax is confiscatory or that, as a
matter of law, the tax is unconstitutional? Is
the exercise of the taxing power of the
Legislature dependent upon and restricted by
the opinion of two interested witnesses?
There can be but one answer to these
questions, especially in view of the fact that
others are paying the tax and presumably
98
making a reasonable profit from their
business.
In Chicago and Grand Trunk Railway Co. vs.
Wellman (143 U. S., 339), a question similar
to the one now under consideration was
raised and decided by the Supreme Court of
the United States. The principal contention
made in that case was that an Act of the
Legislature of Michigan fixing the amount per
mile to be charged by railways for the
transportation of a passenger was
unconstitutional, on the ground that the rate
so fixed was confiscatory. It was agreed in the
pleadings that the total earnings and income
of the company from all sources for a given
year were less than the expenses for the
same period. In addition to this agreed
statement of facts, two witnesses were called,
one the traffic manager and the other the
treasurer of the company. Their testimony was
to the effect that in view of the competition
prevailing at Chicago for through business, it
was impossible to increase the freight rates
then charged by the company because it
would throw the volume of business into the
hands of competing roads. In overruling the
contention of the company that the act in
question was unconstitutional on the ground
that the rate fixed thereby was confiscatory,
the court said:
Surely, before the courts are called
upon to adjudge an act of the
legislature fixing the maximum
passenger rates for railroad
companies to be unconstitutional, on
the ground that its enforcement would
prevent the stockholders from
receiving any dividends on their
investments, or the bondholders any
interest on their loans, they should be
fully advised as to what is done with
the receipts and earnings of the
company; for if so advised, it might
clearly appear that a prudent and
honest management would, within the
rates prescribed, secure to the
bondholders their interest, and to the
stockholders reasonable dividends.
While the protection of vested rights of
property is a supreme duty of the
courts, it has not come to this, that the
Jeremiah 29:11
legislative power rests subservient to
the discretion of any railroad
corporation which may, by exorbitant
and unreasonable salaries, or in some
other improper way, transfer its
earnings into what it is pleased to call
`operating expenses.'
It is further alleged that the tax in question is
unconstitutional because "the law herein
complained of was enacted for the sole
purpose of destroying billboards and
advertising business depending on the use of
signs or billboards." If it be conceded that the
Legislature has the power to impose a tax
upon signs, signboards, and billboards, then
"the judicial cannot prescribed to the
legislative department of the Government
limitation upon the exercise of its
acknowledge powers." (Veazie Bank vs.
Fenno, 8 Wall., 533, 548.) That the Philippine
Legislature has the power to impose such
taxes, we think there can be no serious doubt,
because "the power to impose taxes is one so
unlimited in force and so searching in extent,
that the courts scarcely venture to declare that
it is subject to any restrictions whatever,
except such as rest in the discretion of the
authority which exercises it. It reaches to
every trade or occupation; to every object of
industry, use, or enjoyment; to every species
of possession; and it imposes a burden which,
in case of failure to discharge it, may be
followed by seizure and sale or confiscation of
property. No attribute of sovereignty is more
pervading, and at no point does the power of
the government affect more constantly and
intimately all the relations of life than through
the exactions made under it." (Cooley's
Constitutional Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court,
in ruling adversely to the contention that a
federal tax on oleomargarine artificially
colored was void because the real purpose of
Congress was not to raise revenue but to tax
out of existence a substance not harmful of
itself and one which might be lawfully
manufactured and sold, said:
Whilst, as a result of our written
constitution, it is axiomatic that the
judicial department of the government
99
 is charged with the solemn duty of
enforcing the Constitution, and
therefore, in cases property
presented, of determining whether a
given manifestation of authority has
exceeded the power conferred by that
instrument, no instance is afforded
from the foundation of the government
where an act which was within a
power conferred, was declared to be
repugnant to the Constitution,
because it appeared to the judicial
mind that the particular exertion of
constitutional power was either unwise
or unjust. To announce such a
principle would amount to declaring
that, in our constitutional system, the
judiciary was not only charged with the
duty of upholding the Constitution, but
also with the responsibility of
correcting every possible abuse
arising from the exercise by the other
departments of their conceded
authority. So to hold would be to
overthrow the entire distinction
between the legislative, judicial, and
executive departments of the
government, upon which our system is
founded, and would be a mere act of
judicial usurpation.
If a case were presented where the abuse of
the taxing power of the local legislature was to
extreme as to make it plain to the judicial mind
that the power had been exercised for the sole
purpose of destroying rights which could not
be rightfully destroyed consistently with the
principles of freedom and justice upon which
the Philippine Government rests, then it would
be the duty of the courts to say that such an
arbitrary act was not merely an abuse of the
power, but was the exercise of an authority
not conferred. (McCray vs. U.S., supra.) But
the instant case is not one of that character,
for the reason that the tax herein complained
of falls far short of being confiscatory.
Consequently, it cannot be held that the
Legislature has gone beyond the power
conferred upon it by the Philippine Bill in so far
as the amount of the tax is concerned.
Is the tax void for lack of uniformity or
because it is not graded according to value or
Jeremiah 29:11
constitutes double taxation, or because the
classification upon which it is based is mere
arbitrary selection and not based on any
reasonable grounds? The only limitation, in so
far as these questions are concerned, placed
upon the Philippine Legislature in the exercise
of its taxing power is that found in section 5 of
the Philippine Bill, wherein it is declared "that
the rule of taxation in said Islands shall be
uniform."
Uniformity in taxation — says Black on
Constitutional Law, page 292 —
means that all taxable articles or kinds
of property, of the same class, shall be
taxed at the same rate. It does not
mean that lands, chattels, securities,
incomes, occupations, franchises,
privileges, necessities, and luxuries,
shall all be assessed at the same rate.
Different articles may be taxed at
different amounts, provided the rate is
uniform on the same class
everywhere, with all people, and at all
times.
A tax is uniform when it operates with the
same force and effect in every place where
the subject of it is found (State Railroad Tax
Cases, 92 U.S., 575.) The words "uniform
throughout the United States," as required of a
tax by the Constitution, do not signify an
intrinsic, but simply a geographical, uniformity,
and such uniformity is therefore the only
uniformity which is prescribed by the
Constitution. (Patton vs. Brady, 184 U.S., 608;
46 L. Ed., 713.) A tax is uniform, within the
constitutional requirement, when it operates
with the same force and effect in every place
where the subject of it is found. (Edye vs.
Robertson, 112 U.S., 580; 28 L. Ed., 798.)
"Uniformity," as applied to the constitutional
provision that all taxes shall be uniform,
means that all property belonging to the same
class shall be taxed alike. (Adams vs.
Mississippi State Bank, 23 South, 395, citing
Mississippi Mills vs Cook, 56 Miss., 40.) The
statute under consideration imposes a tax of
P2 per square meter or fraction thereof upon
every electric sign, bill-board, etc., wherever
found in the Philippine Islands. Or in other
words, "the rule of taxation" upon such signs
is uniform throughout the Islands. The rule,
100
which we have just quoted from the Philippine
Bill, does not require taxes to be graded
according to the value of the subject or
subjects upon which they are imposed,
especially those levied as privilege or
occupation taxes. We can hardly see wherein
the tax in question constitutes double taxation.
The fact that the land upon which the
billboards are located is taxed at so much per
unit and the billboards at so much per square
meter does not constitute "double taxation."
Double taxation, within the true meaning of
that expression, does not necessarily affect its
validity. (1 Cooley on Taxation, 3d ed., 389.)
And again, it is not for the judiciary to say that
the classification upon which the tax is based
"is mere arbitrary selection and not based
upon any reasonable grounds." The
Legislature selected signs and billboards as a
subject for taxation and it must be presumed
that it, in so doing, acted with a full knowledge
of the situation.

For the foregoing reasons, the judgment

appealed from is affirmed, with costs against
the appellants. So ordered.

101
Jeremiah 29:11
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
LINGAYEN GULF ELECTRIC POWER CO.,
INC. and THE COURT OF TAX
APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power
Co., Inc.
SARMIENTO, J.:
This is an appeal from the decision * of the Court
of Tax Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard upon
agreement of the parties, absolving the respondent taxpayer
from liability for the deficiency percentage, franchise, and fixed
taxes and surcharge assessed against it in the sums of
P19,293.41 and P3,616.86 for the years 1946 to 1954 and 1959
to 1961, respectively.
The respondent taxpayer, Lingayen Gulf
Electric Power Co., Inc., operates an electric
power plant serving the adjoining
municipalities of Lingayen and Binmaley, both
in the province of Pangasinan, pursuant to the
municipal franchise granted it by their
respective municipal councils, under
Resolution Nos. 14 and 25 of June 29 and
July 2, 1946, respectively. Section 10 of these
franchises provide that:
...The said grantee in consideration of the
franchise hereby granted, shall pay quarterly
into the Provincial Treasury of Pangasinan,
one per centum of the gross earnings
obtained thru this privilege during the first
twenty years and two per centum during the
remaining fifteen years of the life of said
franchise.
On February 24, 1948, the President of the
Philippines approved the franchises granted to
the private respondent.
On November 21, 1955, the Bureau of Internal
Revenue (BIR) assessed against and
demanded from the private respondent the
total amount of P19,293.41 representing
deficiency franchise taxes and surcharges for
Jeremiah 29:11
the years 1946 to 1954 applying the franchise
tax rate of 5% on gross receipts from March 1,
1948 to December 31, 1954 as prescribed in
Section 259 of the National Internal Revenue
Code, instead of the lower rates as provided
in the municipal franchises. On September 29,
1956, the private respondent requested for a
reinvestigation of the case on the ground that
instead of incurring a deficiency liability, it
made an overpayment of the franchise tax. On
April 30, 1957, the BIR through its regional
director, denied the private respondent's
request for reinvestigation and reiterated the
demand for payment of the same. In its letters
dated July 2, and August 9, 1958 to the
petitioner Commissioner, the private
respondent protested the said assessment
and requested for a conference with a view to
settling the liability amicably. In his letters
dated July 25 and August 28, 1958, the
Commissioner denied the request of the
private respondent. Thus, the appeal to the
respondent Court of Tax Appeals on
September 19, 1958, docketed as C.T.A.
Case No. 581.
In a letter dated August 21, 1962, the
Commissioner demanded from the private
respondent the payment of P3,616.86
representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again
applying the franchise tax rate of 5% on gross
receipts as prescribed in Section 259 of the
National Internal Revenue Code. In a letter
dated October 5, 1962, the private respondent
protested the assessment and requested
reconsideration thereof The same was denied
on November 9, 1962. Thus, the appeal to the
respondent Court of Appeals on November
29, 1962, docketed as C.T.A. No. 1302.
Pending the hearing of the said cases,
Republic Act (R.A.) No. 3843 was passed on
June 22, 1 963, granting to the private
respondent a legislative franchise for the
operation of the electric light, heat, and power
system in the same municipalities of
Pangasinan. Section 4 thereof provides that:
In consideration of the franchise and rights
hereby granted, the grantee shall pay into the
Internal Revenue office of each Municipality in
which it is supplying electric current to the
102
public under this franchise, a tax equal to two
per centum of the gross receipts from electric
current sold or supplied under this franchise.
Said tax shall be due and payable quarterly
and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description
levied, established, or collected by any
authority whatsoever, municipal, provincial or
national, now or in the future, on its poles,
wires, insulator ... and on its franchise, rights,
privileges, receipts, revenues and profits, from
which taxes and/or licenses, the grantee is
hereby expressly exempted and effective
further upon the date the original franchise
was granted, no other tax and/or licenses
other than the franchise tax of two per centum
on the gross receipts as provided for in the
original franchise shall be collected, any
provision of law to the contrary
notwithstanding.
On September 15, 1964, the respondent court
ruled that the provisions of R.A. No. 3843
should apply and accordingly dismissed the
claim of the Commissioner of Internal
Revenue. The said ruling is now the subject of
the petition at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax
prescribed in Section 259 of the National
Internal Revenue Code assessed against the
private respondent on its gross receipts
realized before the effectivity of R.A- No. 3843
is collectible.
2. Whether or not Section 4 of R.A. No. 3843
is unconstitutional for being violative of the
"uniformity and equality of taxation" clause of
the Constitution.
3. If the abovementioned Section 4 of R.A.
No. 3843 is valid, whether or not it could be
given retroactive effect so as to render
uncollectible the taxes in question which were
assessed before its enactment.
4. Whether or not the respondent taxpayer is
liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 for the
period from January 1, 1946 to February 29,
Jeremiah 29:11
1948, the period before the approval of its
municipal franchises.
The first issue raised by the petitioner before
us is whether or not the five percent (5%)
franchise tax prescribed in Section 259 of the
National Internal Revenue Code
(Commonwealth Act No. 466 as amended by
R.A. No. 39) assessed against the private
respondent on its gross receipts realized
before the effectivity of R.A- No. 3843 is
collectible. It is the contention of the petitioner
Commissioner of Internal Revenue that the
private respondent should have been held
liable for the 5% franchise tax on gross
receipts prescribed in Section 259 of the Tax
Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of
gross earnings for the first twenty years and
2% for the remaining fifteen years of the life of
the franchises) because Section 259 of the
Tax Code, as amended by RA No. 39 of
October 1, 1946, applied to existing and future
franchises. The franchises of the private
respondent were already in existence at the
time of the adoption of the said amendment,
since the franchises were accepted on March
1, 1948 after approval by the President of the
Philippines on February 24, 1948. The private
respondent's original franchises did not
contain the proviso that the tax provided
therein "shall be in lieu of all taxes;" moreover,
the franchises contained a reservation clause
that they shag be subject to amendment,
alteration, or repeal, but even in the absence
of such cause, the power of the Legislature to
alter, amend, or repeal any franchise is
always deemed reserved. The franchise of the
private respondent have been modified or
amended by Section 259 of the Tax Code, the
petitioner submits.
We find no merit in petitioner's contention.
R.A. No. 3843 granted the private respondent
a legislative franchise in June, 1963,
amending, altering, or even repealing the
original municipal franchises, and providing
that the private respondent should pay only a
2% franchise tax on its gross receipts, "in lieu
of any and all taxes and/or licenses of any
kind, nature or description levied, established,
or collected by any authority whatsoever,
municipal, provincial, or national, now or in the
103
future ... and effective further upon the date
the original franchise was granted, no other
tax and/or licenses other than the franchise
tax of two per centum on the gross receipts ...
shall be collected, any provision of law to the
contrary notwithstanding." Thus, by virtue of
R.A- No. 3843, the private respondent was
liable to pay only the 2% franchise tax,
effective from the date the original municipal
franchise was granted.
On the question as to whether or not Section
4 of R.A. No. 3843 is unconstitutional for
being violative of the "uniformity and equality
of taxation" clause of the Constitution, and, if
adjudged valid, whether or not it should be
given retroactive effect, the petitioner submits
that the said law is unconstitutional insofar as
it provides for the payment by the private
respondent of a franchise tax of 2% of its
gross receipts, while other taxpayers similarly
situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code,
thereby discriminatory and violative of the rule
on uniformity and equality of taxation.
A tax is uniform when it operates with the
same force and effect in every place where
the subject of it is found. Uniformity means
that all property belonging to the same class
shall be taxed alike The Legislature has the
inherent power not only to select the subjects
of taxation but to grant exemptions. Tax
exemptions have never been deemed
violative of the equal protection clause. 1 It is
true that the private respondents municipal
franchises were obtained under Act No.
667 2 of the Philippine Commission, but these
original franchises have been replaced by a
new legislative franchise, i.e. R.A. No. 3843.
As correctly held by the respondent court, the
latter was granted subject to the terms and
conditions established in Act No. 3636, 3 as
amended by C.A. No. 132. These conditions
Identify the private respondent's power plant
as falling within that class of power plants
created by Act No. 3636, as amended. The
benefits of the tax reduction provided by law
(Act No. 3636 as amended by C.A. No. 132
and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within
this class. R.A-No. 3843 merely transferred
the petitioner's power plant from that class
Jeremiah 29:11
provided for in Act No. 667, as amended, to
which it belonged until the approval of R.A-
No. 3843, and placed it within the class falling
under Act No. 3636, as amended. Thus, it
only effected the transfer of a taxable property
from one class to another.
We do not have the authority to inquire into
the wisdom of such act. Furthermore, the 5%
franchise tax rate provided in Section 259 of
the Tax Code was never intended to have a
universal application. 4 We note that the said
Section 259 of the Tax Code expressly allows
the payment of taxes at rates lower than 5%
when the charter granting the franchise of a
grantee, like the one granted to the private
respondent under Section 4 of R.A. No. 3843,
precludes the imposition of a higher tax. R.A.
No. 3843 did not only fix and specify a
franchise tax of 2% on its gross receipts, but
made it "in lieu of any and all taxes, all laws to
the contrary notwithstanding," thus, leaving no
room for doubt regarding the legislative intent.
"Charters or special laws granted and enacted
by the Legislature are in the nature of private
contracts. They do not constitute a part of the
machinery of the general government. They
are usually adopted after careful consideration
of the private rights in relation with resultant
benefits to the State ... in passing a special
charter the attention of the Legislature is
directed to the facts and circumstances which
the act or charter is intended to meet. The
Legislature consider (sic) and make (sic)
provision for all the circumstances of a
particular case." 5 In view of the foregoing, we
find no reason to disturb the respondent
court's ruling upholding the constitutionality of
the law in question.
Given its validity, should the said law be
applied retroactively so as to render
uncollectible the taxes in question which were
assessed before its enactment? The question
of whether a statute operates retrospectively
or only prospectively depends on the
legislative intent. In the instant case, Act No.
3843 provides that "effective ... upon the date
the original franchise was granted, no other
tax and/or licenses other than the franchise
tax of two per centum on the gross receipts ...
shall be collected, any provision to the
contrary notwithstanding." Republic Act No.
104
3843 therefore specifically provided for the
retroactive effect of the law.
BISAYA LAND TRANSPORTATION CO.,
The last issue to be resolved is whether or not INC., Petitioner,
the private respondent is liable for the fixed
and deficiency percentage taxes in the
amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As
aforestated, the franchises were approved by
-versus- G.R. No. L-10114
the President only on February 24, 1948.
November 26, 1957
Therefore, before the said date, the private
respondent was liable for the payment of
percentage and fixed taxes as seller of light,
heat, and power — which as the petitioner
claims, amounted to P3,025.96. The
legislative franchise (R.A. No. 3843)
exempted the grantee from all kinds of taxes COURT OF INDUSTRIAL RELATIONS and
other than the 2% tax from the date the PHILIPPINE MARINE RADIO OFFICERS
original franchise was granted. The ASSOCIATION,
exemption, therefore, did not cover the period
before the franchise was granted, i.e. before
February 24, 1948. However, as pointed out
by the respondent court in its findings, during
the period covered by the instant case, that is
from January 1, 1946 to December 31, 1961, Respondents.
the private respondent paid the amount of
P34,184.36, which was very much more than
the amount rightfully due from it. Hence, the x---------------------------------------------------x
private respondent should no longer be made
to pay for the deficiency tax in the amount of
P3,025.98 for the period from January 1, 1946
to February 29, 1948.

WHEREFORE, the appealed decision of the DECISION

respondent Court of Tax Appeals is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.

LABRADOR, J.:

Appeal by Certiorari instituted by petitioner

against the decision of the Court of Industrial
Relations in its case No. 4 L-IPA entitled the
SUPREME COURT EN BANC Philippine Marine Radio Officers’ Association
vs. Compañia Maritima, et al.

105
Jeremiah 29:11

This case is intimately related to G. R. No. L-
10095 and G. R No. L10115, already resolved
by Us in a decision promulgated last October
31, 1957. Insofar as this appeal is concerned,
it appears that the PHILMAROA presented its
demands for standardization and increase of
salaries, sick and vacation leaves,
hospitalization, and closed shop
agreement on September 26, 1953. On
October 24, 1953, notice of intention to strike
was filed in the Conciliation Service Division of
the Department of Labor against the
petitioners herein. Pending the resolution of
the dispute by the Court of Industrial
Relations, by reason of the presidential
certification to it of the said dispute, Benjamin
Nadanza and Arcadio Ouano abandoned their
ships, which belong to the petitioner, on
November 30 and December 7, 1953,
respectively. But some weeks thereafter said
radio operators came back and, upon their
request, were readmitted by the company. In
the court below the petitioner herein alleged
that the strike was unlawful because no notice
of the strike was served directly to it. It was
also contended that with the reinstatement of
the radio operators there was no longer any
cause of action against the Bisaya Land
Transportation Co., petitioner herein. The
court a quo held that the illegality of the strike
was waived by the Bisaya Land
Transportation Company when it accepted the
striking radio operators. As to the Absence of
the cause of action against the petitioner
herein, the court a quo held that this defense
is good as against the reinstatement and
backpay of the striking radio operators, but not
as to the prosecution of the demands
contained in the original petition of the union.
On this appeal the petitioner assigns the
following errors:
“I. THE PETITIONER-UNION, NOW
RESPONDENT, HAS NO CAUSE OF
Jeremiah 29:11
ACTION AGAINST THE BISAYA LAND
TRANSPORTATION CO., INC.
“II. THE PETITIONER-UNION BEING ONLY
A CRAFT UNION HAS NO RIGHT OR
POWER TO BARGAIN COLLECTIVELY.
“III. THE PETITIONER-UNION HAS NO
RIGHT OR POWER TO BARGAIN
COLLECTIVELY FOR RADIO OPERATORS
NADANZA AND OUANO AS BOTH OF THEM
ARE AFFILIATED WITH ANOTHER LOCAL
LABOR UNION IN CEBU, THE PHILIPPINE
MARINE & SHIPPING EMPLOYEES
ASSOCIATION (PHILMASEA), WITH WHICH
THE GREAT MAJORITY OF THE
EMPLOYEES OF THE BISAYA LAND
TRANSPORTATION CO., INC. ARE
AFFILIATED.
“IV. THE STRIKE OR ABANDONING OF
THEIR POSTS BY THE RADIO OPERATORS
WAS NOT LEGAL.
“V. THE CERTIFICATION OF THE CASE TO
THE C.I.R. BY THE PRESIDENT OF THE
PHILIPPINES WAS NULL AND VOID. “VI.
THE COURT OF INDUSTRIAL RELATIONS
HAD NO JURISDICTION OVER THE CASE.”
In support of the first assignment of error, it is
claimed that when the radio operators
employed by the petitioner went back to work
and the latter reinstated them, the parties
thereby waived any of the grounds that they
may have had for striking. There is absolutely
no merit in this contention. The strike in this
case was adopted by the union to compel the
respondent shipping company to accede to its
demands. The strike was but one of the
means employed to achieve its ends. When
the radio officers returned back to work after
the strike, such return did not imply the waiver
of the original demands. The fact that the
106
radio operators returned back to work and
ended their strike only meant that they
desisted from the strike; such desistance is a
personal act of the strikers, and cannot be
used against the union and interpreted as a
waiver by it of its original demands for which
the strike was adopted as weapon.
The second assignment of error is also
without merit as held by the court below. A
union craft, such as the one to which the radio
operators belonged, is expressly recognized
in the Industrial Peace Act (Sec. 9 [f], pars. 1
& 2 Rep. Act No. 875) and its right and power
to bargain collectively is recognized.
In third assignment of error it is claimed that
the PHILMAROA has no right to bargain
collectively for the radio operators employed
by the petitioner Bisaya Land Transportation
Company, because these radio operators are
affiliated with another local union to which
union most of employees of the petitioner
union are affiliated. This contention is also
without merit. The PHILMAROA acted as
representatives of the radio operators
Nadanza and Ouano, as radio operators, not
as mere employees of the Bisaya Land
Transportation Company. There is no
prohibition in the law against employees
affiliating with a craft union as well as with an
ordinary labor union.
The fifth assignment of error refers to the
supposed invalidity of the presidential
certification of the case to the Court of
Industrial Relations. It is argued that the real
purpose of certification is to avoid or prevent
strikes and lockouts, but that since the strike
in this case occurred before the certification,
the latter was null and void. There is no
reason or ground for the contention that
presidential certification is limited to the
prevention of strikes and lockouts. Even after
a strike has been declared, where the
President believes that public interest
demands arbitration and conciliation, the
President may certify the case for that
purpose. The practice has been for the Court
of Industrial Relations to order the strikers to
return to work, pending final determination of
the union demands that impelled the strike.
There is nothing in the law to indicate that the
practice is abolished.
The last assignment of error is so clearly
unfounded as to deserve no consideration on
Our part other than a statement that it is
without merit.
The Petition is hereby denied and the
Resolution appealed from, affirmed. With
costs against petitioner.

As the PHILMAROA represented the interest

of Nadan and Ouano as radio operators, said
union was fully competent to represent them
in the proceedings in said capacity.

In the fourth assignment of error it is claimed

that the strike was illegal. Admitting for the [G.R. No. 119252. August 18,
sake of argument that the strike was illegal for
being premature, this defense was waived by 1997]
the Bisaya Land Transportation Company
when it voluntarily agreed to reinstate the
radio operators.

107
Jeremiah 29:11
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, dated February 16, 1995,
[1]
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 of the Office
[2]
Jeremiah 29:11
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
108
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.
Jeremiah 29:11
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 for
[7]
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. The same
[8]
is true with respect to Diagem Traders
Corporation. [9]
109
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:
Jeremiah 29:11
'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:
110
(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,
Jeremiah 29:11
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
111
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
Jeremiah 29:11
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
112
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. (emphasis ours)
[11]
The public respondent, in
addressing the third issue, ruled that
the laws in question are confiscatory
and oppressive. Again, virtually
adopting verbatim the reasons
Jeremiah 29:11
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
113
sales tax on precious gemstones Jewelry
restricted the growth (sic) of the and (MANUFACTURING) Sal
industry, resulting in most of the es Tax 10% (VAT)
business being unofficial. It was indeed Precious stones Excise Tax
difficult for a government or
businessman to promote an industry Philippines 3% to 10% to be 20% 10%
which did not officially exist. VAT
applied in stages
Despite these circumstances, Thailands
Gem business kept growing up in (sic) Malaysia None None None
businessmen began to realize its
potential. In 1978, the government Thailand None None None
quietly removed the severe duties on
precious stones, but imposed a sales tax Singapore None None None
of 3.5%. Little was said or done at that
time as the government wanted to see if Hongkong None None None
a free trade in gemstones and jewelry
In this connection, the present tariff and
would increase local manufacturing and
tax structure increases manufacturing
exports or if it would mean more
costs and renders the local jewelry
foreign made jewelry pouring into
manufacturers uncompetitive against
Thailand. However, as time progressed,
other countries even before they start
there were indications that local
manufacturing and trading. Because of
manufacturing was indeed being
the prohibitive cast(sic) of taxation,
encouraged and the economy was
most manufacturers source from black
earning more from exports. The
market for smuggled goods, and that
government soon removed the 3% sales
while manufacturers can avail of tax
tax too. Putting Thailand at par with
exemption and/or tax credits from the
Hongkong and Singapore. In these
(manufacturing) excise tax, they have
countries, there are no more import
no documents to present when filing
duties and sales tax on gems. (Cited in
this exemption because, as pointed out
pages 6 and 7 of Exhibit M. The Center
earlier, most of them source their raw
for Research and Communication in
materials from the black market, and
cooperation with the Guild of
since many of them do not legally exist
Philippine Jewelers, Inc., June 1986).
or operate onofficially(sic), or
To illustrate, shown hereunder in the underground, again they have no
Philippine tariff and tax structure on records (receipts) to indicate where and
jewelry and other percious and semi- when they will utilize such tax credits.
precious stones compared to other (Cited in Exhibit M Buencamino
neighboring countries, to wit: Report).

Tariff on imported
114
Jeremiah 29:11
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
Jeremiah 29:11
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, the private
[14]
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
115
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
Jeremiah 29:11
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
116
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. As
[16]
Cooley observed:
Debatable questions are for the
legislature to decide. The courts do
not sit to resolve the merits of
conflicting issues. In Angara vs.
[17]
Electoral Commission, Justice
[18]
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. This is not to say
[19]
that Regional Trial Courts have no
power whatsoever to declare a law
unconstitutional. In J. M. Tuason
and Co. v. Court of Appeals we [20]
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
Jeremiah 29:11
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. But[21]
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: Where a controversy
[23]
may be settled an a platform other
than one involving constitutional
adjudication, the court should
117
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.
SO ORDERED

118
Jeremiah 29:11
G.R. No. 108524 November 10, 1994 Respondents represent departments of the
executive branch of government charged with
the generation of funds and the assessment,
levy and collection of taxes and other imposts.
MISAMIS ORIENTAL ASSOCIATION OF
COCO TRADERS, INC., petitioner,

vs. The pertinent provision of the NIRC states:

DEPARTMENT OF FINANCE SECRETARY,

COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE (BIR), AND Sec. 103. Exempt Transactions. — The
REVENUE DISTRICT OFFICER, BIR following shall be exempt from the value-
MISAMIS ORIENTAL, respondents. added tax:

Damasing Law Office for petitioner. (a) Sale of nonfood agricultural, marine
and forest products in their original state by
the primary producer or the owner of the land
where the same are produced;

MENDOZA, J.:
(b) Sale or importation in their original
state of agricultural and marine food products,
livestock and poultry of a kind generally used
as, or yielding or producing foods for human
This is a petition for prohibition and injunction
consumption, and breeding stock and genetic
seeking to nullify Revenue Memorandum
material therefor;
Circular No. 47-91 and enjoin the collection by
respondent revenue officials of the Value
Added Tax (VAT) on the sale of copra by
members of petitioner organization. 1
Under §103(a), as above quoted, the sale of
agricultural non-food products in their original
state is exempt from VAT only if the sale is
made by the primary producer or owner of the
Petitioner Misamis Oriental Association of
land from which the same are produced. The
Coco Traders, Inc. is a domestic corporation
sale made by any other person or entity, like a
whose members, individually or collectively,
trader or dealer, is not exempt from the tax.
are engaged in the buying and selling of copra
On the other hand, under §103(b) the sale of
in Misamis Oriental. The petitioner alleges that
agricultural food products in their original state
prior to the issuance of Revenue
is exempt from VAT at all stages of production
Memorandum Circular 47-91 on June 11,
or distribution regardless of who the seller is.
1991, which implemented VAT Ruling 190-90,
copra was classified as agricultural food
product under $ 103(b) of the National Internal
Revenue Code and, therefore, exempt from
VAT at all stages of production or distribution. The question is whether copra is an
agricultural food or non-food product for

119
Jeremiah 29:11
purposes of this provision of the NIRC. On
June 11, 1991, respondent Commissioner of
Internal Revenue issued the circular in
question, classifying copra as an agricultural
non-food product and declaring it "exempt
from VAT only if the sale is made by the
primary producer pursuant to Section 103(a)
of the Tax Code, as amended." 2
The reclassification had the effect of denying
to the petitioner the exemption it previously
enjoyed when copra was classified as an
agricultural food product under §103(b) of the
NIRC. Petitioner challenges RMC No. 47-91
on various grounds, which will be presently
discussed although not in the order raised in
the petition for prohibition.
First. Petitioner contends that the Bureau of
Food and Drug of the Department of Health
and not the BIR is the competent government
agency to determine the proper classification
of food products. Petitioner cites the opinion of
Dr. Quintin Kintanar of the Bureau of Food
and Drug to the effect that copra should be
considered "food" because it is produced from
coconut which is food and 80% of coconut
products are edible.
On the other hand, the respondents argue that
the opinion of the BIR, as the government
agency charged with the implementation and
interpretation of the tax laws, is entitled to
great respect.
We agree with respondents. In interpreting
§103(a) and (b) of the NIRC, the
Commissioner of Internal Revenue gave it a
strict construction consistent with the rule that
tax exemptions must be strictly construed
against the taxpayer and liberally in favor of
the state. Indeed, even Dr. Kintanar said that
his classification of copra as food was based
on "the broader definition of food which
Jeremiah 29:11
includes agricultural commodities and other
components used in the
manufacture/processing of food." The full text
of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication
made by this Office about copra in a letter
dated 05 December 1990 stating that copra is
not classified as food. The statement was
made in the context of BFAD's regulatory
responsibilities which focus mainly on foods
that are processed and packaged, and
thereby copra is not covered.
However, in the broader definition of food
which include agricultural commodities and
other components used in the manufacture/
processing of food, it is our opinion that copra
should be classified as an agricultural food
product since copra is produced from coconut
meat which is food and based on available
information, more than 80% of products
derived from copra are edible products.
Very truly yours,
120
QUINTIN L. KINTANAR, M.D., Ph.D.
Director
Assistant Secretary of Health for Standards
and Regulations
Moreover, as the government agency charged
with the enforcement of the law, the opinion of
the Commissioner of Internal Revenue, in the
absence of any showing that it is plainly
wrong, is entitled to great weight. Indeed, the
ruling was made by the Commissioner of
Internal Revenue in the exercise of his power
under § 245 of the NIRC to "make rulings or
opinions in connection with the
implementation of the provisions of internal
revenue laws, including rulings on the
classification of articles for sales tax and
similar purposes."
Second. Petitioner complains that it was
denied due process because it was not heard
before the ruling was made. There is a
distinction in administrative law between
legislative rules and interpretative rules. 3
There would be force in petitioner's argument
if the circular in question were in the nature of
a legislative rule. But it is not. It is a mere
interpretative rule.
The reason for this distinction is that a
legislative rule is in the nature of subordinate
legislation, designed to implement a primary
legislation by providing the details thereof. In
the same way that laws must have the benefit
of public hearing, it is generally required that
before a legislative rule is adopted there must
be hearing. In this connection, the
Administrative Code of 1987 provides:
Public Participation. — If not otherwise
required by law, an agency shall, as far as
practicable, publish or circulate notices of
Jeremiah 29:11
proposed rules and afford interested parties
the opportunity to submit their views prior to
the adoption of any rule.
(2) In the fixing of rates, no rule or final
order shall be valid unless the proposed rates
shall have been published in a newspaper of
general circulation at least two (2) weeks
before the first hearing thereon.
(3) In case of opposition, the rules on
contested cases shall be observed. 4
In addition such rule must be published.5 On
the other hand, interpretative rules are
designed to provide guidelines to the law
which the administrative agency is in charge
of enforcing.
Accordingly, in considering a legislative rule a
court is free to make three inquiries: (i)
whether the rule is within the delegated
authority of the administrative agency; (ii)
whether it is reasonable; and (iii) whether it
was issued pursuant to proper procedure. But
the court is not free to substitute its judgment
as to the desirability or wisdom of the rule for
the legislative body, by its delegation of
administrative judgment, has committed those
questions to administrative judgments and not
to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the
validity but into the correctness or propriety of
the rule. As a matter of power a court, when
confronted with an interpretative rule, is free to
(i) give the force of law to the rule; (ii) go to
the opposite extreme and substitute its
judgment; or (iii) give some intermediate
degree of authoritative weight to the
interpretative rule. 6
121
In the case at bar, we find no reason for
holding that respondent Commissioner erred
in not considering copra as an "agricultural
food product" within the meaning of § 103(b)
of the NIRC. As the Solicitor General
contends, "copra per se is not food, that is, it
is not intended for human consumption.
Simply stated, nobody eats copra for food."
That previous Commissioners considered it
so, is not reason for holding that the present
interpretation is wrong. The Commissioner of
Internal Revenue is not bound by the ruling of
his predecessors. 7 To the contrary, the
overruling of decisions is inherent in the
interpretation of laws.
of copra by other traders and dealers, but
there is no tax credit if the sale is made by the
producer.
Fourth. It is finally argued that RMC No. 47-91
is counterproductive because traders and
dealers would be forced to buy copra from
coconut farmers who are exempt from the
VAT and that to the extent that prices are
reduced the government would lose revenues
as the 10% tax base is correspondingly
diminished.

This is not so. The sale of agricultural non-

Third. Petitioner likewise claims that RMC No.
47-91 is discriminatory and violative of the
equal protection clause of the Constitution
because while coconut farmers and copra
producers are exempt, traders and dealers
are not, although both sell copra in its original
state. Petitioners add that oil millers do not
enjoy tax credit out of the VAT payment of
traders and dealers.
food products is exempt from VAT only when
made by the primary producer or owner of the
land from which the same is produced, but in
the case of agricultural food products their
sale in their original state is exempt at all
stages of production or distribution. At any
rate, the argument that the classification of
copra as agricultural non-food product is
counterproductive is a question of wisdom or
policy which should be addressed to
respondent officials and to Congress.

The argument has no merit. There is a

material or substantial difference between
coconut farmers and copra producers, on the WHEREFORE, the petition is DISMISSED.
one hand, and copra traders and dealers, on
the other. The former produce and sell copra,
the latter merely sell copra. The Constitution
does not forbid the differential treatment of
persons so long as there is a reasonable SO ORDERED.
basis for classifying them differently. 8

It is not true that oil millers are exempt from

VAT. Pursuant to § 102 of the NIRC, they are
subject to 10% VAT on the sale of services.
Under § 104 of the Tax Code, they are
allowed to credit the input tax on the sale of
copra by traders and dealers, but there is no
tax credit if the sale is made directly by the
copra producer as the sale is VAT exempt. In
the same manner, copra traders and dealers
are allowed to credit the input tax on the sale

122
Jeremiah 29:11
G.R. No. 76778 June 6, 1990 WHEREAS, the collection of
real property taxes based on
FRANCISCO I. CHAVEZ, petitioner, the 1984 real property values
vs. was deferred to take effect on
JAIME B. ONGPIN, in his capacity as January 1, 1988 instead of
Minister of Finance and FIDELINA CRUZ, in January 1, 1985, thus
her capacity as Acting Municipal Treasurer depriving the local government
of the Municipality of Las Piñas, units of an additional source of
respondents, REALTY OWNERS revenue;
ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor. WHEREAS, there is an urgent
need for local governments to
Brotherhood of Nationalistic, Involved and augment their financial
Free Attorneys to Combat Injustice and resources to meet the rising
Oppression (Bonifacio) for petitioner. cost of rendering effective
services to the people;
Ambrosia Padilla, Mempin and Reyes Law
Offices for movant Realty Owners NOW, THEREFORE, I.
Association. CORAZON C. AQUINO,
President of the Philippines,
do hereby order:

MEDIALDEA, J.: SECTION 1. Real property

The petition seeks to declare unconstitutional Executive Order
No. 73 dated November 25, 1986, which We quote in full, as
follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE
COLLECTION OF REAL
PROPERTY TAXES BASED
ON THE 1984 REAL
PROPERTY VALUES, AS
PROVIDED FOR UNDER
SECTION 21 OF THE REAL
PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of
real property taxes is still
based on the 1978 revision of
property values;
WHEREAS, the latest general
revision of real property
assessments completed in
1984 has rendered the 1978
revised values obsolete;
values as of December 31,
1984 as determined by the
local assessors during the
latest general revision of
assessments shall take effect
beginning January 1, 1987 for
purposes of real property tax
collection.
SEC. 2. The Minister of
Finance shall promulgate the
necessary rules and
regulations to implement this
Executive Order.
SEC. 3. Executive Order No.
1019, dated April 18, 1985, is
hereby repealed.
SEC. 4. All laws, orders,
issuances, and rules and
regulations or parts thereof
inconsistent with this
Executive Order are hereby
repealed or modified
accordingly.
SEC. 5. This Executive Order
shall take effect immediately.

123
Jeremiah 29:11
On March 31, 1987, Memorandum Order No.
77 was issued suspending the implementation
of Executive Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a
taxpayer and an owner of three parcels of
land. He alleges the following: that Executive
Order No. 73 accelerated the application of
the general revision of assessments to
January 1, 1987 thereby mandating an
excessive increase in real property taxes by
100% to 400% on improvements, and up to
100% on land; that any increase in the value
of real property brought about by the revision
of real property values and assessments
would necessarily lead to a proportionate
increase in real property taxes; that sheer
oppression is the result of increasing real
property taxes at a period of time when harsh
economic conditions prevail; and that the
increase in the market values of real property
as reflected in the schedule of values was
brought about only by inflation and economic
recession.
The intervenor Realty Owners Association of
the Philippines, Inc. (ROAP), which is the
national association of owners-lessors, joins
Chavez in his petition to declare
unconstitutional Executive Order No. 73, but
additionally alleges the following: that
Presidential Decree No. 464 is
unconstitutional insofar as it imposes an
additional one percent (1%) tax on all property
owners to raise funds for education, as real
property tax is admittedly a local tax for local
governments; that the General Revision of
Assessments does not meet the requirements
of due process as regards publication, notice
of hearing, opportunity to be heard and insofar
as it authorizes "replacement cost" of
buildings (improvements) which is not
provided in Presidential Decree No. 464, but
only in an administrative regulation of the
Department of Finance; and that the Joint
Local Assessment/Treasury Regulations No.
2-86 2 is even more oppressive and
unconstitutional as it imposes successive
increase of 150% over the 1986 tax.
The Office of the Solicitor General argues
against the petition.
Jeremiah 29:11
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP
question the constitutionality of Executive
Order No. 73 insofar as the revision of the
assessments and the effectivity thereof are
concerned. It should be emphasized that
Executive Order No. 73 merely directs, in
Section 1 thereof, that:
SECTION 1. Real property
values as of December 31,
1984 as determined by the
local assessors during the
latest general revision of
assessments shall take effect
beginning January 1, 1987 for
purposes of real property tax
collection. (emphasis supplied)
The general revision of assessments
completed in 1984 is based on Section 21 of
Presidential Decree No. 464 which provides,
as follows:
SEC. 21. General Revision of
Assessments. — Beginning
with the assessor shall make a
calendar year 1978, the
provincial or city general
revision of real property
assessments in the province
or city to take effect January 1,
1979, and once every five
years thereafter: Provided;
however, That if property
values in a province or city, or
in any municipality, have
greatly changed since the last
general revision, the provincial
or city assesor may, with the
approval of the Secretary of
Finance or upon bis direction,
undertake a general revision of
assessments in the province
or city, or in any municipality
before the fifth year from the
effectivity of the last general
revision.
Thus, We agree with the Office of the Solicitor
General that the attack on Executive Order
124
No. 73 has no legal basis as the general
revision of assessments is a continuing
process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is
Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However,
Chavez failed to raise any objection against
said decree. It was ROAP which questioned
the constitutionality thereof. Furthermore,
Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be
questioned:
SEC. 30. Local Board of
Assessment Appeals. — Any
owner who is not satisfied with
the action of the provincial or
city assessor in the
assessment of his property
may, within sixty days from the
date of receipt by him of the
written notice of assessment
as provided in this Code,
appeal to the Board of
Assessment Appeals of the
province or city, by filing with it
a petition under oath using the
form prescribed for the
purpose, together with copies
of the tax declarations and
such affidavit or documents
submitted in support of the
appeal.
xxx xxx xxx
SEC. 34. Action by the Local
Board of assessment Appeals.
— The Local Board of
Assessment Appeals shall
decide the appeal within one
hundred and twenty days from
the date of receipt of such
appeal. The decision rendered
must be based on substantial
evidence presented at the
hearing or at least contained in
the record and disclosed to the
parties or such relevant
evidence as a reasonable
mind might accept as
adequate to support the
conclusion.
Jeremiah 29:11
In the exercise of its appellate
jurisdiction, the Board shall
have the power to summon
witnesses, administer oaths,
conduct ocular inspection, take
depositions, and issue
subpoena and
subpoena duces tecum. The
proceedings of the Board shall
be conducted solely for the
purpose of ascertaining the
truth without-necessarily
adhering to technical rules
applicable in judicial
proceedings.
The Secretary of the Board
shall furnish the property
owner and the Provincial or
City Assessor with a copy
each of the decision of the
Board. In case the provincial
or city assessor concurs in the
revision or the assessment, it
shall be his duty to notify the
property owner of such fact
using the form prescribed for
the purpose. The owner or
administrator of the property or
the assessor who is not
satisfied with the decision of
the Board of Assessment
Appeals, may, within thirty
days after receipt of the
decision of the local Board,
appeal to the Central Board of
Assessment Appeals by filing
his appeal under oath with the
Secretary of the proper
provincial or city Board of
Assessment Appeals using the
prescribed form stating therein
the grounds and the reasons
for the appeal, and attaching
thereto any evidence pertinent
to the case. A copy of the
appeal should be also
furnished the Central Board of
Assessment Appeals, through
its Chairman, by the appellant.
Within ten (10) days from
receipt of the appeal, the
125
 Secretary of the Board of
Assessment Appeals
concerned shall forward the
same and all papers related
thereto, to the Central Board of
Assessment Appeals through
the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers
and Functions. — The Central
Board of Assessment Appeals
shall have jurisdiction over
appealed assessment cases
decided by the Local Board of
Assessment Appeals. The said
Board shall decide cases
brought on appeal within
twelve (12) months from the
date of receipt, which decision
shall become final and
executory after the lapse of
fifteen (15) days from the date
of receipt of a copy of the
decision by the appellant.
In the exercise of its appellate
jurisdiction, the Central Board
of Assessment Appeals, or
upon express authority, the
Hearing Commissioner, shall
have the power to summon
witnesses, administer oaths,
take depositions, and
issue subpoenas and subpoen
as duces tecum.
The Central Board of
assessment Appeals shall
adopt and promulgate rules of
procedure relative to the
conduct of its business.
Simply stated, within sixty days from the date
of receipt of the, written notice of assessment,
any owner who doubts the assessment of his
property, may appeal to the Local Board of
Assessment Appeals. In case the, owner or
administrator of the property or the assessor
is not satisfied with the decision of the Local
Board of Assessment Appeals, he may, within
Jeremiah 29:11
thirty days from the receipt of the decision,
appeal to the Central Board of Assessment
Appeals. The decision of the Central Board of
Assessment Appeals shall become final and
executory after the lapse of fifteen days from
the date of receipt of the decision.
Chavez argues further that the unreasonable
increase in real property taxes brought about
by Executive Order No. 73 amounts to a
confiscation of property repugnant to the
constitutional guarantee of due process,
invoking the cases of Ermita-Malate Hotel, et
al. v. Mayor of Manila (G.R. No. L-24693, July
31, 1967, 20 SCRA 849) and Sison v.
Ancheta, et al. (G.R. No. 59431, July 25,
1984, 130 SCRA 654).
The reliance on these two cases is certainly
misplaced because the due process
requirement called for therein applies to the
"power to tax." Executive Order No. 73 does
not impose new taxes nor increase taxes.
Indeed, the government recognized the
financial burden to the taxpayers that will
result from an increase in real property taxes.
Hence, Executive Order No. 1019 was issued
on April 18, 1985, deferring the
implementation of the increase in real property
taxes resulting from the revised real property
assessments, from January 1, 1985 to
January 1, 1988. Section 5 thereof is quoted
herein as follows:
SEC. 5. The increase in real
property taxes resulting from
the revised real property
assessments as provided for
under Section 21 of
Presidential Decree No. 464,
as amended by Presidential
Decree No. 1621, shall be
collected beginning January 1,
1988 instead of January 1,
1985 in order to enable the
Ministry of Finance and the
Ministry of Local Government
to establish the new systems
of tax collection and
assessment provided herein
and in order to alleviate the
condition of the people,
126
 including real property owners,
as a result of temporary
economic
difficulties. (emphasis
supplied)
The issuance of Executive Order No. 73 which
changed the date of implementation of the
increase in real property taxes from January
1, 1988 to January 1, 1987 and therefore
repealed Executive Order No. 1019, also finds
ample justification in its "whereas' clauses, as
follows:
WHEREAS, the collection of
real property taxes based on
the 1984 real property values
was deferred to take effect on
January 1, 1988 instead of
January 1, 1985, thus
depriving the local government
units of an additional source of
revenue;
We agree with the observation of the Office of
the Solicitor General that without Executive
Order No. 73, the basis for collection of real
property taxes win still be the 1978 revision of
property values. Certainly, to continue
collecting real property taxes based on
valuations arrived at several years ago, in
disregard of the increases in the value of real
properties that have occurred since then, is
not in consonance with a sound tax system.
Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires
that sources of revenues must be adequate to
meet government expenditures and their
variations.
ACCORDINGLY, the petition and the petition-
in-intervention are hereby DISMISSED.
SO ORDERED.

WHEREAS, there is an urgent

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

xxx xxx xxx

The other allegation of ROAP that Presidential

Decree No. 464 is unconstitutional, is not
proper to be resolved in the present petition.
As stated at the outset, the issue here is
limited to the constitutionality of Executive
Order No. 73. Intervention is not an
independent proceeding, but an ancillary and
supplemental one which, in the nature of
things, unless otherwise provided for by
legislation (or Rules of Court), must be in
subordination to the main proceeding, and it
may be laid down as a general rule that an
intervention is limited to the field of litigation
open to the original parties (59 Am. Jur. 950.
Garcia, etc., et al. v. David, et al., 67 Phil.
279).

127
Jeremiah 29:11
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA
PAMAHALAAN NG PILIPINAS, INC.,
HERMINIGILDO C. DUMLAO, GERONIMO
Q. QUADRA, and MARIO C.
VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner
of Internal Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER
(KMU), its officers and affiliated labor
federations and alliances, petitioners,
vs.
THE EXECUTIVE SECRETARY,
SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE,
and SECRETARY OF
BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS
ASSOCIATION OF THE PHILIPPINES and
JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF
INTERNAL REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,
vs.
THE EXECUTIVE SECRETARY,
SECRETARY OF FINANCE,
COMMISSIONER OF INTERNAL REVENUE
and SECRETARY OF BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in
G.R. No. 81311.
Jaime C. Opinion for individual petitioners in
G.R. No. 81311.
Banzuela, Flores, Miralles, Rañeses, Sy,
Taquio and Associates for petitioners in G.R.
No 81820.
Jeremiah 29:11
Union of Lawyers and Advocates for Peoples
Right collaborating counsel for petitioners in
G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for
petitioners in G.R. No. 81921.
PADILLA, J.:
These four (4) petitions, which have been consolidated because
of the similarity of the main issues involved therein, seek to
nullify Executive Order No. 273 (EO 273, for short), issued by the
President of the Philippines on 25 July 1987, to take effect on 1
January 1988, and which amended certain sections of the
National Internal Revenue Code and adopted the value-added
tax (VAT, for short), for being unconstitutional in that its
enactment is not alledgedly within the powers of the President;
that the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses and other
provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal
of the petitions on the ground that the
petitioners have failed to show justification for
the exercise of its judicial powers, viz. (1) the
existence of an appropriate case; (2) an
interest, personal and substantial, of the party
raising the constitutional questions; (3) the
constitutional question should be raised at the
earliest opportunity; and (4) the question of
constitutionality is directly and necessarily
involved in a justiciable controversy and its
resolution is essential to the protection of the
rights of the parties. According to the Solicitor
General, only the third requisite — that the
constitutional question should be raised at the
earliest opportunity — has been complied
with. He also questions the legal standing of
the petitioners who, he contends, are merely
asking for an advisory opinion from the Court,
there being no justiciable controversy for
resolution.
Objections to taxpayers' suit for lack of
sufficient personality standing, or interest are,
however, in the main procedural matters.
Considering the importance to the public of
the cases at bar, and in keeping with the
Court's duty, under the 1987 Constitution, to
determine wether or not the other branches of
government have kept themselves within the
limits of the Constitution and the laws and that
they have not abused the discretion given to
128
them, the Court has brushed aside
technicalities of procedure and has taken
cognizance of these petitions.
But, before resolving the issues raised, a brief
look into the tax law in question is in order.
The VAT is a tax levied on a wide range of
goods and services. It is a tax on the value,
added by every seller, with aggregate gross
annual sales of articles and/or services,
exceeding P200,00.00, to his purchase of
goods and services, unless exempt. VAT is
computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts
realized from the sale of services.
The VAT is said to have eliminated privilege
taxes, multiple rated sales tax on
manufacturers and producers, advance sales
tax, and compensating tax on importations.
The framers of EO 273 that it is principally
aimed to rationalize the system of taxing
goods and services; simplify tax
administration; and make the tax system more
equitable, to enable the country to attain
economic recovery.
The VAT is not entirely new. It was already in
force, in a modified form, before EO 273 was
issued. As pointed out by the Solicitor
General, the Philippine sales tax system, prior
to the issuance of EO 273, was essentially a
single stage value added tax system
computed under the "cost subtraction method"
or "cost deduction method" and was imposed
only on original sale, barter or exchange of
articles by manufacturers, producers, or
importers. Subsequent sales of such articles
were not subject to sales tax. However, with
the issuance of PD 1991 on 31 October 1985,
a 3% tax was imposed on a second sale,
which was reduced to 1.5% upon the issuance
of PD 2006 on 31 December 1985, to take
effect 1 January 1986. Reduced sales taxes
were imposed not only on the second sale,
but on every subsequent sale, as well. EO
273 merely increased the VAT on every
sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is
unconstitutional on the Ground that the
Jeremiah 29:11
President had no authority to issue EO 273 on
25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation
No. 3, which decreed a Provisional
Constitution, sole legislative authority was
vested upon the President. Art. II, sec. 1 of the
Provisional Constitution states:
Sec. 1. Until a legislature is
elected and convened under a
new Constitution, the
President shall continue to
exercise legislative powers.
On 15 October 1986, the Constitutional
Commission of 1986 adopted a new
Constitution for the Republic of the Philippines
which was ratified in a plebiscite conducted on
2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987
Constitution, provides:
Sec. 6. The incumbent
President shall continue to
exercise legislative powers
until the first Congress is
convened.
It should be noted that, under both the
Provisional and the 1987 Constitutions, the
President is vested with legislative powers
until a legislature under a new Constitution
is convened. The first Congress, created and
elected under the 1987 Constitution, was
convened on 27 July 1987. Hence, the
enactment of EO 273 on 25 July 1987, two (2)
days before Congress convened on 27 July
1987, was within the President's constitutional
power and authority to legislate.
Petitioner Valmonte claims, additionally, that
Congress was really convened on 30 June
1987 (not 27 July 1987). He contends that the
word "convene" is synonymous with "the date
when the elected members of Congress
assumed office."
The contention is without merit. The word
"convene" which has been interpreted to
129
mean "to call together, cause to assemble, or
convoke," 1 is clearly different from
assumption of office by the individual
members of Congress or their taking the oath
of office. As an example, we call to mind the
interim National Assembly created under the
1973 Constitution, which had not been
"convened" but some members of the body,
more particularly the delegates to the 1971
Constitutional Convention who had opted to
serve therein by voting affirmatively for the
approval of said Constitution, had taken their
oath of office.
To uphold the submission of petitioner
Valmonte would stretch the definition of the
word "convene" a bit too far. It would also
defeat the purpose of the framers of the 1987
Constitutional and render meaningless some
other provisions of said Constitution. For
example, the provisions of Art. VI, sec. 15,
requiring Congress to convene once every
year on the fourth Monday of July for its
regular session would be a contrariety, since
Congress would already be deemed to be in
session after the individual members have
taken their oath of office. A portion of the
provisions of Art. VII, sec. 10, requiring
Congress to convene for the purpose of
enacting a law calling for a special election to
elect a President and Vice-President in case a
vacancy occurs in said offices, would also be
a surplusage. The portion of Art. VII, sec. 11,
third paragraph, requiring Congress
to convene, if not in session, to decide a
conflict between the President and the
Cabinet as to whether or not the President
and the Cabinet as to whether or not the
President can re-assume the powers and
duties of his office, would also be redundant.
The same is true with the portion of Art. VII,
sec. 18, which requires Congress to convene
within twenty-four (24) hours following the
declaration of martial law or the suspension of
the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific
date when the President loses her power to
legislate. If the framers of said Constitution
had intended to terminate the exercise of
legislative powers by the President at the
beginning of the term of office of the members
of Congress, they should have so stated (but
Jeremiah 29:11
did not) in clear and unequivocal terms. The
Court has not power to re-write the
Constitution and give it a meaning different
from that intended.
The Court also finds no merit in the
petitioners' claim that EO 273 was issued by
the President in grave abuse of discretion
amounting to lack or excess of jurisdiction.
"Grave abuse of discretion" has been defined,
as follows:
Grave abuse of discretion"
implies such capricious and
whimsical exercise of
judgment as is equivalent to
lack of jurisdiction (Abad
Santos vs. Province of Tarlac,
38 Off. Gaz. 834), or, in other
words, where the power is
exercised in an arbitrary or
despotic manner by reason of
passion or personal hostility,
and it must be so patent and
gross as to amount to an
evasion of positive duty or to a
virtual refusal to perform the
duty enjoined or to act at all in
contemplation of law. (Tavera-
Luna, Inc. vs. Nable, 38 Off.
Gaz. 62). 2
Petitioners have failed to show that EO 273
was issued capriciously and whimsically or in
an arbitrary or despotic manner by reason of
passion or personal hostility. It appears that a
comprehensive study of the VAT had been
extensively discussed by this framers and
other government agencies involved in its
implementation, even under the past
administration. As the Solicitor General
correctly sated. "The signing of E.O. 273 was
merely the last stage in the exercise of her
legislative powers. The legislative process
started long before the signing when the data
were gathered, proposals were weighed and
the final wordings of the measure were
drafted, revised and finalized. Certainly, it
cannot be said that the President made a
jump, so to speak, on the Congress, two days
before it convened." 3
130
Next, the petitioners claim that EO 273 is
oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art.
VI, sec. 28(1) of the 1987 Constitution, which
states:
Sec. 28 (1) The rule of taxation
shall be uniform and equitable.
The Congress shall evolve a
progressive system of
taxation.
The petitioners" assertions in this regard are
not supported by facts and circumstances to
warrant their conclusions. They have failed to
adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely
rely upon newspaper articles which are
actually hearsay and have evidentiary value.
To justify the nullification of a law. there must
be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative
implication. 4
As the Court sees it, EO 273 satisfies all the
requirements of a valid tax. It is uniform. The
court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company
v. Yatco (69 Phil. 420), Justice
Laurel, speaking for the Court,
stated: "A tax is considered
uniform when it operates with
the same force and effect in
every place where the subject
may be found."
There was no occasion in that
case to consider the possible
effect on such a constitutional
requirement where there is a
classification. The opportunity
came in Eastern Theatrical Co.
v. Alfonso (83 Phil. 852, 862).
Thus: "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
Jeremiah 29:11
purposes of taxation; . . ."
About two years later, Justice
Tuason, speaking for this
Court in Manila Race Horses
Trainers Assn. v. de la Fuente
(88 Phil. 60, 65) incorporated
the above excerpt in his
opinion and continued; "Taking
everything into account, the
differentiation against which
the plaintiffs complain
conforms to the practical
dictates of justice and equity
and is not discriminatory within
the meaning of the
Constitution."
To satisfy this requirement
then, all that is needed as held
in another case decided two
years later, (Uy Matias v. City
of Cebu, 93 Phil. 300) is that
the statute or ordinance in
question "applies equally to all
persons, firms and
corporations placed in similar
situation." This Court is on
record as accepting the view in
a leading American case
(Carmichael v. Southern Coal
and Coke Co., 301 US 495)
that "inequalities which result
from a singling out of one
particular class for taxation or
exemption infringe no
constitutional limitation." (Lutz
v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied
similarly on all goods and services sold to the
public, which are not exempt, at the constant
rate of 0% or 10%.
The disputed sales tax is also equitable. It is
imposed only on sales of goods or services by
persons engage in business with an
aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are
consequently exempt from its application.
Likewise exempt from the tax are sales of
farm and marine products, spared as they are
from the incidence of the VAT, are expected
131
to be relatively lower and within the reach of including those performed or
the general public. 6 rendered by construction and
service contractors; stock, real
The Court likewise finds no merit in the estate, commercial, customs
contention of the petitioner Integrated and immigration brokers;
Customs Brokers Association of the lessors of personal property;
Philippines that EO 273, more particularly the lessors or distributors of
new Sec. 103 (r) of the National Internal cinematographic films;
Revenue Code, unduly discriminates against persons engaged in milling,
customs brokers. The contested provision processing, manufacturing or
states: repacking goods for others;
and similar services regardless
Sec. 103. Exempt of whether or not the
transactions. — The following performance thereof call for
shall be exempt from the the exercise or use of the
value-added tax: physical or mental faculties: ...

xxx xxx xxx With the insertion of the clarificatory phrase

"except customs brokers" in Sec. 103(r), a
potential conflict between the two sections,
(r) Service performed in the
(Secs. 102 and 103), insofar as customs
exercise of profession or
brokers are concerned, is averted.
calling (except customs
brokers) subject to the
occupation tax under the Local At any rate, the distinction of the customs
Tax Code, and professional brokers from the other professionals who are
services performed by subject to occupation tax under the Local Tax
registered general professional Code is based upon material differences, in
partnerships; that the activities of customs brokers (like
those of stock, real estate and immigration
brokers) partake more of a business, rather
The phrase "except customs brokers" is not
than a profession and were thus subjected to
meant to discriminate against customs
the percentage tax under Sec. 174 of the
brokers. It was inserted in Sec. 103(r) to
National Internal Revenue Code prior to its
complement the provisions of Sec. 102 of the
amendment by EO 273. EO 273 abolished the
Code, which makes the services of customs
percentage tax and replaced it with the VAT. If
brokers subject to the payment of the VAT
the petitioner Association did not protest the
and to distinguish customs brokers from other
classification of customs brokers then, the
professionals who are subject to the payment
Court sees no reason why it should protest
of an occupation tax under the Local Tax
now.
Code. Pertinent provisions of Sec. 102 read:
The Court takes note that EO 273 has been in
Sec. 102. Value-added tax on
effect for more than five (5) months now, so
sale of services. — There shall
that the fears expressed by the petitioners that
be levied, assessed and
the adoption of the VAT will trigger
collected, a value-added tax
skyrocketing of prices of basic commodities
equivalent to 10% percent of
and services, as well as mass actions and
gross receipts derived by any
demonstrations against the VAT should by
person engaged in the sale of
now be evident. The fact that nothing of the
services. The phrase sale of
sort has happened shows that the fears and
services" means the
apprehensions of the petitioners appear to be
performance of all kinds of
more imagined than real. It would seem that
services for others for a fee,
the VAT is not as bad as we are made to
remuneration or consideration,
believe.

132
Jeremiah 29:11
In any event, if petitioners seriously believe
that the adoption and continued application of
the VAT are prejudicial to the general welfare
or the interests of the majority of the people,
they should seek recourse and relief from the
political branches of the government. The
Court, following the time-honored doctrine of
separation of powers, cannot substitute its
judgment for that of the President as to the
wisdom, justice and advisability of the
adoption of the VAT. The Court can only look
into and determine whether or not EO 273
was enacted and made effective as law, in the
manner required by, and consistent with, the
Constitution, and to make sure that it was not
issued in grave abuse of discretion amounting
to lack or excess of jurisdiction; and, in this
regard, the Court finds no reason to impede
its application or continued implementation.

WHEREFORE, the petitions are DISMISSED.

Without pronouncement as to costs.

SO ORDERED.

133
Jeremiah 29:11
G.R. No. 104786 January 27, 1994
ALFREDO PATALINGHUG, petitioner,
vs.
HON. COURT OF APPEALS, RICARDO
CRIBILLO, MARTIN ARAPOL, CORAZON
ALCASID, PRIMITIVA SEDO, respondents.
Gonzales, Batiller, Bilog & Associates for
petitioner.
Garcilaso F. Vega for private respondents.
ROMERO, J.:
In the case before us, we are called upon to
decide whether or not petitioner's operation of
a funeral home constitutes permissible use
within a particular district or zone in Davao
City.
On November 17, 1982, the Sangguniang
Panlungsod of Davao City enacted Ordinance
No. 363, series of 1982 otherwise known as
the "Expanded Zoning Ordinance of Davao
City," Section 8 of which states:
Sec. 8. USE REGULATIONS
IN C-2 DISTRICTS (Shaded
light red in the Expanded
Zoning Map) — AC-2 District
shall be dominantly for
commercial and compatible
industrial uses as provided
hereunder:
xxx xxx xxx
xxx xxx xxx
3.1 Funeral Parlors/Memorial
Homes with adequate off
street parking space (see
parking standards of P.D.
1096) and provided that they
shall be established not less
than 50 meters from any
residential structures,
churches and other
Jeremiah 29:11
institutional buildings.
(Emphasis provided)
Upon prior approval and certification of zoning
compliance by Zoning Administrator issued on
February 10, 1987 Building Permit No.
870254 in favor of petitioner for the
construction of a funeral parlor in the name
and style of Metropolitan Funeral Parlor at
Cabaguio Avenue, Agdao, Davao City.
Thereafter, petitioner commenced the
construction of his funeral parlor.
Acting on the complaint of several residents of
Barangay Agdao, Davao City that the
construction of petitioner's funeral parlor
violated Ordinance
No. 363, since it was allegedly situated within
a 50-meter radius from the Iglesia ni Kristo
Chapel and several residential structures, the
Sangguniang Panlungsod conducted an
investigation and found that "the nearest
residential structure, owned by Wilfred G.
Tepoot is only 8 inches to the south. . . . ."1
Notwithstanding the findings of the
Sangguniang Panlungsod, petitioner
continued to construct his funeral parlor which
was finished on November 3, 1987.
Consequently, private respondents filed on
September 6, 1988 a case for the declaration
of nullity of a building permit with preliminary
prohibitory and mandatory injunction and/or
restraining order with the trial court.2
After conducting its own ocular inspection on
March 30, 1989, the lower court, in its order
dated July 6, 1989, dismissed the complaint
based on the following findings:3
1. that the residential building
owned by Cribillo and Iglesia
ni Kristo chapel are 63.25
meters and 55.95 meters
away, respectively from the
funeral parlor.
2. Although the residential
building owned by certain
Mr. Tepoot is adjacent to the
134
 funeral parlor, and is only
separated therefrom by a
concrete fence, said
residential building is being
rented by a certain Mr. Asiaten
who actually devotes it to his
laundry business with
machinery thereon.
3. Private respondent's suit is
premature as they failed to
exhaust the administrative
remedies provided by
Ordinance No. 363.
Hence, private respondents appealed to the
Court of Appeals. (CA G.R. No. 23243).
In its decision dated November 29, 1991, the
Court of Appeals reversed the lower court by
annulling building permit No. 870254 issued in
favor of petitioner.4 It ruled that although the
buildings owned by Cribillo and Iglesia ni
Kristo were beyond the 50-meter residential
radius prohibited by Ordinance 363, the
construction of the funeral parlor was within
the 50-meter radius measured from the
Tepoot's building. The Appellate Court
disagreed with the lower court's determination
that Tepoot's building was commercial and
ruled that although it was used by Mr.
Tepoot's lessee for laundry business, it was a
residential lot as reflected in the tax
declaration, thus paving the way for the
application of Ordinance No. 363.
Hence, this appeal based on the following
grounds:
The Respondent Court of
Appeals erred in concluding
that the Tepoot building
adjacent to petitioner's funeral
parlor is residential simply
because it was allegedly
declared as such for taxation
purposes, in complete
disregard of Ordinance No.
363 (The Expanded Zoning
Ordinance of Davao City)
declaring the subject area as
Jeremiah 29:11
dominantly for commercial and
compatible industrial uses.
We reverse the Appellate Court and reinstate
the ruling of the lower court that petitioner did
not violate Section 8 of Davao City Ordinance
No. 363. It must be emphasized that the
question of whether Mr. Tepoot's building is
residential or not is a factual determination
which we should not disturb. As we have
repeatedly enunciated, the resolution of
factual issues is the function of the lower
courts where findings on these matters are
received with respect and are in fact binding
on this court, except only where the case is
shown as coming under the accepted
exceptions.5
Although the general rule is that factual
findings of the Court of Appeals are
conclusive on us, 6 this admits of exceptions
as when the findings or conclusions of the
Court of Appeals and the trial court are
contrary to each other.7 While the trial court
ruled that Tepoot's building was commercial,
the Appellate Court ruled otherwise. Thus we
see the necessity of reading and examining
the pleadings and transcripts submitted before
the trial court.
In the case at bar, the testimony of City
Councilor Vergara shows that Mr. Tepoot's
building was used for a dual purpose both as
a dwelling and as a place where a laundry
business was conducted.8 But while its
commercial aspect has been established by
the presence of machineries and laundry
paraphernalia, its use as a residence, other
than being declared for taxation purposes as
such, was not fully substantiated.
The reversal by the Court of Appeals of the
trial court's decision was based on Tepoot's
building being declared for taxation purposes
as residential. It is our considered view,
however, that a tax declaration is not
conclusive of the nature of the property for
zoning purposes. A property may have been
declared by its owner as residential for real
estate taxation purposes but it may well be
within a commercial zone. A discrepancy may
thus exist in the determination of the nature of
property for real estate taxation purposes vis-
135
a-vis the determination of a property for
zoning purposes.
Needless to say, even if we are to examine
the evidentiary value of a tax declaration
under the Real Property Tax Code, a tax
declaration only enables the assessor to
identify the same for assessment levels. In
fact, a tax declaration does not bind a
provincial/city assessor, for under Sec. 22 of
the Real Estate Tax Code,9 appraisal and
assessment are based on the actual use
irrespective of "any previous assessment or
taxpayer's valuation thereon," which is based
on a taxpayer's declaration. In fact, a piece of
land declared by a taxpayer as residential
may be assessed by the provincial or city
assessor as commercial because its actual
use is commercial.
fundamental aim of government, the rights of
the individual may be subordinated. The
ordinance which regulates the location of
funeral homes has been adopted as part of
comprehensive zoning plans for the orderly
development of the area covered thereunder.
WHEREFORE, the decision of the Court of
Appeals dated November 29, 1991 is hereby
REVERSED and the order dated July 6, 1989
of the Regional Trial Court of Davao City is
REINSTATED.
SO ORDERED.

The trial court's determination that Mr.

Tepoot's building is commercial and,
therefore, Sec. 8 is inapplicable, is
strengthened by the fact that the Sangguniang
Panlungsod has declared the questioned area
as commercial or
C-2. Consequently, even if Tepoot's building
was declared for taxation purposes as
residential, once a local government has
reclassified an area as commercial, that
determination for zoning purposes must
prevail. While the commercial character of the
questioned vicinity has been declared thru the
ordinance, private respondents have failed to
present convincing arguments to substantiate
their claim that Cabaguio Avenue, where the
funeral parlor was constructed, was still a
residential zone. Unquestionably, the
operation of a funeral parlor constitutes a
"commercial purpose," as gleaned from
Ordinance No. 363.

The declaration of the said area as a

commercial zone thru a municipal ordinance is
an exercise of police power to promote the
good order and general welfare of the people
in the locality. Corollary thereto, the state, in
order to promote the general welfare, may
interfere with personal liberty, with property,
and with business and occupations. 10Thus,
persons may be subjected to certain kinds of
restraints and burdens in order to secure the
general welfare of the state and to this

136
Jeremiah 29:11

Taganito Mining vs CIR (CTA case 4702)
See PDF copy
G.R. No. L-25043 April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and
ROXAS Y CIA., in their own respective
behalf and as judicial co-guardians of
JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL
REVENUE, respondents.
Leido, Andrada, Perez and Associates for
petitioners.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala,
Spanish subjects, transmitted to their
grandchildren by hereditary succession the
following properties:
(1) Agricultural lands with a total area
of 19,000 hectares, situated in the
municipality of Nasugbu, Batangas
province;
(2) A residential house and lot located
at Wright St., Malate, Manila; and
(3) Shares of stocks in different
corporations.
To manage the above-mentioned properties,
said children, namely, Antonio Roxas,
Eduardo Roxas and Jose Roxas, formed a
partnership called Roxas y Compania.
AGRICULTURAL LANDS
Jeremiah 29:11
At the conclusion of the Second World War,
the tenants who have all been tilling the lands
in Nasugbu for generations expressed their
desire to purchase from Roxas y Cia. the
parcels which they actually occupied. For its
part, the Government, in consonance with the
constitutional mandate to acquire big landed
estates and apportion them among landless
tenants-farmers, persuaded the Roxas
brothers to part with their landholdings.
Conferences were held with the farmers in the
early part of 1948 and finally the Roxas
brothers agreed to sell 13,500 hectares to the
Government for distribution to actual
occupants for a price of P2,079,048.47 plus
P300,000.00 for survey and subdivision
expenses.
It turned out however that the Government did
not have funds to cover the purchase price,
and so a special arrangement was made for
the Rehabilitation Finance Corporation to
advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such
loan were the lands proposed to be sold to the
farmers. Under the arrangement, Roxas y Cia.
allowed the farmers to buy the lands for the
same price but by installment, and contracted
with the Rehabilitation Finance Corporation to
pay its loan from the proceeds of the yearly
amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from
said installment payments a net gain of
P42,480.83 and P29,500.71. Fifty percent of
said net gain was reported for income tax
purposes as gain on the sale of capital asset
held for more than one year pursuant to
Section 34 of the Tax Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers
lived in the residential house at Wright St.,
Malate, Manila, which they inherited from their
grandparents. After Antonio and Eduardo got
married, they resided somewhere else leaving
only Jose in the old house. In fairness to his
brothers, Jose paid to Roxas y Cia. rentals for
the house in the sum of P8,000.00 a year.
ASSESSMENTS
137
On June 17, 1958, the Commissioner of ROXAS Y CIA.:
Internal Revenue demanded from Roxas y Cia
the payment of real estate dealer's tax for 1953
1952 in the amount of P150.00 plus P10.00
compromise penalty for late payment, and Tickets for Banquet in honor of P
P150.00 tax for dealers of securities for 1952 S. Osmeña 40.00
plus P10.00 compromise penalty for late
payment. The assessment for real estate Gifts of San Miguel beer 28.00
dealer's tax was based on the fact that Roxas Contributions to —
y Cia. received house rentals from Jose
Roxas in the amount of P8,000.00. Pursuant Philippine Air Force Chapel
to Sec. 194 of the Tax Code, an owner of a 100.00
real estate who derives a yearly rental income Manila Police Trust Fund 150.00
therefrom in the amount of P3,000.00 or more
is considered a real estate dealer and is liable
Philippines Herald's fund for Manila's
to pay the corresponding fixed tax.
neediest families 100.00
The Commissioner of Internal Revenue
1955
justified his demand for the fixed tax on
dealers of securities against Roxas y Cia., on Contributions to Contribution to
the fact that said partnership made profits Our Lady of Fatima Chapel,
from the purchase and sale of securities. FEU 50.00

In the same assessment, the Commissioner ANTONIO ROXAS:

assessed deficiency income taxes against the
1953
Roxas Brothers for the years 1953 and 1955,
as follows: Contributions to —

1953 1955 Pasay City Firemen Christmas Fund 25.00

Antonio Roxas P7,010.00 P5,813.00
Pasay City Police Dept. X'mas fund 50.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00 1955

The deficiency income taxes resulted from the Contributions to —

inclusion as income of Roxas y Cia. of the Baguio City Police Christmas fund
unreported 50% of the net profits for 1953 and 25.00
1955 derived from the sale of the Nasugbu
farm lands to the tenants, and the Pasay City Firemen Christmas fund 25.00
disallowance of deductions from gross income
of various business expenses and Pasay City Police Christmas fund 50.00
contributions claimed by Roxas y Cia. and the
Roxas brothers. For the reason that Roxas y EDUARDO ROXAS:
Cia. subdivided its Nasugbu farm lands and
sold them to the farmers on installment, the 1953
Commissioner considered the partnership as Contributions to —
engaged in the business of real estate, hence,
100% of the profits derived therefrom was Hijas de Jesus' Retiro de Manresa 450.00
taxed.
Philippines Herald's fund for Manila's
The following deductions were disallowed: neediest families 100.00

138
Jeremiah 29:11
 1955
Contributions to Philippines
Herald's fund for Manila's
neediest families
JOSE ROXAS:
1955
Contributions to Philippines
Herald's fund for Manila's
neediest families
The Roxas brothers protested the assessment
but inasmuch as said protest was denied, they
instituted an appeal in the Court of Tax
Appeals on January 9, 1961. The Tax Court
heard the appeal and rendered judgment on
July 31, 1965 sustaining the assessment
except the demand for the payment of the
fixed tax on dealer of securities and the
disallowance of the deductions for
contributions to the Philippine Air Force
Chapel and Hijas de Jesus' Retiro de
Manresa. The Tax Court's judgment reads:
WHEREFORE, the decision appealed
from is hereby affirmed with respect to
petitioners Antonio Roxas, Eduardo
Roxas, and Jose Roxas who are
hereby ordered to pay the respondent
Commissioner of Internal Revenue the
amounts of P12,808.00, P12,887.00
and P11,857.00, respectively, as
deficiency income taxes for the years
1953 and 1955, plus 5% surcharge
and 1% monthly interest as provided
for in Sec. 51(a) of the Revenue Code;
and modified with respect to the
partnership Roxas y Cia. in the sense
that it should pay only P150.00, as
real estate dealer's tax. With costs
against petitioners.
Not satisfied, Roxas y Cia. and the Roxas
brothers appealed to this Court. The
Commissioner of Internal Revenue did not
appeal.
The issues:
Jeremiah 29:11
(1) Is the gain derived from the sale of
the Nasugbu farm lands an ordinary
gain, hence 100% taxable?
120.00
(2) Are the deductions for business
expenses and contributions
deductible?
(3) Is Roxas y Cia. liable for the
payment of the fixed tax on real estate
dealers?
120.00
The Commissioner of Internal Revenue
contends that Roxas y Cia. could be
considered a real estate dealer because it
engaged in the business of selling real estate.
The business activity alluded to was the act of
subdividing the Nasugbu farm lands and
selling them to the farmers-occupants on
installment. To bolster his stand on the point,
he cites one of the purposes of Roxas y Cia.
as contained in its articles of partnership,
quoted below:
4. (a) La explotacion de fincas
urbanes pertenecientes a la misma o
que pueden pertenecer a ella en el
futuro, alquilandoles por los plazos y
demas condiciones, estime
convenientes y vendiendo aquellas
que a juicio de sus gerentes no deben
conservarse;
The above-quoted purpose notwithstanding,
the proposition of the Commissioner of
Internal Revenue cannot be favorably
accepted by Us in this isolated transaction
with its peculiar circumstances in spite of the
fact that there were hundreds of vendees.
Although they paid for their respective
holdings in installment for a period of ten
years, it would nevertheless not make the
vendor Roxas y Cia. a real estate dealer
during the ten-year amortization period.
It should be borne in mind that the sale of the
Nasugbu farm lands to the very farmers who
tilled them for generations was not only in
consonance with, but more in obedience to
the request and pursuant to the policy of our
Government to allocate lands to the landless.
It was the bounden duty of the Government to
139
pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas,
and to subsequently subdivide them among
the farmers at very reasonable terms and
prices. However, the Government could not
comply with its duty for lack of funds.
Obligingly, Roxas y Cia. shouldered the
Government's burden, went out of its way and
sold lands directly to the farmers in the same
way and under the same terms as would have
been the case had the Government done it
itself. For this magnanimous act, the municipal
council of Nasugbu passed a resolution
expressing the people's gratitude.
The power of taxation is sometimes called
also the power to destroy. Therefore it should
be exercised with caution to minimize injury to
the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden
egg". And, in order to maintain the general
public's trust and confidence in the
Government this power must be used justly
and not treacherously. It does not conform
with Our sense of justice in the instant case
for the Government to persuade the taxpayer
to lend it a helping hand and later on to
penalize him for duly answering the urgent
call.
In fine, Roxas y Cia. cannot be considered a
real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax
Code the lands sold to the farmers are capital
assets, and the gain derived from the sale
thereof is capital gain, taxable only to the
extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income
the amount of P40.00 for tickets to a banquet
given in honor of Sergio Osmena and P28.00
for San Miguel beer given as gifts to various
persons. The deduction were claimed as
representation expenses. Representation
expenses are deductible from gross income
as expenditures incurred in carrying on a
trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that
they are reasonable in amount, ordinary and
necessary, and incurred in connection with his
Jeremiah 29:11
business. In the case at bar, the evidence
does not show such link between the
expenses and the business of Roxas y Cia.
The findings of the Court of Tax Appeals must
therefore be sustained.
The petitioners also claim deductions for
contributions to the Pasay City Police, Pasay
City Firemen, and Baguio City Police
Christmas funds, Manila Police Trust Fund,
Philippines Herald's fund for Manila's neediest
families and Our Lady of Fatima chapel at Far
Eastern University.
The contributions to the Christmas funds of
the Pasay City Police, Pasay City Firemen
and Baguio City Police are not deductible for
the reason that the Christmas funds were not
spent for public purposes but as Christmas
gifts to the families of the members of said
entities. Under Section 39(h), a contribution to
a government entity is deductible when used
exclusively for public purposes. For this
reason, the disallowance must be sustained.
On the other hand, the contribution to the
Manila Police trust fund is an allowable
deduction for said trust fund belongs to the
Manila Police, a government entity, intended
to be used exclusively for its public functions.
The contributions to the Philippines Herald's
fund for Manila's neediest families were
disallowed on the ground that the Philippines
Herald is not a corporation or an association
contemplated in Section 30 (h) of the Tax
Code. It should be noted however that the
contributions were not made to the Philippines
Herald but to a group of civic spirited citizens
organized by the Philippines Herald solely for
charitable purposes. There is no question that
the members of this group of citizens do not
receive profits, for all the funds they raised
were for Manila's neediest families. Such a
group of citizens may be classified as an
association organized exclusively for
charitable purposes mentioned in Section
30(h) of the Tax Code.
Rightly, the Commissioner of Internal
Revenue disallowed the contribution to Our
Lady of Fatima chapel at the Far Eastern
University on the ground that the said
university gives dividends to its stockholders.
140
Located within the premises of the university, Less amount declared 146,135.46
the chapel in question has not been shown to
belong to the Catholic Church or any religious
Amount understated P 7,113.69
organization. On the other hand, the lower
court found that it belongs to the Far Eastern Contributions disallowed 115.00
University, contributions to which are not
deductible under Section 30(h) of the Tax
P 7,228.69
Code for the reason that the net income of
said university injures to the benefit of its Less 1/3 share of contributions amounting to
stockholders. The disallowance should be P21,126.06 disallowed from partnership but allowed
to partners 7,042.02
sustained.

Lastly, Roxas y Cia. questions the imposition Net income per review
of the real estate dealer's fixed tax upon it,
because although it earned a rental income of Less: Exemptions
P8,000.00 per annum in 1952, said rental
income came from Jose Roxas, one of the
partners. Section 194 of the Tax Code, in Net taxable income
considering as real estate dealers owners of Tax due 154,169.00
real estate receiving rentals of at least
P3,000.00 a year, does not provide any Tax paid 154,060.00
qualification as to the persons paying the
rentals. The law, which states: 1äw phï1.ñët

Deficiency P 109.00
==========
. . . "Real estate dealer" includes any
EDUARDO ROXAS
person engaged in the business of
buying, selling, exchanging, leasing or
renting property on his own account Net income per return
as principal and holding himself out as
a full or part-time dealer in real estate Add: 1/3 share, profits in Roxas y Cia P 153,249.15
or as an owner of rental property or
properties rented or offered to rent for Less profits declared 146,052.58
an aggregate amount of three
thousand pesos or more a year: . . . Amount understated P 7,196.57
(Emphasis supplied) .
Less 1/3 share in contributions amounting to
P21,126.06 disallowed from partnership but allowed
is too clear and explicit to admit construction. to partners 7,042.02
The findings of the Court of Tax Appeals or,
this point is sustained. 1äwphï1.ñët

Net income per review

To Summarize, no deficiency income tax is Less: Exemptions

due for 1953 from Antonio Roxas, Eduardo
Roxas and Jose Roxas. For 1955 they are
liable to pay deficiency income tax in the sum Net taxable income
of P109.00, P91.00 and P49.00, respectively,
Tax Due P147,250.00
computed as follows: *
Tax paid 147,159.00
ANTONIO ROXAS
Deficiency P91.00
Net income per return P315,476.59 ===========
Add: 1/3 share, profits in Roxas y Cia. P 153,249.15 JOSE ROXAS

141
Jeremiah 29:11
 Net income per return P222,681.76
Add: 1/3 share, profits in Roxas y Cia. P153,429.15

Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions disallowed from

partnership but allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00

Tax paid 102,714.00

Deficiency P 49.00
===========

WHEREFORE, the decision appealed from is

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

142
Jeremiah 29:11
 INSTITUTE, in
representation of various
taxpayers and as non-
governmental
organizations, petitioners,
vs. EDGARDO ANGARA,
[G.R. No. 118295. May 2, 1997] ALBERTO ROMULO,
LETICIA RAMOS-
SHAHANI, HEHERSON
WIGBERTO E. TAADA and ANNA ALVAREZ, AGAPITO
DOMINIQUE COSETENG, AQUINO, RODOLFO
as members of the BIAZON, NEPTALI
Philippine Senate and as GONZALES, ERNESTO
taxpayers; GREGORIO HERRERA, JOSE LINA,
ANDOLANA and JOKER GLORIA MACAPAGAL-
ARROYO as members of ARROYO, ORLANDO
the House of MERCADO, BLAS OPLE,
Representatives and as JOHN OSMEA,
taxpayers; NICANOR P. SANTANINA RASUL,
PERLAS and HORACIO R. RAMON REVILLA, RAUL
MORALES, both as ROCO, FRANCISCO
taxpayers; CIVIL TATAD and FREDDIE
LIBERTIES UNION, WEBB, in their respective
NATIONAL ECONOMIC capacities as members of
PROTECTIONISM the Philippine Senate who
ASSOCIATION, CENTER concurred in the
FOR ALTERNATIVE ratification by the
DEVELOPMENT President of the
INITIATIVES, LIKAS- Philippines of the
KAYANG KAUNLARAN Agreement Establishing
FOUNDATION, INC., the World Trade
PHILIPPINE RURAL Organization; SALVADOR
RECONSTRUCTION ENRIQUEZ, in his capacity
MOVEMENT, as Secretary of Budget and
DEMOKRATIKONG Management; CARIDAD
KILUSAN NG VALDEHUESA, in her
MAGBUBUKID NG capacity as National
PILIPINAS, INC., and Treasurer; RIZALINO
PHILIPPINE PEASANT NAVARRO, in his capacity
as Secretary of Trade and
143
Jeremiah 29:11
 Industry; ROBERTO industries in a market-driven and
SEBASTIAN, in his export-oriented global scenario are
capacity as Secretary of replacing age-old beggar-thy-
Agriculture; ROBERTO DE neighbor policies that unilaterally
OCAMPO, in his capacity protect weak and inefficient
as Secretary of Finance; domestic producers of goods and
ROBERTO ROMULO, in his services. In the words of Peter
capacity as Secretary of Drucker, the well-known
Foreign Affairs; and management guru, Increased
TEOFISTO T. GUINGONA, participation in the world economy
in his capacity as has become the key to domestic
economic growth and prosperity.
Executive
Secretary, respondents.
Brief Historical Background
DECISION
PANGANIBAN, J.:
To hasten worldwide recovery
The emergence on January 1, from the devastation wrought by the
1995 of the World Trade Second World War, plans for the
Organization, abetted by the establishment of three multilateral
membership thereto of the vast institutions -- inspired by that grand
majority of countries has political body, the United Nations --
revolutionized international business were discussed at Dumbarton Oaks
and economic relations amongst and Bretton Woods. The first was
states. It has irreversibly propelled the World Bank (WB) which was to
the world towards trade liberalization address the rehabilitation and
and economic reconstruction of war-ravaged and
globalization. Liberalization, later developing countries;
globalization, deregulation and the second, the International
privatization, the third-millennium Monetary Fund (IMF) which was to
buzz words, are ushering in a new deal with currency problems; and the
borderless world of business by third, the International Trade
sweeping away as mere historical Organization (ITO), which was to
relics the heretofore traditional foster order and predictability in
modes of promoting and protecting world trade and to minimize
national economies like tariffs, unilateral protectionist policies that
export subsidies, import quotas, invite challenge, even retaliation,
quantitative restrictions, tax from other states. However, for a
exemptions and currency variety of reasons, including its non-
controls. Finding market niches and ratification by the United States, the
becoming the best in specific ITO, unlike the IMF and WB, never

144
Jeremiah 29:11
took off. What remained was only
GATT -- the General Agreement on
Tariffs and Trade. GATT was a
collection of treaties governing
access to the economies of treaty
adherents with no institutionalized
body administering the agreements
or dependable system of dispute
settlement.
After half a century and several
dizzying rounds of negotiations,
principally the Kennedy Round, the
Tokyo Round and the Uruguay
Round, the world finally gave birth to
that administering body -- the World
Trade Organization -- with the
signing of the Final Act in
Marrakesh, Morocco and the
ratification of the WTO Agreement
by its members. [1]
Like many other developing
countries, the Philippines joined
WTO as a founding member with the
goal, as articulated by President
Fidel V. Ramos in two letters to the
Senate (infra), of improving
Philippine access to foreign markets,
especially its major trading partners,
through the reduction of tariffs on its
exports, particularly agricultural and
industrial products. The
President also saw in the WTO the
opening of new opportunities for the
services sector x x x, (the reduction
of) costs and uncertainty associated
with exporting x x x, and (the
attraction of) more investments into
the country. Although the Chief
Executive did not expressly mention
it in his letter, the Philippines - - and
Jeremiah 29:11
this is of special interest to the legal
profession - - will benefit from the
WTO system of dispute settlement
by judicial adjudication through the
independent WTO settlement
bodies called (1) Dispute Settlement
Panels and (2) Appellate
Tribunal.Heretofore, trade disputes
were settled mainly through
negotiations where solutions were
arrived at frequently on the basis of
relative bargaining strengths, and
where naturally, weak and
underdeveloped countries were at a
disadvantage.
The Petition in Brief
Arguing mainly (1) that the
WTO requires the Philippines to
place nationals and products of
member-countries on the same
footing as Filipinos and local
products and (2) that the WTO
intrudes, limits and/or impairs the
constitutional powers of both
Congress and the Supreme Court,
the instant petition before this Court
assails the WTO Agreement for
violating the mandate of the 1987
Constitution to develop a self-reliant
and independent national economy
effectively controlled by Filipinos x x
x (to) give preference to qualified
Filipinos (and to) promote the
preferential use of Filipino labor,
domestic materials and locally
produced goods.
Simply stated, does the
Philippine Constitution prohibit
145
Philippine participation in worldwide
trade liberalization and economic
globalization? Does it prescribe
Philippine integration into a global
economy that is liberalized,
deregulated and privatized? These
are the main questions raised in this
petition for certiorari, prohibition
and mandamus under Rule 65 of the
Rules of Court praying (1) for the
nullification, on constitutional
grounds, of the concurrence of the
Philippine Senate in the ratification
by the President of the Philippines of
the Agreement Establishing the
World Trade Organization (WTO
Agreement, for brevity) and (2) for
the prohibition of its implementation
and enforcement through the
release and utilization of public
funds, the assignment of public
officials and employees, as well as
the use of government properties
and resources by respondent-heads
of various executive offices
concerned therewith. This
concurrence is embodied in Senate
Resolution No. 97, dated December
14, 1994.
The Facts
On April 15, 1994, Respondent
Rizalino Navarro, then Secretary of
the Department of Trade and Indust
ry (Secretary Navarro, for brevity),
representing the Government of the
Republic of the Philippines, signed in
Marrakesh, Morocco, the Final Act
Embodying the Results of the
Jeremiah 29:11
Uruguay Round of Multilateral
Negotiations (Final Act, for brevity).
By signing the Final
Act, Secretary Navarro on behalf of
[2]
the Republic of the Philippines,
agreed:
(a) to submit, as appropriate, the WTO
Agreement for the consideration of
their respective competent authorities,
with a view to seeking approval of the
Agreement in accordance with their
procedures; and
(b) to adopt the Ministerial
Declarations and Decisions.
On August 12, 1994, the
members of the Philippine Senate
received a letter dated August 11,
1994 from the President of the
Philippines, stating among others
[3]
that the Uruguay Round Final Act is
hereby submitted to the Senate for
its concurrence pursuant to Section
21, Article VII of the Constitution.
On August 13, 1994, the
members of the Philippine Senate
received another letter from the
President of the
Philippines likewise dated August
[4]
11, 1994, which stated among
others that the Uruguay Round Final
Act, the Agreement Establishing the
World Trade Organization, the
Ministerial Declarations and
Decisions, and the Understanding
on Commitments in Financial
Services are hereby submitted to the
Senate for its concurrence pursuant
146
to Section 21, Article VII of the Agreement on
Constitution. Agriculture
On December 9, 1994, the Agreement on the
President of the Philippines certified Application of
the necessity of the immediate Sanitary and
adoption of P.S. 1083, a resolution
entitled Concurring in the Phytosanitary
Ratification of the Agreement Measures
Establishing the World Trade
Organization. [5]
Agreement on
On December 14, 1994, the Textiles and
Philippine Senate adopted Clothing
Resolution No. 97 which Resolved,
as it is hereby resolved, that the Agreement on
Senate concur, as it hereby concurs, Technical
in the ratification by the President of Barriers to
the Philippines of the Agreement Trade
Establishing the World Trade
Agreement on
Organization. The text of the WTO
[6]

Agreement is written on pages Trade-Related

137 et seq. of Volume I of the 36- Investment
volume Uruguay Round of Measures
Multilateral Trade Negotiations and
Agreement on
includes various agreements and
Implementation
associated legal instruments
of Article VI of
(identified in the said Agreement as
the General
Annexes 1, 2 and 3 thereto and
Agreement on
collectively referred to as Multilateral
Tariffs and
Trade Agreements, for brevity) as
Trade 1994
follows:
Agreement on
ANNEX 1
Implementation
Annex 1A: Multilateral Agreement on of Article VII
Trade in Goods of the General
on Tariffs and
General Agreement Trade 1994
on Tariffs and
Trade 1994 Agreement on Pre-
Shipment
Inspection

147
Jeremiah 29:11
 Agreement on Rules NOW THEREFORE, be it known that
of Origin I, FIDEL V. RAMOS, President of the
Republic of the Philippines, after
Agreement on having seen and considered the
Imports aforementioned Agreement
Licensing Establishing the World Trade
Procedures Organization and the agreements and
associated legal instruments included in
Agreement on Annexes one (1), two (2) and three (3)
Subsidies and of that Agreement which are integral
Coordinating parts thereof, signed at Marrakesh,
Measures Morocco on 15 April 1994, do hereby
ratify and confirm the same and every
Agreement on Article and Clause thereof.
Safeguards
To emphasize, the WTO
Annex 1B: General Agreement on Agreement ratified by the President
Trade in Services and Annexes of the Philippines is composed of the
Agreement Proper and the
Annex 1C: Agreement on Trade- associated legal instruments
Related Aspects of Intellectual Property included in Annexes one (1), two (2)
Rights and three (3) of that Agreement
which are integral parts thereof.
ANNEX 2
On the other hand, the Final Act
Understanding on signed by Secretary Navarro
Rules and embodies not only the WTO
Procedures Agreement (and its integral annexes
Governing the aforementioned) but also (1) the
Settlement of Ministerial Declarations and
Disputes Decisions and (2) the Understanding
on Commitments in Financial
ANNEX 3 Services. In his Memorandum dated
May 13, 1996, the Solicitor General
[8]

Trade Policy Review describes these two latter

Mechanism documents as follows:
On December 16, 1994, the The Ministerial Decisions and
President of the Philippines Declarations are twenty-five
signed the
[7]
Instrument of declarations and decisions on a wide
Ratification, declaring: range of matters, such as measures in
favor of least developed countries,

148
Jeremiah 29:11
notification procedures, relationship of
WTO with the International Monetary
Fund (IMF), and agreements on
technical barriers to trade and on
dispute settlement.
The Understanding on Commitments in
Financial Services dwell on, among
other things, standstill or limitations
and qualifications of commitments to
existing non-conforming measures,
market access, national treatment, and
definitions of non-resident supplier of
financial services, commercial presence
and new financial service.
On December 29, 1994, the
present petition was filed. After
careful deliberation on respondents
comment and petitioners reply
thereto, the Court resolved on
December 12, 1995, to give due
course to the petition, and the
parties thereafter filed their
respective memoranda. The Court
also requested the Honorable Lilia
R. Bautista, the Philippine
Ambassador to the United Nations
stationed in Geneva, Switzerland, to
submit a paper, hereafter referred to
as Bautista Paper, for brevity, (1)
[9]
providing a historical background of
and (2) summarizing the said
agreements.
During the Oral Argument held
on August 27, 1996, the Court
directed:
(a) the petitioners to submit the (1)
Senate Committee Report on the matter
Jeremiah 29:11
in controversy and (2) the transcript of
proceedings/hearings in the Senate; and
(b) the Solicitor General, as counsel for
respondents, to file (1) a list of
Philippine treaties signed prior to the
Philippine adherence to the WTO
Agreement, which derogate from
Philippine sovereignty and (2) copies
of the multi-volume WTO Agreement
and other documents mentioned in the
Final Act, as soon as possible.
After receipt of the foregoing
documents, the Court said it would
consider the case submitted for
resolution. In a Compliance dated
September 16, 1996, the Solicitor
General submitted a printed copy of
the 36-volume Uruguay Round of
Multilateral Trade Negotiations, and
in another Compliance dated
October 24, 1996, he listed the
various bilateral or multilateral
treaties or international instruments
involving derogation of Philippine
sovereignty. Petitioners, on the
other hand, submitted their
Compliance dated January 28,
1997, on January 30, 1997.
The Issues
In their Memorandum dated
March 11, 1996, petitioners
summarized the issues as follows:
A. Whether the petition presents a
political question or is otherwise not
justiciable.
149
 B. Whether the petitioner members
of the Senate who participated
in the deliberations and voting
leading to the concurrence are
estopped from impugning the
validity of the Agreement
Establishing the World Trade
Organization or of the validity
of the concurrence.
C. Whether the provisions of the
Agreement Establishing the
World Trade Organization
contravene the provisions of
Sec. 19, Article II, and Secs. 10
and 12, Article XII, all of the
1987 Philippine Constitution.
D. Whether provisions of the
Agreement Establishing the
World Trade Organization
unduly limit, restrict and impair
Philippine sovereignty
specifically the legislative
power which, under Sec. 2,
Article VI, 1987 Philippine
Constitution is vested in the
Congress of the Philippines;
E. Whether provisions of the
Agreement Establishing the
World Trade Organization
interfere with the exercise of
judicial power.
F. Whether the respondent
members of the Senate acted in
grave abuse of discretion
amounting to lack or excess of
jurisdiction when they voted for
concurrence in the ratification
of the constitutionally-infirm
Jeremiah 29:11
Agreement Establishing the
World Trade Organization.
G. Whether the respondent
members of the Senate acted in
grave abuse of discretion
amounting to lack or excess of
jurisdiction when they
concurred only in the
ratification of the Agreement
Establishing the World Trade
Organization, and not with the
Presidential submission which
included the Final Act,
Ministerial Declaration and
Decisions, and the
Understanding on
Commitments in Financial
Services.
On the other hand, the Solicitor
General as counsel for respondents
synthesized the several issues
raised by petitioners into the
following:[10]
1. Whether or not the provisions of the
Agreement Establishing the World
Trade Organization and the
Agreements and Associated Legal
Instruments included in Annexes one
(1), two (2) and three (3) of that
agreement cited by petitioners directly
contravene or undermine the letter,
spirit and intent of Section 19, Article
II and Sections 10 and 12, Article XII
of the 1987 Constitution.
2. Whether or not certain provisions of
the Agreement unduly limit, restrict or
impair the exercise of legislative power
by Congress.
150
3. Whether or not certain provisions of
the Agreement impair the exercise of
judicial power by this Honorable Court
in promulgating the rules of evidence.
4. Whether or not the concurrence of
the Senate in the ratification by the
President of the Philippines of the
Agreement establishing the World
Trade Organization implied rejection of
the treaty embodied in the Final Act.
By raising and arguing only four
issues against the seven presented
by petitioners, the Solicitor General
has effectively ignored three,
namely: (1) whether the petition
presents a political question or is
otherwise not justiciable; (2) whether
petitioner-members of the Senate
(Wigberto E. Taada and Anna
Dominique Coseteng) are estopped
from joining this suit; and (3) whether
the respondent-members of the
Senate acted in grave abuse of
discretion when they voted for
concurrence in the ratification of the
WTO Agreement. The foregoing
notwithstanding, this Court resolved
to deal with these three issues thus:
(1) The political question issue -- being
very fundamental and vital, and being a
matter that probes into the very
jurisdiction of this Court to hear and
decide this case -- was deliberated upon
by the Court and will thus be ruled
upon as the first issue;
(2) The matter of estoppel will not be
taken up because this defense is
waivable and the respondents have
Jeremiah 29:11
effectively waived it by not pursuing it
in any of their pleadings; in any event,
this issue, even if ruled in respondents
favor, will not cause the petitions
dismissal as there are petitioners other
than the two senators, who are not
vulnerable to the defense of estoppel;
and
(3) The issue of alleged grave abuse of
discretion on the part of the respondent
senators will be taken up as an integral
part of the disposition of the four issues
raised by the Solicitor General.
During its deliberations on the
case, the Court noted that the
respondents did not question
the locus standi of
petitioners. Hence, they are also
deemed to have waived the benefit
of such issue. They probably
realized that grave constitutional
issues, expenditures of public funds
and serious international
commitments of the nation are
involved here, and that
transcendental public interest
requires that the substantive issues
be met head on and decided on the
merits, rather than skirted or
deflected by procedural matters. [11]
To recapitulate, the issues that
will be ruled upon shortly are:
(1) DOES THE PETITION
PRESENT A JUSTICIABLE
CONTROVERSY? OTHERWI
SE STATED, DOES THE
PETITION INVOLVE A
POLITICAL QUESTION OVER
WHICH THIS COURT HAS
NO JURISDICTION?
151
 (2) DO THE PROVISIONS OF THE
WTO AGREEMENT AND ITS
THREE ANNEXES
CONTRAVENE SEC. 19,
ARTICLE II, AND SECS. 10
AND 12, ARTICLE XII, OF
THE PHILIPPINE
CONSTITUTION?
(3) DO THE PROVISIONS OF
SAID AGREEMENT AND ITS
alleged to have infringed the
Constitution, it becomes not only the
right but in fact the duty of the
judiciary to settle the dispute. The
question thus posed is judicial rather
than political. The duty (to
adjudicate) remains to assure that
the supremacy of the Constitution is
upheld. Once a controversy as to
[12]

ANNEXES LIMIT, RESTRICT,

OR IMPAIR THE EXERCISE the application or interpretation of a
OF LEGISLATIVE POWER BY constitutional provision is raised
CONGRESS? before this Court (as in the instant
(4) DO SAID PROVISIONS case), it becomes a legal issue
UNDULY IMPAIR OR which the Court is bound by
INTERFERE WITH THE constitutional mandate to decide. [13]

EXERCISE OF JUDICIAL
POWER BY THIS COURT IN The jurisdiction of this Court to
PROMULGATING RULES ON adjudicate the matters raised in the
[14]

EVIDENCE?
petition is clearly set out in the 1987
(5) WAS THE CONCURRENCE OF Constitution, as follows:
[15]

THE SENATE IN THE WTO

AGREEMENT AND ITS
Judicial power includes the duty of the
ANNEXES SUFFICIENT
AND/OR VALID, courts of justice to settle actual
CONSIDERING THAT IT DID controversies involving rights which
NOT INCLUDE THE FINAL are legally demandable and
ACT, MINISTERIAL enforceable, and to determine whether
DECLARATIONS AND
DECISIONS, AND THE or not there has been a grave abuse of
UNDERSTANDING ON discretion amounting to lack or excess
COMMITMENTS IN of jurisdiction on the part of any branch
FINANCIAL SERVICES? or instrumentality of the government.

The foregoing text emphasizes

The First Issue: Does the Court
Have Jurisdiction Over the
Controversy?
In seeking to nullify an act of the
Philippine Senate on the ground that
the judicial departments duty and
power to strike down grave abuse of
discretion on the part of any branch
or instrumentality of government
including Congress. It is an
innovation in our political law. As [16]

it contravenes the Constitution, the explained by former Chief Justice

petition no doubt raises a justiciable Roberto Concepcion, the judiciary
[17]

controversy. Where an action of the is the final arbiter on the question of

legislative branch is seriously whether or not a branch of

152
Jeremiah 29:11
government or any of its officials has
acted without jurisdiction or in
excess of jurisdiction or so
capriciously as to constitute an
abuse of discretion amounting to
excess of jurisdiction. This is not
only a judicial power but a duty to
pass judgment on matters of this
nature.
As this Court has repeatedly and
firmly emphasized in many
cases, it will not shirk, digress from
[18]
or abandon its sacred duty and
authority to uphold the Constitution
in matters that involve grave abuse
of discretion brought before it in
appropriate cases, committed by
any officer, agency, instrumentality
or department of the government.
As the petition alleges grave
abuse of discretion and as there is
no other plain, speedy or adequate
remedy in the ordinary course of law,
we have no hesitation at all in
holding that this petition should be
given due course and the vital
questions raised therein ruled upon
under Rule 65 of the Rules of
Court. Indeed, certiorari, prohibition
and mandamus are appropriate
remedies to raise constitutional
issues and to review and/or
prohibit/nullify, when proper, acts of
legislative and executive
officials. On this, we have no
equivocation.
We should stress that, in
deciding to take jurisdiction over this
petition, this Court will not review
the wisdom of the decision of the
Jeremiah 29:11
President and the Senate in enlisting
the country into the WTO, or pass
upon the merits of trade
liberalization as a policy espoused
by said international body. Neither
will it rule on the propriety of the
governments economic policy of
reducing/removing tariffs, taxes,
subsidies, quantitative restrictions,
and other import/trade
barriers. Rather, it will only exercise
its constitutional duty to determine
whether or not there had been a
grave abuse of discretion amounting
to lack or excess of jurisdiction on
the part of the Senate in ratifying the
WTO Agreement and its three
annexes.
Second Issue: The WTO
Agreement and Economic
Nationalism
This is the lis mota, the main
issue, raised by the petition.
Petitioners vigorously argue that
the letter, spirit and intent of the
Constitution mandating economic
nationalism are violated by the so-
called parity provisions and national
treatment clauses scattered in
various parts not only of the WTO
Agreement and its annexes but also
in the Ministerial Decisions and
Declarations and in the
Understanding on Commitments in
Financial Services.
Specifically, the flagship
constitutional provisions referred to
153
are Sec. 19, Article II, and Secs. 10
and 12, Article XII, of the
Constitution, which are worded as
follows:
Article II
DECLARATION OF PRINCIPLES
AND STATE POLICIES
xx xx xx xx
Sec. 19. The State shall develop a self-
reliant and independent national
economy effectively controlled by
Filipinos.
xx xx xx xx
Article XII
NATIONAL ECONOMY AND
PATRIMONY
xx xx xx xx
Sec. 10. x x x. The Congress shall enact
measures that will encourage the
formation and operation of enterprises
whose capital is wholly owned by
Filipinos.
In the grant of rights, privileges, and
concessions covering the national
economy and patrimony, the State shall
give preference to qualified Filipinos.
xx xx xx xx
Sec. 12. The State shall promote the
preferential use of Filipino labor,
domestic materials and locally
Jeremiah 29:11
produced goods, and adopt measures
that help make them competitive.
Petitioners aver that these
sacred constitutional principles are
desecrated by the following WTO
provisions quoted in their
memorandum: [19]
a) In the area of investment measures
related to trade in goods (TRIMS,
for brevity):
Article 2
National Treatment and Quantitative
Restrictions.
1. Without prejudice to other
rights and obligations under
GATT 1994. no Member
shall apply any TRIM that is
inconsistent with the
provisions of Article III or
Article XI of GATT 1994.
2. An Illustrative list of TRIMS
that are inconsistent with the
obligations of general
elimination of quantitative
restrictions provided for in
paragraph I of Article XI of
GATT 1994 is contained in
the Annex to this
Agreement. (Agreement on
Trade-Related Investment
Measures, Vol. 27, Uruguay
Round, Legal Instruments,
p.22121, emphasis supplied).
The Annex referred to reads as
follows:
154
 ANNEX
Illustrative List
1. TRIMS that are inconsistent
with the obligation of national
treatment provided for in
paragraph 4 of Article III of
GATT 1994 include those
which are mandatory or
enforceable under domestic law
or under administrative
rulings, or compliance with
which is necessary to obtain an
advantage, and which require:
(a) the purchase or use by an
enterprise of products of
domestic origin or from any
domestic source, whether
specified in terms of
particular products, in terms
of volume or value of
products, or in terms of
proportion of volume or
value of its local
production; or
(b) that an enterprises
purchases or use of
imported products be
limited to an amount related
to the volume or value of
local products that it
exports.
2. TRIMS that are inconsistent with
the obligations of general
elimination of quantitative
restrictions provided for in
paragraph 1 of Article XI of
GATT 1994 include those which
Jeremiah 29:11
are mandatory or enforceable
under domestic laws or under
administrative rulings, or
compliance with which is
necessary to obtain an
advantage, and which restrict:
(a) the importation by an
enterprise of products used
in or related to the local
production that it exports;
(b) the importation by an
enterprise of products used
in or related to its local
production by restricting its
access to foreign exchange
inflows attributable to the
enterprise; or
(c) the exportation or sale for
export specified in terms of
particular products, in terms
of volume or value of
products, or in terms of a
preparation of volume or
value of its local
production. (Annex to the
Agreement on Trade-Related
Investment Measures, Vol.
27, Uruguay Round Legal
Documents, p.22125,
emphasis supplied).
The paragraph 4 of Article III of GATT
1994 referred to is quoted as follows:
The products of the territory of any
contracting party imported into the
territory of any other contracting
party shall be accorded treatment no
less favorable than that accorded to
155
like products of national origin in
respect of laws, regulations and
requirements affecting their internal
sale, offering for sale, purchase,
transportation, distribution or use. the
provisions of this paragraph shall not
prevent the application of differential
internal transportation charges which
are based exclusively on the economic
operation of the means of transport and
not on the nationality of the
product. (Article III, GATT 1947, as
amended by the Protocol Modifying
Part II, and Article XXVI of GATT, 14
September 1948, 62 UMTS 82-84 in
relation to paragraph 1(a) of the
General Agreement on Tariffs and
Trade 1994, Vol. 1, Uruguay Round,
Legal Instruments p.177, emphasis
supplied).
b) In the area of trade related aspects
of intellectual property rights
(TRIPS, for brevity):
Each Member shall accord to the
nationals of other Members
treatment no less favourable than
that it accords to its own
nationals with regard to the protection
of intellectual property... (par. 1,
Article 3, Agreement on Trade-Related
Aspect of Intellectual Property rights,
Vol. 31, Uruguay Round, Legal
Instruments, p.25432 (emphasis
supplied)
(c) In the area of the General
Agreement on Trade in Services:
National Treatment
foregoing national treatment and
Jeremiah 29:11
1. In the sectors inscribed in its
schedule, and subject to any
conditions and qualifications
set out therein, each Member
shall accord to services and
service suppliers of any other
Member, in respect of all
measures affecting the supply
of services, treatment no
less favourable than it
accords to its own like
services and service
suppliers.
2. A Member may meet the
requirement of paragraph I by
according to services and
service suppliers of any other
Member, either formally
identical treatment or
formally different treatment
to that it accords to its own
like services and service
suppliers.
3. Formally identical or
formally different treatment
shall be considered to be less
favourable if it modifies the
conditions of completion in
favour of services or service
suppliers of the Member
compared to like services or
service suppliers of any other
Member. (Article XVII,
General Agreement on Trade
in Services, Vol. 28, Uruguay
Round Legal Instruments,
p.22610 emphasis supplied).
It is petitioners position that the
156
parity provisions of the WTO
Agreement place nationals and
products of member countries on the
same footing as Filipinos and local
products, in contravention of the
Filipino First policy of the
Constitution. They allegedly render
meaningless the phrase effectively
controlled by Filipinos. The
constitutional conflict becomes more
manifest when viewed in the context
of the clear duty imposed on the
Philippines as a WTO member to
ensure the conformity of its laws,
regulations and administrative
procedures with its obligations as
provided in the annexed
agreements. Petitioners
[20]
further
argue that these provisions
contravene constitutional limitations
on the role exports play in national
development and negate the
preferential treatment accorded to
Filipino labor, domestic materials
and locally produced goods.
On the other hand, respondents
through the Solicitor General
counter (1) that such
Charter provisions are not self-
executing and merely set out
general policies; (2) that these
nationalistic portions of the
Constitution invoked by petitioners
should not be read in isolation but
should be related to other relevant
provisions of Art. XII, particularly
Secs. 1 and 13 thereof; (3) that read
properly, the cited WTO clauses do
not conflict with the Constitution; and
(4) that the WTO Agreement
contains sufficient provisions to
Jeremiah 29:11
protect developing countries like the
Philippines from the harshness of
sudden trade liberalization.
We shall now discuss and rule
on these arguments.
Declaration of Principles Not
Self-Executing
By its very title, Article II of the
Constitution is a declaration of
principles and state policies. The
counterpart of this article in the 1935
Constitution is called the basic
[21]
political creed of the nation by Dean
Vicente Sinco. These principles in
[22]
Article II are not intended to be self-
executing principles ready for
enforcement through the
courts. They are used by the
[23]
judiciary as aids or as guides in the
exercise of its power of judicial
review, and by the legislature in its
enactment of laws. As held in the
leading case of Kilosbayan,
Incorporated vs. Morato, the
[24]
principles and state policies
enumerated in Article II and some
sections of Article XII are not self-
executing provisions, the disregard
of which can give rise to a cause of
action in the courts.They do not
embody judicially enforceable
constitutional rights but guidelines
for legislation.
In the same light, we held
in Basco vs. Pagcor that broad
[25]
constitutional principles need
157
legislative enactments to implement
them, thus:
On petitioners allegation that P.D. 1869
violates Sections 11 (Personal Dignity)
12 (Family) and 13 (Role of Youth) of
Article II; Section 13 (Social Justice) of
Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987
Constitution, suffice it to state also that
these are merely statements of
principles and policies. As such, they
are basically not self-executing,
meaning a law should be passed by
Congress to clearly define and
effectuate such principles.
In general, therefore, the 1935
provisions were not intended to be self-
executing principles ready for
enforcement through the courts. They
were rather directives addressed to the
executive and to the legislature. If the
executive and the legislature failed to
heed the directives of the article, the
available remedy was not judicial but
political. The electorate could express
their displeasure with the failure of the
executive and the legislature through
the language of the ballot. (Bernas,
Vol. II, p. 2).
The reasons for denying a cause
of action to an alleged infringement
of broad constitutional principles are
sourced from basic considerations of
due process and the lack of judicial
authority to wade into the uncharted
ocean of social and economic policy
making. Mr. Justice Florentino P.
Feliciano in his concurring opinion
in Oposa vs. Factoran,
Jeremiah 29:11
Jr., explained these reasons as
[26]
follows:
My suggestion is simply that
petitioners must, before the trial court,
show a more specific legal right -- a
right cast in language of a significantly
lower order of generality than Article II
(15) of the Constitution -- that is or
may be violated by the actions, or
failures to act, imputed to the public
respondent by petitioners so that the
trial court can validly render judgment
granting all or part of the relief prayed
for. To my mind, the court should be
understood as simply saying that such a
more specific legal right or rights may
well exist in our corpus of law,
considering the general policy
principles found in the Constitution and
the existence of the Philippine
Environment Code, and that the trial
court should have given petitioners an
effective opportunity so to demonstrate,
instead of aborting the proceedings on a
motion to dismiss.
It seems to me important that the legal
right which is an essential component
of a cause of action be a specific,
operable legal right, rather than a
constitutional or statutory policy, for at
least two (2) reasons.One is that unless
the legal right claimed to have been
violated or disregarded is given
specification in operational terms,
defendants may well be unable to
defend themselves intelligently and
effectively; in other words, there are
due process dimensions to this matter.
158
The second is a broader-gauge
consideration -- where a specific
violation of law or applicable
regulation is not alleged or proved,
petitioners can be expected to fall back
on the expanded conception of judicial
power in the second paragraph of
Section 1 of Article VIII of the
Constitution which reads:
Section 1. x x x
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. (Emphases supplied)
When substantive standards as general
as the right to a balanced and healthy
ecology and the right to health are
combined with remedial standards as
broad ranging as a grave abuse of
discretion amounting to lack or excess
of jurisdiction, the result will be, it is
respectfully submitted, to propel courts
into the uncharted ocean of social and
economic policy making. At least in
respect of the vast area of
environmental protection and
management, our courts have no claim
to special technical competence and
experience and professional
qualification. Where no specific,
operable norms and standards are
shown to exist, then the policy making
departments -- the legislative and
Jeremiah 29:11
executive departments -- must be given
a real and effective opportunity to
fashion and promulgate those norms
and standards, and to implement them
before the courts should intervene.
Economic Nationalism Should Be
Read with Other Constitutional
Mandates to Attain Balanced
Development of Economy
On the other hand, Secs. 10 and
12 of Article XII, apart from merely
laying down general principles
relating to the national economy and
patrimony, should be read and
understood in relation to the other
sections in said article, especially
Secs. 1 and 13 thereof which read:
Section 1. The goals of the national
economy are a more equitable
distribution of opportunities, income,
and wealth; a sustained increase in the
amount of goods and services produced
by the nation for the benefit of the
people; and an expanding productivity
as the key to raising the quality of life
for all, especially the underprivileged.
The State shall promote
industrialization and full employment
based on sound agricultural
development and agrarian reform,
through industries that make full and
efficient use of human and natural
resources, and which are competitive in
both domestic and foreign
markets. However, the State shall
protect Filipino enterprises against
159
unfair foreign competition and trade
practices.
In the pursuit of these goals, all sectors
of the economy and all regions of the
country shall be given optimum
opportunity to develop. x x x
xxxxxxxxx
Sec. 13. The State shall pursue a trade
policy that serves the general welfare
and utilizes all forms and arrangements
of exchange on the basis of equality
and reciprocity.
As pointed out by the Solicitor
General, Sec. 1 lays down the basic
goals of national economic
development, as follows:
1. A more equitable distribution
of opportunities, income and wealth;
2. A sustained increase in the
amount of goods and services
provided by the nation for the benefit
of the people; and
3. An expanding productivity as
the key to raising the quality of life for
all especially the underprivileged.
With these goals in context, the
Constitution then ordains the ideals
of economic nationalism (1) by
expressing preference in favor of
qualified Filipinos in the grant of
rights, privileges and concessions
covering the national economy and
patrimony and in the use of Filipino
[27]
labor, domestic materials and
locally-produced goods; (2) by
mandating the State to adopt
Jeremiah 29:11
measures that help make them
competitive; and (3) by requiring
[28]
the State to develop a self-reliant
and independent national economy
effectively controlled by
Filipinos. In similar language, the
[29]
Constitution takes into account the
realities of the outside world as it
requires the pursuit of a trade policy
that serves the general welfare and
utilizes all forms and arrangements
of exchange on the basis of equality
and reciprocity; and speaks of [30]
industries which are competitive in
both domestic and foreign markets
as well as of the protection of Filipino
enterprises against unfair foreign
competition and trade practices.
It is true that in the recent case
of Manila Prince Hotel vs.
Government Service Insurance
System, et al., this Court held that
[31]
Sec. 10, second par., Art. XII of the
1987 Constitution is a mandatory,
positive command which is complete
in itself and which needs no further
guidelines or implementing laws or
rules for its enforcement. From its
very words the provision does not
require any legislation to put it in
operation. It is per se judicially
enforceable. However, as the
constitutional provision itself states,
it is enforceable only in regard to the
grants of rights, privileges and
concessions covering national
economy and patrimony and not to
every aspect of trade and
commerce. It refers to exceptions
rather than the rule. The issue here
is not whether this paragraph of Sec.
160
10 of Art. XII is self-executing or
not. Rather, the issue is whether, as
a rule, there are enough balancing
provisions in the Constitution to
allow the Senate to ratify the
Philippine concurrence in the WTO
Agreement. And we hold that there
are.
All told, while the Constitution
indeed mandates a bias in favor of
Filipino goods, services, labor and
enterprises, at the same time, it
recognizes the need for business
exchange with the rest of the world
on the bases of equality and
reciprocity and limits protection of
Filipino enterprises only against
foreign competition and trade
practices that are unfair. In other
[32]
words, the Constitution did not
intend to pursue an isolationist
policy. It did not shut out foreign
investments, goods and services in
the development of the Philippine
economy. While the Constitution
does not encourage the unlimited
entry of foreign goods, services and
investments into the country, it does
not prohibit them either. In fact, it
allows an exchange on the basis of
equality and reciprocity, frowning
only on foreign competition that
is unfair.
WTO Recognizes Need to Protect
Weak Economies
Upon the other hand,
respondents maintain that the WTO
itself has some built-in advantages
Jeremiah 29:11
to protect weak and developing
economies, which comprise the vast
majority of its members. Unlike in
the UN where major states have
permanent seats and veto powers in
the Security Council, in the WTO,
decisions are made on the basis of
sovereign equality, with each
members vote equal in weight to that
of any other. There is no WTO
equivalent of the UN Security
Council.
WTO decides by consensus whenever
possible, otherwise, decisions of the
Ministerial Conference and the General
Council shall be taken by the majority
of the votes cast, except in cases of
interpretation of the Agreement or
waiver of the obligation of a member
which would require three fourths
vote. Amendments would require two
thirds vote in general. Amendments to
MFN provisions and the Amendments
provision will require assent of all
members. Any member may withdraw
from the Agreement upon the
expiration of six months from the date
of notice of withdrawals.
[33]
Hence, poor countries can
protect their common interests more
effectively through the WTO than
through one-on-one negotiations
with developed countries. Within the
WTO, developing countries can form
powerful blocs to push their
economic agenda more decisively
than outside the Organization. This
is not merely a matter of practical
alliances but a negotiating strategy
161
rooted in law. Thus, the basic
principles underlying the WTO
Agreement recognize the need of
developing countries like the
Philippines to share in the growth in
international trade commensurate
with the needs of their economic
development. These basic
principles are found in the
preamble of the WTO Agreement
[34]
as follows:
The Parties to this Agreement,
Recognizing that their relations in the
field of trade and economic endeavour
should be conducted with a view to
raising standards of living, ensuring full
employment and a large and steadily
growing volume of real income and
effective demand, and expanding the
production of and trade in goods and
services, while allowing for the optimal
use of the worlds resources in
accordance with the objective of
sustainable development, seeking both
to protect and preserve the environment
and to enhance the means for doing
so in a manner consistent with their
respective needs and concerns at
different levels of economic
development,
Recognizing further that there is need
for positive efforts designed to ensure
that developing countries, and
especially the least developed among
them, secure a share in the growth in
international trade commensurate with
the needs of their economic
development,
Jeremiah 29:11
Being desirous of contributing to these
objectives by entering into reciprocal
and mutually advantageous
arrangements directed to the substantial
reduction of tariffs and other barriers to
trade and to the elimination of
discriminatory treatment in
international trade relations,
Resolved, therefore, to develop an
integrated, more viable and durable
multilateral trading system
encompassing the General Agreement
on Tariffs and Trade, the results of past
trade liberalization efforts, and all of
the results of the Uruguay Round of
Multilateral Trade Negotiations,
Determined to preserve the basic
principles and to further the objectives
underlying this multilateral trading
system, x x x. (underscoring supplied.)
Specific WTO Provisos Protect
Developing Countries
So too, the Solicitor General
points out that pursuant to and
consistent with the foregoing basic
principles, the WTO Agreement
grants developing countries a more
lenient treatment, giving their
domestic industries some protection
from the rush of foreign
competition. Thus, with respect to
tariffs in general, preferential
treatment is given to developing
countries in terms of the amount of
tariff reduction and the period within
which the reduction is to be spread
162
out. Specifically, GATT requires an
average tariff reduction rate of 36%
for developed countries to be
effected within a period of six (6)
years while developing countries --
including the Philippines --
are required to effect an average
tariff reduction of only 24% within ten
(10) years.
In respect to domestic subsidy,
GATT requires developed
countries to reduce domestic
support to agricultural products
by 20% over six (6) years, as
compared to only 13% for
developing countries to be effected
within ten (10) years.
In regard to export subsidy for
agricultural products, GATT requires
developed countries to reduce their
budgetary outlays for export
subsidy by 36% and export volumes
receiving export subsidy by 21%
within a period of six (6) years. For
developing countries, however, the
reduction rate is only two-thirds of
that prescribed for developed
countries and a longer period of ten
(10) years within which to effect
such reduction.
Moreover, GATT itself has
provided built-in protection from
unfair foreign competition and trade
practices including anti-dumping
measures, countervailing measures
and safeguards against import
surges. Where local businesses are
jeopardized by unfair foreign
competition, the Philippines can
avail of these measures. There is
Jeremiah 29:11
hardly therefore any basis for the
statement that under the WTO, local
industries and enterprises will all be
wiped out and that Filipinos will be
deprived of control of the
economy. Quite the contrary, the
weaker situations of developing
nations like the Philippines have
been taken into account; thus, there
would be no basis to say that in
joining the WTO, the respondents
have gravely abused their
discretion.True, they have made a
bold decision to steer the ship of
state into the yet uncharted sea of
economic liberalization. But such
decision cannot be set aside on the
ground of grave abuse of discretion,
simply because we disagree with it
or simply because we believe only in
other economic policies. As earlier
stated, the Court in taking
jurisdiction of this case will not pass
upon the advantages and
disadvantages of trade liberalization
as an economic policy. It will only
perform its constitutional duty of
determining whether the Senate
committed grave abuse of
discretion.
Constitution Does Not Rule Out
Foreign Competition
Furthermore, the constitutional
policy of a self-reliant and
independent national
economy does not necessarily rule
[35]
out the entry of foreign investments,
goods and services. It contemplates
163
neither economic seclusion nor
mendicancy in the international
community. As explained by
Constitutional Commissioner
Bernardo Villegas, sponsor of this
constitutional policy:
Economic self-reliance is a primary
objective of a developing country that
is keenly aware of overdependence on
external assistance for even its most
basic needs. It does not mean autarky
or economic seclusion; rather, it means
avoiding mendicancy in the
international community. Independence
refers to the freedom from undue
foreign control of the national
economy, especially in such strategic
industries as in the development of
natural resources and public utilities.
[36]
The WTO reliance on most
favored nation, national treatment,
and trade without discrimination
cannot be struck down as
unconstitutional as in fact they are
rules of equality and reciprocity that
apply to all WTO members. Aside
from envisioning a trade policy
based on equality and
reciprocity, the fundamental law
[37]
encourages industries that are
competitive in both domestic and
foreign markets, thereby
demonstrating a clear policy against
a sheltered domestic trade
environment, but one in favor of the
gradual development of robust
industries that can compete with the
best in the foreign markets. Indeed,
Filipino managers and Filipino
Jeremiah 29:11
enterprises have shown capability
and tenacity to compete
internationally. And given a free
trade environment, Filipino
entrepreneurs and managers in
Hongkong have demonstrated the
Filipino capacity to grow and to
prosper against the best offered
under a policy of laissez faire.
Constitution Favors Consumers,
Not Industries or Enterprises
The Constitution has not really
shown any unbalanced bias in favor
of any business or enterprise, nor
does it contain any specific
pronouncement that Filipino
companies should be pampered with
a total
proscription of foreign competition.
On the other hand, respondents clai
m that WTO/GATT aims to make
available to the Filipino consumer
the best goods and services
obtainable anywhere in the world at
the most reasonable
prices. Consequently, the question
boils down to whether WTO/GATT
will favor the general welfare of the
public at large.
Will adherence to the WTO
treaty bring this ideal (of favoring the
general welfare) to reality?
Will WTO/GATT succeed in
promoting the Filipinos general
welfare because it will -- as promised
by its promoters -- expand the
164
countrys exports and generate more
employment?
Will it bring more prosperity,
employment, purchasing power and
quality products at the most
reasonable rates to the Filipino
public?
The responses to these
questions involve judgment calls by
our policy makers, for which they are
answerable to our people during
appropriate electoral
exercises. Such questions and the
answers thereto are not subject to
judicial pronouncements based on
grave abuse of discretion.
Constitution Designed to Meet
Future Events and Contingencies
No doubt, the WTO Agreement
was not yet in existence when the
Constitution was drafted and ratified
in 1987. That does not mean
however that the Charter is
necessarily flawed in the sense that
its framers might not have
anticipated the advent of a
borderless world of business. By the
same token, the United Nations was
not yet in existence when the 1935
Constitution became effective. Did
that necessarily mean that the then
Constitution might not have
contemplated a diminution of the
absoluteness of sovereignty when
the Philippines signed the UN
Charter, thereby effectively
surrendering part of its control over
Jeremiah 29:11
its foreign relations to the decisions
of various UN organs like the
Security Council?
It is not difficult to answer this
question. Constitutions are
designed to meet not only the
vagaries of contemporary
events. They should be interpreted
to cover even future and unknown
circumstances. It is to the credit of its
drafters that a Constitution can
withstand the assaults of bigots and
infidels but at the same time bend
with the refreshing winds of change
necessitated by unfolding
events. As one eminent political law
writer and respected
jurist explains:
[38]
The Constitution must be quintessential
rather than superficial, the root and not
the blossom, the base and framework
only of the edifice that is yet to rise. It
is but the core of the dream that must
take shape, not in a twinkling by
mandate of our delegates, but slowly in
the crucible of Filipino minds and
hearts, where it will in time develop its
sinews and gradually gather its strength
and finally achieve its substance. In
fine, the Constitution cannot, like the
goddess Athena, rise full-grown from
the brow of the Constitutional
Convention, nor can it conjure by mere
fiat an instant Utopia. It must grow
with the society it seeks to re-structure
and march apace with the progress of
the race, drawing from the vicissitudes
of history the dynamism and vitality
that will keep it, far from becoming a
165
petrified rule, a pulsing, living law
attuned to the heartbeat of the nation.
Third Issue: The WTO Agreement
and Legislative Power
The WTO Agreement provides
that (e)ach Member shall ensure the
conformity of its laws, regulations
and administrative procedures with
its obligations as provided in the
annexed Agreements. Petitioners[39]
maintain that this undertaking unduly
limits, restricts and impairs
Philippine sovereignty, specifically
the legislative power which under
Sec. 2, Article VI of the 1987
Philippine Constitution is vested in
the Congress of the Philippines. It is
an assault on the sovereign powers
of the Philippines because this
means that Congress could not pass
legislation that will be good for our
national interest and general welfare
if such legislation will not conform
with the WTO Agreement, which not
only relates to the trade in goods x x
x but also to the flow of investments
and money x x x as well as to a
whole slew of agreements on socio-
cultural matters x x x. [40]
More specifically, petitioners
claim that said
WTO proviso derogates from the
power to tax, which is lodged in the
Congress. And
[41]
while the
Constitution allows Congress to
authorize the President to fix tariff
rates, import and export quotas,
tonnage and wharfage dues, and
Jeremiah 29:11
other duties or imposts, such
authority is subject to specified limits
and x x x such limitations and
restrictions as Congress may
provide, as in fact it did under Sec.
[42]
401 of the Tariff and Customs Code.
Sovereignty Limited by
International Law and Treaties
This Court notes and
appreciates the ferocity and passion
by which petitioners stressed their
arguments on this issue. However,
while sovereignty has traditionally
been deemed absolute and all-
encompassing on the domestic
level, it is however subject to
restrictions and limitations
voluntarily agreed to by the
Philippines, expressly or impliedly,
as a member of the family of
nations. Unquestionably, the
Constitution did not envision a
hermit-type isolation of the country
from the rest of the world. In its
Declaration of Principles and State
Policies, the Constitution adopts the
generally accepted principles of
international law as part of the law of
the land, and adheres to the policy of
peace, equality, justice, freedom,
cooperation and amity, with all
nations." By the doctrine of
[43]
incorporation, the country is bound
by generally accepted principles of
international law, which are
considered to be automatically part
of our own laws. One of the oldest
[44]
and most fundamental rules in
166
international law is pacta sunt
servanda -- international
agreements must be performed in
good faith. A treaty engagement is
not a mere moral obligation but
creates a legally binding obligation
on the parties x x x. A state which
has contracted valid international
obligations is bound to make in its
legislations such modifications as
may be necessary to ensure the
fulfillment of the obligations
undertaken. [45]
By their inherent nature, treaties
really limit or restrict the
absoluteness of sovereignty. By
their voluntary act, nations may
surrender some aspects of their
state power in exchange for greater
benefits granted by or derived from
a convention or pact. After all,
states, like individuals, live with
coequals, and in pursuit of mutually
covenanted objectives and benefits,
they also commonly agree to limit
the exercise of their otherwise
absolute rights. Thus, treaties have
been used to record agreements
between States concerning such
widely diverse matters as, for
example, the lease of naval bases,
the sale or cession of territory, the
termination of war, the regulation of
conduct of hostilities, the formation
of alliances, the regulation of
commercial relations, the settling of
claims, the laying down of rules
governing conduct in peace and the
establishment of international
organizations. The sovereignty of a
[46]
state therefore cannot in fact and in
Jeremiah 29:11
reality be considered
absolute. Certain restrictions enter
into the picture: (1) limitations
imposed by the very nature of
membership in the family of nations
and (2) limitations imposed by treaty
stipulations. As aptly put by John F.
Kennedy, Today, no nation can build
its destiny alone. The age of self-
sufficient nationalism is over. The
age of interdependence is here. [47]
UN Charter and Other Treaties
Limit Sovereignty
Thus, when the Philippines
joined the United Nations as one of
its 51 charter members, it consented
to restrict its sovereign rights under
the concept of sovereignty as auto-
limitation.47-A Under Article 2 of the
UN Charter, (a)ll members shall give
the United Nations every assistance
in any action it takes in accordance
with the present Charter, and shall
refrain from giving assistance to any
state against which the United
Nations is taking preventive or
enforcement action. Such
assistance includes payment of its
corresponding share not merely in
administrative expenses but also in
expenditures for the peace-keeping
operations of the organization. In its
advisory opinion of July 20, 1961,
the International Court of Justice
held that money used by the United
Nations Emergency Force in the
Middle East and in the Congo were
expenses of the United Nations
167
under Article 17, paragraph 2, of the
UN Charter. Hence, all its members
must bear their corresponding share
in such expenses. In this sense, the
Philippine Congress is restricted in
its power to appropriate. It is
compelled to appropriate funds
whether it agrees with such peace-
keeping expenses or not. So too,
under Article 105 of the said Charter,
the UN and its representatives enjoy
diplomatic privileges and
immunities, thereby limiting again
the exercise of sovereignty of
members within their own
territory. Another example: although
sovereign equality and domestic
jurisdiction of all members are set
forth as underlying principles in the
UN Charter, such provisos are
however subject to enforcement
measures decided by the Security
Council for the maintenance of
international peace and security
under Chapter VII of the Charter. A
final example: under Article 103, (i)n
the event of a conflict between the
obligations of the Members of the
United Nations under the present
Charter and their obligations under
any other international agreement,
their obligation under the present
charter shall prevail, thus
unquestionably denying the
Philippines -- as a member -- the
sovereign power to make a choice
as to which of conflicting obligations,
if any, to honor.
Apart from the UN Treaty, the
Philippines has entered into many
other international pacts -- both
Jeremiah 29:11
bilateral and multilateral -- that
involve limitations on Philippine
sovereignty. These are enumerated
by the Solicitor General in his
Compliance dated October 24,
1996, as follows:
(a) Bilateral convention with the
United States regarding taxes
on income, where the
Philippines agreed, among
others, to exempt from tax,
income received in the
Philippines by, among others,
the Federal Reserve Bank of
the United States, the
Export/Import Bank of the
United States, the Overseas
Private Investment Corporation
of the United States. Likewise,
in said convention, wages,
salaries and similar
remunerations paid by the
United States to its citizens for
labor and personal services
performed by them as
employees or officials of the
United States are exempt from
income tax by the Philippines.
(b) Bilateral agreement with
Belgium, providing, among
others, for the avoidance of
double taxation with respect to
taxes on income.
(c) Bilateral convention with the
Kingdom of Sweden for the
avoidance of double taxation.
168
 (d) Bilateral convention with the
French Republic for the
avoidance of double taxation.
(e) Bilateral air transport agreement
with Korea where the
Philippines agreed to exempt
from all customs duties,
inspection fees and other duties
or taxes aircrafts of South
Korea and the regular
equipment, spare parts and
supplies arriving with said
aircrafts.
(f) Bilateral air service agreement
with Japan, where the
Philippines agreed to exempt
from customs duties, excise
taxes, inspection fees and other
similar duties, taxes or charges
fuel, lubricating oils, spare
parts, regular equipment, stores
on board Japanese aircrafts
while on Philippine soil.
(g) Bilateral air service agreement
with Belgium where the
Philippines granted Belgian air
carriers the same privileges as
those granted to Japanese and
Korean air carriers under
separate air service agreements.
(h) Bilateral notes with Israel for
the abolition of transit and
visitor visas where the
Philippines exempted Israeli
nationals from the requirement
of obtaining transit or visitor
visas for a sojourn in the
Jeremiah 29:11
Philippines not exceeding 59
days.
(I) Bilateral agreement with France
exempting French nationals
from the requirement of
obtaining transit and visitor visa
for a sojourn not exceeding 59
days.
(j) Multilateral Convention on
Special Missions, where the
Philippines agreed that premises
of Special Missions in the
Philippines are inviolable and
its agents can not enter said
premises without consent of the
Head of Mission
concerned. Special Missions are
also exempted from customs
duties, taxes and related
charges.
(k) Multilateral Convention on the
Law of Treaties. In this
convention, the Philippines
agreed to be governed by the
Vienna Convention on the Law
of Treaties.
(l) Declaration of the President of
the Philippines accepting
compulsory jurisdiction of the
International Court of
Justice. The International Court
of Justice has jurisdiction in all
legal disputes concerning the
interpretation of a treaty, any
question of international law,
the existence of any fact which,
if established, would constitute
169
 a breach of international
obligation.
In the foregoing treaties, the
Philippines has effectively agreed to
limit the exercise of its sovereign
powers of taxation, eminent domain
and police power. The underlying
consideration in this partial
surrender of sovereignty is the
reciprocal commitment of the other
contracting states in granting the
same privilege and immunities to the
Philippines, its officials and its
citizens. The same reciprocity
characterizes the Philippine
commitments under WTO-GATT.
International treaties, whether relating
to nuclear disarmament, human rights,
the environment, the law of the sea, or
trade, constrain domestic political
sovereignty through the assumption of
external obligations. But unless
anarchy in international relations is
preferred as an alternative, in most
cases we accept that the benefits of the
reciprocal obligations involved
outweigh the costs associated with any
loss of political sovereignty. (T)rade
treaties that structure relations by
reference to durable, well-defined
substantive norms and objective dispute
resolution procedures reduce the risks
of larger countries exploiting raw
economic power to bully smaller
countries, by subjecting power relations
to some form of legal ordering. In
addition, smaller countries typically
stand to gain disproportionately from
trade liberalization. This is due to the
Jeremiah 29:11
simple fact that liberalization will
provide access to a larger set of
potential new trading relationship than
in case of the larger country gaining
enhanced success to the smaller
countrys market.[48]
The point is that, as shown by the
foregoing treaties, a portion of
sovereignty may be waived without
violating the Constitution, based on
the rationale that the Philippines
adopts the generally accepted
principles of international law as part
of the law of the land and adheres to
the policy of x x x cooperation and
amity with all nations.
Fourth Issue: The WTO
Agreement and Judicial Power
Petitioners aver that paragraph
1, Article 34 of the General
Provisions and Basic Principles of
the Agreement on Trade-Related
Aspects of Intellectual Property
Rights (TRIPS) intrudes on the
[49]
power of the Supreme Court to
promulgate rules concerning
pleading, practice and procedures. [50]
To understand the scope and
meaning of Article 34, TRIPS, it will
[51]
be fruitful to restate its full text as
follows:
Article 34
Process Patents: Burden of Proof
170
 1. For the purposes of civil
proceedings in respect of the
infringement of the rights of the
owner referred to in paragraph 1(b)
of Article 28, if the subject matter
of a patent is a process for
obtaining a product, the judicial
authorities shall have the authority
to order the defendant to prove that
the process to obtain an identical
product is different from the
patented process. Therefore,
Members shall provide, in at least
one of the following circumstances,
that any identical product when
produced without the consent of
the patent owner shall, in the
absence of proof to the contrary, be
deemed to have been obtained by
the patented process:
(a) if the product obtained by the
patented process is new;
(b) if there is a substantial
likelihood that the identical
product was made by the
process and the owner of
the patent has been unable
through reasonable efforts
to determine the process
actually used.
2. Any Member shall be free to
provide that the burden of proof
indicated in paragraph 1 shall be on
the alleged infringer only if the
condition referred to in
subparagraph (a) is fulfilled or only
if the condition referred to in
subparagraph (b) is fulfilled.
Jeremiah 29:11
3. In the adduction of proof to the
contrary, the legitimate interests of
defendants in protecting their
manufacturing and business secrets
shall be taken into account.
From the above, a WTO Member
is required to provide a rule of
disputable (note the words in the
absence of proof to the contrary)
presumption that a product shown to
be identical to one produced with the
use of a patented process shall be
deemed to have been obtained by
the (illegal) use of the said patented
process, (1) where such product
obtained by the patented product is
new, or (2) where there is substantial
likelihood that the identical product
was made with the use of the said
patented process but the owner of
the patent could not determine the
exact process used in obtaining
such identical product. Hence, the
burden of proof contemplated by
Article 34 should actually be
understood as the duty of the
alleged patent infringer to overthrow
such presumption. Such burden,
properly understood, actually refers
to the burden of evidence (burden of
going forward) placed on the
producer of the identical (or fake)
product to show that his product was
produced without the use of the
patented process.
The foregoing notwithstanding,
the patent owner still has the burden
of proof since, regardless of the
presumption provided under
paragraph 1 of Article 34, such
171
owner still has to introduce evidence
of the existence of the alleged
identical product, the fact that it is
identical to the genuine one
produced by the patented process
and the fact of newness of the
genuine product or the fact of
substantial likelihood that the
identical product was made by the
patented process.
The foregoing should really
present no problem in changing the
rules of evidence as the present law
on the subject, Republic Act No.
165, as amended, otherwise known
as the Patent Law, provides a similar
presumption in cases of
infringement of patented design or
utility model, thus:
SEC. 60. Infringement. - Infringement
of a design patent or of a patent for
utility model shall consist in
unauthorized copying of the patented
design or utility model for the purpose
of trade or industry in the article or
product and in the making, using or
selling of the article or product copying
the patented design or utility
model. Identity or substantial identity
with the patented design or utility
model shall constitute evidence of
copying. (underscoring supplied)
Moreover, it should be noted that
the requirement of Article 34 to
provide a disputable presumption
applies only if (1) the product
obtained by the patented process is
NEW or (2) there is a substantial
likelihood that the identical product
Jeremiah 29:11
was made by the process and the
process owner has not been able
through reasonable effort to
determine the process used. Where
either of these two provisos does not
obtain, members shall be free to
determine the appropriate method of
implementing the provisions of
TRIPS within their own internal
systems and processes.
By and large, the arguments
adduced in connection with our
disposition of the third issue --
derogation of legislative power - will
apply to this fourth issue
also. Suffice it to say that the
reciprocity clause more than justifies
such intrusion, if any actually
exists. Besides, Article 34 does not
contain an unreasonable burden,
consistent as it is with due process
and the concept of adversarial
dispute settlement inherent in our
judicial system.
So too, since the Philippine is a
signatory to most international
conventions on patents, trademarks
and copyrights, the adjustment in
legislation and rules of procedure
will not be substantial.
[52]
Fifth Issue: Concurrence Only in
the WTO Agreement and Not in
Other Documents Contained in
the Final Act
Petitioners allege that the
Senate concurrence in the WTO
Agreement and its annexes -- but
172
not in the other documents referred
to in the Final Act, namely the
Ministerial Declaration and
Decisions and the Understanding on
Commitments in Financial Services -
- is defective and insufficient and
thus constitutes abuse of
discretion. They submit that such
concurrence in the WTO
Agreement alone is flawed because
it is in effect a rejection of the Final
Act, which in turn was the document
signed by Secretary Navarro, in
representation of the Republic upon
authority of the President. They
contend that the second letter of the
President to the Senate which [53]
enumerated what constitutes the
Final Act should have been the
subject of concurrence of the
Senate.
A final act, sometimes
called protocol de clture, is an
instrument which records the
winding up of the proceedings of a
diplomatic conference and usually
includes a reproduction of the texts
of treaties, conventions,
recommendations and other acts
agreed upon and signed by the
plenipotentiaries attending the
conference. It is not the treaty
[54]
itself. It is rather a summary of the
proceedings of a protracted
conference which may have taken
place over several years. The text of
the Final Act Embodying the Results
of the Uruguay Round of Multilateral
Trade Negotiations is contained in
just one page in Vol. I of the 36-
[55]
volume Uruguay Round of
Jeremiah 29:11
Multilateral Trade Negotiations. By
signing said Final Act, Secretary
Navarro as representative of the
Republic of the Philippines
undertook:
"(a) to submit, as appropriate, the
WTO Agreement for the
consideration of their respective
competent authorities with a
view to seeking approval of the
Agreement in accordance with
their procedures; and
(b) to adopt the Ministerial
Declarations and Decisions."
The assailed Senate Resolution
No. 97 expressed concurrence in
exactly what the Final Act required
from its signatories, namely,
concurrence of the Senate in the
WTO Agreement.
The Ministerial Declarations and
Decisions were deemed adopted
without need for ratification. They
were approved by the ministers by
virtue of Article XXV: 1 of GATT
which provides that representatives
of the members can meet to give
effect to those provisions of this
Agreement which invoke joint action,
and generally with a view to
facilitating the operation and
furthering the objectives of this
Agreement. [56]
The Understanding on
Commitments in Financial Services
also approved in Marrakesh does
not apply to the Philippines. It
applies only to those 27 Members
173
which have indicated in their
respective schedules of
commitments on standstill,
elimination of monopoly, expansion
of operation of existing financial
service suppliers, temporary entry of
personnel, free transfer and
processing of information, and
national treatment with respect to
access to payment, clearing
systems and refinancing available in
the normal course of business. [57]
On the other hand, the WTO
Agreement itself expresses what
multilateral agreements are deemed
included as its integral parts, as [58]
follows:
Article II
Scope of the WTO
1. The WTO shall provide the
common institutional framework
for the conduct of trade relations
among its Members in matters to
the agreements and associated legal
instruments included in the
Annexes to this Agreement.
2. The Agreements and associated
legal instruments included in
Annexes 1, 2, and 3 (hereinafter
referred to as Multilateral
Agreements) are integral parts of
this Agreement, binding on all
Members.
3. The Agreements and associated
legal instruments included in
Annex 4 (hereinafter referred to as
Jeremiah 29:11
Plurilateral Trade Agreements) are
also part of this Agreement for
those Members that have accepted
them, and are binding on those
Members. The Plurilateral Trade
Agreements do not create either
obligation or rights for Members
that have not accepted them.
4. The General Agreement on
Tariffs and Trade 1994 as specified
in annex 1A (hereinafter referred to
as GATT 1994) is legally distinct
from the General Agreement on
Tariffs and Trade, dated 30
October 1947, annexed to the Final
Act adopted at the conclusion of
the Second Session of the
Preparatory Committee of the
United Nations Conference on
Trade and Employment, as
subsequently rectified, amended or
modified (hereinafter referred to as
GATT 1947).
It should be added that the
Senate was well-aware of what it
was concurring in as shown by the
members deliberation on August 25,
1994. After reading the letter of
President Ramos dated August 11,
1994, the senators of the Republic
[59]
minutely dissected what the Senate
was concurring in, as follows: [60]
THE CHAIRMAN: Yes. Now, the
question of the validity of the
submission came up in the first day
hearing of this Committee
yesterday. Was the observation made
by Senator Taada that what was
submitted to the Senate was not the
174
agreement on establishing the World
Trade Organization by the final act of
the Uruguay Round which is not the
same as the agreement establishing the
World Trade Organization?And on that
basis, Senator Tolentino raised a point
of order which, however, he agreed to
withdraw upon understanding that his
suggestion for an alternative solution at
that time was acceptable. That
suggestion was to treat the proceedings
of the Committee as being in the nature
of briefings for Senators until the
question of the submission could be
clarified.
And so, Secretary Romulo, in effect, is
the President submitting a new... is he
making a new submission which
improves on the clarity of the first
submission?
MR. ROMULO: Mr. Chairman, to
make sure that it is clear cut and there
should be no misunderstanding, it was
his intention to clarify all matters by
giving this letter.
THE CHAIRMAN: Thank you.
Can this Committee hear from Senator
Taada and later on Senator Tolentino
since they were the ones that raised this
question yesterday?
Senator Taada, please.
SEN. TAADA: Thank you, Mr.
Chairman.
Based on what Secretary Romulo has
read, it would now clearly appear that
Jeremiah 29:11
what is being submitted to the Senate
for ratification is not the Final Act of
the Uruguay Round, but rather the
Agreement on the World Trade
Organization as well as the Ministerial
Declarations and Decisions, and the
Understanding and Commitments in
Financial Services.
I am now satisfied with the wording of
the new submission of President
Ramos.
SEN. TAADA. . . . of President Ramos,
Mr. Chairman.
THE CHAIRMAN. Thank you, Senator
Taada. Can we hear from Senator
Tolentino? And after him Senator
Neptali Gonzales and Senator Lina.
SEN TOLENTINO, Mr. Chairman, I
have not seen the new submission
actually transmitted to us but I saw the
draft of his earlier, and I think it now
complies with the provisions of the
Constitution, and with the Final Act
itself. The Constitution does not require
us to ratify the Final Act. It requires us
to ratify the Agreement which is now
being submitted. The Final Act itself
specifies what is going to be submitted
to with the governments of the
participants.
In paragraph 2 of the Final Act, we read
and I quote:
By signing the present Final Act, the
representatives agree: (a) to submit as
appropriate the WTO Agreement for
the consideration of the respective
175
competent authorities with a view to
seeking approval of the Agreement in
accordance with their procedures.
In other words, it is not the Final Act
that was agreed to be submitted to the
governments for ratification or
acceptance as whatever their
constitutional procedures may provide
but it is the World Trade Organization
Agreement. And if that is the one that
is being submitted now, I think it
satisfies both the Constitution and the
Final Act itself.
Thank you, Mr. Chairman.
THE CHAIRMAN. Thank you, Senator
Tolentino, May I call on Senator
Gonzales.
SEN. GONZALES. Mr. Chairman, my
views on this matter are already a
matter of record. And they had been
adequately reflected in the journal of
yesterdays session and I dont see any
need for repeating the same.
Now, I would consider the new
submission as an act ex abudante
cautela.
THE CHAIRMAN. Thank you, Senator
Gonzales. Senator Lina, do you want to
make any comment on this?
SEN. LINA. Mr. President, I agree with
the observation just made by Senator
Gonzales out of the abundance of
question. Then the new submission is, I
believe, stating the obvious and
Jeremiah 29:11
therefore I have no further comment to
make.
Epilogue
In praying for the nullification of
the Philippine ratification of the WTO
Agreement, petitioners are invoking
this Courts constitutionally imposed
duty to determine whether or not
there has been grave abuse of
discretion amounting to lack or
excess of jurisdiction on the part of
the Senate in giving its concurrence
therein via Senate Resolution No.
97. Procedurally, a writ
of certiorari grounded on grave
abuse of discretion may be issued
by the Court under Rule 65 of the
Rules of Court when it is amply
shown that petitioners have no other
plain, speedy and adequate remedy
in the ordinary course of law.
By grave abuse of discretion is
meant such capricious and
whimsical exercise of judgment as is
equivalent to lack of
jurisdiction. Mere
[61]
abuse of
discretion is not enough. It must
be grave abuse of discretion as
when the power is exercised in an
arbitrary or despotic manner by
reason of passion or personal
hostility, and must be so patent and
so gross as to amount to an evasion
of a positive duty or to a virtual
refusal to perform the duty enjoined
or to act at all in contemplation of
law. Failure on the part of the
[62]
petitioner to show grave abuse of
176
discretion will result in the dismissal principles relied upon by the Senate
of the petition.
[63]
which mandate the pursuit of a trade
policy that serves the general
In rendering this Decision, this
welfare and utilizes all forms and
Court never forgets that the Senate,
arrangements of exchange on the
whose act is under review, is one of
basis of equality and reciprocity and
two sovereign houses of Congress
the promotion of industries which are
and is thus entitled to great respect
competitive in both domestic and
in its actions. It is itself a
foreign markets, thereby justifying its
constitutional body independent and
acceptance of said treaty. So too,
coordinate, and thus its actions are
the alleged impairment of
presumed regular and done in good
sovereignty in the exercise of
faith. Unless convincing proof and
legislative and judicial powers is
persuasive arguments are
balanced by the adoption of the
presented to overthrow such
generally accepted principles of
presumptions, this Court will resolve
international law as part of the law of
every doubt in its favor. Using the
the land and the adherence of the
foregoing well-accepted definition of
Constitution to the policy of
grave abuse of discretion and the
cooperation and amity with all
presumption of regularity in the
nations.
Senates processes, this Court
cannot find any cogent reason to That the Senate, after
impute grave abuse of discretion to deliberation and voting, voluntarily
the Senates exercise of its power of and overwhelmingly gave its
concurrence in the WTO Agreement consent to the WTO Agreement
granted it by Sec. 21 of Article VII of thereby making it a part of the law of
the Constitution. [64]
the land is a legitimate exercise of its
sovereign duty and power. We find
It is true, as alleged by
no patent and gross arbitrariness or
petitioners, that broad constitutional
despotism by reason of passion or
principles require the State to
personal hostility in such exercise. It
develop an independent national
is not impossible to surmise that this
economy effectively controlled by
Court, or at least some of its
Filipinos; and to protect and/or prefer
members, may even agree with
Filipino labor, products, domestic
petitioners that it is more
materials and locally produced
advantageous to the national
goods. But it is equally true that such
interest to strike down Senate
principles -- while serving as judicial
Resolution No. 97. But that is not a
and legislative guides -- are not in
legal reason to attribute grave
themselves sources of causes of
abuse of discretion to the Senate
action. Moreover, there are other
and to nullify its decision. To do so
equally fundamental constitutional
would constitute grave abuse in the

177
Jeremiah 29:11
exercise of our own judicial power
and duty.Ineludably, what the
Senate did was a valid exercise of its
authority. As to whether such
exercise was wise, beneficial or
viable is outside the realm of judicial
inquiry and review. That is a matter
between the elected policy makers
and the people. As to whether the
nation should join the worldwide
march toward trade liberalization
and economic globalization is a
matter that our people should
determine in electing their policy
makers. After all, the WTO
Agreement allows withdrawal of
membership, should this be the
political desire of a member.
The eminent futurist John
Naisbitt, author of the best
seller Megatrends, predicts an Asian
Renaissance where the East will
[65]
original membership, keenly aware
of the advantages and
disadvantages of globalization with
its on-line experience, and endowed
with a vision of the future, the
Philippines now straddles the
crossroads of an international
strategy for economic prosperity and
stability in the new millennium. Let
the people, through their duly
authorized elected officers, make
their free choice.
WHEREFORE, the petition
is DISMISSED for lack of merit.
SO ORDERED.

become the dominant region of the

world economically, politically and
culturally in the next century. He
refers to the free market espoused
by WTO as the catalyst in this
coming Asian ascendancy. There
are at present about 31 countries
including China, Russia and Saudi
Arabia negotiating for membership
in the WTO. Notwithstanding
objections against possible
limitations on national sovereignty,
the WTO remains as the only viable
structure for multilateral trading and
the veritable forum for the
development of international trade
law. The alternative to WTO is
isolation, stagnation, if not economic
self-destruction. Duly enriched with

178
Jeremiah 29:11

[G. R. No. 131512. January 20, 2000]
LAND TRANSPORTATION
OFFICE [LTO], represented by
Assistant Secretary Manuel F.
Bruan, LTO Regional Office, Region
X represented by its Regional
Director, Timoteo A. Garcia; and
LTO Butuan represented by Rosita
G. Sadiaga, its Registrar, petitioners,
vs. CITY OF BUTUAN, represented
in this case by Democrito D. Plaza II,
City Mayor, respondents.
DECISION
VITUG, J.:
The 1987 Constitution enunciates the
policy that the territorial and political
subdivisions shall enjoy local
Jeremiah 29:11
autonomy. In obedience to that,
[1]
mandate of the fundamental law,
Republic Act ("R.A.") No.7160,
otherwise known as the Local
Government Code, expresses that the
[2]
territorial and political subdivisions of
the State shall enjoy genuine and
meaningful local autonomy in order to
enable them to attain their fullest
development as self-reliant
communities and make them more
effective partners in the attainment of
national goals, and that it is a basic aim
of the State to provide for a more
responsive and accountable local
government structure instituted through
a system of decentralization whereby
local government units shall be given
more powers, authority, responsibilities
and resources.
While the Constitution seeks to
strengthen local units and ensure their
viability, clearly, however, it has never
been the intention of that organic law to
create an imperium in imperio and
install an intra sovereign political
subdivision independent of a single
sovereign state.
The Court is asked in this instance to
resolve the issue of whether under the
present set up the power of the Land
Registration Office ("LTO") to
register, tricycles in particular, as
well as to issue licenses for the
driving thereof, has likewise
devolved to local government units.
The Regional Trial Court (Branch 2) of
Butuan City held: that the authority to
[3]
register tricycles, the grant of the
179
corresponding franchise, the issuance subject to such guidelines
of tricycle drivers' license, and the and limitations as the
collection of fees therefor had all been Congress may provide,
vested in the Local Government Units consistent with the basic
("LGUs"). Accordingly, it decreed the policy of local autonomy.
issuance of a permanent writ of Such taxes, fees, and
injunction against LTO, prohibiting and charges shall accrue
enjoining LTO, as well as its exclusively to the local
employees and other persons acting in governments." [5]

its behalf, from (a) registering tricycles

and (b) issuing licenses to drivers of Section 129 and Section 133 of the
tricycles. The Court of Appeals, on Local Government Code read:
appeal to it, sustained the trial
court. "SEC. 129. Power to
Create Sources
The adverse rulings of both the court of Revenue. - Each local
a quo and the appellate court prompted government unit shall
the LTO to file the instant petition for exercise its power to
review on certiorari to annul and set create its own sources of
aside the decision, dated 17 November
[4] revenue and to levy taxes,
1997, of the Court of Appeals affirming fees, and charges subject
the permanent injunctive writ order of to the provisions herein,
the Regional Trial Court (Branch 2) of consistent with the basic
Butuan City. policy of local autonomy.
Such taxes, fees, and
Respondent City of Butuan asserts that charges shall accrue
one of the salient provisions introduced exclusively to the local
by the Local Government Code is in government units."
the area of local taxation which allows
LGUs to collect registration fees or "SEC. 133. Common
charges along with, in its view, the Limitations on the Taxing
corresponding issuance of all kinds of Powers of Local
licenses or permits for the driving of Government Units. -
tricycles. Unless otherwise provided
herein, the exercise of the
The 1987 Constitution provides: taxing powers of
provinces, cities,
"Each local government municipalities, and
unit shall have the power barangays shall not extend
to create its own sources to the levy of the
of revenues and to levy following:
taxes, fees, and charges
180
Jeremiah 29:11
 "xxx.......xxx.......xxx.
"(I) Taxes, fees or charges
for the registration of
motor vehicles and for the
issuance of all kinds of
licenses or permits for the
driving thereof, except
tricycles."
Relying on the foregoing provisions of
the law, the Sangguniang
Panglungsod ("SP") of Butuan, on 16
August 1992, passed SP Ordinance
No.916-92 entitled "An Ordinance
Regulating the Operation of Tricycles-
for-Hire, providing mechanism for the
issuance of Franchise, Registration and
Permit, and Imposing Penalties for
Violations thereof and for other
Purposes." The ordinance provided for,
among other things, the payment of
franchise fees for the grant of the
franchise of tricycles-for-hire, fees for
the registration of the vehicle, and fees
for the issuance of a permit for the
driving thereof.
Petitioner LTO explains that one of the
functions of the national government
that, indeed, has been transferred to
local government units is the
franchising authority over tricycles-for-
hire of the Land Transportation
Franchising and Regulatory Board
("LTFRB") but not, it asseverates, the
authority of LTO to register all motor
vehicles and to issue to qualified
persons of licenses to drive such
vehicles.
Jeremiah 29:11
In order to settle the variant positions
of the parties, the City of Butuan,
represented by its City Mayor
Democrito D. Plaza, filed on 28 June
1994 with the trial court a petition for
"prohibition, mandamus, injunction
with a prayer for preliminary
restraining order ex-parte" seeking the
declaration of the validity of SP
Ordinance No.962-93 and the
prohibition of the registration of
tricycles-for-hire and the issuance of
licenses for the driving thereof by the
LTO.
LTO opposed the prayer in the petition.
On 20 March 1995, the trial court
rendered a resolution; the dispositive
portion read:
"In view of the foregoing,
let a permanent injunctive
writ be issued against the
respondent Land
Transportation Office and
the other respondents,
prohibiting and enjoining
them, their employees,
officers, attorney's or
other persons acting in
their behalf from forcing
or compelling Tricycles to
be registered with, and
drivers to secure their
licenses from respondent
LTO or secure franchise
from LTFRB and from
collecting fees thereon. It
should be understood that
the registration, franchise
of tricycles and driver's
181
 license/permit granted or
issued by the City of
Butuan are valid only
within the territorial limits
of Butuan City.
"No pronouncement as to
costs."[6]
Petitioners timely moved for a
reconsideration of the above resolution
but it was to no avail. Petitioners then
appealed to the Court of Appeals. In its
now assailed decision, the appellate
court, on 17 November 1997, sustained
the trial court. It ruled:
"WHEREFORE, the
petition is hereby
DISMISSED and the
questioned permanent
injunctive writ issued by
the court a quo dated
March 20, 1995
AFFIRMED." [7]
Coming up to this Court, petitioners
raise this sole assignment of error, to
wit:
"The Court of Appeals
[has] erred in sustaining
the validity of the writ of
injunction issued by the
trial court which enjoined
LTO from (1) registering
tricycles-for-hire and (2)
issuing licenses for the
driving thereof since the
Local Government Code
devolved only the
franchising authority of
Jeremiah 29:11
the LTFRB. Functions of
the LTO were not
devolved to the LGU's." [8]
The petition is impressed with merit.
The Department of Transportation and
Communications ("DOTC"), through
[9]
the LTO and the LTFRB, has since
been tasked with implementing laws
pertaining to land transportation. The
LTO is a line agency under the DOTC
whose powers and functions, pursuant
to Article III, Section 4 (d) (1), of[10]
R.A. No.4136, otherwise known
as Land Transportation and Traffic
Code, as amended, deal primarily with
the registration of all motor vehicles
and the licensing of drivers thereof. The
LTFRB, upon the other hand, is the
governing body tasked by E.O. No.
202, dated 19 June 1987, to regulate the
operation of public utility or "for hire"
vehicles and to grant franchises or
certificates of public convenience
("CPC"). Finely put, registration
[11]
and licensing functions are vested in
the LTO
while franchising and regulatory respo
nsibilities had been vested in the
LTFRB.
Under the Local Government Code,
certain functions of the DOTC were
transferred to the LGUs, thusly:
"SEC. 458. Powers,
Duties, Functions and
Compensation. - 
"xxx.......xxx.......xxx
182
 "(3) Subject to the
provisions of Book II of
this Code, enact
ordinances granting
franchises and authorizing
the issuance of permits or
licenses, upon such
conditions and for such
purposes intended to
promote the general
welfare of the inhabitants
of the city and pursuant to
this legislative authority
shall:
"xxx.......xxx.......xxx.
"(VI) Subject to the
guidelines prescribed by
the Department of
Transportation and
Communications,
regulate the operation of
tricycles and grant
franchises for the
operation thereof within
the territorial jurisdiction
of the city." (Emphasis
supplied)
LGUs indubitably now have the power
to regulate the operation of tricycles-
for-hire and to grant franchises for the
operation thereof. "To regulate" means
to fix, establish, or control; to adjust by
rule, method, or established mode; to
direct by rule or restriction; or to
subject to governing principles or
laws. A franchise is defined to be a
[12]
special privilege to do certain things
conferred by government on an
individual or corporation, and which
Jeremiah 29:11
does not belong to citizens generally of
common right. On the other hand, "to
[13]
register" means to record formally and
exactly, to enroll, or to enter precisely
in a list or the like, and a "driver's
[14]
license" is the certificate or license
issued by the government which
authorizes a person to operate a motor
vehicle. The devolution of the
[15]
functions of the DOTC, performed by
the LTFRB, to the LGUs, as so aptly
observed by the Solicitor General, is
aimed at curbing the alarming increase
of accidents in national highways
involving tricycles. It has been the
perception that local governments are
in good position to achieve the end
desired by the law-making body
because of their proximity to the
situation that can enable them to
address that serious concern better than
the national government.
It may not be amiss to state,
nevertheless, that under Article 458
(a)[3-VI] of the Local Government
Code, the power of LGUs to regulate
the operation of tricycles and to grant
franchises for the operation thereof is
still subject to the guidelines prescribed
by the DOTC. In compliance therewith,
the Department of Transportation and
Communications ("DOTC")
issued "Guidelines to Implement the
Devolution of LTFRBs Franchising
Authority over Tricycles-For-Hire to
Local Government units pursuant to the
Local Government Code." Pertinent
provisions of the guidelines state:
183
 "In lieu of the Land zone shall secure MTOP's
Transportation from each of the
Franchising and municipalities/cities
Regulatory Board having jurisdiction over
(LTFRB) in the DOTC, the areas covered by the
the Sangguniang zone.
Bayan/Sangguniang
Panglungsod (SB/SP) "3. A common color for
shall perform the tricycles-for-hire
following: operating in the same
zone may be imposed.
"(a) Issue, amend, revise, Each unit shall be
renew, suspend, or cancel assigned and bear an
MTOP and prescribe the identification number,
appropriate terms and aside from its LTO license
conditions plate number.
therefor;
"4. An operator wishing to
"xxx.......xxx.......xxx. stop service completely,
or to suspend service for
"Operating Conditions: more than one month,
should report in writing
"1. For safety reasons, no such termination or
tricycles should operate suspension to the SB/SP
on national highways which originally granted
utilized by 4 wheel the MTOP prior thereto.
vehicles greater than 4 Transfer to another zone
tons and where normal may be permitted upon
speed exceed 40 KPH. application.
However, the SB/SP may
provide exceptions if "5. The MTOP shall be
there is no alternative valid for three (3) years,
routs. renewable for the same
period. Transfer to
"2. Zones must be within another zone, change of
the boundaries of the ownership of unit or
municipality/city. transfer of MTOP shall be
However, existing zones construed as an
within more than one amendment to an MTOP
municipality/city shall be and shall require
maintained, provided that appropriate approval of
operators serving said the SB/SP.
184
Jeremiah 29:11
 "6. Operators shall
employ only drivers duly
licensed by LTO for
tricycles-for-hire.
"7. No tricycle-for-hire
shall be allowed to carry
more passengers and/or
goods than it is designed
for.
"8. A tricycle-for-hire
shall be allowed to
operate like a taxi service,
i.e., service is rendered
upon demand and without
a fixed route within a
zone." [16]
Such as can be gleaned from the
explicit language of the statute, as well
as the corresponding guidelines issued
by DOTC, the newly delegated
powers pertain to the franchising
and regulatory powers theretofore
exercised by the LTFRB and not to
the functions of the LTO relative to
the registration of motor vehicles and
issuance of licenses for the driving
thereof. Clearly unaffected by the
Local Government Code are the powers
of LTO under R.A. No.4136 requiring
the registration of all kinds of motor
vehicles "used or operated on or upon
any public highway" in the country.
Thus -
"SEC. 5. All motor
vehicles and other
vehicles must be
registered. - (a) No motor
vehicle shall be used or
Jeremiah 29:11
operated on or upon any
public highway of the
Philippines unless the
same is properly
registered for the current
year in accordance with
the provisions of this Act
(Article 1, Chapter II,
R.A. No. 4136).
The Commissioner of Land
Transportation and his deputies are
empowered at anytime to examine and
inspect such motor vehicles to
determine whether said vehicles are
registered, or are unsightly, unsafe,
improperly marked or equipped, or
otherwise unfit to be operated on
because of possible excessive damage
to highways, bridges and other
infrastructures. The LTO is
[17]
additionally charged with being the
central repository and custodian of all
records of all motor vehicles.[18]
The Court shares the apprehension of
the Solicitor General if the above
functions were to likewise devolve to
local government units; he states:
"If the tricycle registration
function of respondent
LTO is decentralized, the
incidence of theft of
tricycles will most
certainly go up, and stolen
tricycles registered in one
local government could be
registered in another with
ease. The determination of
ownership thereof will
185
 also become very
difficult.
"Fake driver's licenses
will likewise proliferate.
This likely scenario
unfolds where a tricycle
driver, not qualified by
petitioner LTO's testing,
could secure a license
from one municipality,
and when the same is
confiscated, could just go
another municipality to
secure another license.
"Devolution will entail the
hiring of additional
personnel charged with
inspecting tricycles for
road worthiness, testing
drivers, and
documentation. Revenues
raised from tricycle
registration may not be
enough to meet salaries of
additional personnel and
incidental costs for tools
and equipment." [19]
The reliance made by respondents on
the broad taxing power of local
government units, specifically under
Section 133 of the Local Government
Code, is tangential. Police power and
taxation, along with eminent domain,
are inherent powers of sovereignty
which the State might share with local
government units by delegation given
under a constitutional or a statutory
fiat. All these inherent powers are for a
public purpose and legislative in nature
Jeremiah 29:11
but the similarities just about end there.
The basic aim of police power is public
good and welfare. Taxation, in its case,
focuses on the power of government to
raise revenue in order to support its
existence and carry out its legitimate
objectives. Although correlative to each
other in many respects, the grant of one
does not necessarily carry with it the
grant of the other. The two powers are,
by tradition and jurisprudence, separate
and distinct powers, varying in their
respective concepts, character, scopes
and limitations. To construe the tax
provisions of Section 133(1)
indistinctively would result in the
repeal to that extent of LTO's
regulatory power which evidently has
not been intended. If it were otherwise,
the law could have just said so in
Section 447 and 458 of Book III of the
Local Government Code in the same
manner that the specific devolution of
LTFRB's power on franchising of
tricycles has been provided. Repeal by
implication is not favored. The power
[20]
over tricycles granted under Section
458(a)(3)(VI) of the Local Government
Code to LGUs is the power to regulate
their operation and to grant franchises
for the operation thereof. The
exclusionary clause contained in the tax
provisions of Section 133(1) of the
Local Government Code must not be
held to have had the effect of
withdrawing the express power of LTO
to cause the registration of all motor
vehicles and the issuance of licenses for
the driving thereof. These functions of
the LTO are essentially regulatory in
nature, exercised pursuant to the police
186
power of the State, whose basic
objectives are to achieve road safety by
insuring the road worthiness of these
motor vehicles and the competence of
drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute
must not be construed in isolation but
must be taken in harmony with the
extant body of laws. 
[21]
The Court cannot end this decision
without expressing its own serious
concern over the seeming laxity in
the grant of franchises for the
operation of tricycles-for-hire and in
allowing the indiscriminate use by
such vehicles on public highways and
principal thoroughfares. Senator
Aquilino C. Pimentel, Jr., the principal
author, and sponsor of the bill that
eventually has become to be known as
the Local Government Code, has aptly
remarked:
"Tricycles are a popular
means of transportation,
specially in the
countryside. They are,
unfortunately, being
allowed to drive along
highways and principal
thoroughfares where
they pose hazards to
their passengers arising
from potential collisions
with buses, cars and
jeepneys.
"The operation of
tricycles within a
municipality may be
regulated by
Jeremiah 29:11
the Sangguniang
Bayan. In this
connection,
the Sangguniang concer
ned would do well to
consider prohibiting the
operation of tricycles
along or across
highways invite
collisions with faster and
bigger vehicles and
impede the flow of
traffic."[22]
The need for ensuring public safety and
convenience to commuters and
pedestrians alike is paramount. It might
be well, indeed, for public officials
concerned to pay heed to a number of
provisions in our laws that can warrant
in appropriate cases an incurrence of
criminal and civil liabilities. Thus -
The Revised Penal Code -
"Art. 208. Prosecution of
offenses; negligence and
tolerance. - The penalty
of prision correccional in
its minimum period and
suspension shall be
imposed upon any public
officer, or officer of the
law, who, in dereliction of
the duties of his office,
shall maliciously refrain
from instituting
prosecution for the
punishment of violators of
the law, or shall tolerate
the commission of
offenses."
187
The Civil Code -
"Art. 27. Any person
suffering material or
moral loss because a
public servant or
employee refuses or
neglects, without just
cause, to perform his
official duty may file an
action for damages and
other relief against the
latter, without prejudice to
any disciplinary
administrative action that
may be taken."
"Art. 34. When a member
of a city or municipal
police force refuses or
fails to render aid or
protection to any person
in case of danger to life or
property, such peace
officer shall be primarily
liable for damages, and
the city or municipality
shall be subsidiarily
responsible therefor. The
civil action herein
recognized shall be
independent of any
criminal, proceedings, and
a preponderance of
evidence shall suffice to
support such action."
"Art. 2189. Provinces,
cities and municipalities
shall be liable for
damages for the death of,
or injuries suffered by,
Jeremiah 29:11
any person by reason of
the defective condition of
roads, streets, bridges,
public buildings, and
other public works under
their control or
supervision."
The Local Government Code -
"Sec. 24. Liability for
Damages. - Local
government units and
their officials are not
exempt from liability for
death or injury to persons
or damage to property."
WHEREFORE, the assailed decision
which enjoins the Land Transportation
Office from requiring the due
registration of tricycles and a license
for the driving thereof is REVERSED
and SET ASIDE.
No pronouncements on costs.
Let copies of this decision be likewise
furnished the Department of Interior
and Local Governments, the
Department of Public Works and
Highways and the Department of
Transportation and Communication.
SO ORDERED.
188

G.R. No. L-28138 August 13, 1986
MATALIN COCONUT CO., INC., petitioner-
appellee,
vs.
THE MUNICIPAL COUNCIL OF
MALABANG, LANAO DEL SUR, AMIR M.
BALINDONG and HADJI PANGILAMUN
MANALOCON, MUNICIPAL MAYOR and
MUNICIPAL TREASURER OF MALABANG,
LANAO DEL SUR, respondents-
appellants. PURAKAN PLANTATION
COMPANY, intervenor-appellee.
YAP, J.:
On August 24, 1966, the Municipal Council of
Malabang, Lanao del Sur, invoking the
authority of Section 2 of Republic Act No.
2264, otherwise known as the Local
Autonomy Act, enacted Municipal Ordinance
No. 45-46, entitled "AN ORDINANCE
IMPOSING A POLICE INSPECTION FEE OF
P.30 PER SACK OF CASSAVA STARCH
PRODUCED AND SHIPPED OUT OF THE
MUNICIPALITY OF MALABANG AND
Jeremiah 29:11
IMPOSING PENALTIES FOR VIOLATIONS
THEREOF." The ordinance made it unlawful
for any person, company or group of persons
"to ship out of the Municipality of Malabang,
cassava starch or flour without paying to the
Municipal Treasurer or his authorized
representatives the corresponding fee fixed by
(the) ordinance." It imposed a "police
inspection fee" of P.30 per sack of cassava
starch or flour, which shall be paid by the
shipper before the same is transported or
shipped outside the municipality. Any person
or company or group of individuals violating
the ordinance "is liable to a fine of not less
than P100.00, but not more than P1,000.00,
and to pay Pl.00 for every sack of flour being
illegally shipped outside the municipality, or to
suffer imprisonment of 20 days, or both, in the
discretion of the court.
The validity of the ordinance was challenged
by the Matalin Coconut, Inc. in a petition for
declaratory relief filed with the then Court of
First Instance of Lanao del Sur against the
Municipal Council, the Municipal Mayor and
the Municipal Treasurer of Malabang, Lanao
del Sur. Alleging among others that the
ordinance is not only ultra vires, being
violative of Republic Act No. 2264, but also
unreasonable, oppressive and confiscatory,
the petitioner prayed that the ordinance be
declared null and void ab initio, and that the
respondent Municipal Treasurer be ordered to
refund the amounts paid by petitioner under
the ordinance. The petitioner also prayed that
during the pendency of the action, a
preliminary injunction be issued enjoining the
respondents from enforcing the ordinance.
The application for preliminary injunction,
however, was denied by the trial court; instead
respondent Municipal Treasurer was ordered
to allow payment of the taxes imposed by the
ordinance under protest.
Claiming that it was also adversely affected by
the ordinance, Purakan Plantation Company
was granted leave to intervene in the action.
The intervenor alleged that while its cassava
flour factory was situated in another
municipality, i.e., Balabagan, Lanao del Sur, it
had to transport the cassava starch and flour it
produced to the seashore through the
Municipality of Malabang for loading in
189
coastwise vessels; that the effect of the
enactment of Ordinance No. 45-46, is that
intervenor had to refrain from transporting its
products through the Municipality of Malabang
in order to ship them by sea to other places.
After trial, the Court a quo rendered a decision
declaring the municipal ordinance in question
null and void; ordering the respondent
Municipal Treasurer to refund to the petitioner
the payments it made under the said
ordinance from September 27, 1966 to May 2,
1967, amounting to P 25,500.00, as well as all
payments made subsequently thereafter; and
enjoining and prohibiting the respondents,
their agents or deputies, from collecting the
tax of P.30 per bag on the cassava flour or
starch belonging to intervenor, Purakan
Plantation Company, manufactured or milled
in the Municipality of Balabagan, but shipped
out through the Municipality of Malabang.
After the promulgation of the decision, the
Trial Court issued a writ of preliminary
mandatory injunction, upon motion of
petitioner, requiring the respondent Municipal
Treasurer to deposit with the Philippine
National Bank, Iligan Branch, in the name of
the Municipality of Malabang, whatever
amounts the petitioner had already paid or
shall pay pursuant to the ordinance in
question up to and until final termination of the
case; the deposit was not to be withdrawn
from the said bank without any order from the
court. On motion for reconsideration by
respondents, the writ was subsequently
modified on July 20, 1967, to require the
deposit only of amounts paid from the
effectivity of the writ up to and until the final
termination of the suit.
From the decision of the trial court, the
respondents appealed to this Court.
A motion to dismiss appeal filed by petitioner-
appellee, was denied by this court in its
resolution of October 31, 1967. Subsequently,
respondents-appellants filed a motion to
dissolve the writ of preliminary mandatory
injunction issued by the trial court on July 20,
1967. This motion was also denied by this
Court on January 10, 1968.
Jeremiah 29:11
Of the assignments of error raised by the
appellants in their Brief, only the following
need be discussed: (1) that the trial court
erred in adjudicating the money claim of the
petitioner in an action for declaratory relief;
and (2) that the trial court erred in declaring
the municipal ordinance in question null and
void.
The respondents-appellants maintain that it
was error for the trial court, in an action for
declaratory relief, to order the refund to
petitioner-appellee of the amounts paid by the
latter under the municipal ordinance in
question. It is the contention of respondents-
appellants that in an action for declaratory
relief, all the court can do is to construe the
validity of the ordinance in question and
declare the rights of those affected thereby.
The court cannot declare the ordinance illegal
and at the same time order the refund to
petitioner of the amounts paid under the
ordinance, without requiring petitioner to file
an ordinary action to claim the refund after the
declaratory relief judgment has become final.
Respondents maintain that under Rule 64 of
the Rules of Court, the court may advise the
parties to file the proper pleadings and convert
the hearing into an ordinary action, which was
not done in this case.
We find no merit in such contention. Under
Sec. 6 of Rule 64, the action for declaratory
relief may be converted into an ordinary action
and the parties allowed to file such pleadings
as may be necessary or proper, if before the
final termination of the case "a breach or
violation of an...ordinance, should take place."
In the present case, no breach or violation of
the ordinance occurred. The petitioner
decided to pay "under protest" the fees
imposed by the ordinance. Such payment did
not affect the case; the declaratory relief
action was still proper because the
applicability of the ordinance to future
transactions still remained to be resolved,
although the matter could also be threshed
out in an ordinary suit for the recovery of taxes
paid (Shell Co. of the Philippines, Ltd. vs.
Municipality of Sipocot, L-12680, March 20,
1959). In its petition for declaratory relief,
petitioner-appellee alleged that by reason of
the enforcement of the municipal ordinance by
190
respondents it was forced to pay under protest
the fees imposed pursuant to the said
ordinance, and accordingly, one of the reliefs
prayed for by the petitioner was that the
respondents be ordered to refund all the
amounts it paid to respondent Municipal
Treasurer during the pendency of the case.
The inclusion of said allegation and prayer in
the petition was not objected to by the
respondents in their answer. During the trial,
evidence of the payments made by the
petitioner was introduced. Respondents were
thus fully aware of the petitioner's claim for
refund and of what would happen if the
ordinance were to be declared invalid by the
court.
Respondents' contention, if sustained, would
in effect require a separate suit for the
recovery of the fees paid by petitioner under
protest. Multiplicity of suits should not be
allowed or encouraged and, in the context of
the present case, is clearly uncalled for and
unnecessary.
The main issue to be resolve in this case
whether not Ordinance No. 45-66 enacted by
respondent Municipal Council of Malabang,
Lanao del Sur, is valid. The respondents-
appellants contend that the municipality has
the power and authority to approve the
ordinance in question pursuant to Section 2 of
the Local Autonomy Act (Republic Act No.
2264).
Since the enactment of the Local Autonomy
Act, a liberal rule has been followed by this
Court in construing municipal ordinances
enacted pursuant to the taxing power granted
under Section 2 of said law. This Court has
construed the grant of power to tax under the
above-mentioned provision as sufficiently
plenary to cover "everything, excepting those
which are mentioned" therein, subject only to
the limitation that the tax so levied is for public
purposes, just and uniform (Nin Bay Mining
Company vs. Municipality of Roxas, Province
of Palawan, 14 SCRA 661; C.N. Hodges vs.
Municipal Board, Iloilo City, et al., 19 SCRA
28).
We agree with the finding of the trial court that
the amount collected under the ordinance in
Jeremiah 29:11
question partakes of the nature of a tax,
although denominated as "police inspection
fee" since its undeniable purpose is to raise
revenue. However, we cannot agree with the
trial court's finding that the tax imposed by the
ordinance is a percentage tax on sales which
is beyond the scope of the municipality's
authority to levy under Section 2 of the Local
Autonomy Act. Under the said provision,
municipalities and municipal districts are
prohibited from imposing" any percentage
tax on sales or other taxes in any
form based thereon. " The tax imposed under
the ordinance in question is not a percentage
tax on sales or any other form of tax based on
sales. It is a fixed tax of P.30 per bag of
cassava starch or flour "shipped out" of the
municipality. It is not based on sales.
However, the tax imposed under the
ordinance can be stricken down on another
ground. According to Section 2 of the
abovementioned Act, the tax levied must be
"for public purposes, just and uniform"
(Emphasis supplied.) As correctly held by the
trial court, the so-called "police inspection fee"
levied by the ordinance is "unjust and
unreasonable." Said the court a quo:
... It has been proven that the
only service rendered by the
Municipality of Malabang, by
way of inspection, is for the
policeman to verify from the
driver of the trucks of the
petitioner passing by at the
police checkpoint the number
of bags loaded per trip which
are to be shipped out of the
municipality based on the trip
tickets for the purpose of
computing the total amount of
tax to be collect (sic) and for
no other purpose. The
pretention of respondents that
the police, aside from counting
the number of bags shipped
out, is also inspecting the
cassava flour starch contained
in the bags to find out if the
said cassava flour starch is fit
for human consumption could
not be given credence by the
191
 Court because, aside from the
fact that said purpose is not so
stated in the ordinance in
question, the policemen of
said municipality are not
competent to determine if the
cassava flour starch are fit for
human consumption. The
further pretention of
respondents that the trucks of
the petitioner hauling the bags
of cassava flour starch from
the mill to the bodega at the
beach of Malabang are
escorted by a policeman from
the police checkpoint to the
beach for the purpose of
protecting the truck and its
cargoes from molestation by
undesirable elements could
not also be given credence by
the Court because it has been
shown, beyond doubt, that the
petitioner has not asked for the
said police protection because
there has been no occasion
where its trucks have been
molested, even for once, by
bad elements from the police
checkpoint to the bodega at
the beach, it is solely for the
purpose of verifying the correct
number of bags of cassava
flour starch loaded on the
trucks of the petitioner as
stated in the trip tickets, when
unloaded at its bodega at the
beach. The imposition,
therefore, of a police
inspection fee of P.30 per bag,
imposed by said ordinance is
unjust and unreasonable.
The Court finally finds the
inspection fee of P0.30 per
bag, imposed by the ordinance
in question to be excessive
and confiscatory. It has been
shown by the petitioner,
Matalin Coconut Company,
Inc., that it is merely realizing a
marginal average profit of
P0.40, per bag, of cassava
Jeremiah 29:11
flour starch shipped out from
the Municipality of Malabang
because the average
production is P15.60 per bag,
including transportation costs,
while the prevailing market
price is P16.00 per bag. The
further imposition, therefore, of
the tax of P0.30 per bag, by
the ordinance in question
would force the petitioner to
close or stop its cassava flour
starch milling business
considering that it is
maintaining a big labor force in
its operation, including a force
of security guards to guard its
properties. The ordinance,
therefore, has an adverse
effect on the economic growth
of the Municipality of
Malabang, in particular, and of
the nation, in general, and is
contrary to the economic
policy of the government.
Having found the ordinance in question to be
invalid, we find it unnecessary to rule on the
other errors assigned by the appellants.
WHEREFORE, petition is dismissed. The
decision of the court a quo is hereby affirmed.
No costs.
SO ORDERED.
192

G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator
of the Intestate Estate of the deceased
Antonio Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of
Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio
Padilla, First Assistant Solicitor General
Guillermo E. Torres and Solicitor Felicisimo R.
Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First
Instance of Negros Occidental to test the
legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known
as the Sugar Adjustment Act.
Jeremiah 29:11
Promulgated in 1940, the law in question
opens (section 1) with a declaration of
emergency, due to the threat to our industry
by the imminent imposition of export taxes
upon sugar as provided in the Tydings-
McDuffe Act, and the "eventual loss of its
preferential position in the United States
market"; wherefore, the national policy was
expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the
component elements thereof" and "to stabilize
the sugar industry so as to prepare it for the
eventuality of the loss of its preferential
position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides
for an increase of the existing tax on the
manufacture of sugar, on a graduated basis,
on each picul of sugar manufactured; while
section 3 levies on owners or persons in
control of lands devoted to the cultivation of
sugar cane and ceded to others for a
consideration, on lease or otherwise —
a tax equivalent to the difference
between the money value of the rental
or consideration collected and the
amount representing 12 per centum of
the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under
this Act shall accrue to a special fund
in the Philippine Treasury, to be
known as the 'Sugar Adjustment and
Stabilization Fund,' and shall be paid
out only for any or all of the following
purposes or to attain any or all of the
following objectives, as may be
provided by law.
First, to place the sugar industry in a
position to maintain itself, despite the
gradual loss of the preferntial position
of the Philippine sugar in the United
States market, and ultimately to insure
its continued existence
notwithstanding the loss of that market
and the consequent necessity of
193
 meeting competition in the free
markets of the world;
Second, to readjust the benefits
derived from the sugar industry by all
of the component elements thereof —
the mill, the landowner, the planter of
the sugar cane, and the laborers in the
factory and in the field — so that all
might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar
to areas more economically suited to
the production thereof; and
Fourth, to afford labor employed in the
industry a living wage and to improve
their living and working conditions:
Provided, That the President of the
Philippines may, until the adjourment
of the next regular session of the
National Assembly, make the
necessary disbursements from the
fund herein created (1) for the
establishment and operation of sugar
experiment station or stations and the
undertaking of researchers (a) to
increase the recoveries of the
centrifugal sugar factories with the
view of reducing manufacturing costs,
(b) to produce and propagate higher
yielding varieties of sugar cane more
adaptable to different district
conditions in the Philippines, (c) to
lower the costs of raising sugar cane,
(d) to improve the buying quality of
denatured alcohol from molasses for
motor fuel, (e) to determine the
possibility of utilizing the other by-
products of the industry, (f) to
determine what crop or crops are
suitable for rotation and for the
utilization of excess cane lands, and
(g) on other problems the solution of
which would help rehabilitate and
stabilize the industry, and (2) for the
improvement of living and working
conditions in sugar mills and sugar
plantations, authorizing him to
organize the necessary agency or
agencies to take charge of the
expenditure and allocation of said
Jeremiah 29:11
funds to carry out the purpose
hereinbefore enumerated, and,
likewise, authorizing the disbursement
from the fund herein created of the
necessary amount or amounts needed
for salaries, wages, travelling
expenses, equipment, and other
sundry expenses of said agency or
agencies.
Plaintiff, Walter Lutz, in his capacity as
Judicial Administrator of the Intestate Estate
of Antonio Jayme Ledesma, seeks to recover
from the Collector of Internal Revenue the
sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop
years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being
levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion
is not a public purpose for which a tax may be
constitutioally levied. The action having been
dismissed by the Court of First Instance, the
plaintifs appealed the case directly to this
Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his
assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise
of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in
full), will show that the tax is levied with a
regulatory purpose, to provide means for the
rehabilitation and stabilization of the
threatened sugar industry. In other words, the
act is primarily an exercise of the police
power.
This Court can take judicial notice of the fact
that sugar production is one of the great
industries of our nation, sugar occupying a
leading position among its export products;
that it gives employment to thousands of
laborers in fields and factories; that it is a
great source of the state's wealth, is one of
the important sources of foreign exchange
needed by our government, and is thus pivotal
in the plans of a regime committed to a policy
of currency stability. Its promotion, protection
and advancement, therefore redounds greatly
to the general welfare. Hence it was
competent for the legislature to find that the
general welfare demanded that the sugar
194
industry should be stabilized in turn; and in the
wide field of its police power, the lawmaking
body could provide that the distribution of
benefits therefrom be readjusted among its
components to enable it to resist the added
strain of the increase in taxes that it had to
sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59
L. Ed. 835; Johnson vs. State ex rel. Marey,
99 Fla. 1311, 128 So. 853; Maxcy Inc. vs.
Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey,
with reference to the citrus industry in Florida
— under the Sugar Stabilization Act, now in
The protection of a large industry
constituting one of the great sources
of the state's wealth and therefore
directly or indirectly affecting the
welfare of so great a portion of the
population of the State is affected to
such an extent by public interests as
to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the
protection and promotion of the sugar industry
is a matter of public concern, it follows that the
Legislature may determine within reasonable
bounds what is necessary for its protection
and expedient for its promotion. Here, the
legislative discretion must be allowed fully
play, subject only to the test of
reasonableness; and it is not contended that
the means provided in section 6 of the law
(above quoted) bear no relation to the
objective pursued or are oppressive in
character. If objective and methods are alike
constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation
may be made the implement of the state's
police power (Great Atl. & Pac. Tea Co. vs.
Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S.
vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L.
Ed. 579).
That the tax to be levied should burden the
sugar producers themselves can hardly be a
ground of complaint; indeed, it appears
rational that the tax be obtained precisely from
those who are to be benefited from the
Jeremiah 29:11
expenditure of the funds derived from it. At
any rate, it is inherent in the power to tax that
a state be free to select the subjects of
taxation, and it has been repeatedly held that
"inequalities which result from a singling out of
one particular class for taxation, or exemption
infringe no constitutional limitation"
(Carmichael vs. Southern Coal & Coke Co.,
301 U. S. 495, 81 L. Ed. 1245, citing
numerous authorities, at p. 1251).
From the point of view we have taken it
appears of no moment that the funds raised
question, should be exclusively spent in aid of
the sugar industry, since it is that very
enterprise that is being protected. It may be
that other industries are also in need of similar
protection; that the legislature is not required
by the Constitution to adhere to a policy of "all
or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84
L. Ed. 744, "if the law presumably hits the evil
where it is most felt, it is not to be overthrown
because there are other instances to which it
might have been applied;" and that "the
legislative authority, exerted within its proper
field, need not embrace all the evils within its
reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure
tax measure, it cannot be said that the
devotion of tax money to experimental
stations to seek increase of efficiency in sugar
production, utilization of by-products and
solution of allied problems, as well as to the
improvements of living and working conditions
in sugar mills or plantations, without any part
of such money being channeled directly to
private persons, constitutes expenditure of tax
money for private purposes, (compare
Everson vs. Board of Education, 91 L. Ed.
472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with
costs against appellant. So ordered.
195
in the case of Mendoza, Santos & Co. v. The
Municipality of Meycawayan, Bulacan, et
al., G. R. Nos. L-6069 and L-6070, April 30,
1954, to wit:

Without going into the question of

whether the provisions of the National
Internal Revenue Code which allows
the filing of an action for the recovery
of internal revenue taxes even if they
are not paid under protest may apply
to an action for the recovery of taxes
paid under a municipal ordinance, it
may be declared that letters sent to
the Secretary of Finance questioning
the legality of the ordinance and
indirectly asking for the refund of the
taxes paid can be considered as a
protest against the execution of the
said taxes by the municipal council in
contemplation of law.

(Can’t find the fulltext)

196
Jeremiah 29:11

G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as
Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of
Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as
Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S.
Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A.
Alafriz, Assistant Solicitor General Frine C.
Zaballero and Solicitor Dominador L. Quiroz
for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality
of Republic Act 1635,1 as amended by
Republic Act 2631,2 which provides as follows:
Jeremiah 29:11
To help raise funds for the Philippine
Tuberculosis Society, the Director of
Posts shall order for the period from
August nineteen to September thirty
every year the printing and issue of
semi-postal stamps of different
denominations with face value
showing the regular postage charge
plus the additional amount of five
centavos for the said purpose, and
during the said period, no mail matter
shall be accepted in the mails unless it
bears such semi-postal
stamps: Provided, That no such
additional charge of five centavos
shall be imposed on newspapers. The
additional proceeds realized from the
sale of the semi-postal stamps shall
constitute a special fund and be
deposited with the National Treasury
to be expended by the Philippine
Tuberculosis Society in carrying out its
noble work to prevent and eradicate
tuberculosis.
The respondent Postmaster General, in
implementation of the law, thereafter issued
four (4) administrative orders numbered 3
(June 20, 1958), 7 (August 9, 1958), 9
(August 28, 1958), and 10 (July 15, 1960). All
these administrative orders were issued with
the approval of the respondent Secretary of
Public Works and Communications.
The pertinent portions of Adm. Order 3 read
as follows:
Such semi-postal stamps could not be
made available during the period from
August 19 to September 30, 1957, for
lack of time. However, two
denominations of such stamps, one at
"5 + 5" centavos and another at "10 +
5" centavos, will soon be released for
use by the public on their mails to be
posted during the same period starting
with the year 1958.
xxx xxx xxx
During the period from August 19 to
September 30 each year starting in
197
 1958, no mail matter of whatever
class, and whether domestic or
foreign, posted at any Philippine Post
Office and addressed for delivery in
this country or abroad, shall be
accepted for mailing unless it bears at
least one such semi-postal stamp
showing the additional value of five
centavos intended for the Philippine
Tuberculosis Society.
In the case of second-class mails and
mails prepaid by means of mail
permits or impressions of postage
meters, each piece of such mail shall
bear at least one such semi-postal
stamp if posted during the period
above stated starting with the year
1958, in addition to being charged the
usual postage prescribed by existing
regulations. In the case of business
reply envelopes and cards mailed
during said period, such stamp should
be collected from the addressees at
the time of delivery. Mails entitled to
franking privilege like those from the
office of the President, members of
Congress, and other offices to which
such privilege has been granted, shall
each also bear one such semi-postal
stamp if posted during the said period.
Mails posted during the said period
starting in 1958, which are found in
street or post-office mail boxes without
the required semi-postal stamp, shall
be returned to the sender, if known,
with a notation calling for the affixing
of such stamp. If the sender is
unknown, the mail matter shall be
treated as nonmailable and forwarded
to the Dead Letter Office for proper
disposition.
Adm. Order 7, amending the fifth paragraph of
Adm. Order 3, reads as follows:
In the case of the following categories
of mail matter and mails entitled to
franking privilege which are not
exempted from the payment of the five
centavos intended for the Philippine
Tuberculosis Society, such extra
Jeremiah 29:11
charge may be collected in cash, for
which official receipt (General Form
No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the
manner hereinafter indicated:
1. Second-class mail. — Aside from
the postage at the second-class rate,
the extra charge of five centavos for
the Philippine Tuberculosis Society
shall be collected on each separately-
addressed piece of second-class mail
matter, and the total sum thus
collected shall be entered in the same
official receipt to be issued for the
postage at the second-class rate. In
making such entry, the total number of
pieces of second-class mail posted
shall be stated, thus: "Total charge for
TB Fund on 100 pieces . .. P5.00."
The extra charge shall be entered
separate from the postage in both of
the official receipt and the Record of
Collections.
2. First-class and third-class mail
permits. — Mails to be posted without
postage affixed under permits issued
by this Bureau shall each be charged
the usual postage, in addition to the
five-centavo extra charge intended for
said society. The total extra charge
thus received shall be entered in the
same official receipt to be issued for
the postage collected, as in
subparagraph 1.
3. Metered mail. — For each piece of
mail matter impressed by postage
meter under metered mail permit
issued by this Bureau, the extra
charge of five centavos for said
society shall be collected in cash and
an official receipt issued for the total
sum thus received, in the manner
indicated in subparagraph 1.
4. Business reply cards and
envelopes. — Upon delivery of
business reply cards and envelopes to
holders of business reply permits, the
five-centavo charge intended for said
society shall be collected in cash on
198
 each reply card or envelope delivered,
in addition to the required postage
which may also be paid in cash. An
official receipt shall be issued for the
total postage and total extra charge
received, in the manner shown in
subparagraph 1.
5. Mails entitled to franking privilege.
— Government agencies, officials,
and other persons entitled to the
franking privilege under existing laws
may pay in cash such extra charge
intended for said society, instead of
affixing the semi-postal stamps to their
mails, provided that such mails are
presented at the post-office window,
where the five-centavo extra charge
for said society shall be collected on
each piece of such mail matter. In
such case, an official receipt shall be
issued for the total sum thus collected,
in the manner stated in subparagraph
1.
Mail under permits, metered mails and
franked mails not presented at the
post-office window shall be affixed
with the necessary semi-postal
stamps. If found in mail boxes without
such stamps, they shall be treated in
the same way as herein provided for
other mails.
Adm. Order 9, amending Adm. Order 3, as
amended, exempts "Government and its
Agencies and Instrumentalities Performing
Governmental Functions." Adm. Order 10,
amending Adm. Order 3, as amended,
exempts "copies of periodical publications
received for mailing under any class of mail
matter, including newspapers and magazines
admitted as second-class mail."
The FACTS. On September l5, 1963 the
petitioner Benjamin P. Gomez mailed a letter
at the post office in San Fernando,
Pampanga. Because this letter, addressed to
a certain Agustin Aquino of 1014 Dagohoy
Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute,
it was returned to the petitioner.
Jeremiah 29:11
In view of this development, the petitioner
brough suit for declaratory relief in the Court
of First Instance of Pampanga, to test the
constitutionality of the statute, as well as the
implementing administrative orders issued,
contending that it violates the equal protection
clause of the Constitution as well as the rule
of uniformity and equality of taxation. The
lower court declared the statute and the
orders unconstitutional; hence this appeal by
the respondent postal authorities.
For the reasons set out in this opinion, the
judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it
necessary to dispose of the respondents'
contention that declaratory relief is unavailing
because this suit was filed after the petitioner
had committed a breach of the statute. While
conceding that the mailing by the petitioner of
a letter without the additional anti-TB stamp
was a violation of Republic Act 1635, as
amended, the trial court nevertheless refused
to dismiss the action on the ground that under
section 6 of Rule 64 of the Rules of Court, "If
before the final termination of the case a
breach or violation of ... a statute ... should
take place, the action may thereupon be
converted into an ordinary action."
The prime specification of an action for
declaratory relief is that it must be brought
"before breach or violation" of the statute has
been committed. Rule 64, section 1 so
provides. Section 6 of the same rule, which
allows the court to treat an action for
declaratory relief as an ordinary action,
applies only if the breach or violation occurs
after the filing of the action but before the
termination thereof.3
Hence, if, as the trial court itself admitted,
there had been a breach of the statute before
the firing of this action, then indeed the
remedy of declaratory relief cannot be availed
of, much less can the suit be converted into
an ordinary action.
199
Nor is there merit in the petitioner's argument
that the mailing of the letter in question did not
constitute a breach of the statute because the
statute appears to be addressed only to postal
authorities. The statute, it is true, in terms
provides that "no mail matter shall be
accepted in the mails unless it bears such
semi-postal stamps." It does not follow,
however, that only postal authorities can be
guilty of violating it by accepting mails without
the payment of the anti-TB stamp. It is
obvious that they can be guilty of violating the
statute only if there are people who use the
mails without paying for the additional anti-TB
stamp. Just as in bribery the mere offer
constitutes a breach of the law, so in the
matter of the anti-TB stamp the mere attempt
to use the mails without the stamp constitutes
a violation of the statute. It is not required that
the mail be accepted by postal authorities.
That requirement is relevant only for the
purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the
petitioner's choice of remedy is correct
because this suit was filed not only with
respect to the letter which he mailed on
September 15, 1963, but also with regard to
any other mail that he might send in the
future. Thus, in his complaint, the petitioner
prayed that due course be given to "other
mails without the semi-postal stamps which he
may deliver for mailing ... if any, during the
period covered by Republic Act 1635, as
amended, as well as other mails hereafter to
be sent by or to other mailers which bear the
required postage, without collection of
additional charge of five centavos prescribed
by the same Republic Act." As one whose
mail was returned, the petitioner is certainly
interested in a ruling on the validity of the
statute requiring the use of additional stamps.
II.
We now consider the constitutional objections
raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the
equal protection clause of the Constitution.
More specifically the claim is made that it
constitutes mail users into a class for the
Jeremiah 29:11
purpose of the tax while leaving untaxed the
rest of the population and that even among
postal patrons the statute discriminatorily
grants exemption to newspapers while
Administrative Order 9 of the respondent
Postmaster General grants a similar
exemption to offices performing governmental
functions. .
The five centavo charge levied by Republic
Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a
privilege, namely, the privilege of using the
mails. As such the objections levelled against
it must be viewed in the light of applicable
principles of taxation.
To begin with, it is settled that the legislature
has the inherent power to select the subjects
of taxation and to grant exemptions.4 This
power has aptly been described as "of wide
range and flexibility."5 Indeed, it is said that in
the field of taxation, more than in other areas,
the legislature possesses the greatest
freedom in classification.6 The reason for this
is that traditionally, classification has been a
device for fitting tax programs to local needs
and usages in order to achieve an equitable
distribution of the tax burden.7
That legislative classifications must be
reasonable is of course undenied. But what
the petitioner asserts is that statutory
classification of mail users must bear some
reasonable relationship to the end sought to
be attained, and that absent such relationship
the selection of mail users is constitutionally
impermissible. This is altogether a different
proposition. As explained in Commonwealth v.
Life Assurance Co.:8
While the principle that there must be
a reasonable relationship between
classification made by the legislation
and its purpose is undoubtedly true in
some contexts, it has no application to
a measure whose sole purpose is to
raise revenue ... So long as the
classification imposed is based upon
some standard capable of reasonable
comprehension, be that standard
based upon ability to produce revenue
or some other legitimate distinction,
200
 equal protection of the law has been
afforded. See Allied Stores of Ohio,
Inc. v. Bowers, supra, 358 U.S. at 527,
79 S. Ct. at 441; Brown Forman Co. v.
Commonwealth of Kentucky, 2d U.S.
56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on
equal protection grounds except by the
clearest demonstration that it sanctions
invidious discrimination, which is all that the
Constitution forbids. The remedy for unwise
legislation must be sought in the legislature.
Now, the classification of mail users is not
without any reason. It is based on ability to
pay, let alone the enjoyment of a privilege,
and on administrative convinience. In the
allocation of the tax burden, Congress must
have concluded that the contribution to the
anti-TB fund can be assured by those whose
who can afford the use of the mails.
The classification is likewise based on
considerations of administrative convenience.
For it is now a settled principle of law that
"consideration of practical administrative
convenience and cost in the administration of
tax laws afford adequate ground for imposing
a tax on a well recognized and defined
class."9 In the case of the anti-TB stamps,
undoubtedly, the single most important and
influential consideration that led the legislature
to select mail users as subjects of the tax is
the relative ease and convenienceof collecting
the tax through the post offices. The small
amount of five centavos does not justify the
great expense and inconvenience of collecting
through the regular means of collection. On
the other hand, by placing the duty of
collection on postal authorities the tax was
made almost self-enforcing, with as little cost
and as little inconvenience as possible.
And then of course it is not accurate to say
that the statute constituted mail users into a
class. Mail users were already a class by
themselves even before the enactment of the
statue and all that the legislature did was
merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as
amended, no more than reflects a distinction
that exists in fact. As Mr. Justice Frankfurter
said, "to recognize differences that exist in fact
Jeremiah 29:11
is living law; to disregard [them] and
concentrate on some abstract identities is
lifeless logic."10
Granted the power to select the subject of
taxation, the State's power to grant exemption
must likewise be conceded as a necessary
corollary. Tax exemptions are too common in
the law; they have never been thought of as
raising issues under the equal protection
clause.
It is thus erroneous for the trial court to hold
that because certain mail users are exempted
from the levy the law and administrative
officials have sanctioned an invidious
discrimination offensive to the Constitution.
The application of the lower courts theory
would require all mail users to be taxed, a
conclusion that is hardly tenable in the light of
differences in status of mail users. The
Constitution does not require this kind of
equality.
As the United States Supreme Court has said,
the legislature may withhold the burden of the
tax in order to foster what it conceives to be a
beneficent enterprise.11 This is the case of
newspapers which, under the amendment
introduced by Republic Act 2631, are exempt
from the payment of the additional stamp.
As for the Government and its
instrumentalities, their exemption rests on the
State's sovereign immunity from taxation. The
State cannot be taxed without its consent and
such consent, being in derogation of its
sovereignty, is to be strictly
construed.12 Administrative Order 9 of the
respondent Postmaster General, which lists
the various offices and instrumentalities of the
Government exempt from the payment of the
anti-TB stamp, is but a restatement of this
well-known principle of constitutional law.
The trial court likewise held the law invalid on
the ground that it singles out tuberculosis to
the exclusion of other diseases which, it is
said, are equally a menace to public health.
But it is never a requirement of equal
protection that all evils of the same genus be
eradicated or none at all.13 As this Court has
201
had occasion to say, "if the law presumably
hits the evil where it is most felt, it is not to be
overthrown because there are other instances
to which it might have been applied."14
2. The petitioner further argues that the tax in
question is invalid, first, because it is not
levied for a public purpose as no special
benefits accrue to mail users as taxpayers,
and second, because it violates the rule of
uniformity in taxation.
The eradication of a dreaded disease is a
public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a
return for what he pays, then it is sufficient
answer to say that the only benefit to which
the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of
living in an organized society, established and
safeguarded by the devotion of taxes to public
purposes. Any other view would preclude the
levying of taxes except as they are used to
compensate for the burden on those who pay
them and would involve the abandonment of
the most fundamental principle of government
— that it exists primarily to provide for the
common good.15
Nor is the rule of uniformity and equality of
taxation infringed by the imposition of a flat
rate rather than a graduated tax. A tax need
not be measured by the weight of the mail or
the extent of the service rendered. We have
said that considerations of administrative
convenience and cost afford an adequate
ground for classification. The same
considerations may induce the legislature to
impose a flat tax which in effect is a charge for
the transaction, operating equally on all
persons within the class regardless of the
amount involved.16 As Mr. Justice Holmes said
in sustaining the validity of a stamp act which
imposed a flat rate of two cents on every $100
face value of stock transferred:
One of the stocks was worth $30.75 a
share of the face value of $100, the
other $172. The inequality of the tax,
so far as actual values are concerned,
is manifest. But, here again equality in
this sense has to yield to practical
considerations and usage. There must
Jeremiah 29:11
be a fixed and indisputable mode of
ascertaining a stamp tax. In another
sense, moreover, there is equality.
When the taxes on two sales are
equal, the same number of shares is
sold in each case; that is to say, the
same privilege is used to the same
extent. Valuation is not the only thing
to be considered. As was pointed out
by the court of appeals, the familiar
stamp tax of 2 cents on checks,
irrespective of income or earning
capacity, and many others, illustrate
the necessity and practice of
sometimes substituting count for
weight ...17
According to the trial court, the money raised
from the sales of the anti-TB stamps is spent
for the benefit of the Philippine Tuberculosis
Society, a private organization, without
appropriation by law. But as the Solicitor
General points out, the Society is not really
the beneficiary but only the agency through
which the State acts in carrying out what is
essentially a public function. The money is
treated as a special fund and as such need
not be appropriated by law.18
3. Finally, the claim is made that the statute is
so broadly drawn that to execute it the
respondents had to issue administrative
orders far beyond their powers. Indeed, this is
one of the grounds on which the lower court
invalidated Republic Act 1631, as amended,
namely, that it constitutes an undue
delegation of legislative power.
Administrative Order 3, as amended by
Administrative Orders 7 and 10, provides that
for certain classes of mail matters (such as
mail permits, metered mails, business reply
cards, etc.), the five-centavo charge may be
paid in cash instead of the purchase of the
anti-TB stamp. It further states that mails
deposited during the period August 19 to
September 30 of each year in mail boxes
without the stamp should be returned to the
sender, if known, otherwise they should be
treated as nonmailable.
It is true that the law does not expressly
authorize the collection of five centavos
202
except through the sale of anti-TB stamps, but
such authority may be implied in so far as it
may be necessary to prevent a failure of the
undertaking. The authority given to the
Postmaster General to raise funds through the
mails must be liberally construed, consistent
with the principle that where the end is
required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which
shows on its face not only the amount of the
additional charge but also that of the regular
postage. In the case of business reply cards,
for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their
cards would be to make them pay much more
because the cards likewise bear the amount
of the regular postage.
It is likewise true that the statute does not
provide for the disposition of mails which do
not bear the anti-TB stamp, but a declaration
therein that "no mail matter shall be accepted
in the mails unless it bears such semi-postal
stamp" is a declaration that such mail matter
is nonmailable within the meaning of section
1952 of the Administrative Code.
Administrative Order 7 of the Postmaster
General is but a restatement of the law for the
guidance of postal officials and employees. As
for Administrative Order 9, we have already
said that in listing the offices and entities of
the Government exempt from the payment of
the stamp, the respondent Postmaster
General merely observed an established
principle, namely, that the Government is
exempt from taxation.
ACCORDINGLY, the judgment a quo is
reversed, and the complaint is dismissed,
without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon,
Makalintal, Sanchez, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
Jeremiah 29:11
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the
decision upholding Republic Act No. 1635 as
amended by Republic Act No. 2631 and the
majority opinion expounded with Justice
Castro's usual vigor and lucidity subject to one
qualification. With all due recognition of its
inherently persuasive character, it would seem
to me that the same result could be achieved
if reliance be had on police power rather than
the attribute of taxation, as the constitutional
basis for the challenged legislation.
1. For me, the state in question is an exercise
of the regulatory power connected with the
performance of the public service. I refer of
course to the government postal function, one
of respectable and ancient lineage. The
United States Constitution of 1787 vests in the
federal government acting through Congress
the power to establish post offices.1 The first
act providing for the organization of
government departments in the Philippines,
approved Sept. 6, 1901, provided for the
Bureau of Post Offices in the Department of
Commerce and Police.2 Its creation is thus a
manifestation of one of the many services in
which the government may engage for public
convenience and public interest. Such being
the case, it seems that any legislation that in
effect would require increase cost of postage
is well within the discretionary authority of the
government.
It may not be acting in a proprietary capacity
but in fixing the fees that it collects for the use
of the mails, the broad discretion that it enjoys
is undeniable. In that sense, the principle
announced in Esteban v. Cabanatuan City,3 in
an opinion by our Chief Justice, while not
precisely controlling furnishes for me more
than ample support for the validity of the
challenged legislation. Thus: "Certain
exactions, imposable under an authority other
than police power, are not subject, however,
to qualification as to the amount chargeable,
unless the Constitution or the pertinent laws
provide otherwise. For instance, the rates of
taxes, whether national or municipal, need not
be reasonable, in the absence of such
constitutional or statutory limitation. Similarly,
when a municipal corporation fixes the fees
203
for the use of its properties, such as public
markets, it does not wield the police power, or
even the power of taxation. Neither does it
assert governmental authority. It exercises
merely a proprietary function. And, like any
private owner, it is — in the absence of the
aforementioned limitation, which does not
exist in the Charter of Cabanatuan City
(Republic Act No. 526) — free to charge such
sums as it may deem best, regardless of the
reasonableness of the amount fixed, for the
prospective lessees are free to enter into the
corresponding contract of lease, if they are
agreeable to the terms thereof or, otherwise,
not enter into such contract."
2. It would appear likewise that an expression
of one's personal view both as to
the attitude and awareness that must be
displayed by inferior tribunals when the
"delicate and awesome" power of passing on
the validity of a statute would not be
inappropriate. "The Constitution is the
supreme law, and statutes are written and
enforced in submission to its commands."4 It is
likewise common place in constitutional law
that a party adversely affected could, again to
quote from Cardozo, "invoke, when
constitutional immunities are threatened, the
judgment of the courts."5
Since the power of judicial review flows
logically from the judicial function of
ascertaining the facts and applying the law
and since obviously the Constitution is the
highest law before which statutes must bend,
then inferior tribunals can, in the discharge of
their judicial functions, nullify legislative acts.
As a matter of fact, in clear cases, such is not
only their power but their duty. In the language
of the present Chief Justice: "In fact,
whenever the conflicting claims of the parties
to a litigation cannot properly be settled
without inquiring into the validity of an act of
Congress or of either House thereof, the
courts have, not only jurisdiction to pass upon
said issue but, also, the duty to do so, which
cannot be evaded without violating the
fundamental law and paving the way to its
eventual destruction."6
Nonetheless, the admonition of Cooley,
specially addressed to inferior tribunals, must
Jeremiah 29:11
ever be kept in mind. Thus: "It must be evident
to any one that the power to declare a
legislative enactment void is one which the
judge, conscious of the fallibility of the human
judgment, will shrink from exercising in any
case where he can conscientiously and with
due regard to duty and official oath decline the
responsibility."7
There must be a caveat however to the above
Cooley pronouncement. Such should not be
the case, to paraphrase Freund, when the
challenged legislation imperils freedom of the
mind and of the person, for given such an
undesirable situation, "it is freedom that
commands a momentum of respect." Here
then, fidelity to the great ideal of liberty
enshrined in the Constitution may require the
judiciary to take an uncompromising and
militant stand. As phrased by us in a recent
decision, "if the liberty involved were freedom
of the mind or the person, the standard of its
validity of governmental acts is much more
rigorous and exacting."8
So much for the appropriate judicial attitude.
Now on the question of awareness of the
controlling constitutional doctrines.
There is nothing I can add to the enlightening
discussion of the equal protection aspect as
found in the majority opinion. It may not be
amiss to recall to mind, however, the
language of Justice Laurel in the leading case
of People v. Vera,9 to the effect that the basic
individual right of equal protection "is a
restraint on all the three grand departments of
our government and on the subordinate
instrumentalities and subdivisions thereof, and
on many constitutional powers, like the police
power, taxation and eminent
domain."10 Nonetheless, no jurist was more
careful in avoiding the dire consequences to
what the legislative body might have deemed
necessary to promote the ends of public
welfare if the equal protection guaranty were
made to constitute an insurmountable
obstacle.
A similar sense of realism was invariably
displayed by Justice Frankfurter, as is quite
evident from the various citations from his pen
found in the majority opinion. For him, it would
204
be a misreading of the equal protection clause
to ignore actual conditions and settled
practices. Not for him the at times academic
and sterile approach to constitutional
problems of this sort. Thus: "It would be a
narrow conception of jurisprudence to confine
the notion of 'laws' to what is found written on
the statute books, and to disregard the gloss
which life has written upon it. Settled state
practice cannot supplant constitutional
guaranties, but it can establish what is state
law. The Equal Protection Clause did not write
an empty formalism into the Constitution.
Deeply embedded traditional ways of carrying
out state policy, such as those of which
petitioner complains, are often tougher and
truer law than the dead words of the written
text."11 This too, from the same distinguished
jurist: "The Constitution does not require
things which are different in fact or opinion to
be treated in law as though they were the
same."12
Now, as to non-delegation. It is to be admitted
that the problem of non-delegation of
legislative power at times occasions
difficulties. Its strict view has been announced
by Justice Laurel in the aforecited case
of People v. Verain this language. Thus: "In
testing whether a statute constitutes an undue
delegation of legislative power or not, it is
usual to inquire whether the statute was
complete in all its terms and provisions when
it left the hands of the legislature so that
nothing was left to the judgment of any other
appointee or delegate of the legislature. ....
In United States v. Ang Tang Ho ..., this court
adhered to the foregoing rule; it held an act of
the legislature void in so far as it undertook to
authorize the Governor-General, in his
discretion, to issue a proclamation fixing the
price of rice and to make the sale of it in
violation of the proclamation a crime."13
Only recently, the present Chief Justice
reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation
deals not with an administrative function but
one essentially and eminently legislative in
character. What could properly be stigmatized
though to quote Justice Cardozo, is delegation
of authority that is "unconfined and vagrant,
Jeremiah 29:11
one not canalized within banks which keep it
from overflowing."15
This is not the situation as it presents itself to
us. What was delegated was power not
legislative in character. Justice Laurel himself,
in a later case, People v.
Rosenthal,16 admitted that within certain limits,
there being a need for coping with the more
intricate problems of society, the principle of
"subordinate legislation" has been accepted,
not only in the United States and England, but
in practically all modern governments. This
view was reiterated by him in a 1940
decision, Pangasinan Transportation Co., Inc.
v. Public Service Commission.17 Thus:
"Accordingly, with the growing complexity of
modern life, the multiplication of the subjects
of governmental regulation, and the increased
difficulty of administering the laws, there is a
constantly growing tendency toward the
delegation of greater powers by the
legislature, and toward the approval of the
practice by the courts."
In the light of the above views of eminent
jurists, authoritative in character, of both the
equal protection clause and the non-
delegation principle, it is apparent how far the
lower court departed from the path of
constitutional orthodoxy in nullifying Republic
Act No. 1635 as amended. Fortunately, the
matter has been set right with the reversal of
its decision, the opinion of the Court,
manifesting its fealty to constitutional law
precepts, which have been reiterated time and
time again and for the soundest of reasons.
205

G.R. No. 101273 July 3, 1992
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
Jeremiah 29:11
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
206
 to be subject to the additional duty of nine
(9%) percent ad valorem.
Section 401 of the same Code needs to be quoted in full:
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
Jeremiah 29:11
(Emphasis supplied)
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
207
 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].)
Jeremiah 29:11
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
208
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.
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE
PHILIPPINES, INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE
MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY
TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-
appellant.
The City Attorney of Butuan City for
defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of
the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the
Philippines, is a domestic corporation with
offices and principal place of business in
Jeremiah 29:11
Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its
municipal board and its City Treasurer.
Plaintiff — seeks to recover the sums paid by
it to the City of Butuan — hereinafter referred
to as the City and collected by the latter,
pursuant to its Municipal Ordinance No. 110,
as amended by Municipal Ordinance No. 122,
both series of 1960, which plaintiff assails as
null and void, and to prevent the enforcement
thereof. Both parties submitted the case for
decision in the lower court upon a stipulation
to the effect:
1. That plaintiff's warehouse in the City
of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks
for sale to customers in the City of
Butuan and all the municipalities in the
Province of Agusan. These "Pepsi-
Cola Cola" soft drinks are bottled in
Cebu City and shipped to the Butuan
City warehouse of plaintiff for
distribution and sale in the City of
Butuan and all municipalities of
Agusan. .
2. That on August 16, 1960, the City of
Butuan enacted Ordinance No. 110
which was subsequently amended by
Ordinance No. 122 and effective
November 28, 1960. A copy of
Ordinance No. 110, Series of 1960
and Ordinance No. 122 are
incorporated herein as Exhibits "A"
and "B", respectively.
3. That Ordinance No. 110 as
amended, imposes a tax on any
person, association, etc., of P0.10 per
case of 24 bottles of Pepsi-Cola and
the plaintiff paid under protest the
amount of P4,926.63 from August 16
to December 31, 1960 and the amount
of P9,250.40 from January 1 to July
30, 1961.
4. That the plaintiff filed the foregoing
complaint for the recovery of the total
amount of P14,177.03 paid under
protest and those that if may later on
pay until the termination of this case
on the ground that Ordinance No. 110
209
 as amended of the City of Butuan is
illegal, that the tax imposed is
excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110
as amended, the City Treasurer of
Butuan City, has prepared a form to
be accomplished by the plaintiff for the
computation of the tax. A copy of the
form is enclosed herewith as Exhibit
"C".
6. That the Profit and Loss Statement
of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its
warehouse in Butuan City is
incorporated herein as Exhibits "D" to
"D-1" to "D-5". In this Profit and Loss
Statement, the defendants claim that
the plaintiff is not entitled to a
depreciation of P3,052.63 but only
P1,202.55 in which case the profit of
plaintiff will be increased from
P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of
depreciation which the company
claims to be P3,052.62. This is in
accordance with the findings of the
representative of the undersigned City
Attorney who verified the records of
the plaintiff.
7. That beginning November 21, 1960,
the price of Pepsi-Cola per case of 24
bottles was increased to P1.92 which
price is uniform throughout the
Philippines. Said increase was made
due to the increase in the production
cost of its manufacture.
8. That the parties reserve the right to
submit arguments on the
constitutionality and illegality of
Ordinance No. 110, as amended of
the City of Butuan in their respective
memoranda.
xxx xxx xxx
1äw phï1.ñët
Section 1 of said Ordinance No. 110, as
amended, states what products are "liquors",
Jeremiah 29:11
within the purview thereof. Section 2 provides
for the payment by "any agent and/or
consignee" of any dealer "engaged in selling
liquors, imported or local, in the City," of taxes
at specified rates. Section 3 prescribes a tax
of P0.10 per case of 24 bottles of the soft
drinks and carbonated beverages therein
named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the
meaning of the term "consignee or agent" for
purposes of the ordinance. Section 4 provides
that said taxes "shall be paid at the end of
every calendar month." Pursuant to Section 5,
the taxes "shall be based and computed from
the cargo manifest or bill of lading or any other
record showing the number of cases of soft
drinks, liquors or all other soft drinks or
carbonated drinks received within the month."
Sections 6, 7 and 8 specify the surcharge to
be added for failure to pay the taxes within the
period prescribed and the penalties imposable
for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure
"to furnish the office of the City Treasurer a
copy of the bill of lading or cargo manifest or
record of soft drinks, liquors or carbonated
drinks for sale in the City." Section 9 makes
the ordinance applicable to soft drinks, liquors
or carbonated drinks "received outside" but
"sold within" the City. Section 10 of the
ordinance provides that the revenue derived
therefrom "shall be alloted as follows: 40% for
Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance
is null and void because: (1) it partakes of the
nature of an import tax; (2) it amounts to
double taxation; (3) it is excessive, oppressive
and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic
Act No. 2264, upon the authority of which it
was enacted, is an unconstitutional delegation
of legislative powers.
The second and last objections are manifestly
devoid of merit. Indeed — independently of
whether or not the tax in question, when
considered in relation to the sales tax
prescribed by Acts of Congress, amounts to
double taxation, on which we need not and do
not express any opinion - double taxation, in
general, is not forbidden by our fundamental
210
law. We have not adopted, as part thereof, the
injunction against double taxation found in the
Constitution of the United States and of some
States of the Union.1 Then, again, the general
principle against delegation of legislative
powers, in consequence of the theory of
separation of powers2 is subject to one well-
established exception, namely: legislative
powers may be delegated to local
governments — to which said theory does not
apply3 — in respect of matters of local
concern.
The third objection is, likewise, untenable. The
tax of "P0.10 per case of 24 bottles," of soft
drinks or carbonated drinks — in the
production and sale of which plaintiff is
engaged — or less than P0.0042 per bottle, is
manifestly too small to be excessive,
oppressive, or confiscatory.
The first and the fourth objections merit,
however, serious consideration. In this
connection, it is noteworthy that the tax
prescribed in section 3 of Ordinance No. 110,
as originally approved, was imposed upon
dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale
of said merchandise. As amended by
Ordinance No. 122, the tax is, however,
imposed only upon "any agent and/or
consignee of any person, association,
partnership, company or corporation engaged
in selling ... soft drinks or carbonated drinks."
And, pursuant to section 3-A, which was
inserted by said Ordinance No. 122:
... — Definition of the Term Consignee
or Agent. — For purposes of this
Ordinance, a consignee of agent shall
mean any person, association,
partnership, company or corporation
who acts in the place of another by
authority from him or one entrusted
with the business of another or to
whom is consigned or shipped no less
than 1,000 cases of hard liquors or
soft drinks every month for resale,
either retail or wholesale.
As a consequence, merchants engaged in the
sale of soft drink or carbonated drinks, are not
Jeremiah 29:11
subject to the tax, unless they are agents
and/or consignees of another dealer, who, in
the very nature of things, must be one
engaged in business outside the City.
Besides, the tax would not be applicable to
such agent and/or consignee, if less than
1,000 cases of soft drinks are consigned or
shipped to him every month. When we
consider, also, that the tax "shall be based
and computed from the cargo manifest or bill
of lading ... showing the number of cases" —
not sold — but "received" by the taxpayer, the
intention to limit the application of the
ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof
becomes apparent. Viewed from this angle,
the tax partakes of the nature of an import
duty, which is beyond defendant's authority to
impose by express provision of law.4
Even however, if the burden in question were
regarded as a tax on the sale of said
beverages, it would still be invalid, as
discriminatory, and hence, violative of the
uniformity required by the Constitution and the
law therefor, since only sales by "agents or
consignees" of outside dealers would be
subject to the tax. Sales by local dealers, not
acting for or on behalf of other
merchants, regardless of the volume of their
sales, and even if the same exceeded those
made by said agents or consignees of
producers or merchants established outside
the City of Butuan, would be exempt from the
disputed tax.
It is true that the uniformity essential to the
valid exercise of the power of taxation does
not require identity or equality under all
circumstances, or negate the authority to
classify the objects of taxation.5 The
classification made in the exercise of this
authority, to be valid, must, however, be
reasonable6 and this requirement is not
deemed satisfied unless: (1) it is based upon
substantial distinctions which make real
differences; (2) these are germane to the
purpose of the legislation or ordinance; (3) the
classification applies, not only to present
conditions, but, also, to future conditions
substantially identical to those of the present;
and (4) the classification applies equally all
those who belong to the same class.7
211
These conditions are not fully met by the
ordinance in question.8 Indeed, if its purpose
were merely to levy a burden upon the sale of
soft drinks or carbonated beverages, there is
no reason why sales thereof by sealers other
than agents or consignees of producers or
merchants established outside the City of
Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is
hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as
amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to
plaintiff herein the amounts collected from and
paid under protest by the latter, with interest
thereon at the legal rate from the date of the
promulgation of this decision, in addition to the
costs, and defendants herein are, accordingly,
restrained and prohibited permanently from
enforcing said Ordinance, as amended. It is
so ordered.
G.R. No. L-46720 June 28, 1940
WELLS FARGO BANK & UNION TRUST
COMPANY, petitioner-appellant,
vs.
THE COLLECTOR OF INTERNAL
REVENUE, respondent-appellee.
De Witt, Perkins and Ponce Enrile for
appellant.
Office of the Solicitor-General Ozaeta and
Assistant Solicitor-General Concepcion for
appellee.
Ross, Lawrence, Selph and Carrascoso,
James Madison Ross and Federico Agrava as
amici curiæ.
MORAN, J.:
An appeal from a declaratory judgment
rendered by the Court of First Instance of
Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye,
died on September 16, 1932, at Los Angeles,
Jeremiah 29:11
California, the place of her alleged last
residence and domicile. Among the properties
she left her one-half conjugal share in 70,000
shares of stock in the Benguet Consolidated
Mining Company, an anonymous partnership
(sociedad anonima), organized and existing
under the laws of the Philippines, with is
principal office in the City of Manila. She left a
will which was duly admitted to probate in
California where her estate was administered
and settled. Petitioner-appellant, Wells Fargo
Bank & Union Trust Company, was duly
appointed trustee of the created by the said
will. The Federal and State of California's
inheritance taxes due on said shares have
been duly paid. Respondent Collector of
Internal Revenue sought to subject anew the
aforesaid shares of stock to the Philippine
inheritance tax, to which petitioner-appellant
objected. Wherefore, a petition for a
declaratory judgment was filed in the lower
court, with the statement that, "if it should be
held by a final declaratory judgment that the
transfer of the aforesaid shares of stock is
legally subject to the Philippine inheritance
tax, the petitioner will pay such tax, interest
and penalties (saving error in computation)
without protest and will not file to recover the
same; and the petitioner believes and t
herefore alleges that it should be held that
such transfer is not subject to said tax, the
respondent will not proceed to assess and
collect the same." The Court of First Instance
of Manila rendered judgment, holding that the
transmission by will of the said 35,000 shares
of stock is subject to Philippine inheritance
tax. Hence, this appeal by the petitioner.
Petitioner concedes (1) that the Philippine
inheritance tax is not a tax property, but upon
transmission by inheritance
(Lorenzo vs. Posadas, 35 Off. Gaz., 2393,
2395), and (2) that as to real and tangible
personal property of a non-resident decedent,
located in the Philippines, the Philippine
inheritance tax may be imposed upon their
transmission by death, for the self-evident
reason that, being a property situated in this
country, its transfer is, in some way,
defendant, for its effectiveness, upon
Philippine laws. It is contended, however, that,
as to intangibles, like the shares of stock in
question, their situs is in the domicile of the
212
owner thereof, and, therefore, their
transmission by death necessarily takes place
under his domiciliary laws.
Section 1536 of the Administrative Code, as
amended, provides that every transmission by
virtue of inheritance of any share issued by
any corporation of sociedad
anonima organized or constituted in the
Philippines, is subject to the tax therein
provided. This provision has already been
applied to shares of stock in a domestic
corporation which were owned by a British
subject residing and domiciled in Great
Britain. (Knowles vs. Yatco, G. R. No.
42967. See also Gibbs vs. Government of P.
I., G. R. No. 35694.) Petitioner, however,
invokes the rule laid down by the United
States Supreme Court in four cases (Farmers
Loan & Trust Company vs. Minnesota, 280
U.S. 204; 74 Law. ed., 371;
Baldwin vs. Missouri, 281 U.S., 586; 74 Law.
ed., 1056, Beidler vs. South Carolina Tax
Commission 282 U. S., 1; 75 Law. ed., 131;
First National Bank of Boston vs. Maine, 284
U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313;
77 A. L. R., 1401), to the effect that an
inheritance tax can be imposed with respect to
intangibles only by the State where the
decedent was domiciled at the time of his
death, and that, under the due-process
clause, the State in which a corporation has
been incorporated has no power to impose
such tax if the shares of stock in such
corporation are owned by a non-resident
decedent. It is to be observed, however, that
in a later case (Burnet vs. Brooks, 288 U. S.,
378; 77 Law. ed., 844), the United States
Supreme Court upheld the authority of the
Federal Government to impose an inheritance
tax on the transmission, by death of a non-
resident, of stock in a domestic (America)
corporation, irrespective of the situs of the
corresponding certificates of stock. But it is
contended that the doctrine in the foregoing
case is not applicable, because the due-
process clause is directed at the State and not
at the Federal Government, and that the
federal or national power of the United States
is to be determined in relation to other
countries and their subjects by applying the
principles of jurisdiction recognized in
international relations. Be that as it may, the
Jeremiah 29:11
truth is that the due-process clause is
"directed at the protection of the individual and
he is entitled to its immunity as much against
the state as against the national government."
(Curry vs. McCanless, 307 U. S., 357, 370; 83
Law. ed., 1339, 1349.) Indeed, the rule laid
down in the four cases relied upon by the
appellant was predicated on a proper regard
for the relation of the states of the American
Union, which requires that property should be
taxed in only one state and that jurisdiction to
tax is restricted accordingly. In other words,
the application to the states of the due-
process rule springs from a proper distribution
of their powers and spheres of activity as
ordained by the United States Constitution,
and such distribution is enforced and
protected by not allowing one state to reach
out and tax property in another. And these
considerations do not apply to the Philippines.
Our status rests upon a wholly distinct basis
and no analogy, however remote, cam be
suggested in the relation of one state of the
Union with another or with the United States.
The status of the Philippines has been aptly
defined as one which, though a part of the
United States in the international sense, is,
nevertheless, foreign thereto in a domestic
sense. (Downes vs. Bidwell, 182 U. S., 244,
341.)
At any rate, we see nothing of consequence in
drawing any distinct between the operation
and effect of the due-process clause as it
applies to the individual states and to the
national government of the United States. The
question here involved is essentially not one
of due-process, but of the power of the
Philippine Government to tax. If that power be
conceded, the guaranty of due process cannot
certainly be invoked to frustrate it, unless the
law involved is challenged, which is not, on
considerations repugnant to such guaranty of
due process of that of the equal protection of
the laws, as, when the law is alleged to be
arbitrary, oppressive or discriminatory.
Originally, the settled law in the United States
is that intangibles have only one situs for the
purpose of inheritance tax, and that such situs
is in the domicile of the decedent at the time
of his death. But this rule has, of late, been
relaxed. The maxim mobilia sequuntur
213
personam, upon which the rule rests, has
been described as a mere "fiction of law
having its origin in consideration of general
convenience and public policy, and cannot be
applied to limit or control the right of the state
to tax property within its jurisdiction" (State
Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and
must "yield to established fact of legal
ownership, actual presence and control
elsewhere, and cannot be applied if to do so
result in inescapable and patent injustice."
(Safe Deposit & Trust Co. vs. Virginia, 280 U.
S., 83, 91-92) There is thus a marked shift
from artificial postulates of law, formulated for
reasons of convenience, to the actualities of
each case.
An examination of the adjudged cases will
disclose that the relaxation of the original rule
rests on either of two fundamental
considerations: (1) upon the recognition of the
inherent power of each government to tax
persons, properties and rights within its
jurisdiction and enjoying, thus, the protection
of its laws; and (2) upon the principle that as o
intangibles, a single location in space is hardly
possible, considering the multiple, distinct
relationships which may be entered into with
respect thereto. It is on the basis of the first
consideration that the case of
Burnet vs.Brooks, supra, was decided by the
Federal Supreme Court, sustaining the power
of the Government to impose an inheritance
tax upon transmission, by death of a non-
resident, of shares of stock in a domestic
(America) corporation, regardless of the situs
of their corresponding certificates; and on the
basis of the second consideration, the case of
Cury vs. McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of
the argument that the imposition of the federal
estate tax is precluded by the due-process
clause of the Fifth Amendment, held:
The point, being solely one of
jurisdiction to tax, involves none of the
other consideration raised by
confiscatory or arbitrary legislation
inconsistent with the fundamental
conceptions of justice which are
embodied in the due-process clause
Jeremiah 29:11
for the protection of life, liberty, and
property of all persons — citizens and
friendly aliens alike. Russian
Volunteer Fleet vs. United States, 282
U. S., 481, 489; 75 Law ed., 473, 476;
41 S. Ct., 229; Nicholas vs. Coolidge,
274 U. S., 531; 542, 71 Law ed., 1184,
1192; 47 S. Ct., 710; 52 A. L. R.,
1081; Heiner vs. Donnon, 285 U.S.,
312, 326; 76 Law ed., 772, 779; 52 S.
Ct., 358. If in the instant case the
Federal Government had jurisdiction
to impose the tax, there is manifestly
no ground for assailing it.
Knowlton vs. Moore, 178 U.S., 41,
109; 44 Law. ed., 969, 996; 20 S. Ct.,
747; MaGray vs. United States, 195
U.S., 27, 61; 49 Law. ed., 78; 97; 24
S. Ct., 769; 1 Ann. Cas., 561;
Flint vs. Stone Tracy Co., 220 U.S.,
107, 153, 154; 55 Law. ed., 389, 414,
415; 31 S. Ct., 342; Ann. Cas., 1912B,
1312; Brushaber vs. Union p. R. Co.,
240 U.S., 1, 24; 60 Law. ed., 493, 504;
36 S. Ct., 236; L. R. A., 1917 D; 414,
Ann. Cas, 1917B, 713; United
States vs. Doremus, 249 U. S., 86, 93;
63 Law. ed., 439, 496; 39 S. Ct., 214.
(Emphasis ours.)
And, in sustaining the power of the Federal
Government to tax properties within its
borders, wherever its owner may have been
domiciled at the time of his death, the court
ruled:
. . . There does not appear, a priori, to
be anything contrary to the principles
of international law, or hurtful to the
polity of nations, in a State's taxing
property physically situated within its
borders, wherever its owner may have
been domiciled at the time of his
death. . . .
As jurisdiction may exist in more than
one government, that is, jurisdiction
based on distinct grounds — the
citizenship of the owner, his domicile,
the source of income, the situs of the
property — efforts have been made to
preclude multiple taxation through the
negotiation of appropriate international
214
 conventions. These endeavors,
however, have proceeded upon
express or implied recognition, and
not in denial, of the sovereign taxing
power as exerted by governments in
the exercise of jurisdiction upon any
one of these grounds. . . . (See pages
396-397; 399.)
In Curry vs. McCanless, supra, the court, in
deciding the question of whether the States of
Alabama and Tennessee may each
constitutionally impose death taxes upon the
transfer of an interest in intangibles held in
trust by an Alabama trustee but passing under
the will of a beneficiary decedent domiciles in
Tennessee, sustained the power of each
State to impose the tax. In arriving at this
conclusion, the court made the following
observations:
In cases where the owner of
intangibles confines his activity to the
place of his domicile it has been found
convenient to substitute a rule for a
reason, cf. New York ex rel.,
Cohn vs. Graves, 300 U.S., 308, 313;
81 Law. ed., 666, 670; 57 S. Ct., 466;
108 A. L. R., 721; First Bank Stock
Corp. vs. Minnesota, 301 U. S., 234,
241; 81 Law. ed., 1061, 1065; 57 S.
Ct., 677; 113 A. L. R., 228, by saying
that his intangibles are taxed at their
situs and not elsewhere, or perhaps
less artificially, by invoking the
maxim mobilia sequuntur personam.
Blodgett vs. Silberman, 277 U.S., 1;
72 Law. ed., 749; S. Ct., 410, supra;
Baldwin vs. Missouri, 281 U. S., 568;
74 Law. ed., 1056; 50 S. Ct., 436; 72
A. L. R., 1303, supra, which means
only that it is the identify owner at his
domicile which gives jurisdiction to tax.
But when the taxpayer extends his
activities with respect to his
intangibles, so as to avail himself of
the protection and benefit of the laws
of another state, in such a way as to
bring his person or properly within the
reach of the tax gatherer there, the
reason for a single place of taxation
no longer obtains, and the rule even
workable substitute for the reasons
Jeremiah 29:11
may exist in any particular case to
support the constitutional power of
each state concerned to tax. Whether
we regard the right of a state to tax as
founded on power over the object
taxed, as declared by Chief Justice
Marshall in McCulloch vs. Maryland, 4
Wheat., 316; 4 Law. ed., 579, supra,
through dominion over tangibles or
over persons whose relationships are
source of intangibles rights, or on the
benefit and protection conferred by the
taxing sovereignty, or both, it is
undeniable that the state of domicile is
not deprived, by the taxpayer's
activities elsewhere, of its
constitutional jurisdiction to tax, and
consequently that there are many
circumstances in which more than one
state may have jurisdiction to impose
a tax and measure it by some or all of
the taxpayer's intangibles. Shares or
corporate stock be taxed at the
domicile of the shareholder and also
at that of the corporation which the
taxing state has created and controls;
and income may be taxed both by the
state where it is earned and by the
state of the recipient's domicile.
protection, benefit, and power over the
subject matter are not confined to
either state. . . .(p. 1347-1349.)
. . . We find it impossible to say that
taxation of intangibles can be reduced
in every case to the mere mechanical
operation of locating at a single place,
and there taxing, every legal interest
growing out of all the complex legal
relationships which may be entered
into between persons. This is the case
because in point of actuality those
interests may be too diverse in their
relationships to various taxing
jurisdictions to admit of unitary
treatment without discarding modes of
taxation long accepted and applied
before the Fourteen Amendment was
adopted, and still recognized by this
Court as valid. (P. 1351.)
We need not belabor the doctrines of the
foregoing cases. We believe, and so hold, that
215
the issue here involved is controlled by those
doctrines. In the instant case, the actual situs
of the shares of stock is in the Philippines, the
corporation being domiciled therein. And
besides, the certificates of stock have
remained in this country up to the time when
the deceased died in California, and they were
in possession of one Syrena McKee,
secretary of the Benguet Consolidated Mining
Company, to whom they have been delivered
and indorsed in blank. This indorsement gave
Syrena McKee the right to vote the certificates
at the general meetings of the stockholders, to
collect dividends, and dispose of the shares in
the manner she may deem fit, without
prejudice to her liability to the owner for
violation of instructions. For all practical
purposes, then, Syrena McKee had the legal
title to the certificates of stock held in trust for
the true owner thereof. In other words, the
owner residing in California has extended
here her activities with respect to her
intangibles so as to avail herself of the
protection and benefit of the Philippine laws.
Accordingly, the jurisdiction of the Philippine
Government to tax must be upheld.

Judgment is affirmed, with costs against

petitioner-appellant.

216
Jeremiah 29:11

G.R. No. L-65773-74 April 30, 1987
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
BRITISH OVERSEAS AIRWAYS
CORPORATION and COURT OF TAX
APPEALS, respondents.
Quasha, Asperilla, Ancheta, Peña, Valmonte
& Marcos for respondent British Airways.
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Internal Revenue
(CIR) seeks a review on certiorari of the joint
Decision of the Court of Tax Appeals (CTA) in
CTA Cases Nos. 2373 and 2561, dated 26
January 1983, which set aside petitioner's
assessment of deficiency income taxes
against respondent British Overseas Airways
Corporation (BOAC) for the fiscal years 1959
to 1967, 1968-69 to 1970-71, respectively, as
Jeremiah 29:11
well as its Resolution of 18 November, 1983
denying reconsideration.
BOAC is a 100% British Government-owned
corporation organized and existing under the
laws of the United Kingdom It is engaged in
the international airline business and is a
member-signatory of the Interline Air
Transport Association (IATA). As such it
operates air transportation service and sells
transportation tickets over the routes of the
other airline members. During the periods
covered by the disputed assessments, it is
admitted that BOAC had no landing rights for
traffic purposes in the Philippines, and was
not granted a Certificate of public convenience
and necessity to operate in the Philippines by
the Civil Aeronautics Board (CAB), except for
a nine-month period, partly in 1961 and partly
in 1962, when it was granted a temporary
landing permit by the CAB. Consequently, it
did not carry passengers and/or cargo to or
from the Philippines, although during the
period covered by the assessments, it
maintained a general sales agent in the
Philippines — Wamer Barnes and Company,
Ltd., and later Qantas Airways — which was
responsible for selling BOAC tickets covering
passengers and cargoes. 1
G.R. No. 65773 (CTA Case No. 2373, the
First Case)
On 7 May 1968, petitioner Commissioner of
Internal Revenue (CIR, for brevity) assessed
BOAC the aggregate amount of
P2,498,358.56 for deficiency income taxes
covering the years 1959 to 1963. This was
protested by BOAC. Subsequent investigation
resulted in the issuance of a new assessment,
dated 16 January 1970 for the years 1959 to
1967 in the amount of P858,307.79. BOAC
paid this new assessment under protest.
On 7 October 1970, BOAC filed a claim for
refund of the amount of P858,307.79, which
claim was denied by the CIR on 16 February
1972. But before said denial, BOAC had
already filed a petition for review with the Tax
Court on 27 January 1972, assailing the
assessment and praying for the refund of the
amount paid.
217
G.R. No. 65774 (CTA Case No. 2561, the
Second Case)
On 17 November 1971, BOAC was assessed
deficiency income taxes, interests, and
penalty for the fiscal years 1968-1969 to
1970-1971 in the aggregate amount of
P549,327.43, and the additional amounts of
P1,000.00 and P1,800.00 as compromise
penalties for violation of Section 46 (requiring
the filing of corporation returns) penalized
under Section 74 of the National Internal
Revenue Code (NIRC).
On 25 November 1971, BOAC requested that
the assessment be countermanded and set
aside. In a letter, dated 16 February 1972,
however, the CIR not only denied the BOAC
request for refund in the First Case but also
re-issued in the Second Case the deficiency
income tax assessment for P534,132.08 for
the years 1969 to 1970-71 plus P1,000.00 as
compromise penalty under Section 74 of the
Tax Code. BOAC's request for reconsideration
was denied by the CIR on 24 August 1973.
This prompted BOAC to file the Second Case
before the Tax Court praying that it be
absolved of liability for deficiency income tax
for the years 1969 to 1971.
This case was subsequently tried jointly with
the First Case.
On 26 January 1983, the Tax Court rendered
the assailed joint Decision reversing the CIR.
The Tax Court held that the proceeds of sales
of BOAC passage tickets in the Philippines by
Warner Barnes and Company, Ltd., and later
by Qantas Airways, during the period in
question, do not constitute BOAC income from
Philippine sources "since no service of
carriage of passengers or freight was
performed by BOAC within the Philippines"
and, therefore, said income is not subject to
Philippine income tax. The CTA position was
that income from transportation is income
from services so that the place where services
are rendered determines the source. Thus, in
the dispositive portion of its Decision, the Tax
Court ordered petitioner to credit BOAC with
the sum of P858,307.79, and to cancel the
deficiency income tax assessments against
Jeremiah 29:11
BOAC in the amount of P534,132.08 for the
fiscal years 1968-69 to 1970-71.
Hence, this Petition for Review on certiorari of
the Decision of the Tax Court.
The Solicitor General, in representation of the
CIR, has aptly defined the issues, thus:
1. Whether or not the revenue
derived by private respondent
British Overseas Airways
Corporation (BOAC) from
sales of tickets in the
Philippines for air
transportation, while having no
landing rights here, constitute
income of BOAC from
Philippine sources, and,
accordingly, taxable.
2. Whether or not during the
fiscal years in question BOAC
s a resident foreign
corporation doing business in
the Philippines or has an office
or place of business in the
Philippines.
3. In the alternative that private
respondent may not be
considered a resident foreign
corporation but a non-resident
foreign corporation, then it is
liable to Philippine income tax
at the rate of thirty-five per
cent (35%) of its gross income
received from all sources
within the Philippines.
Under Section 20 of the 1977 Tax Code:
(h) the term resident foreign
corporation engaged in trade
or business within the
Philippines or having an office
or place of business therein.
(i) The term "non-resident
foreign corporation" applies to
a foreign corporation not
engaged in trade or business
218
 within the Philippines and not
having any office or place of
business therein
It is our considered opinion that BOAC is a
resident foreign corporation. There is no
specific criterion as to what constitutes "doing"
or "engaging in" or "transacting" business.
Each case must be judged in the light of its
peculiar environmental circumstances. The
term implies a continuity of commercial
dealings and arrangements, and
contemplates, to that extent, the performance
of acts or works or the exercise of some of the
functions normally incident to, and in
progressive prosecution of commercial gain or
for the purpose and object of the business
organization. 2 "In order that a foreign
corporation may be regarded as doing
business within a State, there must be
continuity of conduct and intention to establish
a continuous business, such as the
appointment of a local agent, and not one of a
temporary character. 3
BOAC, during the periods covered by the
subject - assessments, maintained a general
sales agent in the Philippines, That general
sales agent, from 1959 to 1971, "was
engaged in (1) selling and issuing tickets; (2)
breaking down the whole trip into series of
trips — each trip in the series corresponding
to a different airline company; (3) receiving the
fare from the whole trip; and (4) consequently
allocating to the various airline companies on
the basis of their participation in the services
rendered through the mode of interline
settlement as prescribed by Article VI of the
Resolution No. 850 of the IATA
Agreement." 4 Those activities were in
exercise of the functions which are normally
incident to, and are in progressive pursuit of,
the purpose and object of its organization as
an international air carrier. In fact, the regular
sale of tickets, its main activity, is the very
lifeblood of the airline business, the
generation of sales being the paramount
objective. There should be no doubt then that
BOAC was "engaged in" business in the
Philippines through a local agent during the
period covered by the assessments.
Accordingly, it is a resident foreign corporation
subject to tax upon its total net income
Jeremiah 29:11
received in the preceding taxable year from all
sources within the Philippines. 5
Sec. 24. Rates of tax on
corporations. — ...
(b) Tax on foreign
corporations. — ...
(2) Resident corporations. — A
corporation organized,
authorized, or existing under
the laws of any foreign
country, except a foreign fife
insurance company, engaged
in trade or business within the
Philippines, shall be taxable as
provided in subsection (a) of
this section upon the total net
income received in the
preceding taxable year from all
sources within the
Philippines. (Emphasis
supplied)
Next, we address ourselves to the issue of
whether or not the revenue from sales of
tickets by BOAC in the Philippines constitutes
income from Philippine sources and,
accordingly, taxable under our income tax
laws.
The Tax Code defines "gross income" thus:
"Gross income" includes
gains, profits, and income
derived from salaries, wages
or compensation for personal
service of whatever kind and in
whatever form paid, or from
profession, vocations,
trades, business,
commerce, sales, or dealings
in property, whether real or
personal, growing out of the
ownership or use of or interest
in such property; also from
interests, rents, dividends,
securities, or the transactions
of any business carried on for
gain or profile, or gains, profits,
and income derived from any
219
 source whatever (Sec. 29[3];
Emphasis supplied)
The definition is broad and comprehensive to
include proceeds from sales of transport
documents. "The words 'income from any
source whatever' disclose a legislative policy
to include all income not expressly exempted
within the class of taxable income under our
laws." Income means "cash received or its
equivalent"; it is the amount of money coming
to a person within a specific time ...; it means
something distinct from principal or capital.
For, while capital is a fund, income is a flow.
As used in our income tax law, "income"
refers to the flow of wealth. 6
The records show that the Philippine gross
income of BOAC for the fiscal years 1968-69
to 1970-71 amounted to P10,428,368 .00. 7
Did such "flow of wealth" come from "sources
within the Philippines",
The source of an income is the property,
activity or service that produced the
income. 8 For the source of income to be
considered as coming from the Philippines, it
is sufficient that the income is derived from
activity within the Philippines. In BOAC's case,
the sale of tickets in the Philippines is the
activity that produces the income. The tickets
exchanged hands here and payments for
fares were also made here in Philippine
currency. The site of the source of payments
is the Philippines. The flow of wealth
proceeded from, and occurred within,
Philippine territory, enjoying the protection
accorded by the Philippine government. In
consideration of such protection, the flow of
wealth should share the burden of supporting
the government.
A transportation ticket is not a mere piece of
paper. When issued by a common carrier, it
constitutes the contract between the ticket-
holder and the carrier. It gives rise to the
obligation of the purchaser of the ticket to pay
the fare and the corresponding obligation of
the carrier to transport the passenger upon
the terms and conditions set forth thereon.
The ordinary ticket issued to members of the
Jeremiah 29:11
traveling public in general embraces within its
terms all the elements to constitute it a valid
contract, binding upon the parties entering into
the relationship. 9
True, Section 37(a) of the Tax Code, which
enumerates items of gross income from
sources within the Philippines, namely: (1)
interest, (21) dividends, (3) service, (4) rentals
and royalties, (5) sale of real property, and (6)
sale of personal property, does not mention
income from the sale of tickets for
international transportation. However, that
does not render it less an income from
sources within the Philippines. Section 37, by
its language, does not intend the enumeration
to be exclusive. It merely directs that the types
of income listed therein be treated as income
from sources within the Philippines. A cursory
reading of the section will show that it does
not state that it is an all-inclusive enumeration,
and that no other kind of income may be so
considered. " 10
BOAC, however, would impress upon this
Court that income derived from transportation
is income for services, with the result that the
place where the services are rendered
determines the source; and since BOAC's
service of transportation is performed outside
the Philippines, the income derived is from
sources without the Philippines and, therefore,
not taxable under our income tax laws. The
Tax Court upholds that stand in the joint
Decision under review.
The absence of flight operations to and from
the Philippines is not determinative of the
source of income or the site of income
taxation. Admittedly, BOAC was an off-line
international airline at the time pertinent to this
case. The test of taxability is the "source"; and
the source of an income is that activity ...
which produced the income. 11 Unquestionably, the
passage documentations in these cases were sold in the
Philippines and the revenue therefrom was derived from a
activity regularly pursued within the Philippines. business a And
even if the BOAC tickets sold covered the "transport of
passengers and cargo to and from foreign cities", 12 it cannot
alter the fact that income from the sale of tickets was derived
from the Philippines. The word "source" conveys one essential
idea, that of origin, and the origin of the income herein is the
Philippines. 13
It should be pointed out, however, that the assessments upheld
herein apply only to the fiscal years covered by the questioned
220
deficiency income tax assessments in these cases, or, from
1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential
Decree No. 69, promulgated on 24 November, 1972,
international carriers are now taxed as follows:
... Provided, however, That
international carriers shall pay
a tax of 2-½ per cent on their
cross Philippine billings. (Sec.
24[b] [21, Tax Code).
the acts, privileges or businesses are done or
performed within the jurisdiction of the
Philippines. The subject matter of the case
under consideration is income tax, a direct tax
on the income of persons and other entities
"of whatever kind and in whatever form
derived from any source." Since the two cases
treat of a different subject matter, the decision
in one cannot be res judicata to the other.

Presidential Decree No. 1355, promulgated on
21 April, 1978, provided a statutory definition
of the term "gross Philippine billings," thus:
... "Gross Philippine billings"
includes gross revenue
realized from uplifts anywhere
in the world by any
international carrier doing
business in the Philippines of
passage documents sold
therein, whether for
passenger, excess baggage or
mail provided the cargo or mail
originates from the Philippines.
...
WHEREFORE, the appealed joint Decision of
the Court of Tax Appeals is hereby SET
ASIDE. Private respondent, the British
Overseas Airways Corporation (BOAC), is
hereby ordered to pay the amount of
P534,132.08 as deficiency income tax for the
fiscal years 1968-69 to 1970-71 plus 5%
surcharge, and 1% monthly interest from April
16, 1972 for a period not to exceed three (3)
years in accordance with the Tax Code. The
BOAC claim for refund in the amount of
P858,307.79 is hereby denied. Without costs.
SO ORDERED.

The foregoing provision ensures that

international airlines are taxed on their income
from Philippine sources. The 2-½ % tax on
gross Philippine billings is an income tax. If it
had been intended as an excise or percentage
tax it would have been place under Title V of
the Tax Code covering Taxes on Business.

Lastly, we find as untenable the BOAC

argument that the dismissal for lack of merit
by this Court of the appeal in JAL vs.
Commissioner of Internal Revenue (G.R. No.
L-30041) on February 3, 1969, is res
judicata to the present case. The ruling by the
Tax Court in that case was to the effect that
the mere sale of tickets, unaccompanied by
the physical act of carriage of transportation,
does not render the taxpayer therein subject
to the common carrier's tax. As elucidated by
the Tax Court, however, the common carrier's
tax is an excise tax, being a tax on the activity
of transporting, conveying or removing
passengers and cargo from one place to
another. It purports to tax the business of
transportation. 14 Being an excise tax, the
same can be levied by the State only when

221
Jeremiah 29:11

G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as
Executive Secretary; ROBERTO DE
OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and
their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
Jeremiah 29:11
RAUL S. ROCO and the INTEGRATED BAR
OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT
OF FINANCE; THE COMMISSIONERS OF
THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP
PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and
OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her
capacity as Commissioner of Internal
Revenue; HON. TEOFISTO T. GUINGONA,
JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in
his capacity as Secretary of
Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND
BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA,
CIRILO A. RIGOS, ERME CAMBA, EMILIO
C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE
TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL,
MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM
FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE
SECRETARY OF FINANCE, THE
222
COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF
CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and
COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE
PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her
capacity as the Commissioner of Internal
Revenue, HON. TEOFISTO T. GUINGONA,
JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in
his capacity as Secretary of
Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS
ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the
Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of
our decision dismissing the petitions filed in
these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax
Law. The motions, of which there are 10 in all,
have been filed by the several petitioners in
these cases, with the exception of the
Jeremiah 29:11
Philippine Educational Publishers Association,
Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the
respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in
G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544,
and Juan T. David, petitioner in G.R. No.
115525, each filed a reply. In turn the Solicitor
General filed on June 1, 1995 a rejoinder to
the PPI's reply.
On June 27, 1995 the matter was submitted
for resolution.
I. Power of the Senate to propose
amendments to revenue bills. Some of the
petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber
of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by
them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives
as required by Art. VI, §24 of the Constitution.
Although they admit that H. No. 11197 was
filed in the House of Representatives where it
passed three readings and that afterward it
was sent to the Senate where after first
reading it was referred to the Senate Ways
and Means Committee, they complain that the
Senate did not pass it on second and third
readings. Instead what the Senate did was to
pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner
Tolentino adds that what the Senate
committee should have done was to amend H.
No. 11197 by striking out the text of the bill
and substituting it with the text of S. No. 1630.
That way, it is said, "the bill remains a House
bill and the Senate version just becomes the
text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only
instance in which the Senate proposed an
amendment to a House revenue bill by
enacting its own version of a revenue bill. On
at least two occasions during the Eighth
Congress, the Senate passed its own version
223
of revenue bills, which, in consolidation with 2. R.A. NO. 7643
House bills earlier passed, became the
enrolled bills. These were: AN ACT TO EMPOWER THE
COMMISSIONER OF
R.A. No. 7369 (AN ACT TO AMEND THE INTERNAL REVENUE TO
OMNIBUS INVESTMENTS CODE OF 1987 REQUIRE THE PAYMENT OF
BY EXTENDING FROM FIVE (5) YEARS TO THE VALUE-ADDED TAX
TEN YEARS THE PERIOD FOR TAX AND EVERY MONTH AND TO
DUTY EXEMPTION AND TAX CREDIT ON ALLOW LOCAL
CAPITAL EQUIPMENT) which was approved GOVERNMENT UNITS TO
by the President on April 10, 1992. This Act is SHARE IN VAT REVENUE,
actually a consolidation of H. No. 34254, AMENDING FOR THIS
which was approved by the House on January PURPOSE CERTAIN
29, 1992, and S. No. 1920, which was SECTIONS OF THE
approved by the Senate on February 3, 1992. NATIONAL INTERNAL
REVENUE CODE (December
R.A. No. 7549 (AN ACT GRANTING TAX 28, 1992)
EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE House Bill No. 1503,
WINNING A MEDAL IN OLYMPIC GAMES) September 3, 1992
which was approved by the President on May
22, 1992. This Act is a consolidation of H. No. Senate Bill No. 968, December
22232, which was approved by the House of 7, 1992
Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate 3. R.A. NO. 7646
on October 21, 1991.
AN ACT AUTHORIZING THE
On the other hand, the Ninth COMMISSIONER OF
Congress passed revenue laws which were INTERNAL REVENUE TO
also the result of the consolidation of House PRESCRIBE THE PLACE
and Senate bills. These are the following, with FOR PAYMENT OF
indications of the dates on which the laws INTERNAL REVENUE TAXES
were approved by the President and dates the BY LARGE TAXPAYERS,
separate bills of the two chambers of AMENDING FOR THIS
Congress were respectively passed: PURPOSE CERTAIN
PROVISIONS OF THE
1. R.A. NO. 7642 NATIONAL INTERNAL
REVENUE CODE, AS
AN ACT INCREASING THE AMENDED (February 24,
PENALTIES FOR TAX 1993)
EVASION, AMENDING FOR
THIS PURPOSE THE House Bill No. 1470, October
PERTINENT SECTIONS OF 20, 1992
THE NATIONAL INTERNAL
REVENUE CODE (December Senate Bill No. 35, November
28, 1992). 19, 1992

House Bill No. 2165, October 4. R.A. NO. 7649

5, 1992
AN ACT REQUIRING THE
Senate Bill No. 32, December GOVERNMENT OR ANY OF
7, 1992 ITS POLITICAL

224
Jeremiah 29:11
 SUBDIVISIONS,
INSTRUMENTALITIES OR
AGENCIES INCLUDING
GOVERNMENT-OWNED OR
CONTROLLED
CORPORATIONS (GOCCS)
TO DEDUCT AND
WITHHOLD THE VALUE-
ADDED TAX DUE AT THE
RATE OF THREE PERCENT
(3%) ON GROSS PAYMENT
FOR THE PURCHASE OF
GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS
FOR SERVICES RENDERED
BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January
26, 1993
Senate Bill No. 1141, March
30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING
GOVERNMENT-OWNED OR
CONTROLLED
CORPORATIONS TO
DECLARE DIVIDENDS
UNDER CERTAIN
CONDITIONS TO THE
NATIONAL GOVERNMENT,
AND FOR OTHER
PURPOSES (November 9,
1993)
House Bill No. 11024,
November 3, 1993
Senate Bill No. 1168,
November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING
FURTHER THE STRUCTURE
AND ADMINISTRATION OF
THE DOCUMENTARY
STAMP TAX, AMENDING
FOR THE PURPOSE
Jeremiah 29:11
CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED, ALLOCATING
FUNDS FOR SPECIFIC
PROGRAMS, AND FOR
OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31,
1993
Senate Bill No. 1330,
November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX
ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF
STOCK LISTED AND
TRADED THROUGH THE
LOCAL STOCK EXCHANGE
OR THROUGH INITIAL
PUBLIC OFFERING,
AMENDING FOR THE
PURPOSE THE NATIONAL
INTERNAL REVENUE CODE,
AS AMENDED, BY
INSERTING A NEW SECTION
AND REPEALING CERTAIN
SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187,
November 3, 1993
Senate Bill No. 1127, March
23, 1994
Thus, the enactment of S. No. 1630 is not the
only instance in which the Senate, in the
exercise of its power to propose amendments
to bills required to originate in the House,
passed its own version of a House revenue
measure. It is noteworthy that, in the particular
case of S. No. 1630, petitioners Tolentino and
Roco, as members of the Senate, voted to
approve it on second and third readings.
On the other hand, amendment by
substitution, in the manner urged by petitioner
225
Tolentino, concerns a mere matter of form.
Petitioner has not shown what substantial
difference it would make if, as the Senate
actually did in this case, a separate bill like S.
No. 1630 is instead enacted as a substitute
measure, "taking into Consideration . .
. H.B. 11197."
Indeed, so far as pertinent, the Rules of the
Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one
amendment to the original
amendment shall be
considered.
No amendment by substitution
shall be entertained unless the
text thereof is submitted in
writing.
Any of said amendments may
be withdrawn before a vote is
taken thereon.
§69. No amendment which
seeks the inclusion of a
legislative provision foreign to
the subject matter of a bill
(rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall
not be amended by
substituting it with another
which covers a subject distinct
from that proposed in the
original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention
that, with regard to revenue bills, the
Philippine Senate possesses less power than
the U.S. Senate because of textual
Jeremiah 29:11
differences between constitutional provisions
giving them the power to propose or concur
with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue
shall originate in the House of
Representatives; but the
Senate may propose or concur
with amendments as on other
Bills.
Art. VI, §24 of our Constitution reads:
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.
The addition of the word "exclusively" in the
Philippine Constitution and the decision to
drop the phrase "as on other Bills" in the
American version, according to petitioners,
shows the intention of the framers of our
Constitution to restrict the Senate's power to
propose amendments to revenue bills.
Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate"
and "the words 'as in any other bills' (sic) were
eliminated so as to show that these bills were
not to be like other bills but must be treated as
a special kind."
The history of this provision does not support
this contention. The supposed indicia of
constitutional intent are nothing but the relics
of an unsuccessful attempt to limit the power
of the Senate. It will be recalled that the 1935
Constitution originally provided for a
unicameral National Assembly. When it was
decided in 1939 to change to a bicameral
legislature, it became necessary to provide for
the procedure for lawmaking by the Senate
and the House of Representatives. The work
of proposing amendments to the Constitution
was done by the National Assembly, acting as
226
a constituent assembly, some of whose
members, jealous of preserving the
Assembly's lawmaking powers, sought to
curtail the powers of the proposed Senate.
Accordingly they proposed the following
provision:
All bills appropriating public
funds, revenue or tariff bills,
bills of local application, and
private bills shall originate
exclusively in the Assembly,
but the Senate may propose or
concur with amendments. In
case of disapproval by the
Senate of any such bills, the
Assembly may repass the
same by a two-thirds vote of
all its members, and
thereupon, the bill so repassed
shall be deemed enacted and
may be submitted to the
President for corresponding
action. In the event that the
Senate should fail to finally act
on any such bills, the
Assembly may, after thirty
days from the opening of the
next regular session of the
same legislative term,
reapprove the same with a
vote of two-thirds of all the
members of the Assembly.
And upon such reapproval, the
bill shall be deemed enacted
and may be submitted to the
President for corresponding
action.
The special committee on the revision of laws
of the Second National Assembly vetoed the
proposal. It deleted everything after the first
sentence. As rewritten, the proposal was
approved by the National Assembly and
embodied in Resolution No. 38, as amended
by Resolution No. 73. (J. ARUEGO, KNOW
YOUR CONSTITUTION 65-66 (1950)). The
proposed amendment was submitted to the
people and ratified by them in the elections
held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the
1935 Constitution, from which Art. VI, §24 of
Jeremiah 29:11
the present Constitution was derived. It
explains why the word "exclusively" was
added to the American text from which the
framers of the Philippine Constitution
borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat
of the proposal, the power of the Senate to
propose amendments must be understood to
be full, plenary and complete "as on other
Bills." Thus, because revenue bills are
required to originate exclusively in the House
of Representatives, the Senate cannot enact
revenue measures of its own without such
bills. After a revenue bill is passed and sent
over to it by the House, however, the Senate
certainly can pass its own version on the
same subject matter. This follows from the
coequality of the two chambers of Congress.
That this is also the understanding of book
authors of the scope of the Senate's power to
concur is clear from the following
commentaries:
The power of the Senate to
propose or concur with
amendments is apparently
without restriction. It would
seem that by virtue of this
power, the Senate can
practically re-write a bill
required to come from the
House and leave only a trace
of the original bill. For
example, a general revenue
bill passed by the lower house
of the United States Congress
contained provisions for the
imposition of an inheritance
tax . This was changed by the
Senate into a corporation tax.
The amending authority of the
Senate was declared by the
United States Supreme Court
to be sufficiently broad to
enable it to make the
alteration. [Flint v. Stone Tracy
Company, 220 U.S. 107, 55 L.
ed. 389].
(L. TAÑADA AND F.
CARREON, POLITICAL LAW
227
 OF THE PHILIPPINES 247
(1961))
The above-mentioned bills are
supposed to be initiated by the
House of Representatives
because it is more numerous
in membership and therefore
also more representative of
the people. Moreover, its
members are presumed to be
more familiar with the needs of
the country in regard to the
enactment of the legislation
involved.
The Senate is, however,
allowed much leeway in the
exercise of its power to
propose or concur with
amendments to the bills
initiated by the House of
Representatives. Thus, in one
case, a bill introduced in the
U.S. House of Representatives
was changed by the Senate to
make a proposed inheritance
tax a corporation tax. It is also
accepted practice for the
Senate to introduce what is
known as an amendment by
substitution, which may
entirely replace the bill initiated
in the House of
Representatives.
(I. CRUZ, PHILIPPINE
POLITICAL LAW 144-145
(1993)).
In sum, while Art. VI, §24 provides that all
appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of
local application, and private bills must
"originate exclusively in the House of
Representatives," it also adds, "but the
Senate may propose or concur with
amendments." In the exercise of this power,
the Senate may propose an entirely new bill
as a substitute measure. As petitioner
Tolentino states in a high school text, a
committee to which a bill is referred may do
any of the following:
Jeremiah 29:11
(1) to endorse the bill without
changes; (2) to make changes
in the bill omitting or adding
sections or altering its
language; (3) to make and
endorse an entirely new bill as
a substitute, in which case it
will be known as a committee
bill; or (4) to make no report at
all.
(A. TOLENTINO, THE
GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment
of bills which are required to originate in the
House by prescribing that the number of the
House bill and its other parts up to the
enacting clause must be preserved although
the text of the Senate amendment may be
incorporated in place of the original body of
the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form.
S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No.
11197 as any which the Senate could have
made.
II. S. No. 1630 a mere amendment of
H. No. 11197. Petitioners' basic error is that
they assume that S. No. 1630 is
an independent and distinct bill. Hence their
repeated references to its certification that it
was passed by the Senate "in substitution of
S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying
that there is something substantially different
between the reference to S. No. 1129 and the
reference to H. No. 11197. From this premise,
they conclude that R.A. No. 7716 originated
both in the House and in the Senate and that
it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630
was passed by both houses of Congress."
In point of fact, in several instances the
provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding
provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to
the basic petition of petitioner Tolentino, while
228
showing differences between the two bills, at
the same time indicates that the provisions of
the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not
have enacted S. No. 1630. Because the
Senate bill was a mere amendment of the
House bill, H. No. 11197 in its original form did
not have to pass the Senate on second and
three readings. It was enough that after it was
passed on first reading it was referred to the
Senate Committee on Ways and Means.
Neither was it required that S. No. 1630 be
passed by the House of Representatives
before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was
done in the case of H. No. 11197 and S. No.
1630. When the House bill and Senate bill,
which became R.A. No. 1405 (Act prohibiting
the disclosure of bank deposits), were referred
to a conference committee, the question was
raised whether the two bills could be the
subject of such conference, considering that
the bill from one house had not been passed
by the other and vice versa. As Congressman
Duran put the question:
MR. DURAN. Therefore, I
raise this question of order as
to procedure: If a House bill is
passed by the House but not
passed by the Senate, and a
Senate bill of a similar nature
is passed in the Senate but
never passed in the House,
can the two bills be the subject
of a conference, and can a law
be enacted from these two
bills? I understand that the
Senate bill in this particular
instance does not refer to
investments in government
securities, whereas the bill in
the House, which was
introduced by the Speaker,
covers two subject matters:
not only investigation of
deposits in banks but also
investigation of investments in
government securities. Now,
Jeremiah 29:11
since the two bills differ in their
subject matter, I believe that
no law can be enacted.
Ruling on the point of order raised, the chair
(Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of
the conference committee is in
order. It is precisely in cases
like this where a conference
should be had. If the House bill
had been approved by the
Senate, there would have
been no need of a conference;
but precisely because the
Senate passed another bill on
the same subject matter, the
conference committee had to
be created, and we are now
considering the report of that
committee.
(2 CONG. REC. NO. 13, July
27, 1955, pp. 3841-42
(emphasis added))
III. The President's certification. The fallacy in
thinking that H. No. 11197 and S. No. 1630
are distinct and unrelated measures also
accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President
separately certified to the need for the
immediate enactment of these measures, his
certification was ineffectual and void. The
certification had to be made of the version of
the same revenue bill which at the
moment was being considered. Otherwise, to
follow petitioners' theory, it would be
necessary for the President to certify as many
bills as are presented in a house of Congress
even though the bills are merely versions of
the bill he has already certified. It is enough
that he certifies the bill which, at the time he
makes the certification, is under consideration.
Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which
had to be certified. For that matter on June 1,
1993 the President had earlier certified H. No.
9210 for immediate enactment because it was
the one which at that time was being
considered by the House. This bill was later
229
substituted, together with other bills, by H. No.
11197.
As to what Presidential certification can
accomplish, we have already explained in the
main decision that the phrase "except when
the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, §26 (2)
qualifies not only the requirement that "printed
copies [of a bill] in its final form [must be]
distributed to the members three days before
its passage" but also the requirement that
before a bill can become a law it must have
passed "three readings on separate days."
There is not only textual support for such
construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution
originally provided:
(2) No bill shall be passed by
either House unless it shall
have been printed and copies
thereof in its final form
furnished its Members at least
three calendar days prior to its
passage, except when the
President shall have certified
to the necessity of its
immediate enactment. Upon
the last reading of a bill, no
amendment thereof shall be
allowed and the question upon
its passage shall be taken
immediately thereafter, and
the yeas and nays entered on
the Journal.
When the 1973 Constitution was adopted, it
was provided in Art. VIII, §19 (2):
(2) No bill shall become a law
unless it has passed three
readings on separate days,
and printed copies thereof in
its final form have been
distributed to the Members
three days before its passage,
except when the Prime
Minister certifies to the
necessity of its immediate
enactment to meet a public
Jeremiah 29:11
calamity or emergency. Upon
the last reading of a bill, no
amendment thereto shall be
allowed, and the vote thereon
shall be taken immediately
thereafter, and
the yeas and nays entered in
the Journal.
This provision of the 1973 document, with
slight modification, was adopted in Art. VI, §26
(2) of the present Constitution, thus:
(2) No bill passed by either
House shall become a law
unless it has passed three
readings on separate days,
and printed copies thereof in
its final form have been
distributed to its Members
three days before its passage,
except when the President
certifies to the necessity of its
immediate enactment to meet
a public calamity or
emergency. Upon the last
reading of a bill, no
amendment thereto shall be
allowed, and the vote thereon
shall be taken immediately
thereafter, and
the yeas and nays entered in
the Journal.
The exception is based on the prudential
consideration that if in all cases three readings
on separate days are required and a bill has
to be printed in final form before it can be
passed, the need for a law may be rendered
academic by the occurrence of the very
emergency or public calamity which it is
meant to address.
Petitioners further contend that a "growing
budget deficit" is not an emergency, especially
in a country like the Philippines where budget
deficit is a chronic condition. Even if this were
the case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less
urgent or the situation calling for its enactment
any less an emergency.
230
Apparently, the members of the Senate
(including some of the petitioners in these
cases) believed that there was an urgent need
for consideration of S. No. 1630, because they
responded to the call of the President by
voting on the bill on second and third readings
on the same day. While the judicial
department is not bound by the Senate's
acceptance of the President's certification, the
respect due coequal departments of the
government in matters committed to them by
the Constitution and the absence of a clear
showing of grave abuse of discretion caution a
stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630
received thorough consideration in the Senate
where it was discussed for six days. Only its
distribution in advance in its final printed form
was actually dispensed with by holding the
voting on second and third readings on the
same day (March 24, 1994). Otherwise,
sufficient time between the submission of the
bill on February 8, 1994 on second reading
and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on
separate days is required is said to be two-
fold: (1) to inform the members of Congress of
what they must vote on and (2) to give them
notice that a measure is progressing through
the enacting process, thus enabling them and
others interested in the measure to prepare
their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p.
282 (1972)). These purposes were
substantially achieved in the case of R.A. No.
7716.
IV. Power of Conference Committee. It is
contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood,
Integrity and Nationalism, Inc. (MABINI)) that
in violation of the constitutional policy of full
public disclosure and the people's right to
know (Art. II, §28 and Art. III, §7) the
Conference Committee met for two days in
executive session with only the conferees
present.
Jeremiah 29:11
As pointed out in our main decision, even in
the United States it was customary to hold
such sessions with only the conferees and
their staffs in attendance and it was only in
1975 when a new rule was adopted requiring
open sessions. Unlike its American
counterpart, the Philippine Congress has not
adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United
States, before the adoption of the rule in 1975,
at least staff members were present. These
were staff members of the Senators and
Congressmen, however, who may be
presumed to be their confidential men, not
stenographers as in this case who on the last
two days of the conference were excluded.
There is no showing that the conferees
themselves did not take notes of their
proceedings so as to give petitioner
Kilosbayan basis for claiming that even in
secret diplomatic negotiations involving state
interests, conferees keep notes of their
meetings. Above all, the public's right to know
was fully served because the Conference
Committee in this case submitted a report
showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which
provide that conference committee reports
must contain "a detailed, sufficiently explicit
statement of the changes in or other
amendments." These changes are shown in
the bill attached to the Conference Committee
Report. The members of both houses could
thus ascertain what changes had been made
in the original bills without the need of a
statement detailing the changes.
The same question now presented was raised
when the bill which became R.A. No. 1400
(Land Reform Act of 1955) was reported by
the Conference Committee. Congressman
Bengzon raised a point of order. He said:
MR. BENGZON. My point of
order is that it is out of order to
consider the report of the
conference committee
regarding House Bill No.
2557 by reason of the
231
 provision of Section 11, Article
XII, of the Rules of this House
which provides specifically that
the conference report must be
accompanied by a detailed
statement of the effects of the
amendment on the bill of the
House. This conference
committee report is not
accompanied by that detailed
statement, Mr. Speaker.
Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor
Leader, answered:
MR. TOLENTINO. Mr.
Speaker, I should just like to
say a few words in connection
with the point of order raised
by the gentleman from
Pangasinan.
There is no question about the
provision of the Rule cited by
the gentleman from
Pangasinan, but this provision
applies to those cases where
only portions of the bill have
been amended. In this case
before us an entire bill is
presented; therefore, it can be
easily seen from the reading of
the bill what the provisions are.
Besides, this procedure has
been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was
saying, Mr. Speaker, we have
to look into the reason for the
provisions of the Rules, and
the reason for the requirement
in the provision cited by the
gentleman from Pangasinan is
when there are only certain
words or phrases inserted in or
deleted from the provisions of
the bill included in the
conference report, and we
Jeremiah 29:11
cannot understand what those
words and phrases mean and
their relation to the bill. In that
case, it is necessary to make a
detailed statement on how
those words and phrases will
affect the bill as a whole; but
when the entire bill itself is
copied verbatim in the
conference report, that is not
necessary. So when the
reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p.
4056. (emphasis added))
Congressman Tolentino was sustained by the
chair. The record shows that when the ruling
was appealed, it was upheld by viva voce and
when a division of the House was called, it
was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a
conference committee to insert new provisions
as long as these are germane to the subject of
the conference. As this Court held
in Philippine Judges Association v. Prado, 227
SCRA 703 (1993), in an opinion written by
then Justice Cruz, the jurisdiction of the
conference committee is not limited to
resolving differences between the Senate and
the House. It may propose an entirely new
provision. What is important is that its report is
subsequently approved by the respective
houses of Congress. This Court ruled that it
would not entertain allegations that, because
new provisions had been added by the
conference committee, there was thereby a
violation of the constitutional injunction that
"upon the last reading of a bill, no amendment
thereto shall be allowed."
Applying these principles, we
shall decline to look into the
petitioners' charges that an
amendment was made upon
the last reading of the bill that
eventually became R.A. No.
7354 and that copies thereof in
its final form were not
distributed among the
232
 members of each House. Both
the enrolled bill and the
legislative journals certify that
the measure was duly
enacted i.e., in accordance
with Article VI, Sec. 26 (2) of
the Constitution. We are
bound by such official
assurances from a coordinate
department of the government,
to which we owe, at the very
least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following
description of conference committees in the
Philippines in a 1979 study:
Conference committees may
be of two types: free or
instructed. These committees
may be given instructions by
their parent bodies or they
may be left without
instructions. Normally the
conference committees are
without instructions, and this is
why they are often critically
referred to as "the little
legislatures." Once bills have
been sent to them, the
conferees have almost
unlimited authority to change
the clauses of the bills and in
fact sometimes introduce new
measures that were not in the
original legislation. No minutes
are kept, and members'
activities on conference
committees are difficult to
determine. One congressman
known for his idealism put it
this way: "I killed a bill on
export incentives for my
interest group [copra] in the
conference committee but I
could not have done so
anywhere else." The
conference committee submits
a report to both houses, and
usually it is accepted. If the
report is not accepted, then
Jeremiah 29:11
the committee is discharged
and new members are
appointed.
(R. Jackson, Committees in
the Philippine Congress, in
COMMITTEES AND
LEGISLATURES: A
COMPARATIVE ANALYSIS
163 (J. D. LEES AND M.
SHAW, eds.)).
In citing this study, we pass no judgment on
the methods of conference committees. We
cite it only to say that conference committees
here are no different from their counterparts in
the United States whose vast powers we
noted in Philippine Judges Association
v. Prado, supra. At all events, under Art. VI,
§16(3) each house has the power "to
determine the rules of its proceedings,"
including those of its committees. Any
meaningful change in the method and
procedures of Congress or its committees
must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197.
PAL maintains that R.A. No. 7716 violates Art.
VI, §26 (1) of the Constitution which provides
that "Every bill passed by Congress shall
embrace only one subject which shall be
expressed in the title thereof." PAL contends
that the amendment of its franchise by the
withdrawal of its exemption from the VAT is
not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a
franchise tax of 2% on its gross revenue "in
lieu of all other taxes, duties, royalties,
registration, license and other fees and
charges of any kind, nature, or description,
imposed, levied, established, assessed or
collected by any municipal, city, provincial or
national authority or government agency, now
or in the future."
PAL was exempted from the payment of the
VAT along with other entities by §103 of the
National Internal Revenue Code, which
provides as follows:
233
 §103. Exempt transactions. —
The following shall be exempt
from the value-added tax:
xxx xxx xxx
(q) Transactions which are
exempt under special laws or
international agreements to
which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain
exemptions, including that granted to PAL, by
amending §103, as follows:
§103. Exempt transactions. —
The following shall be exempt
from the value-added tax:
xxx xxx xxx
(q) Transactions which are
exempt under special laws,
except those granted under
Presidential Decree Nos. 66,
529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the
title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING
THE VALUE-ADDED TAX
(VAT) SYSTEM, WIDENING
ITS TAX BASE AND
ENHANCING ITS
ADMINISTRATION, AND FOR
THESE PURPOSES
AMENDING AND
REPEALING THE RELEVANT
PROVISIONS OF THE
NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to
"[RESTRUCTURE] THE VALUE-ADDED TAX
(VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
Jeremiah 29:11
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its
intention to amend any provision of the NIRC
which stands in the way of accomplishing the
purpose of the law.
PAL asserts that the amendment of its
franchise must be reflected in the title of the
law by specific reference to P.D. No. 1590. It
is unnecessary to do this in order to comply
with the constitutional requirement, since it is
already stated in the title that the law seeks to
amend the pertinent provisions of the NIRC,
among which is §103(q), in order to widen the
base of the VAT. Actually, it is the bill which
becomes a law that is required to express in
its title the subject of legislation. The titles of
H. No. 11197 and S. No. 1630 in fact
specifically referred to §103 of the NIRC as
among the provisions sought to be amended.
We are satisfied that sufficient notice had
been given of the pendency of these bills in
Congress before they were enacted into what
is now R.A.
No. 7716.
In Philippine Judges Association
v. Prado, supra, a similar argument as that
now made by PAL was rejected. R.A. No.
7354 is entitled AN ACT CREATING THE
PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND
RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND
FOR OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision
repealing all franking privileges. It was
contended that the withdrawal of franking
privileges was not expressed in the title of the
law. In holding that there was sufficient
description of the subject of the law in its title,
including the repeal of franking privileges, this
Court held:
To require every end and
means necessary for the
accomplishment of the general
objectives of the statute to be
expressed in its title would not
only be unreasonable but
would actually render
234
 legislation impossible. [Cooley, VI. Claims of press freedom and religious
Constitutional Limitations, 8th liberty. We have held that, as a general
Ed., p. 297] As has been proposition, the press is not exempt from the
correctly explained: taxing power of the State and that what the
constitutional guarantee of free press prohibits
The details of a are laws which single out the press or target a
legislative act group belonging to the press for special
need not be treatment or which in any way discriminate
specifically against the press on the basis of the content
stated in its of the publication, and R.A. No. 7716 is none
title, but matter of these.
germane to the
subject as Now it is contended by the PPI that by
expressed in removing the exemption of the press from the
the title, and VAT while maintaining those granted to
adopted to the others, the law discriminates against the
accomplishme press. At any rate, it is averred, "even
nt of the object nondiscriminatory taxation of constitutionally
in view, may guaranteed freedom is unconstitutional."
properly be
included in the With respect to the first contention, it would
act. Thus, it is suffice to say that since the law granted the
proper to press a privilege, the law could take back the
create in the privilege anytime without offense to the
same act the Constitution. The reason is simple: by granting
machinery by exemptions, the State does not forever waive
which the act is the exercise of its sovereign prerogative.
to be enforced,
to prescribe Indeed, in withdrawing the exemption, the law
the penalties merely subjects the press to the same tax
for its burden to which other businesses have long
infraction, and ago been subject. It is thus different from the
to remove tax involved in the cases invoked by the PPI.
obstacles in The license tax in Grosjean v. American Press
the way of its Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was
execution. If found to be discriminatory because it was laid
such matters on the gross advertising receipts only of
are properly newspapers whose weekly circulation was
connected with over 20,000, with the result that the tax
the subject as applied only to 13 out of 124 publishers in
expressed in Louisiana. These large papers were critical of
the title, it is Senator Huey Long who controlled the state
unnecessary legislature which enacted the license tax. The
that they censorial motivation for the law was thus
should also evident.
have special
mention in the
On the other hand, in Minneapolis Star &
title. (Southern
Tribune Co. v. Minnesota Comm'r of Revenue,
Pac. Co. v.
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax
Bartine, 170
was found to be discriminatory because
Fed. 725)
although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax
(227 SCRA at 707-708) on the privilege of using, storing or consuming

235
Jeremiah 29:11
tangible goods, the press was not. Instead,
the press was exempted from both taxes. It
was, however, later made to pay a special use
tax on the cost of paper and ink which made
these items "the only items subject to the use
tax that were component of goods to be sold
at retail." The U.S. Supreme Court held that
the differential treatment of the press
"suggests that the goal of regulation is not
related to suppression of expression, and
such goal is presumptively unconstitutional." It
would therefore appear that even a law that
favors the press is constitutionally suspect.
(See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions
previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to
PAL, petroleum concessionaires, enterprises
registered with the Export Processing Zone
Authority, and many more are likewise totally
withdrawn, in addition to exemptions which
are partially withdrawn, in an effort to broaden
the base of the tax.
The PPI says that the discriminatory treatment
of the press is highlighted by the fact that
transactions, which are profit oriented,
continue to enjoy exemption under R.A. No.
7716. An enumeration of some of these
transactions will suffice to show that by and
large this is not so and that the exemptions
are granted for a purpose. As the Solicitor
General says, such exemptions are granted,
in some cases, to encourage agricultural
production and, in other cases, for the
personal benefit of the end-user rather than
for profit. The exempt transactions are:
(a) Goods for consumption or
use which are in their original
state (agricultural, marine and
forest products, cotton seeds
in their original state,
fertilizers, seeds, seedlings,
fingerlings, fish, prawn
livestock and poultry feeds)
and goods or services to
enhance agriculture (milling of
palay, corn, sugar cane and
raw sugar, livestock, poultry
Jeremiah 29:11
feeds, fertilizer, ingredients
used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use
(household and personal
effects of citizens returning to
the Philippines) or for
professional use, like
professional instruments and
implements, by persons
coming to the Philippines to
settle here.
(c) Goods subject to excise tax
such as petroleum products or
to be used for manufacture of
petroleum products subject to
excise tax and services
subject to percentage tax.
(d) Educational services,
medical, dental, hospital and
veterinary services, and
services rendered under
employer-employee
relationship.
(e) Works of art and similar
creations sold by the artist
himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons
not VAT-registered.
(h) Goods or services with
gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter
that the law does not discriminate against the
press because "even nondiscriminatory
taxation on constitutionally guaranteed
236
freedom is unconstitutional." PPI cites in
support of this assertion the following
statement in Murdock v. Pennsylvania, 319
U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is
"nondiscriminatory" is
immaterial. The protection
afforded by the First
Amendment is not so
restricted. A license tax
certainly does not acquire
constitutional validity because
it classifies the privileges
protected by the First
Amendment along with the
wares and merchandise of
hucksters and peddlers and
treats them all alike. Such
equality in treatment does not
save the ordinance. Freedom
of press, freedom of speech,
freedom of religion are in
preferred position.
The Court was speaking in that case of
a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the
press is unconstitutional because it lays a
prior restraint on the exercise of its right.
Hence, although its application to others, such
those selling goods, is valid, its application to
the press or to religious groups, such as the
Jehovah's Witnesses, in connection with the
latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite
another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court
in American Bible Society v. City of Manila,
101 Phil. 386 (1957) which invalidated a city
ordinance requiring a business license fee on
those engaged in the sale of general
merchandise. It was held that the tax could
not be imposed on the sale of bibles by the
American Bible Society without restraining the
free exercise of its right to propagate.
The VAT is, however, different. It is not a
license tax. It is not a tax on the exercise of a
Jeremiah 29:11
privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or
exchange of goods or properties or the sale or
exchange of services and the lease of
properties purely for revenue purposes. To
subject the press to its payment is not to
burden the exercise of its right any more than
to make the press pay income tax or subject it
to general regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc.
claims that although it sells bibles, the
proceeds derived from the sales are used to
subsidize the cost of printing copies which are
given free to those who cannot afford to pay
so that to tax the sales would be to increase
the price, while reducing the volume of sale.
Granting that to be the case, the resulting
burden on the exercise of religious freedom is
so incidental as to make it difficult to
differentiate it from any other economic
imposition that might make the right to
disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument,
to increase the tax on the sale of vestments
would be to lay an impermissible burden on
the right of the preacher to make a sermon.
On the other hand the registration fee of
P1,000.00 imposed by §107 of the NIRC, as
amended by §7 of R.A. No. 7716, although
fixed in amount, is really just to pay for the
expenses of registration and enforcement of
provisions such as those relating to
accounting in §108 of the NIRC. That the PBS
distributes free bibles and therefore is not
liable to pay the VAT does not excuse it from
the payment of this fee because it also sells
some copies. At any rate whether the PBS is
liable for the VAT must be decided in concrete
cases, in the event it is assessed this tax by
the Commissioner of Internal Revenue.
VII. Alleged violations of the due process,
equal protection and contract clauses and the
rule on taxation. CREBA asserts that R.A. No.
7716 (1) impairs the obligations of contracts,
(2) classifies transactions as covered or
exempt without reasonable basis and (3)
violates the rule that taxes should be uniform
and equitable and that Congress shall "evolve
a progressive system of taxation."
237
With respect to the first contention, it is
claimed that the application of the tax to
existing contracts of the sale of real property
by installment or on deferred payment basis
would result in substantial increases in the
monthly amortizations to be paid because of
the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did
not anticipate at the time he entered into the
contract.
The short answer to this is the one given by
this Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs,
but none of them show that a lawful tax on a
new subject, or an increased tax on an old
one, interferes with a contract or impairs its
obligation, within the meaning of the
Constitution. Even though such taxation may
affect particular contracts, as it may increase
the debt of one person and lessen the security
of another, or may impose additional burdens
upon one class and release the burdens of
another, still the tax must be paid unless
prohibited by the Constitution, nor can it be
said that it impairs the obligation of any
existing contract in its true legal sense." (La
Insular v. Machuca Go-Tauco and Nubla Co-
Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal
order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968))
Contracts must be understood as having been
made in reference to the possible exercise of
the rightful authority of the government and no
obligation of contract can extend to the defeat
of that authority. (Norman v. Baltimore and
Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No.
7716 exempts such transactions as the sale of
agricultural products, food items, petroleum,
and medical and veterinary services, it grants
no exemption on the sale of real property
which is equally essential. The sale of real
property for socialized and low-cost housing is
exempted from the tax, but CREBA claims
that real estate transactions of "the less
poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
Jeremiah 29:11
The sale of food items, petroleum, medical
and veterinary services, etc., which are
essential goods and services was already
exempt under §103, pars. (b) (d) (1) of the
NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No.
7716 granted exemption to these transactions,
while subjecting those of petitioner to the
payment of the VAT. Moreover, there is a
difference between the "homeless poor" and
the "homeless less poor" in the example given
by petitioner, because the second group or
middle class can afford to rent houses in the
meantime that they cannot yet buy their own
homes. The two social classes are thus
differently situated in life. "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 a singling out of one particular class for
taxation, or exemption infringe no
constitutional limitation.'" (Lutz v. Araneta, 98
Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 371 (1988)).
Finally, it is contended, for the reasons
already noted, that R.A. No. 7716 also
violates Art. VI, §28(1) which provides that
"The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that
all taxable articles or kinds of property of the
same class be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation. To satisfy this
requirement it is enough that the statute or
ordinance applies equally to all persons, forms
and corporations placed in similar situation.
(City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided in E.O.
No. 273 long before R.A. No. 7716 was
enacted. R.A. No. 7716 merely expands the
base of the tax. The validity of the original
VAT Law was questioned in Kapatiran ng
238
Naglilingkod sa Pamahalaan ng Pilipinas,
Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely,
that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting
the challenge to the law, this Court held:
As the Court sees it, EO 273
satisfies all the requirements
of a valid tax. It is uniform. . . .
The sales tax adopted in EO
273 is applied similarly on all
goods and services sold to the
public, which are not exempt,
at the constant rate of 0% or
10%.
The disputed sales tax is also
equitable. It is imposed only on
sales of goods or services by
persons engaged in business
with an aggregate gross
annual sales exceeding
P200,000.00. Small corner
sari-sari stores are
consequently exempt from its
application. Likewise exempt
from the tax are sales of farm
and marine products, so that
the costs of basic food and
other necessities, spared as
they are from the incidence of
the VAT, are expected to be
relatively lower and within the
reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive.
A similar claim is made by the Cooperative
Union of the Philippines, Inc. (CUP), while
petitioner Juan T. David argues that the law
contravenes the mandate of Congress to
provide for a progressive system of taxation
because the law imposes a flat rate of 10%
and thus places the tax burden on all
taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the
imposition of indirect taxes which, like the
Jeremiah 29:11
VAT, are regressive. What it simply provides
is that Congress shall "evolve a progressive
system of taxation." The constitutional
provision has been interpreted to mean simply
that "direct taxes are . . . to be preferred [and]
as much as possible, indirect taxes should be
minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to
Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales
taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited
with the proclamation of Art. VIII, §17(1) of the
1973 Constitution from which the present Art.
VI, §28(1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should
be minimized but not avoided entirely because
it is difficult, if not impossible, to avoid them by
imposing such taxes according to the
taxpayers' ability to pay. In the case of the
VAT, the law minimizes the regressive effects
of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716,
§3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions.
(R.A. No. 7716, §4, amending §103 of the
NIRC).
Thus, the following transactions involving
basic and essential goods and services are
exempted from the VAT:
(a) Goods for consumption or
use which are in their original
state (agricultural, marine and
forest products, cotton seeds
in their original state,
fertilizers, seeds, seedlings,
fingerlings, fish, prawn
livestock and poultry feeds)
and goods or services to
enhance agriculture (milling of
palay, corn sugar cane and
raw sugar, livestock, poultry
feeds, fertilizer, ingredients
used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use
239
 (household and personal
effects of citizens returning to
the Philippines) and or
professional use, like
professional instruments and
implements, by persons
coming to the Philippines to
settle here.
(c) Goods subject to excise tax
such as petroleum products or
to be used for manufacture of
petroleum products subject to
excise tax and services
subject to percentage tax.
(d) Educational services,
medical, dental, hospital and
veterinary services, and
services rendered under
employer-employee
relationship.
(e) Works of art and similar
creations sold by the artist
himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons
not VAT-registered.
(h) Goods or services with
gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are
subject to the VAT are those which involve
goods and services which are used or availed
of mainly by higher income groups. These
include real properties held primarily for sale
to customers or for lease in the ordinary
course of trade or business, the right or
privilege to use patent, copyright, and other
similar property or right, the right or privilege
to use industrial, commercial or scientific
Jeremiah 29:11
equipment, motion picture films, tapes and
discs, radio, television, satellite transmission
and cable television time, hotels, restaurants
and similar places, securities, lending
investments, taxicabs, utility cars for rent,
tourist buses, and other common carriers,
services of franchise grantees of telephone
and telegraph.
The problem with CREBA's petition is that it
presents broad claims of constitutional
violations by tendering issues not at retail but
at wholesale and in the abstract. There is no
fully developed record which can impart to
adjudication the impact of actuality. There is
no factual foundation to show in
the concrete the application of the law
to actual contracts and exemplify its effect on
property rights. For the fact is that petitioner's
members have not even been assessed the
VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked
which are no different from those dealt with in
advisory opinions.
The difficulty confronting
petitioner is thus apparent. He
alleges arbitrariness. A mere
allegation, as here, does not
suffice. There must be a
factual foundation of such
unconstitutional taint.
Considering that petitioner
here would condemn such a
provision as void on its face,
he has not made out a case.
This is merely to adhere to the
authoritative doctrine that
where the due process and
equal protection clauses are
invoked, 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.
(Sison, Jr. v. Ancheta, 130
SCRA at 661)
240
Adjudication of these broad claims must await
the development of a concrete case. It may be
that postponement of adjudication would
result in a multiplicity of suits. This need not
be the case, however. Enforcement of the law
may give rise to such a case. A test case,
provided it is an actual case and not an
abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an
adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no
different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII,
§1, ¶2 to decide whenever a claim is made
that "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." This duty
can only arise if an actual case or controversy
is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and
all that Art. VIII, §1, ¶2 can plausibly mean is
that in the exercise of that jurisdiction we have
the judicial power to determine questions of
grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII,
§1, ¶2 is "judicial power," which is "the power
of a court to hear and decide cases pending
between parties who have the right to sue and
be sued in the courts of law and equity" (Lamb
v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive
power. This power cannot be directly
appropriated until it is apportioned among
several courts either by the Constitution, as in
the case of Art. VIII, §5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No.
296) and the Judiciary Reorganization Act of
1980 (B.P. Blg. 129). The power thus
apportioned constitutes the court's
"jurisdiction," defined as "the power conferred
by law upon a court or judge to take
cognizance of a case, to the exclusion of all
others." (United States v. Arceo, 6 Phil. 29
(1906)) Without an actual case coming within
its jurisdiction, this Court cannot inquire into
Jeremiah 29:11
any allegation of grave abuse of discretion by
the other departments of the government.
VIII. Alleged violation of policy towards
cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that
the present Constitution embodies provisions
on cooperatives. To subject cooperatives to
the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of
income taxes and sales taxes but in 1984,
because of the crisis which menaced the
national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives
exemption from income and sales taxes until
December 31, 1991, but, in the same year,
E.O. No. 93 revoked the exemption; and that
finally in 1987 the framers of the Constitution
"repudiated the previous actions of the
government adverse to the interests of the
cooperatives, that is, the repeated revocation
of the tax exemption to cooperatives and
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax
exemptions," by providing the following in Art.
XII:
§1. The goals of the national
economy are a more equitable
distribution of opportunities,
income, and wealth; a
sustained increase in the
amount of goods and services
produced by the nation for the
benefit of the people; and an
expanding productivity as the
key to raising the quality of life
for all, especially the
underprivileged.
The State shall promote
industrialization and full
employment based on sound
agricultural development and
agrarian reform, through
industries that make full and
efficient use of human and
241
 natural resources, and which
are competitive in both
domestic and foreign markets.
However, the State shall
protect Filipino enterprises
against unfair foreign
competition and trade
practices.
In the pursuit of these goals,
all sectors of the economy and
all regions of the country shall
be given optimum opportunity
to develop. Private
enterprises, including
corporations, cooperatives,
and similar collective
organizations, shall be
encouraged to broaden the
base of their ownership.
§15. The Congress shall
create an agency to promote
the viability and growth of
cooperatives as instruments
for social justice and economic
development.
Petitioner's contention has no merit. In the first
place, it is not true that P.D. No. 1955 singled
out cooperatives by withdrawing their
exemption from income and sales taxes under
P.D. No. 175, §5. What P.D. No. 1955, §1 did
was to withdraw the exemptions and
preferential treatments theretofore granted to
private business enterprises in general, in
view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008,
§2 had restored the tax exemptions of
cooperatives in 1986, the exemption was
again repealed by E.O. No. 93, §1, but then
again cooperatives were not the only ones
whose exemptions were withdrawn. The
withdrawal of tax incentives applied to all,
including government and private entities. In
the second place, the Constitution does not
really require that cooperatives be granted tax
exemptions in order to promote their growth
and viability. Hence, there is no basis for
petitioner's assertion that the government's
policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges
was concerned, and that it was to put an end
Jeremiah 29:11
to this indecision that the constitutional
provisions cited were adopted. Perhaps as a
matter of policy cooperatives should be
granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not
grant exemption and there is no discrimination
to cooperatives, no violation of any
constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying
that under the Constitution cooperatives are
exempt from taxation. Such theory is contrary
to the Constitution under which only the
following are exempt from taxation: charitable
institutions, churches and parsonages, by
reason of Art. VI, §28 (3), and non-stock, non-
profit educational institutions by reason of Art.
XIV, §4 (3).
CUP's further ground for seeking the
invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law
because electric cooperatives are exempted
from the VAT. The classification between
electric and other cooperatives (farmers
cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests
on a congressional determination that there is
greater need to provide cheaper electric
power to as many people as possible,
especially those living in the rural areas, than
there is to provide them with other necessities
in life. We cannot say that such classification
is unreasonable.
We have carefully read the various arguments
raised against the constitutional validity of
R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement
pending resolution of these cases. We have
now come to the conclusion that the law
suffers from none of the infirmities attributed
to it by petitioners and that its enactment by
the other branches of the government does
not constitute a grave abuse of discretion. Any
question as to its necessity, desirability or
expediency must be addressed to Congress
as the body which is electorally responsible,
remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of
the liberties and welfare of the people in quite
as great a degree as are the courts."
(Missouri, Kansas & Texas Ry. Co. v. May,
242
194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)).
It is not right, as petitioner in G.R. No. 115543
does in arguing that we should enforce the
public accountability of legislators, that those
who took part in passing the law in question
by voting for it in Congress should later thrust
to the courts the burden of reviewing
measures in the flush of enactment. This
Court does not sit as a third branch of the
legislature, much less exercise a veto power
over legislation.
WHEREFORE, the motions for
reconsideration are denied with finality and
the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting
Commissioner, Bureau of Internal
Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of
Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and
CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own
behalf.
The Solicitor General for respondents.
Jeremiah 29:11
FERNANDO, C.J.:
The success of the challenge posed in this
suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa
Blg. 135 depends upon a showing of its constitutional infirmity.
The assailed provision further amends Section 21 of the National
Internal Revenue Code of 1977, which provides for rates of tax
on citizens or residents on (a) taxable compensation income, (b)
taxable net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in
the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof,
"he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of
his profession vis-a-visthose which are imposed upon fixed
income or salaried individual taxpayers. 4 He characterizes the
above sction as arbitrary amounting to class legislation,
oppressive and capricious in character 5 For petitioner, therefore,
there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule
requiring uniformity in taxation. 7
The Court, in a resolution of January 26,
1982, required respondents to file an answer
within 10 days from notice. Such an answer,
after two extensions were granted the Office
of the Solicitor General, was filed on May 28,
1982. 8The facts as alleged were admitted but
not the allegations which to their mind are
"mere arguments, opinions or conclusions on
the part of the petitioner, the truth [for them]
being those stated [in their] Special and
Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid
exercise of the State's power to tax. The
authorities and cases cited while correctly
quoted or paraghraph do not support
petitioner's stand." 10 The prayer is for the dismissal of
the petition for lack of merit.
This Court finds such a plea more than
justified. The petition must be dismissed.
1. It is manifest that the field of state activity
has assumed a much wider scope, The
reason was so clearly set forth by retired Chief
Justice Makalintal thus: "The areas which
used to be left to private enterprise and
initiative and which the government was called
upon to enter optionally, and only 'because it
was better equipped to administer for the
public welfare than is any private individual or
group of individuals,' continue to lose their
well-defined boundaries and to be absorbed
within activities that the government must
243
undertake in its sovereign capacity if it is to
meet the increasing social challenges of the
times." 11 Hence the need for more revenues. The power to
tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of
public funds. To praphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain availability
is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm,
"is an attribute of sovereignty. It is the strongest of all the powers
of of government." 13 It is, of course, to be admitted that for all
its plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and
equal protection clauses inay properly be invoked, all petitioner
does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a
free use of absolutes." 16 This is merely to emphasize that it is
riot and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke
of Mr. Justice Holmess pen: 'The power to tax is not the power to
destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The
Constitution as the fundamental law overrides
any legislative or executive, act that runs
counter to it. In any case therefore where it
can be demonstrated that the challenged
statutory provision — as petitioner here
alleges — fails to abide by its command, then
this Court must so declare and adjudge it null.
The injury thus is centered on the question of
whether the imposition of a higher tax rate on
taxable net income derived from business or
profession than on compensation is
constitutionally infirm.
4, The difficulty confronting petitioner is thus
apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There
must be a factual foundation of such
unconstitutional taint. Considering that
petitioner here would condemn such a
provision as void or its face, he has not made
out a case. This is merely to adhere to the
authoritative doctrine that were the due
process and equal protection clauses are
invoked, considering that they arc not fixed
rules but rather broad standards, there is a
need for of such persuasive character as
would lead to such a conclusion. Absent such
a showing, the presumption of validity must
prevail. 18
Jeremiah 29:11
5. It is undoubted that the due process clause may be invoked
where a taxing statute is so arbitrary that it finds no support in
the Constitution. An obvious example is where it can be shown
to amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application of
the Holmes dictum. It has also been held that where the assailed
tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh
and unreasonable, it is subject to attack on due process
grounds. 19
6. 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 lice power or
the power of eminent domain is to demonstrated 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 circumtances which if not Identical
are analogous. If law be looked 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." 20 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 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,
address 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." 21 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, 22 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.'" 23
7. Petitioner likewise invoked the kindred
concept of uniformity. According to the
Constitution: "The rule of taxation shag be
uniform and equitable." 24 This requirement is
met according to Justice Laurel in Philippine
Trust Company v. Yatco,25 decided in 1940,
when the tax "operates with the same force
and effect in every place where the subject
may be found. " 26 He likewise added: "The
rule of uniformity does not call for perfect
uniformity or perfect equality, because this is
hardly attainable." 27 The problem of
classification did not present itself in that case.
244
It did not arise until nine years later, when the system of net income taxation as regards
Supreme Court held: "Equality and uniformity professional and business income.
in taxation means that all taxable articles or
kinds of property of the same class shall be 9. Nothing can be clearer, therefore, than that
taxed at the same rate. The taxing power has the petition is without merit, considering the
the authority to make reasonable and natural (1) lack of factual foundation to show the
classifications for purposes of taxation, ... arbitrary character of the assailed
. 28 As clarified by Justice Tuason, where "the provision; 31 (2) the force of controlling
differentiation" complained of "conforms to the doctrines on due process, equal protection,
practical dictates of justice and equity" it "is and uniformity in taxation and (3) the
not discriminatory within the meaning of this reasonableness of the distinction between
clause and is therefore uniform." 29 There is compensation and taxable net income of
quite a similarity then to the standard of equal professionals and businessman certainly not a
protection for all that is required is that the tax suspect classification,
"applies equally to all persons, firms and
corporations placed in similar situation."30 WHEREFORE, the petition is dismissed.
Costs against petitioner.
8. Further on this point. Apparently, what
misled petitioner is his failure to take into
consideration the distinction between a tax
rate and a tax base. There is no legal
objection to a broader tax base or taxable
income by eliminating all deductible items and
at the same time reducing the applicable tax
rate. Taxpayers may be classified into
different categories. To repeat, it. is enough
that the classification must rest upon
substantial distinctions that make real
differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg.
135, the, discernible basis of classification is
the susceptibility of the income to the
application of generalized rules removing all
deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to
be applied to all of them. Taxpayers who are
recipients of compensation income are set
apart as a class. As there is practically no
overhead expense, these taxpayers are e not
entitled to make deductions for income tax
purposes because they are in the same
situation more or less. On the other hand, in
the case of professionals in the practice of
their calling and businessmen, there is no
uniformity in the costs or expenses necessary
to produce their income. It would not be just
then to disregard the disparities by giving all of
them zero deduction and indiscriminately
impose on all alike the same tax rates on the
basis of gross income. There is ample
justification then for the Batasang Pambansa
to adopt the gross system of income taxation
to compensation income, while continuing the

245
Jeremiah 29:11

G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his
capacity as Executive Secretary, Office of
the President, HON. VICENTE JAYME,
ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for
respondent Pilipinas Shell Petroleum
Corporation.
Siguion Reyna, Montecillo & Ongsiako for
Caltex.
NOCON, J.:
Jeremiah 29:11
Just like lightning which does strike the same
place twice in some instances, this matter of
indirect tax exemption of the private
respondent National Power Corporation
(NPC) is brought to this Court a second time.
Unfazed by the Decision We promulgated on
May 31, 19911 petitioner Ernesto Maceda asks
this Court to reconsider said Decision. Lest
We be criticized for denying due process to
the petitioner. We have decided to take a
second look at the issues. In the process, a
hearing was held on July 9, 1992 where all
parties presented their respective arguments.
Etched in this Court's mind are the
paradoxical claims by both petitioner and
private respondents that their respective
positions are for the benefit of the Filipino
people.
A Chronological review of the relevant NPC
laws, specially with respect to its tax
exemption provisions, at the risk of being
repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act
No. 120 was enacted creating the National
Power Corporation, a public corporation,
mainly to develop hydraulic power from all
water sources in the Philippines.2 The sum of
P250,000.00 was appropriated out of the
funds in the Philippine Treasury for the
purpose of organizing the NPC and
conducting its preliminary work.3 The main
source of funds for the NPC was the flotation
of bonds in the capital markets4 and these
bonds
. . . issued under the authority
of this Act shall be exempt
from the payment of all taxes
by the Commonwealth of the
Philippines, or by any
authority, branch, division or
political subdivision thereof
and subject to the provisions
of the Act of Congress,
approved March 24, 1934,
otherwise known as the
Tydings McDuffle Law, which
facts shall be stated upon the
face of said bonds. . . . .5
246
On June 24, 1938, C.A. No. 344 was enacted
increasing to P550,000.00 the funds needed
for the initial operations of the NPC and
reiterating the provision of the flotation of
bonds as soon as the first construction of any
hydraulic power project was to be decided by
the NPC Board.6 The provision on tax
exemption in relation to the issuance of the
NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was
enacted removing the provision on the
payment of the bond's principal and interest in
"gold coins" but adding that payment could be
made in United States dollars.7 The provision
on tax exemption in relation to the issuance of
the NPC bonds was neither amended nor
deleted.
On June 4, 1949, Republic Act No. 357 was
enacted authorizing the President of the
Philippines to guarantee, absolutely and
unconditionally, as primary obligor, the
payment of any and all NPC loans.8 He was
also authorized to contract on behalf of the
NPC with the International Bank for
Reconstruction and Development (IBRD) for
NPC loans for the accomplishment of NPC's
corporate objectives9 and for the
reconstruction and development of the
economy of the country. 10 It was expressly
stated that:
Any such loan or loans shall
be exempt from taxes, duties,
fees, imposts, charges,
contributions and restrictions
of the Republic of the
Philippines, its provinces,
cities and municipalities. 11
On the same date, R.A. No. 358 was enacted
expressly authorizing the NPC, for the first
time, to incur other types of indebtedness,
aside from indebtedness incurred by flotation
of bonds. 12 As to the pertinent tax exemption
provision, the law stated as follows:
To facilitate payment of its
indebtedness, the National
Power Corporation shall be
exempt from all taxes, duties,
Jeremiah 29:11
fees, imposts, charges, and
restrictions of the Republic of
the Philippines, its provinces,
cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted
amending R.A. No. 357 in that, aside from the
IBRD, the President of the Philippines was
authorized to negotiate, contract and
guarantee loans with the Export-Import Bank
of of Washigton, D.C., U.S.A., or any other
international financial institution. 14 The tax
provision for repayment of these loans, as
stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted
specifically to withdraw NPC's tax exemption
for real estate taxes. As enacted, the law
states as follows:
To facilitate payment of its
indebtedness, the National
Power Corporation shall be
exempt from all taxes, except
real property tax, and from all
duties, fees, imposts, charges,
and restrictions of the Republic
of the Philippines, its
provinces, cities, and
municipalities.15
On September 8, 1955, R.A. No. 1397 was
enacted directing that the NPC projects to be
funded by the increased
indebtedness 16 should bear the National
Economic Council's stamp of approval. The
tax exemption provision related to the
payment of this total indebtedness was not
amended nor deleted.
On June 13, 1958, R.A. No. 2055 was
enacted increasing the total amount of foreign
loans NPC was authorized to incur to
US$100,000,000.00 from the
US$50,000,000.00 ceiling in R.A. No.
357. 17 The tax provision related to the
repayment of these loans was not amended
nor deleted.
On June 13, 1958, R.A. No. 2058 was
enacting fixing the corporate life of NPC to
December 31, 2000. 18 All laws or provisions of
247
laws and executive orders contrary to said
R.A. No. 2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted
converting the NPC from a public corporation
into a stock corporation with an authorized
capital stock of P100,000,000.00 divided into
1,000.000 shares having a par value of
P100.00 each, with said capital stock wholly
subscribed to by the Government. 20 No tax
exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was
enacted increasing the above-mentioned
authorized capital stock to P250,000,000.00
with the increase to be wholly subscribed by
the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was
enacted. NPC's capital stock was increased
again to P300,000,000.00, the increase to be
wholly subscribed by the Government. No tax
provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was
enacted revising the charter of the NPC, C.A.
No. 120, as amended. Declared as primary
objectives of the nation were:
Declaration of Policy. —
Congress hereby declares that
(1) the comprehensive
development, utilization and
conservation of Philippine
water resources for all
beneficial uses, including
power generation, and (2) the
total electrification of the
Philippines through the
development of power from all
sources to meet the needs of
industrial development and
dispersal and the needs of
rural electrification are primary
objectives of the nation which
shall be pursued coordinately
and supported by all
instrumentalities and agencies
of the government, including
the financial institutions. 23
Jeremiah 29:11
Section 4 of C.A. No. 120, was renumbered
as Section 8, and divided into sections 8 (a)
(Authority to incur Domestic Indebtedness)
and Section 8 (b) (Authority to Incur Foreign
Loans).
As to the issuance of bonds by the NPC,
Paragraph No. 3 of Section 8(a), states as
follows:
The bonds issued under the
authority of this subsection
shall be exempt from the
payment of all taxes by the
Republic of the Philippines, or
by any authority, branch,
division or political subdivision
thereof which facts shall be
stated upon the face of said
bonds. . . . 24
As to the foreign loans the NPC was
authorized to contract, Paragraph No. 5,
Section 8(b), states as follows:
The loans, credits and
indebtedness contracted under
this subsection and the
payment of the principal,
interest and other charges
thereon, as well as the
importation of machinery,
equipment, materials and
supplies by the Corporation,
paid from the proceeds of any
loan, credit or indebtedeness
incurred under this Act, shall
also be exempt from all taxes,
fees, imposts, other charges
and restrictions, including
import restrictions, by the
Republic of the Philippines, or
any of its agencies and
political subdivisions. 25
A new section was added to the charter, now
known as Section 13, R.A. No. 6395, which
declares the non-profit character and tax
exemptions of NPC as follows:
The Corporation shall be non-
profit and shall devote all its
248
 returns from its capital
investment, as well as excess
revenues from its operation,
for expansion. To enable the
Corporation to pay its
indebtedness and obligations
and in furtherance and
effective implementation of the
policy enunciated in Section
one of this Act, the
Corporation is hereby declared
exempt:
(a) From the payment of all
taxes, duties, fees, imposts,
charges costs and service fees
in any court or administrative
proceedings in which it may be
a party, restrictions and duties
to the Republic of the
Philippines, its provinces,
cities, and municipalities and
other government agencies
and instrumentalities;
(b) From all income taxes,
franchise taxes and realty
taxes to be paid to the
National Government, its
provinces, cities, municipalities
and other government
agencies and instrumentalities;
(c) From all import duties,
compensating taxes and
advanced sales tax, and
wharfage fees on import of
foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees,
imposts and all other charges
its provinces, cities,
municipalities and other
government agencies and
instrumentalities, on all
petroleum products used by
the Corporation in the
generation, transmission,
utilization, and sale of electric
power. 26
Jeremiah 29:11
On November 7, 1972,
Presidential Decree No. 40
was issued declaring that the
electrification of the entire
country was one of the primary
concerns of the country. And
in connection with this, it was
specifically stated that:
The setting up of transmission
line grids and the construction
of associated generation
facilities in Luzon, Mindanao
and major islands of the
country, including the Visayas,
shall be the responsibility of
the National Power
Corporation (NPC) as the
authorized implementing
agency of the State. 27
xxx xxx xxx
It is the ultimate objective of
the State for the NPC to own
and operate as a single
integrated system all
generating facilities supplying
electric power to the entire
area embraced by any grid set
up by the NPC. 28
On January 22, 1974, P.D. No. 380 was
issued giving extra powers to the NPC to
enable it to fulfill its role under aforesaid P.D.
No. 40. Its authorized capital stock was raised
to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the
NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these
foreign loans states as follows:
The loans, credits and
indebtedness contracted under
this subsection and the
payment of the principal,
interest and other charges
thereon, as well as the
importation of machinery,
249
 equipment, materials, supplies
and services, by the
Corporation, paid from the
proceeds of any loan, credit or
indebtedness incurred under
this Act, shall also be exempt
from all direct and indirect
taxes, fees, imposts, other
charges and restrictions,
including import restrictions
previously and presently
imposed, and to be imposed
by the Republic of the
Philippines, or any of its
agencies and political
subdivisions. 32(Emphasis
supplied)
Section 13(a) and 13(d) of R.A. No 6395 were
amended to read as follows:
(a) From the payment of all
taxes, duties, fees, imposts,
charges and restrictions to the
Republic of the Philippines, its
provinces, cities, municipalities
and other government
agencies and instrumentalities
including the taxes, duties,
fees, imposts and other
charges provided for under the
Tariff and Customs Code of
the Philippines, Republic Act
Numbered Nineteen Hundred
Thirty-Seven, as amended,
and as further amended by
Presidential Decree No. 34
dated October 27, 1972, and
Presidential Decree No. 69,
dated November 24, 1972,
and costs and service fees in
any court or administrative
proceedings in which it may be
a party;
xxx xxx xxx
(d) From all taxes, duties, fees,
imposts, and all other charges
imposed directly or
indirectly by the Republic of
the Philippines, its provinces,
cities, municipalities and other
Jeremiah 29:11
government agencies and
instrumentalities, on all
petroleum products used by
the Corporation in the
generation, transmission,
utilization and sale of electric
power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was
issued removing certain restrictions in the
NPC's sale of electricity to its different
customers. 34 No tax exemption provision was
amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued
directing that P200,000,000.00 would be
appropriated annually to cover the unpaid
subscription of the Government in the NPC
authorized capital stock, which amount would
be taken from taxes accruing to the General
Funds of the Government, proceeds from
loans, issuance of bonds, treasury bills or
notes to be issued by the Secretary of
Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated
expansion programs for
generation and transmission
facilities which includes
nuclear power generation, the
present capitalization of
National Power Corporation
(NPC) and the ceilings for
domestic and foreign
borrowings are deemed
insufficient; 36
xxx xxx xxx
(I)n the application of the tax
exemption provisions of the
Revised Charter, the non-profit
character of NPC has not been
fully utilized because of
restrictive interpretation of the
taxing agencies of the
government on said
provisions; 37
xxx xxx xxx
250
 (I)n order to effect the
accelerated expansion
program and attain the
declared objective of total
electrification of the country,
further amendments of certain
sections of Republic Act No.
6395, as amended by
Presidential Decrees Nos.
380, 395 and 758, have
become imperative; 38
Thus NPC's capital stock was raised to
P8,000,000,000.00, 39 the total domestic
indebtedness ceiling was increased to
P12,000,000,000.00, 40 the total foreign loan
ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of
R.A. No. 6395, was amended to read as
follows:
The Corporation shall be non-
profit and shall devote all its
returns from its capital
investment as well as excess
revenues from its operation,
for expansion. To enable the
Corporation to pay to its
indebtedness and obligations
and in furtherance and
effective implementation of the
policy enunciated in Section
one of this Act, the
Corporation, including its
subsidiaries, is hereby
declared exempt from the
payment of all forms of taxes,
duties, fees, imposts as well
as costs and service fees
including filing fees, appeal
bonds, supersedeas bonds, in
any court or administrative
proceedings. 42
II
On the other hand, the pertinent tax laws
involved in this controversy are P.D. Nos. 882,
1177, 1931 and Executive Order No. 93
(S'86).
Jeremiah 29:11
On January 30, 1976, P.D. No. 882 was
issued withdrawing the tax exemption of NPC
with regard to imports as follows:
WHEREAS, importations by
certain government agencies,
including government-owned
or controlled corporation, are
exempt from the payment of
customs duties and
compensating tax; and
WHEREAS, in order to reduce
foreign exchange spending
and to protect domestic
industries, it is necessary to
restrict and regulate such tax-
free importations.
NOW THEREFORE, I,
FERDINAND E. MARCOS,
President of the Philippines, by
virtue of the powers vested in
me by the Constitution, and do
hereby decree and order the
following:
Sec. 1. All importations of any
government agency, including
government-owned or
controlled corporations which
are exempt from the payment
of customs duties and internal
revenue taxes, shall be subject
to the prior approval of an
Inter-Agency Committee which
shall insure compliance with
the following conditions:
(a) That no such article of local
manufacture are available in
sufficient quantity and
comparable quality at
reasonable prices;
(b) That the articles to be
imported are directly and
actually needed and will be
used exclusively by the
grantee of the exemption for
its operations and projects or
251
 in the conduct of its functions;
and
(c) The shipping documents
covering the importation are in
the name of the grantee to
whom the goods shall be
delivered directly by customs
authorities.
xxx xxx xxx
Sec. 3. The Committee shall
have the power to regulate
and control the tax-free
importation of government
agencies in accordance with
the conditions set forth in
Section 1 hereof and the
regulations to be promulgated
to implement the provisions of
this Decree. Provided,
however, That any
government agency or
government-owned or
controlled corporation, or any
local manufacturer or business
firm adversely affected by any
decision or ruling of the Inter-
Agency Committee may file an
appeal with the Office of the
President within ten days from
the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of
Republic Act No. 6395; . . ..
and all similar provisions of all
general and special laws and
decrees are hereby amended
accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it
was
. . . declared the policy of the
State to formulate and
implement a National Budget
that is an instrument of
Jeremiah 29:11
national development,
reflective of national
objectives, strategies and
plans. The budget shall be
supportive of and consistent
with the socio-economic
development plan and shall be
oriented towards the
achievement of explicit
objectives and expected
results, to ensure that funds
are utilized and operations are
conducted effectively,
economically and efficiently.
The national budget shall be
formulated within a context of
a regionalized government
structure and of the totality of
revenues and other receipts,
expenditures and borrowings
of all levels of government-
owned or controlled
corporations. The budget shall
likewise be prepared within the
context of the national long-
term plan and of a long-term
budget program. 43
In line with such policy, the law decreed that
All units of government, including government-
owned or controlled corporations, shall pay
income taxes, customs duties and other taxes
and fees are imposed under revenues laws:
provided, that organizations otherwise
exempted by law from the payment of such
taxes/duties may ask for a subsidy from the
General Fund in the exact amount of
taxes/duties due: provided, further, that a
procedure shall be established by the
Secretary of Finance and the Commissioner
of the Budget, whereby such subsidies shall
automatically be considered as both revenue
and expenditure of the General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive
orders, rules and regulations
or parts thereof which are
inconsistent with the
provisions of the Decree are
252
 hereby repealed and/or
modified accordingly. 45
On July 11, 1984, most likely due to the
economic morass the Government found itself
in after the Aquino assassination, P.D. No.
1931 was issued to reiterate that:
WHEREAS, Presidential
Decree No. 1177 has already
expressly repealed the grant of
tax privileges to any
government-owned or
controlled corporation and all
other units of government; 46
and since there was a
. . . need for government-
owned or controlled
corporations and all other units
of government enjoying tax
privileges to share in the
requirements of development,
fiscal or otherwise, by paying
the duties, taxes and other
charges due from them. 47
it was decreed that:
Sec. 1. The provisions of
special on general law to the
contrary notwithstanding, all
exemptions from the payment
of duties, taxes, fees, imposts
and other charges heretofore
granted in favor of
government-owned or
controlled corporations
including their subsidiaries, are
hereby withdrawn.
Sec. 2. The President of the
Philippines and/or the Minister
of Finance, upon the
recommendation of the Fiscal
Incentives Review Board
created under Presidential
Decree No. 776, is hereby
empowered to restore, partially
or totally, the exemptions
withdrawn by Section 1 above,
Jeremiah 29:11
any applicable tax and duty,
taking into account, among
others, any or all of the
following:
1) The effect on the relative
price levels;
2) The relative contribution of
the corporation to the revenue
generation effort;
3) The nature of the activity in
which the corporation is
engaged in; or
4) In general the greater
national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of
Presidential Decree No. 1177
as well as all other laws,
decrees, executive orders,
administrative orders, rules,
regulations or parts thereof
which are inconsistent with this
Decree are hereby repealed,
amended or modified
accordingly.
On December 17, 1986, E.O. No. 93 (S'86)
was issued with a view to correct presidential
restoration or grant of tax exemption to other
government and private entities without
benefit of review by the Fiscal Incentives
Review Board, to wit:
WHEREAS, Presidential
Decree Nos. 1931 and 1955
issued on June 11, 1984 and
October 14, 1984,
respectively, withdrew the tax
and duty exemption privileges,
including the preferential tax
treatment, of government and
private entities with certain
exceptions, in order that the
requirements of national
economic development, in
terms of fiscals and other
253
 resources, may be met more c) those enjoyed by
adequately; enterprises registered with:

xxx xxx xxx (i) the Board of

Investment
WHEREAS, in addition to pursuant to
those tax and duty exemption Presidential
privileges were restored by the Decree No.
Fiscal Incentives Review 1789, as
Board (FIRB), a number of amended;
affected entities, government
and private, had their tax and (ii) the Export
duty exemption privileges Processing
restored or granted by Zone Authority,
Presidential action without pursuant to
benefit or review by the Fiscal Presidential
Incentives Review Board Decree No. 66
(FIRB); as amended;

xxx xxx xxx (iii) the

Philippine
Since it was decided that: Veterans
Investment
[A]ssistance to government Development
and private entities may be Corporation
better provided where Industrial
necessary by explicit subsidy Authority
and budgetary support rather pursuant to
than tax and duty exemption Presidential
privileges if only to improve the Decree No.
fiscal monitoring aspects of 538, was
government operations. amended.

It was thus ordered that: d) those enjoyed by the copper

mining industry pursuant to the
provisions of Letter of
Sec. 1. The Provisions of any
Instructions No. 1416;
general or special law to the
contrary notwithstanding, all
tax and duty incentives e) those conferred under the
granted to government and four basic codes namely:
private entities are hereby
withdrawn, except: (i) the Tariff
and Customs
a) those covered by the non- Code, as
impairment clause of the amended;
Constitution;
(ii) the National
b) those conferred by effective Internal
internation agreement to which Revenue
the Government of the Code, as
Republic of the Philippines is a amended;
signatory;

254
Jeremiah 29:11
 (iii) the Local
Tax Code, as
amended;
(iv) the Real
Property Tax
Code, as
amended;
f) those
approved by
the President
upon the
recommendati
on of the Fiscal
Incentives
Review Board.
Sec. 2. The Fiscal Incentives
Review Board created under
Presidential Decree No. 776,
as amended, is hereby
authorized to:
a) restore tax and/or duty
exemptions withdrawn
hereunder in whole or in part;
b) revise the scope and
coverage of tax and/or duty
exemption that may be
restored;
c) impose conditions for the
restoration of tax and/or duty
exemption;
d) prescribe the date of period
of effectivity of the restoration
of tax and/or duty exemption;
e) formulate and submit to the
President for approval, a
complete system for the grant
of subsidies to deserving
beneficiaries, in lieu of or in
combination with the
restoration of tax and duty
exemptions or preferential
treatment in taxation,
indicating the source of
funding therefor, eligible
Jeremiah 29:11
beneficiaries and the terms
and conditions for the grant
thereof taking into
consideration the international
commitment of the Philippines
and the necessary precautions
such that the grant of
subsidies does not become
the basis for countervailing
action.
Sec. 3. In the discharge of its
authority hereunder, the Fiscal
Incentives Review Board shall
take into account any or all of
the following considerations:
a) the effect on relative price
levels;
b) relative contribution of the
beneficiary to the revenue
generation effort;
c) nature of the activity the
beneficiary is engaged; and
d) in general, the greater
national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders,
issuances, rules and
regulations or parts thereof
inconsistent with this
Executive Order are hereby
repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be
effective 48 upon the promulgation of the rules
and regulations, to be issued by the Ministry
of Finance. 49 Said rules and regulations were
promulgated and published in the Official
Gazette
on February 23, 1987. These became
effective on the 15th day after
promulgation 50 in the Official Gasetter, 51 which
15th day was March 10, 1987.
III
255
Now to some definitions. We refer to the very
simplistic approach that all would-be lawyers,
learn in their TAXATION I course, which fro
convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay
or who bear the burden:
a. Direct Tax — the where the
person supposed to pay the
tax really pays
it. WITHOUT transferring the
burden to someone else.
Examples: Individual income
tax, corporate income tax,
transfer taxes (estate tax,
donor's tax), residence tax,
immigration tax
b. Indirect Tax — that where
the tax is imposed upon
goods BEFORE reaching the
consumer who ultimately pays
for it, not as a tax, but as a
part of the purchase price.
Examples: the internal
revenue indirect taxes (specific
tax, percentage taxes, (VAT)
and the tariff and customs
indirect taxes (import duties,
special import tax and other
dues) 52
IV
To simply matter, the issues raised by
petitioner in his motion for reconsideration can
be reduced to the following:
(1) What kind of tax exemption privileges did
NPC have?
(2) For what periods in time were these
privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay
for these taxes?
Jeremiah 29:11
V
Petitioner contends that P.D. No. 938
repealed the indirect tax exemption of NPC as
the phrase "all forms of taxes etc.," in its
section 10, amending Section 13, R.A. No.
6395, as amended by P.D. No. 380, does not
expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will
show that it has been the lawmaker's intention
that the NPC was to be completely tax exempt
from all forms of taxes — direct and indirect.
NPC's tax exemptions at first applied to the
bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A.
No. 120.
When the NPC was authorized to contract
with the IBRD for foreign financing, any loans
obtained were to be completely tax exempt.
After the NPC was authorized to borrow from
other sources of funds — aside issuance of
bonds — it was again specifically exempted
from all types of taxes "to facilitate payment of
its indebtedness." Even when the ceilings for
domestic and foreign borrowings were
periodically increased, the tax exemption
privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes
was, however, specifically withdrawn by Rep.
Act No. 987, as above stated. The exemption
was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very
comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is
the starting point of this bone of contention
among the parties. For easy reference, it is
reproduced as follows:
[T]he Corporation is hereby
declared exempt:
xxx xxx xxx
256
 (d) From all taxes, duties, fees,
imposts and all other charges
imposed by the Republic of the
Philippines, its provinces,
cities, municipalities and other
government agencies and
instrumentalities, on all
petroleum products used by
the Corporation in the
generation, transmission,
utilization, and sale of electric
power.
P.D. No. 380 added phrase "directly or
indirectly" to said Section 13(d), which now
reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees,
imposts, and all other charges
imposed directly or
indirectly by the Republic of
the Philippines, its provinces,
cities, municipalities and other
government agencies and
instrumentalities, on all
petroleum products used by
the Corporation in the
generation, transmission,
utilization and sale of electric
power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec.
13(a), (b), (c) and (d) into one very simple
paragraph as follows:
The Corporation shall be non-
profit and shall devote all its
returns from its capital
investment as well as excess
revenues from its operation,
for expansion. To enable the
Corporation to pay its
indebtedness and obligations
and in furtherance and
effective implementation of the
policy enunciated in Section
one of this Act, the
Corporation, including its
subsidiaries, is hereby
declared exempt from the
Jeremiah 29:11
payment of ALL FORMS
OF taxes, duties, fees, imposts
as well as costs and service
fees including filing fees,
appeal bonds, supersedeas
bonds, in any court or
administrative proceedings.
(Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that
Presidential Decree Nos. 380
and 938 were issued by one
man, acting as such the
Executive and Legislative. 53
xxx xxx xxx
[S]ince both presidential
decrees were made by the
same person, it would have
been very easy for him to
retain the same or similar
language used in P.D. No. 380
P.D. No. 938 if his intention
were to preserve the indirect
tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the
ingenuousness of then President Marcos no
matter what his fault were. It should be noted
that section 13, R.A. No. 6395, provided for
tax exemptions for the following items:
13(a) : court or administrative
proceedings;
13(b) : income, franchise,
realty taxes;
13(c) : import of foreign goods
required for its operations and
projects;
13(d) : petroleum products
used in generation of electric
power.
P.D. No. 938 lumped up 13(b), 13(c), and
13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as
257
well as" clause and added PNOC subsidiaries
as qualified for tax exemptions.
This is the only conclusion one can arrive at if
he has read all the NPC laws in the order of
enactment or issuance as narrated above in
part I hereof. President Marcos must have
considered all the NPC statutes from C.A. No.
120 up to its latest amendments, P.D. No.
380, P.D. No. 395 and P.D. No. 759, AND
came up 55 with a very simple Section 13, R.A.
No. 6395, as amended by P.D. No. 938.
One common theme in all these laws is that
the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was
P12 Billion in total domestic indebtedness, at
any one time, and U$4 Billion in total foreign
loans at any one time. The NPC must be and
has to be exempt from all forms of taxes if this
goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock
was raised to P8 Billion. It must be
remembered that to pay the government
share in its capital stock P.D. No. 758 was
issued mandating that P200 Million would be
appropriated annually to cover the said unpaid
subscription of the Government in NPC's
authorized capital stock. And significantly one
of the sources of this annual appropriation of
P200 million is TAX MONEY accruing to the
General Fund of the Government. It does not
stand to reason then that former President
Marcos would order P200 Million to be taken
partially or totally from tax money to be used
to pay the Government subscription in the
NPC, on one hand, and then order the NPC to
pay all its indirect taxes, on the other.
The above conclusion that then President
Marcos lumped up Sections 13 (b), 13 (c) and
(d) into the phrase "All FORMS OF" is
supported by the fact that he did not do the
same for the tax exemption provision for the
foreign loans to be incurred.
The tax exemption on foreign loans found in
Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and
indebtedness contracted under
Jeremiah 29:11
this subsection and the
payment of the principal,
interest and other charges
thereon, as well as the
importation of machinery,
equipment, materials and
supplies by the Corporation,
paid from the proceeds of any
loan, credit or indebtedness
incurred under this Act, shall
also be exempt from all taxes,
fees, imposts, other charges
and restrictions, including
import restrictions, by the
Republic of the Philippines, or
any of its agencies and
political subdivisions. 57
The same was amended by P.D. No. 380 as
follows:
The loans, credits and
indebtedness contracted this
subsection and the payment of
the principal, interest and other
charges thereon, as well as
the importation of machinery,
equipment, materials, supplies
and services, by the
Corporation, paid from the
proceeds of any loan, credit or
indebtedness incurred under
this Act, shall also be exempt
from all direct and
indirect taxes, fees, imposts,
other charges and restrictions,
including import
restrictions previously and
presently imposed, and to be
imposed by the Republic of the
Philippines, or any of its
agencies and political
subdivisions. 58(Emphasis
supplied)
P.D. No. 938 did not amend the same 59 and
so the tax exemption provision in Section 8
(b), R.A. No. 6395, as amended by P.D. No.
380, still stands. Since the subject matter of
this particular Section 8 (b) had to do only with
loans and machinery imported, paid for from
the proceeds of these foreign loans, THERE
WAS NO OTHER SUBJECT MATTER TO
258
LUMP IT UP WITH, and so, the tax exemption
stood as is — with the express mention of
"direct
and indirect" tax exemptions. And this "direct
and indirect" tax exemption privilege extended
to "taxes, fees, imposts, other charges . . . to
be imposed" in the future — surely, an
indication that the lawmakers wanted the NPC
to be exempt from ALL FORMS of taxes —
direct and indirect.
It is crystal clear, therefore, that NPC had
been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New
Society, the Government decided to
rationalize government receipts and
expenditures by formulating and implementing
a National Budget. 60 The NPC, being a
government owned and controlled corporation
had to be shed off its tax exemption status
privileges under P.D. No. 1177. It was,
however, allowed to ask for a subsidy from the
General Fund in the exact amount of
taxes/duties due.
Actually, much earlier, P.D. No. 882 had
already repealed NPC's tax-free importation
privileges. It allowed, however, NPC to appeal
said repeal with the Office of the President
and to avail of tax-free importation privileges
under its Section 1, subject to the prior
approval of an Inter-Agency Committed
created by virtue of said P.D. No. 882. It is
presumed that the NPC, being the special
creation of the State, was allowed to continue
its tax-free importations.
This Court notes that petitioner brought to the
attention of this Court, the matter of the
abolition of NPC's tax exemption privileges by
P.D. No. 1177 61 only in his Common
Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for
Reconsideration, four (4) months AFTER the
motion for Reconsideration had been filed.
During oral arguments heard on July 9, 1992,
he proceeded to discuss this tax exemption
withdrawal as explained by then Secretary of
Jeremiah 29:11
Justice Vicente Abad Santos in opinion No.
133 (S '77). 62 A careful perusal of petitioner's
senate Blue Ribbon Committee Report No.
474, the basis of the petition at bar, fails to
yield any mention of said P.D. No. 1177's
effect on NPC's tax exemption
privileges. 63 Applying by analogy Pulido vs.
Pablo, 64 the court declares that the matter of
P.D. No. 1177 abolishing NPC's tax
exemption privileges was not seasonably
invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss
the effect of P.D. No. 1177 on the NPC tax
exemption privileges as this statute has been
reiterated twice in P.D. No. 1931. The express
repeal of tax privileges of any government-
owned or controlled corporation (GOCC).
NPC included, was reiterated in the fourth
whereas clause of P.D. No. 1931's preamble.
The subsidy provided for in Section 23, P.D.
No. 1177, being inconsistent with Section 2,
P.D. No. 1931, was deemed repealed as the
Fiscal Incentives Revenue Board was tasked
with recommending the partial or total
restoration of tax exemptions withdrawn by
Section 1, P.D. No. 1931.
The records before Us do not indicate whether
or not NPC asked for the subsidy
contemplated in Section 23, P.D. No. 1177.
Considering, however, that under Section 16
of P.D. No. 1177, NPC had to submit to the
Office of the President its request for the P200
million mandated by P.D. No. 758 to be
appropriated annually by the Government to
cover its unpaid subscription to the NPC
authorized capital stock and that under
Section 22, of the same P.D. No. NPC had to
likewise submit to the Office of the President
its internal operating budget for review due to
capital inputs of the government (P.D. No.
758) and to the national government's
guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC
was covered by P.D. No. 1177.
There is reason to believe that NPC availed of
subsidy granted to exempt GOCC's that
suddenly found themselves having to pay
taxes. It will be noted that Section 23, P.D.
No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget
259
had to establish the necessary procedure to Minister of
accomplish the tax payment/tax subsidy Finance, upon
scheme of the Government. In effect, NPC, the
did not put any cash to pay any tax as it got recommendati
from the General Fund the amounts on of the Fiscal
necessary to pay different revenue collectors Incentives
for the taxes it had to pay. Review Board
created under
In his memorandum filed July 16, 1992, P.D. No. 776,
petitioner submits: is hereby
empowered to
[T]hat with the enactment of restore partially
P.D. No. 1177 on July 30, or totally, the
1977, the NPC lost all its duty exemptions
and tax exemptions, whether withdrawn by
direct or indirect. And so there section 1
was nothing to be withdrawn above. . . .
or to be restored under P.D.
No. 1931, issued on June 11, Hence, P.D. No. 1931 did not
1984. This is evident from have any effect or did it
sections 1 and 2 of said P.D. change NPC's status. Since it
No. 1931, which reads: had already lost all its tax
exemptions privilege with the
"Section 1. The issuance of P.D. No. 1177
provisions of seven (7) years earlier or on
special or July 30, 1977, there were no
general law to tax exemptions to be
the contrary withdrawn by section 1 which
notwithstandin could later be restored by the
g, all Minister of Finance upon the
exemptions recommendation of the FIRB
from the under Section 2 of P.D. No.
payment of 1931. Consequently, FIRB
duties, taxes, resolutions No. 10-85, and 1-
fees, imports 86, were all illegally and validly
and other issued since FIRB acted
charges beyond their statutory authority
heretofore by creating and not merely
granted in restoring the tax exempt status
favor of of NPC. The same is true for
government- FIRB Res. No. 17-87 which
owned or restored NPC's tax exemption
controlled under E.O. No. 93 which
corporations likewise abolished all duties
including their and tax exemptions but
subsidiaries allowed the President upon
are hereby recommendation of the FIRB
withdrawn." to restore those abolished.

Sec. 2. The The Court disagrees.

President of
the Philippines Applying by analogy the weight of authority
and/or the that:

260
Jeremiah 29:11
 When a revised and
consolidated act re-enacts in
the same or substantially the
same terms the provisions of
the act or acts so revised and
consolidated, the revision and
consolidation shall be taken to
be a continuation of the former
act or acts, although the
former act or acts may be
expressly repealed by the
revised and consolidated act;
and all rights
and liabilities under the former
act or acts are preserved and
may be enforced. 66
the Court rules that when P.D. No. 1931
basically reenacted in its Section 1 the first
half of Section 23, P.D. No. 1177, on
withdrawal of tax exemption privileges of all
GOCC's said Section 1, P.D. No. 1931 was
deemed to be a continuation of the first half of
Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on
the subsidy scheme for former tax exempt
GOCCs had been expressly repealed by
Section 2 with its institution of the FIRB
recommendation of partial/total restoration of
tax exemption privileges.
The NPC tax privileges withdrawn by Section
1. P.D. No. 1931, were, therefore, the same
NPC tax exemption privileges withdrawn by
Section 23, P.D. No. 1177. NPC could no
longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931,
ask for a total restoration of its tax exemption
privileges, which, it did, and the same were
granted under FIRB Resolutions Nos. 10-
85 67 and 1-86 68 as approved by the Minister of
Finance.
Consequently, contrary to petitioner's
submission, FIRB Resolutions Nos. 10-85 and
1-86 were both legally and validly issued by
the FIRB pursuant to P.D. No. 1931. FIRB did
not created NPC's tax exemption status but
merely restored it. 69
Some quarters have expressed the view that
P.D. No. 1931 was illegally issued under the
now rather infamous Amendment No. 6 70 as
Jeremiah 29:11
there was no showing that President Marcos'
encroachment on legislative prerogatives was
justified under the then prevailing condition
that he could legislate "only if the Batasang
Pambansa 'failed or was unable to act
inadequately on any matter that in his
judgment required immediate action' to meet
the 'exigency'. 71
Actually under said Amendment No. 6, then
President Marcos could issue decrees not
only when the Interim Batasang Pambansa
failed or was unable to act adequately on any
matter for any reason that in his (Marcos')
judgment required immediate action, but also
when there existed a grave emergency or a
threat or thereof. It must be remembered that
said Presidential Decree was issued only
around nine (9) months after the Philippines
unilaterally declared a moratorium on its
foreign debt payments 72 as a result of the
economic crisis triggered by loss of
confidence in the government brought about
by the Aquino assassination. The Philippines
was then trying to reschedule its debt
payments. 73 One of the big borrowers was the
NPC 74 which had a US$ 2.1 billion white
elephant of a Bataan Nuclear Power Plant on
its back. 75 From all indications, it must have
been this grave emergency of a debt
rescheduling which compelled Marcos to
issue P.D. No. 1931, under his Amendment 6
power. 76
The rule, therefore, that under the 1973
Constitution "no law granting a tax exemption
shall be passed without the concurrence of a
majority of all the members of the Batasang
Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang
Pambansa but by then President Marcos
under His Amendment No. 6 power.
P.D. No. 1931 was, therefore, validly issued
by then President Marcos under his
Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption
privileges were again clipped by, this time,
President Aquino. Its section 2 allowed the
NPC to apply for the restoration of its tax
exemption privileges. The same was granted
under FIRB Resolution No. 17-87 78 dated
261
June 24, 1987 which restored NPC's tax
exemption privileges effective, starting March
10, 1987, the date of effectivity of E.O. No. 93
(S'86).
FIRB Resolution No. 17-87 was approved by
the President on October 5, 1987. 79 There is
no indication, however, from the records of the
case whether or not similar approvals were
given by then President Marcos for FIRB
Resolutions Nos. 10-85 and 1- 86. This has
led some quarters to believe that a "travesty of
justice" might have occurred when the
Minister of Finance approved his own
recommendation as Chairman of the Fiscal
Incentives Review Board as what happened
in Zambales Chromate vs. Court of
Appeals 80 when the Secretary of Agriculture
and Natural Resources approved a decision
earlier rendered by him when he was the
Director of Mines, 81 and in Anzaldo vs.
Clave 82 where Presidential Executive
Assistant Clave affirmed, on appeal to
Malacañang, his own decision as Chairman of
the Civil Service Commission. 83
Upon deeper analysis, the question arises as
to whether one can talk about "due process"
being violated when FIRB Resolutions Nos.
10-85 and 1-86 were approved by the Minister
of Finance when the same were
recommended by him in his capacity as
Chairman of the Fiscal Incentives Review
Board. 84
In Zambales Chromite and Anzaldo, two (2)
different parties were involved: mining groups
and scientist-doctors, respectively. Thus,
there was a need for procedural due process
to be followed.
In the case of the tax exemption restoration of
NPC, there is no other comparable entity —
not even a single public or private corporation
— whose rights would be violated if NPC's tax
exemption privileges were to be restored.
While there might have been a MERALCO
before Martial Law, it is of public knowledge
that the MERALCO generating plants were
sold to the NPC in line with the State policy
that NPC was to be the State implementing
arm for the electrification of the entire country.
Besides, MERALCO was limited to Manila and
Jeremiah 29:11
its environs. And as of 1984, there was no
more MERALCO — as a producer of
electricity — which could have objected to the
restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to
be granted tax exemption privileges for the
first time. It was just asking that its tax
exemption privileges be restored. It is for
these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax
exemption privileges under FIRB Resolution
Nos. 10-85 and 1-86, done by the same
person acting in his dual capacities as
Chairman of the Fiscal Incentives Review
Board and Minister of Finance, respectively,
do not violate procedural due process.
While as above-mentioned, FIRB Resolution
No. 17-87 was approved by President Aquino
on October 5, 1987, the view has been
expressed that President Aquino, at least with
regard to E.O. 93 (S'86), had no authority to
sub-delegate to the FIRB, which was allegedly
not a delegate of the legislature, the power
delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued,
President Aquino was exercising both
Executive and Legislative powers. Thus, there
was no power delegated to her, rather it was
she who was delegating her power. She
delegated it to the FIRB, which, for purposes
of E.O No. 93 (S'86), is a delegate of the
legislature. Clearly, she was not sub-
delegating her power.
And E.O. No. 93 (S'86), as a delegating law,
was complete in itself — it set forth the policy
to be carried out 85 and it fixed the standard to
which the delegate had to conform in the
performance of his functions, 86 both qualities
having been enunciated by this Court
in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that
the NPC had its tax exemption privileges
restored from June 11, 1984 up to the
present.
262
 VII
The next question that projects itself is — who
pays the tax?
The answer to the question could be gleamed
from the manner by which the Commissaries
of the Armed Forces of the Philippines sell
their goods.
By virtue of P.D. No. 83, 88 veterans, members
of the Armed of the Philippines, and their
defendants but groceries and other goods free
of all taxes and duties if bought from any AFP
Commissaries.
In practice, the AFP Commissary suppliers
probably treat the unchargeable specific, ad
valorem and other taxes on the goods
earmarked for AFP Commissaries as an
added cost of operation and distribute it over
the total units of goods sold as it would any
other cost. Thus, even the ordinary
supermarket buyer probably pays for the
specific, ad valorem and other taxes which
theses suppliers do not charge the AFP
Commissaries. 89
IN MUCH THE SAME MANNER, it is clear
that private respondents-oil companies have
to absorb the taxes they add to the bunker
fuel oil they sell to NPC.
It should be stated at this juncture that, as
early as May 14, 1954, the Secretary of
Justice renders an opinion, 90wherein he
stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts
the National Power
Corporation from "all taxes,
duties, fees, imposts, charges,
and restrictions of the Republic
of the Philippines and its
provinces, cities, and
municipalities." This exemption
is broad enough to include all
taxes, whether direct or
indirect, which the National
Power Corporation may be
Jeremiah 29:11
required to pay, such as the
specific tax on petroleum
products. That it is indirect or
is of no amount [should be of
no moment], for it is the
corporation that ultimately
pays it. The view which
refuses to accord the
exemption because the tax is
first paid by the seller
disregards realities and gives
more importance to form than
to substance. Equity and law
always exalt substance over
from.
xxx xxx xxx
Tax exemptions are
undoubtedly to be construed
strictly but not so grudgingly as
knowledge that many
impositions taxpayers have to
pay are in the nature of
indirect taxes. To limit the
exemption granted the
National Power Corporation to
direct taxes notwithstanding
the general and broad
language of the statue will be
to thwrat the legislative
intention in giving exemption
from all forms of taxes and
impositions without
distinguishing between those
that are direct and those that
are not. (Emphasis supplied)
In view of all the foregoing, the Court rules
and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the
taxes imposed upon said bunker fuel oil sold
to NPC. By the very nature of indirect taxation,
the economic burden of such taxation is
expected to be passed on through the
channels of commerce to the user or
consumer of the goods sold. Because,
however, the NPC has been exempted from
both direct and indirect taxation, the NPC
must beheld exempted from absorbing the
economic burden of indirect taxation. This
means, on the one hand, that the oil
companies which wish to sell to NPC absorb
263
all or part of the economic burden of the taxes
previously paid to BIR, which could they shift
to NPC if NPC did not enjoy exemption from
indirect taxes. This means also, on the other
hand, that the NPC may refuse to pay the part
of the "normal" purchase price of bunker fuel
oil which represents all or part of the taxes
previously paid by the oil companies to BIR. If
NPC nonetheless purchases such oil from the
oil companies — because to do so may be
more convenient and ultimately less costly for
NPC than NPC itself importing and hauling
and storing the oil from overseas — NPC is
entitled to be reimbursed by the BIR for that
part of the buying price of NPC which
verifiably represents the tax already paid by
the oil company-vendor to the BIR.
It should be noted at this point in time that the
whole issue of who WILL pay these indirect
taxes HAS BEEN RENDERED moot and
academic by E.O. No. 195 issued on June 16,
1987 by virtue of which the ad valorem tax
rate on bunker fuel oil was reduced to ZERO
(0%) PER CENTUM. Said E.O. no. 195 reads
as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b)
OF SECTION 128 OF THE
NATIONAL INTERNAL
REVENUE CODE, AS
AMENDED BY REVISING
THE EXCISE TAX RATES OF
CERTAIN PETROLEUM
PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of
Section 128 of the National
Internal Revenue Code, as
amended, is hereby amended
to read as follows:
Par. (b) — For products
subject to ad valorem tax only:
PRODUCT AD VALOREM
TAX RATE
Jeremiah 29:11
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially
known as bunker oil and on
similar fuel oils having more or
less the same generating
power 0%
xxx xxx xxx
Sec. 3. This Executive Order
shall take effect immediately.
Done in the city of Manila, this
17th day of June, in the year of
Our Lord, nineteen hundred
and eighty-seven. (Emphasis
supplied)
The oil companies can now deliver bunker fuel
oil to NPC without having to worry about who
is going to bear the economic burden of
the ad valorem taxes. What this Court will now
dispose of are petitioner's complaints that
some indirect tax money has been illegally
refunded by the Bureau of Internal Revenue to
the NPC and that more claims for refunds by
the NPC are being processed for payment by
the BIR.
A case in point is the Tax Credit Memo issued
by the Bureau of Internal Revenue in favor of
the NPC last July 7, 1986 for P58.020.110.79
which were for "erroneously paid specific
and ad valorem taxes during the period from
October 31, 1984 to April 27,
1985. 91 Petitioner asks Us to declare this Tax
Credit Memo illegal as the PNC did not have
indirect tax exemptions with the enactment of
P.D. No. 938. As We have already ruled
otherwise, the only questions left are whether
NPC Is entitled to a tax refund for the tax
component of the price of the bunker fuel oil
purchased from Caltex (Phils.) Inc. and
whether the Bureau of Internal Revenue
properly refunded the amount to NPC.
264
After P.D. No. 1931 was issued on June 11,
1984 withdrawing the
tax exemptions of all GOCCs — NPC
included, it was only on May 8, 1985 when the
BIR issues its letter authority to the NPC
authorizing it to withdraw tax-free bunker fuel
oil from the oil companies pursuant to FIRB
Resolution No. 10-85. 92 Since the tax
exemption restoration was retroactive to June
11, 1984 there was a need. therefore, to
recover said amount as Caltex (PhiIs.) Inc.
had already paid the BIR the specific and ad
valorem taxes on the bunker oil it sold NPC
during the period above indicated and had
billed NPC correspondingly. 93 It should be
noted that the NPC, in its letter-claim dated
September 11, 1985 to the Commissioner of
the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY
STATE that itself paid the P58.020,110.79 as
part of the bunker fuel oil price it purchased
from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or
illegally, collected taxes is section 230 of the
National Internal Revenue Code of 1977, as
amended which reads as follows:
Sec. 230. Recover of tax
erroneously or illegally
collected. — No suit or
proceeding shall be
maintained in any court for the
recovery of any national
internal revenue tax hereafter
alleged to have been
erroneously or illegally
assessed or collected, or of
any penalty claimed to have
been collected without
authority, or of any sum
alleged to have been
excessive or in any Manner
wrongfully collected. until a
claim for refund or credit has
been duly filed with the
Commissioner; but such suit or
proceeding may be
maintained, whether or not
such tax, penalty, or sum has
been paid under protest or
duress.
Jeremiah 29:11
In any case, no such suit or
proceeding shall be begun
after the expiration of two
years from the date of
payment of the tax or penalty
regardless of any supervening
cause that may arise after
payment; Provided, however,
That the Commissioner may,
even without a written claim
therefor, refund or credit any
tax, where on the face of the
return upon which payment
was made, such payment
appears clearly, to have been
erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for
P58.020,110.79 on September 11, 1985, 95 the
Commissioner correctly issued the Tax Credit
Memo in view of NPC's indirect tax exemption.
Petitioner, however, asks Us to restrain the
Commissioner from acting favorably on NPC's
claim for P410.580,000.00 which represents
specific and ad valorem taxes paid by the oil
companies to the BIR from June 11, 1984 to
the early part of 1986. 96
A careful examination of petitioner's pleadings
and annexes attached thereto does not reveal
when the alleged claim for a P410,580,000.00
tax refund was filed. It is only stated In
paragraph No. 2 of the Deed of
Assignment 97executed by and between NPC
and Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC)
has a pending tax credit claim
with the Bureau of Internal
Revenue amounting to
P442,887,716.16.
P58.020,110.79 of which is
due to Assignor's oil
purchases from the Assignee
(Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear
case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount
265
because of Our ruling that NPC has both
direct and indirect tax exemption privileges.
Neither can We order the BIR to refund said
amount to NPC as there is no pending petition
for review on certiorari of a suit for its
collection before Us. At any rate, at this point
in time, NPC can no longer file any suit to
collect said amount EVEN IF lt has previously
filed a claim with the BIR because it is time-
barred under Section 230 of the National
Internal Revenue Code of 1977. as amended,
which states:

In any case, no such suit or

proceeding shall be begun
after the expiration of two
years from the date of
payment of the tax or penalty
REGARDLESS of any
supervening cause that may
arise after payment. . . .
(Emphasis supplied)

The date of the Deed of Assignment is June 6.

1986. Even if We were to assume that
payment by NPC for the amount of
P410,580,000.00 had been made on said
date. it is clear that more than two (2) years
had already elapsed from said date. At the
same time, We should note that there is no
legal obstacle to the BIR granting, even
without a suit by NPC, the tax credit or refund
claimed by NPC, assuming that NPC's claim
had been made seasonably, and assuming
the amounts covered had actually been paid
previously by the oil companies to the BIR.

WHEREFORE, in view of all the foregoing, the

Motion for Reconsideration of petitioner is
hereby DENIED for lack of merit and the
decision of this Court promulgated on May 31,
1991 is hereby AFFIRMED.

266
Jeremiah 29:11

G.R. No. 70648 July 31, 1987
COMMISSIONER OF CUSTOMS, petitioner,
vs.
COURT OF TAX APPEALS and CAMPOS
RUEDA CORPORATION, respondents,
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Customs seeks a
reversal of the Decision of respondent Court
of Tax Appeals* in CTA Case No. 2830
entitled "Campos Rueda Corporation,
Petitioner, vs. The Hon. Commissioner of
Customs, Respondent" wherein respondent
Court ordered petitioner to refund to private
respondent Campos Rueda Corporation the
Customs duties the latter had overpaid on
three of its importations.
The essential facts are not in controversy, the
main issue being one of law.
1) Campos Rueda Corporation (Respondent
Company, for short), ordered tungsol flashers
from the United States. One shipment, worth
$10,812.20, arrived in Manila on November 1,
1973 for which it filed the corresponding
Import Entry.
Jeremiah 29:11
Another shipment of the same article, worth
$18,220.10, arrived in Manila on February 12,
1974 with Respondent Company again filing
the necessary Import Entry.
The invoice and declared unit price was $0.66
for the two importations. However, the Bureau
of Customs re-appraised the two shipments at
the rate of $1.08 per piece based on an "Alert
Notice" sent by Finance Attaches abroad.
Respondent Company paid the increased
taxes and duties amounting to P18,591.00
and P52,226.00 for the respective shipments,
but filed Manila Protests Nos. 9274 and 9275
claiming a refund of said amounts.
2) Respondent Company also ordered sealed
beams from the United States. The
merchandise worth $18,964.54 arrived in
Manila on March 31, 1974 for which the
corresponding Import Entry was filed. The
invoice price of the merchandise was $0.908
per piece but the Collector of Customs of
Manila re-appraised it to $1.35 a piece based
on an "Alert Notice" received from Finance
Attaches abroad. Again, Respondent
Company paid the increased duties and taxes
amounting to P67,525.00 but filed at the same
time Manila Protest No. 9287 for refund of the
excess paid.
From the denial of the Protests by the
Collector of Customs, Respondent Company
appealed to the Commissioner of Customs,
which affirmed in toto the consolidated
Decision appealed from on the ground that
"Alert Notices are sent by Finance Attaches in
their official capacity as such officials, aware
of their bounden duty to keep the Department
of Finance abreast with the current prices of
commodities for the imposition of correct
amount of duties and taxes on taxable
importations."
Respondent Company elevated the case to
respondent Court of Tax Appeals which, on
March 19, 1985, rendered judgment finding
that petitioner had violated Section 201 of the
Tariff and Customs Code, and ruling:
As to petitioner's claim for tax refund,
the same cannot be passed upon by
267
 the Court because there is nothing in
the records to show that petitioner had
filed its written claim for refund thereof
with the Commissioner of Internal
Revenue and that the latter was made
a party to this case.
xxx xxx xxx
In view of the foregoing, and since
there is no controversy between the
parties as to the computation of the
customs duties sought to be refunded,
only that amount of overpaid customs
duties should be refundable to
petitioner.
Wherefore, the appealed decision is
modified. Respondent is hereby
ordered to grant the refund of overpaid
customs duties to petitioner Campos
Rueda Corporation. Without
pronouncement as to costs.
SO ORDERED.
Hence, petitioner's recourse to this instance.
The issue posed is whether or not the re-
appraisal made by the Commissioner of
Customs was in accordance with Section 201
of the Tariff and Customs Code of the
Philippines (RA No. 1937), as amended by PD
Nos. 34 and 1464.
Section 201 of the Tariff and Customs Code
reads:
Section 201. Basis of Dutiable Value.
— The dutiable value of an imported
article subject to an ad valorem rate of
duty shall be based on the home
consumption value or price (excluding
internal excise taxes) of same, like or
similar articles, as bought and sold or
offered for sale freely in the usual
wholesale quantities in the ordinary
course of trade, in the principal
markets of the country from where
exported on the date of exportation to
the Philippines, or where there is none
on such date, then on the home
Jeremiah 29:11
consumption value or price nearest to
the date of exportation including the
value of all containers, coverings
and/or packings of any kind and all
other costs, charges and expenses
incident to placing the article in a
condition ready for shipment to the
Philippines, plus ten (10) per cent of
such home consumption value or
price.
The home consumption value or price
under this section shall be the value or
price declared in the consular,
commercial, trade or sales invoice.
Where there exists a reasonable
doubt as to the value or price of the
imported article declared in the entry,
the correct dutiable value of the article
shall be ascertained from the reports
of the Revenue Attache or
Commercial Attache (Foreign Trade
Promotion Attaches pursuant to
Republic Act Numbered Fifty-four
hundred and sixty-six or other
Philippine diplomatic officers and from
such other information that may be
available to the Bureau of Customs.
From the data thus gathered, the
Commissioner of Customs shall
ascertain and establish the home
consumption values of articles
exported to the Philippines and shall
publish such lists of values from time
to time.
When the dutiable value provided for
in the preceding paragraphs cannot be
ascertained for failure of the importer
to produce the documents mentioned
in the second paragraph, or where
there exists a reasonable doubt as to
dutiable value of the imported article
declared in the entry, it shall be the
domestic wholesale selling price of
such or similar article in Manila or
other principal markets in the
Philippines on the date the duty
becomes payable on the article under
appraisement, in the usual wholesale
quantities and in the ordinary course
of trade, minus —
268
 (a) Twenty (20) per cent thereof for
expenses and profits; and
(b) Duties and taxes paid thereon.
Clearly, the dutiable value of an imported
article is based on the home consumption
value or price as declared in the consular,
commercial, trade or sales invoice. But where
there is a reasonable doubt, the correct
dutiable value shall be ascertained from the
reports of the Revenue Attache or
Commercial Attache and from such other
information that may be available to the
Bureau of Customs. Also required by the
statute is the publication from time to time of
the lists of the home consumption values.
In the corresponding Import Entries,
Respondent Company quoted the prices of
the imported merchandise as declared in the
consular invoices and as required by Section
201. Reasonable doubt regarding the
declarations was not shown to have existed
such that recourse to reports from commercial
attaches or other information became
necessary. Neither was there compliance with
the requirement in Section 201 regarding
publication of the fists of dutiable values of
imported articles from time to time. The re-
appraisal made by the Bureau of Customs
was based on "Alert Notices" received from
Finance Attaches abroad, which, however,
were not disclosed, neither to Respondent
Company nor to respondent Court. As
respondent Court had bewailed:
In the case at bar, it is worthy to state
that the respondent's re-appraisal of
the subject shipments or articles
imported were based on the alleged
piece of document known as "Alert
Notice" which was not even presented
by respondent to the Court. At any
rate, assuming that there really is such
a document and the same was
received by the Commissioner of
Customs, the fact is that the records
do not show from what data the
alleged alerted value was taken, and
how the Commissioner of Customs
ascertained and established the home
consumption value of the imported
Jeremiah 29:11
articles and/or merchandise and when
and where such alerted value was
published as required by law. Under
these circumstances, the re-appraisal
made by respondent is clearly not in
accordance with the provisions of
Section 201 of the Tariff and Customs
Code.
While it is true that appraisers of the Bureau of
Customs are given ample leeway in
determining the correct customs duties under
Section 1405 of the Tariff and Customs
Code,1 Section 201 of the same Code, which
prescribes the criteria for the determination of
the dutiable values of imported articles, has
not been complied with. What is more,
administrative proceedings are not exempt
from the operation of due process
requirements one of which is that a finding by
an administrative tribunal should be supported
by substantial evidence presented at the
hearing or at least contained in the records or
disclosed to the parties affected.2 In this case
the "Alert Notices" on which petitioner based
its re-appraisal were not disclosed during the
proceedings before the Bureau of Customs
nor presented in evidence before respondent
Court. The re-appraisal made by petitioner,
therefore, can be faulted with arbitrariness in
disregard of the standard of due process to
which all governmental action should conform
to impress upon it the stamp of validity.1aw ph!1
WHEREFORE, the Petition for Review on
certiorari is denied, and the appealed
judgment is hereby affirmed. No costs.
SO ORDERED.
Manila Times Publishing Co. vs CIR
(CTA case 2263) No case found
269

G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-
appellant,
vs.
THE TREASURER OF ORMOC CITY, THE
MUNICIPAL BOARD OF ORMOC CITY,
HON. ESTEBAN C. CONEJOS as Mayor of
Ormoc City and ORMOC CITY, defendants-
appellees.
Ponce Enrile, Siguion Reyna, Montecillo &
Belo and Teehankee, Carreon & Tañada for
plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal
Board of Ormoc City passed 1 Ordinance No.
4, Series of 1964, imposing "on any and all
productions of centrifugal sugar milled at the
Ormoc Sugar Company, Inc., in Ormoc City a
municipal tax equivalent to one per centum
(1%) per export sale to the United States of
America and other foreign countries." 2
Payments for said tax were made,
under protest, by Ormoc Sugar Company, Inc.
on March 20, 1964 for P7,087.50 and on April
20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar
Company, Inc. filed before the Court of First
Instance of Leyte, with service of a copy upon
Jeremiah 29:11
the Solicitor General, a complaint 3 against the
City of Ormoc as well as its Treasurer,
Municipal Board and Mayor, alleging that the
afore-stated ordinance is unconstitutional for
being violative of the equal protection clause
(Sec. 1[1], Art. III, Constitution) and the rule of
uniformity of taxation (Sec. 22[1]), Art. VI,
Constitution), aside from being an export tax
forbidden under Section 2287 of the Revised
Administrative Code. It further alleged that the
tax is neither a production nor a license tax
which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act
2264, otherwise known as the Local
Autonomy Act, is authorized to impose; and
that the tax amounts to a customs duty, fee or
charge in violation of paragraph 1 of Section 2
of Republic Act 2264 because the tax is on
both the sale and export of sugar.
Answering, the defendants asserted
that the tax ordinance was within defendant
city's power to enact under the Local
Autonomy Act and that the same did not
violate the afore-cited constitutional
limitations. After pre-trial and submission of
the case on memoranda, the Court of First
Instance, on August 6, 1964, rendered a
decision that upheld the constitutionality of the
ordinance and declared the taxing power of
defendant chartered city broadened by the
Local Autonomy Act to include all other forms
of taxes, licenses or fees not excluded in its
charter.
Appeal therefrom was directly taken to
Us by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and
constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Section 1 of the ordinance states:
"There shall be paid to the City Treasurer on
any and all productions of centrifugal sugar
milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax
equivalent to one per centum (1%) per export
sale to the United States of America and other
foreign countries." Though referred to as a tax
on the export of centrifugal sugar produced at
Ormoc Sugar Company, Inc. For production of
sugar alone is not taxable; the only time the
270
tax applies is when the sugar produced is
exported.
Appellant questions the authority of the
defendant Municipal Board to levy such an
export tax, in view of Section 2287 of the
Revised Administrative Code which denies
from municipal councils the power to impose
an export tax. Section 2287 in part states: "It
shall not be in the power of the municipal
council to impose a tax in any form whatever,
upon goods and merchandise carried into the
municipality, or out of the same, and any
attempt to impose an import or export tax
upon such goods in the guise of an
unreasonable charge for wharfage use of
bridges or otherwise, shall be void."
Subsequently, however, Section 2 of
Republic Act 2264 effective June 19, 1959,
gave chartered cities, municipalities and
municipal districts authority to levy for public
purposes just and uniform taxes, licenses or
fees. Anent the inconsistency between
Section 2287 of the Revised Administrative
Code and Section 2 of Republic Act 2264, this
Court, in Nin Bay Mining Co. v. Municipality of
Roxas 4 held the former to have been repealed
by the latter. And expressing Our awareness
of the transcendental effects that municipal
export or import taxes or licenses will have on
the national economy, due to Section 2 of
Republic Act 2264, We stated that there was
no other alternative until Congress acts to
provide remedial measures to forestall any
unfavorable results.
The point remains to be determined,
however, whether constitutional limits on the
power of taxation, specifically the equal
protection clause and rule of uniformity of
taxation, were infringed.
The Constitution in the bill of rights
provides: ". . . nor shall any person be denied
the equal protection of the laws." (Sec. 1 [1],
Art. III) In Felwa vs. Salas, 5 We ruled that the
equal protection clause applies only to
persons or things identically situated and does
not bar a reasonable classification of the
subject of legislation, and a classification is
reasonable where (1) it is based on
substantial distinctions which make real
Jeremiah 29:11
differences; (2) these are germane to the
purpose of the law; (3) the classification
applies not only to present conditions but also
to future conditions which are substantially
identical to those of the present; (4) the
classification applies only to those who belong
to the same class.
A perusal of the requisites instantly
shows that the questioned ordinance does not
meet them, for it taxes only centrifugal sugar
produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of
the taxing ordinance's enactment, Ormoc
Sugar Company, Inc., it is true, was the only
sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in
terms applicable to future conditions as well.
The taxing ordinance should not be singular
and exclusive as to exclude any subsequently
established sugar central, of the same class
as plaintiff, for the coverage of the tax. As it is
now, even if later a similar company is set up,
it cannot be subject to the tax because the
ordinance expressly points only to Ormoc City
Sugar Company, Inc. as the entity to be levied
upon.
Appellant, however, is not entitled to
interest; on the refund because the taxes were
not arbitrarily collected (Collector of Internal
Revenue v. Binalbagan). 6 At the time of
collection, the ordinance provided a sufficient
basis to preclude arbitrariness, the same
being then presumed constitutional until
declared otherwise.
WHEREFORE, the decision appealed
from is hereby reversed, the challenged
ordinance is declared unconstitutional and the
defendants-appellees are hereby ordered to
refund the P12,087.50 plaintiff-appellant paid
under protest. No costs. So ordered.
Radio Communications of the Phils. V CTA GR
No 60547, July 11, 1985
FACTS:
271
Under its original franchise, RA 2036 (1957),
petitioner RCPI was subject to both the franchise
tax and income tax. In
1964, petitioner’s franchise was amended by RA
4054 to the effect that its franchise tax of 1
and1⁄2% of all gross receipts was provided as in
lieu of any and all taxes of any kind and nature.
In 1968, RA 4054 was repealed by RA 5431,
which withdrew the exemption and subjected
RCPI to taxes upon their taxable net income as
imposed upon associations or corporations
engaged in a similar business or industry.

ISSUE:
Whether the exemption under RA 4054 was
repealed by RA 5431

RULING:
Yes. An examination of Section 24 of the Tax
Code as amended shows clearly that the law
intended all corporate
taxpayers to pay income tax as provided by the
statute. There can be no doubt as to the power of
Congress to repeal the earlier exemption it
granted.

Article XIV, Section 5 of the 1973 Constitution

expressly provide that no franchise shall be
granted to any individual, firm or corporation
except under the condition that it shall be subject
to amendment, alteration, or repeal by the
legislature when the public interest so requires.

There is no question as to the public interest

involved. The country needs increased revenues.
The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the
provision.

272
Jeremiah 29:11

G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as
SECRETARY OF FINANCE & JOSE U.
ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND
SOMERA LAW OFFICES, CARLO A.
CARAG, MANUELITO O. CABALLES,
ELPIDIO C. JAMORA, JR. and BENJAMIN
A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity
as SECRETARY OF FINANCE and JOSE U.
ONG, in his capacity as COMMISSIONER
OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law
Offices for petitioners in G.R. 109446.
VITUG, J.:
Jeremiah 29:11
These two consolidated special civil actions
for prohibition challenge, in G.R. No. 109289,
the constitutionality of Republic Act No. 7496,
also commonly known as the Simplified Net
Income Taxation Scheme ("SNIT"), amending
certain provisions of the National Internal
Revenue Code and, in
G.R. No. 109446, the validity of Section 6,
Revenue Regulations No. 2-93, promulgated
by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely
affected by the continued implementation of
the amendatory legislation.
In G.R. No. 109289, it is asserted that the
enactment of Republic Act
No. 7496 violates the following provisions of
the Constitution:
Article VI, Section 26(1) —
Every bill passed by the
Congress shall embrace only
one subject which shall be
expressed in the title thereof.
Article VI, Section 28(1) —
The rule of taxation shall be
uniform and equitable. The
Congress shall evolve a
progressive system of
taxation.
Article III, Section 1 — No
person shall be deprived of . . .
property without due process
of law, nor shall any person be
denied the equal protection of
the laws.
In G.R. No. 109446, petitioners, assailing
Section 6 of Revenue Regulations No. 2-93,
argue that public respondents have exceeded
their rule-making authority in applying SNIT to
general professional partnerships.
The Solicitor General espouses the position
taken by public respondents.
The Court has given due course to both
petitions. The parties, in compliance with the
273
Court's directive, have filed their respective
memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill
No. 34314, progenitor of Republic Act No.
7496, is a misnomer or, at least, deficient for
being merely entitled, "Simplified Net Income
Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of
their Profession" (Petition in G.R. No.
109289).
The full text of the title actually reads:
An Act Adopting the Simplified
Net Income Taxation Scheme
For The Self-Employed and
Professionals Engaged In The
Practice of Their Profession,
Amending Sections 21 and 29
of the National Internal
Revenue Code, as Amended.
The pertinent provisions of Sections 21 and
29, so referred to, of the National Internal
Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or
residents. —
xxx xxx xxx
(f) Simplified Net Income Tax
for the Self-Employed and/or
Professionals Engaged in the
Practice of Profession. — A
tax is hereby imposed upon
the taxable net income as
determined in Section 27
received during each taxable
year from all sources, other
than income covered by
paragraphs (b), (c), (d) and (e)
of this section by every
individual whether
a citizen of the Philippines or
an alien residing in the
Philippines who is self-
employed or practices his
profession herein, determined
Jeremiah 29:11
in accordance with the
following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of
excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of
excess over P30,000
Over P120,000 P15,600 +
20%
but not over P350,000 of
excess over P120,000
Over P350,000 P61,600 +
30%
of excess over P350,000
Sec. 29. Deductions from
gross income. — In computing
taxable income subject to tax
under Sections 21(a), 24(a),
(b) and (c); and 25 (a)(1),
there shall be allowed as
deductions the items specified
in paragraphs (a) to (i) of this
section: Provided, however,
That in computing taxable
income subject to tax under
Section 21 (f) in the case of
individuals engaged in
business or practice of
profession, only the following
direct costs shall be allowed
as deductions:
(a) Raw materials, supplies
and direct labor;
(b) Salaries of employees
directly engaged in activities in
the course of or pursuant to
the business or practice of
their profession;
(c) Telecommunications,
electricity, fuel, light and water;
274
 (d) Business rentals;
(e) Depreciation;
(f) Contributions made to the
Government and accredited
relief organizations for the
rehabilitation of calamity
stricken areas declared by the
President; and
(g) Interest paid or accrued
within a taxable year on loans
contracted from accredited
financial institutions which
must be proven to have been
incurred in connection with the
conduct of a taxpayer's
profession, trade or business.
For individuals whose cost of
goods sold and direct costs
are difficult to determine, a
maximum of forty per cent
(40%) of their gross receipts
shall be allowed as deductions
to answer for business or
professional expenses as the
case may be.
On the basis of the above language of the
law, it would be difficult to accept petitioner's
view that the amendatory law should be
considered as having now adopted
a gross income, instead of as having still
retained the net income, taxation scheme. The
allowance for deductible items, it is true, may
have significantly been reduced by the
questioned law in comparison with that which
has prevailed prior to the amendment; limiting,
however, allowable deductions from gross
income is neither discordant with, nor
opposed to, the net income tax concept. The
fact of the matter is still that various
deductions, which are by no means
inconsequential, continue to be well provided
under the new law.
Article VI, Section 26(1), of the Constitution
has been envisioned so as (a) to prevent log-
rolling legislation intended to unite the
members of the legislature who favor any one
Jeremiah 29:11
of unrelated subjects in support of the whole
act, (b) to avoid surprises or even fraud upon
the legislature, and (c) to fairly apprise the
people, through such publications of its
proceedings as are usually made, of the
subjects of legislation.1 The above objectives
of the fundamental law appear to us to have
been sufficiently met. Anything else would be
to require a virtual compendium of the law
which could not have been the intendment of
the constitutional mandate.
Petitioner intimates that Republic Act No.
7496 desecrates the constitutional
requirement that taxation "shall be uniform
and equitable" in that the law would now
attempt to tax single proprietorships and
professionals differently from the manner it
imposes the tax on corporations and
partnerships. The contention clearly forgets,
however, that such a system of income
taxation has long been the prevailing rule
even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept
of equal protection, merely requires that all
subjects or objects of taxation, similarly
situated, are to be treated alike both in
privileges and liabilities (Juan Luna
Subdivision vs. Sarmiento, 91 Phil. 371).
Uniformity does not forfend classification as
long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2)
the categorization is germane to achieve the
legislative purpose, (3) the law applies, all
things being equal, to both present and future
conditions, and (4) the classification applies
equally well to all those belonging to the same
class (Pepsi Cola vs. City of Butuan, 24 SCRA
3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be
apparent from the amendatory law is the
legislative intent to increasingly shift the
income tax system towards the schedular
approach2 in the income taxation of individual
taxpayers and to maintain, by and large, the
present global treatment3 on taxable
corporations. We certainly do not view this
classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion
on the merits of the law, illustrating, in the
275
process, what he believes to be an imbalance partners in their individual
between the tax liabilities of those covered by capacities in the practice of
the amendatory law and those who are not. their profession which are not
With the legislature primarily lies the discretion reimbursed or paid by the
to determine the nature (kind), object partnership but are not
(purpose), extent (rate), coverage (subjects) considered as direct cost, are
and situs (place) of taxation. This court cannot not deductible from his gross
freely delve into those matters which, by income.
constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure The real objection of petitioners is focused on
becomes so unconscionable and unjust as to the administrative interpretation of public
amount to confiscation of property, courts will respondents that would apply SNIT to
not hesitate to strike it down, for, despite all its partners in general professional partnerships.
plenitude, the power to tax cannot override Petitioners cite the pertinent deliberations in
constitutional proscriptions. This stage, Congress during its enactment of Republic Act
however, has not been demonstrated to have No. 7496, also quoted by the Honorable
been reached within any appreciable distance Hernando B. Perez, minority floor leader of
in this controversy before us. the House of Representatives, in the latter's
privilege speech by way of commenting on the
Having arrived at this conclusion, the plea of questioned implementing regulation of public
petitioner to have the law declared respondents following the effectivity of the
unconstitutional for being violative of due law, thusly:
process must perforce fail. The due process
clause may correctly be invoked only when MR. ALBANO,
there is a clear contravention of inherent or Now Mr.
constitutional limitations in the exercise of the Speaker, I
tax power. No such transgression is so would like to
evident to us. get the correct
impression of
G.R. No. 109446 this bill. Do we
speak here of
The several propositions advanced by individuals who
petitioners revolve around the question of are earning, I
whether or not public respondents have mean, who
exceeded their authority in promulgating earn through
Section 6, Revenue Regulations No. 2-93, to business
carry out Republic Act No. 7496. enterprises
and therefore,
The questioned regulation reads: should file an
income tax
return?
Sec. 6. General Professional
Partnership — The general
professional partnership (GPP) MR. PEREZ.
and the partners comprising That is correct,
the GPP are covered by R. A. Mr. Speaker.
No. 7496. Thus, in determining This does not
the net profit of the apply to
partnership, only the direct corporations. It
costs mentioned in said law applies only to
are to be deducted from individuals.
partnership income. Also, the
expenses paid or incurred by

276
Jeremiah 29:11
 (See Deliberations on H. B. (Emphasis
No. 34314, August 6, 1991, ours)
6:15 P.M.; Emphasis ours).
The Court, first of all, should like to correct the
Other apparent misconception that general
deliberations professional partnerships are subject to the
support this payment of income tax or that there is a
position, to wit: difference in the tax treatment between
individuals engaged in business or in the
MR. ABAYA . . practice of their respective professions and
. Now, Mr. partners in general professional partnerships.
Speaker, did I The fact of the matter is that a general
hear the professional partnership, unlike an ordinary
Gentleman business partnership (which is treated as a
from Batangas corporation for income tax purposes and so
say that this bill subject to the corporate income tax), is not
is intended to itself an income taxpayer. The income tax is
increase imposed not on the professional partnership,
collections as which is tax exempt, but on the partners
far as themselves in their individual capacity
individuals are computed on their distributive shares of
concerned and partnership profits. Section 23 of the Tax
to make Code, which has not been amended at all by
collection of Republic Act 7496, is explicit:
taxes
equitable? Sec. 23. Tax liability of
members of general
MR. PEREZ. professional partnerships. —
That is correct, (a) Persons exercising a
Mr. Speaker. common profession in general
partnership shall be liable for
(Id. at 6:40 P.M.; Emphasis income tax only in their
ours). individual capacity, and the
share in the net profits of the
general professional
In fact, in the sponsorship
partnership to which any
speech of Senator Mamintal
taxable partner would be
Tamano on the Senate version
entitled whether distributed or
of the SNITS, it is categorically
otherwise, shall be returned for
stated, thus:
taxation and the tax paid in
accordance with the provisions
This bill, Mr. of this Title.
President, is
not applicable
(b) In determining his
to business
distributive share in the net
corporations or
income of the partnership,
to
each partner —
partnerships; it
is only with
respect to (1) Shall take
individuals and into account
professionals. separately his
distributive
share of the

277
Jeremiah 29:11
 partnership's
income, gain,
loss,
deduction, or
credit to the
extent provided
by the
pertinent
provisions of
this Code, and
(2) Shall be
deemed to
have elected
the itemized
deductions,
unless he
declares his
distributive
share of the
gross income
undiminished
by his share of
the deductions.
There is, then and now, no distinction in
income tax liability between a person who
practices his profession alone or individually
and one who does it through partnership
(whether registered or not) with others in the
exercise of a common profession. Indeed,
outside of the gross compensation income tax
and the final tax on passive investment
income, under the present income tax system
all individuals deriving income from any
source whatsoever are treated in almost
invariably the same manner and under a
common set of rules.
We can well appreciate the concern taken by
petitioners if perhaps we were to consider
Republic Act No. 7496 as an entirely
independent, not merely as an amendatory,
piece of legislation. The view can easily
become myopic, however, when the law is
understood, as it should be, as only forming
part of, and subject to, the whole income tax
concept and precepts long obtaining under the
National Internal Revenue Code. To elaborate
a little, the phrase "income taxpayers" is an all
embracing term used in the Tax Code, and it
practically covers all persons who derive
taxable income. The law, in levying the tax,
Jeremiah 29:11
adopts the most comprehensive tax situs of
nationality and residence of the taxpayer (that
renders citizens, regardless of residence, and
resident aliens subject to income tax liability
on their income from all sources) and of the
generally accepted and internationally
recognized income taxable base (that can
subject non-resident aliens and foreign
corporations to income tax on their income
from Philippine sources). In the process, the
Code classifies taxpayers into four main
groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial
Settlement and (4) Irrevocable Trusts
(irrevocable both as to corpus and as
to income).
Partnerships are, under the Code, either
"taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no
matter how created or organized, are subject
to income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the
above categorization, are by law assimilated
to be within the context of, and so legally
contemplated as, corporations. Except for few
variances, such as in the application of the
"constructive receipt rule" in the derivation of
income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not
intended or envisioned, as so correctly
pointed out in the discussions in Congress
during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and
partnerships which are independently subject
to the payment of income tax.
"Exempt partnerships," upon the other hand,
are not similarly identified as corporations nor
even considered as independent taxable
entities for income tax purposes. A
general professional partnership is such an
example.4 Here, the partners themselves, not
the partnership (although it is still obligated to
file an income tax return [mainly for
administration and data]), are liable for the
payment of income tax in
their individual capacity computed on their
respective and distributive shares of profits. In
the determination of the tax liability, a partner
does so as an individual, and there is no
choice on the matter. In fine, under the Tax
Code on income taxation, the general
278
professional partnership is deemed to be no
more than a mere mechanism or a flow-
through entity in the generation of income by,
and the ultimate distribution of such income
to, respectively, each of the individual
partners.

Section 6 of Revenue Regulation No. 2-93 did

not alter, but merely confirmed, the above
standing rule as now so modified by Republic
Act
No. 7496 on basically the extent of allowable
deductions applicable to all individual income
taxpayers on their non-compensation income.
There is no evident intention of the law, either
before or after the amendatory legislation, to
place in an unequal footing or in significant
variance the income tax treatment of
professionals who practice their respective
professions individually and of those who do it
through a general professional partnership.

WHEREFORE, the petitions are DISMISSED.

No special pronouncement on costs.

SO ORDERED.

279
Jeremiah 29:11

G.R. No. 115349 April 18, 1997
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
THE COURT OF APPEALS, THE COURT OF
TAX APPEALS and ATENEO DE MANILA
UNIVERSITY, respondents.
PANGANIBAN, J.:
In conducting researches and studies of social
organizations and cultural values thru its
Institute of Philippine Culture, is the Ateneo de
Manila University performing the work of an
independent contractor and thus taxable
within the purview of then Section 205 of the
National Internal Revenue Code levying a
three percent contractor's tax? This question
is answer by the Court in the negative as it
resolves this petition assailing the
Decision 1 of the Respondent Court of
Appeals 2 in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of
the Court of Tax Appeals. 3
The Antecedent Facts
The antecedents as found by the Court of
Appeals are reproduced hereinbelow, the
same being largely undisputed by the parties.
Jeremiah 29:11
Private respondent is a non-
stock, non-profit educational
institution with auxiliary units
and branches all over the
Philippines. One such auxiliary
unit is the Institute of
Philippine Culture (IPC), which
has no legal personality
separate and distinct from that
of private respondent. The IPC
is a Philippine unit engaged in
social science studies of
Philippine society and culture.
Occasionally, it accepts
sponsorships for its research
activities from international
organizations, private
foundations and government
agencies.
On July 8, 1983, private
respondent received from
petitioner Commissioner of
Internal Revenue a demand
letter dated June 3, 1983,
assessing private respondent
the sum of P174,043.97 for
alleged deficiency contractor's
tax, and an assessment dated
June 27, 1983 in the sum of
P1,141,837 for alleged
deficiency income tax, both for
the fiscal year ended March
31, 1978. Denying said tax
liabilities, private respondent
sent petitioner a letter-protest
and subsequently filed with the
latter a memorandum
contesting the validity of the
assessments.
On March 17, 1988, petitioner
rendered a letter-decision
canceling the assessment for
deficiency income tax but
modifying the assessment for
deficiency contractor's tax by
increasing the amount due to
P193,475.55. Unsatisfied,
private respondent requested
for a reconsideration or
reinvestigation of the modified
assessment. At the same time,
280
 it filed in the respondent court RESPONDEN
a petition for review of the said T FALLS
letter-decision of the petitioner. UNDER THE
While the petition was pending PURVIEW OF
before the respondent court, INDEPENDEN
petitioner issued a final T
decision dated August 3, 1988 CONTRACTO
reducing the assessment for R PURSUANT
deficiency contractor's tax TO SECTION
from P193,475.55 to 205 OF THE
P46,516.41, exclusive of TAX CODE;
surcharge and interest. and

On July 12, 1993, the 2) WHETHER

respondent court rendered the OR NOT
questioned decision which PRIVATE
dispositively reads: RESPONDEN
T IS SUBJECT
WHEREFORE, TO 3%
in view of the CONTRACTO
foregoing, R'S TAX
respondent's UNDER
decision is SECTION 205
SET ASIDE. OF THE TAX
The deficiency CODE.
contractor's tax
assessment in The pertinent portions of Section 205 of the
the amount of National Internal Revenue Code, as amended,
P46,516.41 provide:
exclusive of
surcharge and Sec. 205. Contractor,
interest for the proprietors or operators of
fiscal year dockyards, and others. — A
ended March contractor's tax of threeper
31, 1978 is centum of the gross receipts is
hereby hereby imposed on the
CANCELED. following:
No
pronouncemen xxx xxx xxx
t as to cost.
(16) Business
SO agents and
ORDERED. other
independent
Not in accord with said decision, contractors
petitioner has come to this except
Court via the present petition for persons,
review raising the following issues: associations
and
1) WHETHER corporations
OR NOT under contract
PRIVATE for embroidery

281
Jeremiah 29:11
 and apparel for their
export, as well employees.
as their agents
and xxx xxx xxx
contractors
and except Petitioner contends that the
gross receipts respondent court erred in
of or from a holding that private respondent
pioneer is not an "independent
industry contractor" within the purview
registered with of Section 205 of the Tax
the Board of Code. To petitioner, the term
Investments "independent contractor", as
under Republic defined by the Code,
Act No. 5186: encompasses all kinds of
services rendered for a fee
xxx xxx xxx and that the only exceptions
are the following:
The term
"independent a. Persons, association and
contractors" corporations under contract for
include embroidery and apparel for
persons export and gross receipts of or
(juridical or from pioneer industry
natural) not registered with the Board of
enumerated Investment under R.A. No.
above (but not 5186;
including
individuals b. Individuals occupation tax
subject to the under Section 12 of the Local
occupation tax Tax Code (under the old
under Section Section 182 [b] of the Tax
12 of the Local Code); and
Tax Code)
whose activity
c. Regional or area
consists
headquarters established in
essentially of
the Philippines by multinational
the sale of all
corporations, including their
kinds of
alien executives, and which
services for a
headquarters do not earn or
fee regardless
derive income from the
of whether or
Philippines and which act as
not the
supervisory, communication
performance of
and coordinating centers for
the service
their affiliates, subsidiaries or
calls for the
branches in the Asia Pacific
exercise or use
Region (Section 205 of the
of the physical
Tax Code).
or mental
faculties of
such Petitioner thus submits that
contractors or since private respondent falls
under the definition of an

282
Jeremiah 29:11
 "independent contractor" and
is not among the
aforementioned exceptions,
private respondent is therefore
subject to the 3% contractor's
tax imposed under the same
Code. 4
The Court of Appeals disagreed with the
Petitioner Commissioner of Internal Revenue
and affirmed the assailed decision of the
Court of Tax Appeals. Unfazed, petitioner now
asks us to reverse the CA through this petition
for review.
The Issues
Petitioner submits before us the following
issues:
1) Whether or not private
respondent falls under the
purview of independent
contractor pursuant to Section
205 of the Tax Code.
2) Whether or not private
respondent is subject to 3%
contractor's tax under Section
205 of the Tax Code. 5
In fine, these may be reduced to a single
issue: Is Ateneo de Manila University, through
its auxiliary unit or branch — the Institute of
Philippine Culture — performing the work of
an independent contractor and, thus, subject
to the three percent contractor's tax levied by
then Section 205 of the National Internal
Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National
Internal Revenue Code germane to the case
before us read:
Jeremiah 29:11
Sec. 205. Contractors,
proprietors or operators of
dockyards, and others. — A
contractor's tax of threeper
centum of the gross receipts is
hereby imposed on the
following:
xxx xxx xxx
(16) Business agents and
other independent contractors,
except persons, associations
and corporations under
contract for embroidery and
apparel for export, as well as
their agents and contractors,
and except gross receipts of or
from a pioneer industry
registered with the Board of
Investments under the
provisions of Republic Act No.
5186;
xxx xxx xxx
The term "independent
contractors" include persons
(juridical or natural) not
enumerated above (but not
including individuals subject to
the occupation tax under
Section 12 of the Local Tax
Code) whose activity consists
essentially of the sale of all
kinds of services for a fee
regardless of whether or not
the performance of the service
calls for the exercise or use of
the physical or mental faculties
of such contractors or their
employees.
The term "independent
contractor" shall not include
regional or area headquarters
established in the Philippines
by multinational corporations,
including their alien
executives, and which
headquarters do not earn or
derive income from the
283
 Philippines and which act as
supervisory, communications
and coordinating centers for
their affiliates, subsidiaries or
branches in the Asia-Pacific
Region.
The term "gross receipts"
means all amounts received
by the prime or principal
contractor as the total contract
price, undiminished by amount
paid to the subcontractor, shall
be excluded from the taxable
gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue
contends that Private Respondent Ateneo de
Manila University "falls within the definition" of
an independent contractor and "is not one of
those mentioned as excepted"; hence, it is
properly a subject of the three percent
contractor's tax levied by the foregoing
provision of law. 6 Petitioner states that the
"term 'independent contractor' is not
specifically defined so as to delimit the scope
thereof, so much so that any person who . . .
renders physical and mental service for a fee,
is now indubitably considered an independent
contractor liable to 3% contractor's
tax." 7 According to petitioner, Ateneo has the
burden of proof to show its exemption from
the coverage of the law.
We disagree. Petitioner Commissioner of
Internal Revenue erred in applying the
principles of tax exemption without first
applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is
obviously both illogical and impractical to
determine who are exempted without first
determining who are covered by the aforesaid
provision. The Commissioner should have
determined first if private respondent was
covered by Section 205, applying the rule of
strict interpretation of laws imposing taxes and
other burdens on the populace, before asking
Ateneo to prove its exemption therefrom. The
Court takes this occasion to reiterate the
hornbook doctrine in the interpretation of tax
laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly,
Jeremiah 29:11
expressly, and unambiguously . . . (A) tax
cannot be imposed without clear and express
words for that purpose. Accordingly, the
general rule of requiring adherence to the
letter in construing statutes applies with
peculiar strictness to tax lawsand the
provisions of a taxing act are not to
be extended by implication." 8 Parenthetically,
in answering the question of who is subject to
tax statutes, it is basic that "in case of doubt,
such statutes are to be construed most
strongly against the government and in favor
of the subjects or citizens because burdens
are not to be imposed nor presumed to be
imposed beyond what statutes expressly and
clearly import." 9
To fall under its coverage, Section 205 of the
National Internal Revenue Code requires that
the independent contractor be engaged in the
business of selling its services. Hence, to
impose the three percent contractor's tax on
Ateneo's Institute of Philippine Culture, it
should be sufficiently proven that the private
respondent is indeed selling its services for a
fee in pursuit of an independent business. And
it is only after private respondent has been
found clearly to be subject to the provisions of
Sec. 205 that the question of exemption
therefrom would arise. Only after such
coverage is shown does the rule of
construction — that tax exemptions are to be
strictly construed against the taxpayer —
come into play, contrary to petitioner's
position. This is the main line of reasoning of
the Court of Tax Appeals in its
decision, 10 which was affirmed by the CA.
The Ateneo de Manila University Did
Not Contract
for the Sale of the Service of its
Institute of Philippine Culture
After reviewing the records of this case, we
find no evidence that Ateneo's Institute of
Philippine Culture ever sold its services for a
fee to anyone or was ever engaged in a
business apart from and independently of the
academic purposes of the university.
Stressing that "it is not the Ateneo de Manila
University per se which is being taxed,"
Petitioner Commissioner of Internal Revenue
284
contends that "the tax is due on its activity of
conducting researches for a fee. The tax is
due on the gross receipts made in favor of
IPC pursuant to the contracts the latter
entered to conduct researches for the benefit
primarily of its clients. The tax is imposed on
the exercise of a taxable activity. . . . [T]he
sale of services of private respondent is made
under a contract and the various contracts
entered into between private respondent and
its clients are almost of the same terms,
showing, among others, the compensation
and terms of payment." 11(Emphasis supplied.)
In theory, the Commissioner of Internal
Revenue may be correct. However, the
records do not show that Ateneo's IPC in fact
contracted to sell its research services for a
fee. Clearly then, as found by the Court of
Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the
established factual milieu obtaining in the
instant case.
In the first place, the petitioner has presented
no evidence to prove its bare contention that,
indeed, contracts for sale of services were
ever entered into by the private respondent.
As appropriately pointed out by the latter:
An examination of the
Commissioner's Written
Formal Offer of Evidence in
the Court of Tax Appeals
shows that only the following
documentary evidence was
presented:
Exhibit 1 BIR letter of authority
no. 331844
.
None of the foregoing
evidence even comes close to
purport to be contracts
between private respondent
and third parties. 12
Jeremiah 29:11
Moreover, the Court of Tax Appeals
accurately and correctly declared that the
" funds received by the Ateneo de Manila
University are technically not a fee. They may
however fall as gifts or donations which are
tax-exempt" as shown by private respondent's
compliance with the requirement of Section
123 of the National Internal Revenue Code
providing for the exemption of such gifts to an
educational institution. 13
Respondent Court of Appeals elucidated on
the ruling of the Court of Tax Appeals:
To our mind, private
respondent hardly fits into the
definition of an "independent
contractor".
For one, the established facts
show that IPC, as a unit of the
private respondent, is not
engaged in business.
Undisputedly, private
respondent is mandated by
law to undertake research
activities to maintain its
university status. In fact, the
research activities being
carried out by the IPC is
focused not on business or
profit but on social sciences
studies of Philippine society
and culture. Since it can only
finance a limited number of
IPC's research projects,
private respondent
occasionally accepts
sponsorship for unfunded IPC
research projects from
international organizations,
private foundations and
governmental
agencies. However, such
sponsorships are subject to
private respondent's terms and
conditions, among which are,
that the research is confined to
topics consistent with the
private respondent's academic
agenda; that no proprietary or
commercial purpose research
is done; and that private
285
 respondent retains not only the
absolute right to publish but
also the ownership of the
results of the research
conducted by the IPC. Quite
clearly, the aforementioned
terms and conditions belie the
allegation that private
respondent is a contractor or is
engaged in business.
For another, it bears stressing
that private respondent is a
non-stock, non-profit
educational corporation. The
fact that it accepted
sponsorship for IPC's
unfunded projects is merely
incidental. For, the main
function of the IPC is to
undertake research projects
under the academic agenda of
the private respondent.
Moreover the records do not
show that in accepting
sponsorship of research work,
IPC realized profits from such
work. On the contrary, the
evidence shows that for about
30 years, IPC had
continuously operated at a
loss, which means that
sponsored funds are less than
actual expenses for its
research projects. That IPC
has been operating at a loss
loudly bespeaks of the fact
that education and not profit is
the motive for undertaking the
research projects.
Then, too,
granting arguendo that IPC
made profits from the
sponsored research projects,
the fact still remains that there
is no proof that part of such
earnings or profits was ever
distributed as dividends to any
stockholder, as in fact none
was so distributed because
they accrued to the benefit of
the private respondent which
Jeremiah 29:11
is a non-profit educational
institution. 14
Therefore, it is clear that the funds received by
Ateneo's Institute of Philippine Culture are not
given in the concept of a fee or price in
exchange for the performance of a service or
delivery of an object. Rather, the amounts are
in the nature of an endowment or donation
given by IPC's benefactors solely for the
purpose of sponsoring or funding the
research with no strings attached. As found by
the two courts below, such sponsorships are
subject to IPC's terms and conditions. No
proprietary or commercial research is done,
and IPC retains the ownership of the results of
the research, including the absolute right to
publish the same. The copyrights over the
results of the research are owned by
Ateneo and, consequently, no portion thereof
may be reproduced without its
permission. 15 The amounts given to IPC,
therefore, may not be deemed, it bears
stressing as fees or gross receipts that can be
subjected to the three percent contractor's tax.
It is also well to stress that the questioned
transactions of Ateneo's Institute of Philippine
Culture cannot be deemed either as a contract
of sale or a contract of a piece of work. "By
the contract of sale, one of the contracting
parties obligates himself to transfer the
ownership of and to deliver a determinate
thing, and the other to pay therefor a price
certain in money or its equivalent." 16 By its
very nature, a contract of sale requires a
transfer of ownership. Thus, Article 1458 of
the Civil Code "expressly makes the obligation
to transfer ownership as an essential element
of the contract of sale, following modern
codes, such as the German and the Swiss.
Even in the absence of this express
requirement, however, most writers, including
Sanchez Roman, Gayoso, Valverde,
Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the
primary purpose of sale. Perez and Alguer
follow the same view, stating that the delivery
of the thing does not mean a mere physical
transfer, but is a means of transmitting
ownership. Transfer of title or an agreement to
transfer it for a price paid or promised to be
paid is the essence of sale." 17 In the case of a
286
contract for a piece of work, "the contractor
binds himself to execute a piece of work for
the employer, in consideration of a certain
price or compensation. . . . If the contractor
agrees to produce the work from materials
furnished by him, he shall deliver the thing
produced to the employer and transfer
dominion over the thing, . . ." 18 Ineludably,
whether the contract be one of sale or one for
a piece of work, a transfer of ownership is
involved and a party necessarily walks away
with an object. 19 In the case at bench, it is
clear from the evidence on record that there
was no sale either of objects or services
because, as adverted to earlier, there was no
transfer of ownership over the research data
obtained or the results of research projects
undertaken by the Institute of Philippine
Culture.
Furthermore, it is clear that the research
activity of the Institute of Philippine Culture is
done in pursuance of maintaining Ateneo's
university status and not in the course of an
independent business of selling such research
with profit in mind. This is clear from a reading
of the regulations governing universities:
31. In addition to the legal
requisites an institution must
meet, among others, the
following requirements before
an application for university
status shall be considered:
xxx xxx xxx
(e) The institution must
undertake research and
operate with a competent
qualified staff at least three
graduate departments in
accordance with the rules and
standards for graduate
education. One of the
departments shall be science
and technology. The
competence of the staff shall
be judged by their effective
teaching, scholarly
publications and research
activities published in its
school journal as well as their
Jeremiah 29:11
leadership activities in the
profession.
(f) The institution must show
evidence of adequate and
stable financial resources and
support, a reasonable portion
of which should be devoted to
institutional development and
research. (emphasis supplied)
xxx xxx xxx
32. University status may be
withdrawn, after due notice
and hearing, for failure to
maintain satisfactorily the
standards and requirements
therefor. 20
Petitioner's contention that it is the Institute of
Philippine Culture that is being taxed and not
the Ateneo is patently erroneous because the
former is not an independent juridical entity
that is separate and distinct form the latter.
Factual Findings and Conclusions of
the Court of Tax Appeals Affirmed by
the Court of Appeals Generally
Conclusive
In addition, we reiterate that the "Court of Tax
Appeals is a highly specialized body
specifically created for the purpose of
reviewing tax cases. Through its expertise, it
is undeniably competent to determine the
issue of whether" 21 Ateneo de Manila
University may be deemed a subject of the
three percent contractor's tax "through the
evidence presented before it." Consequently,
"as a matter of principle, this Court will not set
aside the conclusion reached by . . . the Court
of Tax Appeals which is, by the very nature of
its function, dedicated exclusively to the study
and consideration of tax problems and has
necessarily developed an expertise on the
subject unless there has been an abuse or
improvident exercise of authority . . ." 22 This
point becomes more evident in the case
before us where the findings and conclusions
of both the Court of Tax Appeals and the
Court of Appeals appear untainted by any
287
abuse of authority, much less grave abuse of
discretion. Thus, we find the decision of the
latter affirming that of the former free from any
palpable error.
Public Service, Not Profit, is the
Motive
The records show that the Institute of
Philippine Culture conducted its research
activities at a huge deficit of P1,624,014.00 as
shown in its statements of fund and
disbursements for the period 1972 to
1985. 23 In fact, it was Ateneo de Manila
University itself that had funded the research
projects of the institute, and it was only when
Ateneo could no longer produce the needed
funds that the institute sought funding from
outside. The testimony of Ateneo's Director for
Accounting Services, Ms. Leonor Wijangco,
provides significant insight on the academic
and nonprofit nature of the institute's research
activities done in furtherance of the
university's purposes, as follows:
not an insignificant amount in the process?
The plain and simple answer is that private
respondent is not a contractor selling its
services for a fee but an academic institution
conducting these researches pursuant to its
commitments to education and, ultimately, to
public service. For the institute to have
tenaciously continued operating for so long
despite its accumulation of significant losses,
we can only agree with both the Court of Tax
Appeals and the Court of Appeals that
"education and not profit is [IPC's] motive for
undertaking the research
projects." 25
WHEREFORE, premises considered, the
petition is DENIED and the assailed Decision
of the Court of Appeals is hereby AFFIRMED
in full.
SO ORDERED.

Q Now it was testified to

earlier by Miss Thelma Padero
(Office Manager of the Institute
of Philippine Culture) that as
far as grants from sponsored
research it is possible that the
grant sometimes is less than
the actual cost. Will you please
tell us in this case when the
actual cost is a lot less than
the grant who shoulders the
additional cost?

A The University.

Q Now, why is this done by the

University?

A Because of our faculty

development program as a
university, because a
university has to have its own
research institute. 24

So, why is it that Ateneo continues to operate

and conduct researches through its Institute of
Philippine Culture when it undisputedly loses

288
Jeremiah 29:11
 That the distraint seizure and
sale by the Municipal
Treasurer of Bangued, Abra,
the Provincial Treasurer of
said province against the lot
and building of the Abra Valley
Junior College, Inc.,
represented by Director Pedro
Borgonia located at Bangued,
Abra, is valid;

That since the school is not

exempt from paying taxes, it
should therefore pay all back
taxes in the amount of
P5,140.31 and back taxes and
penalties from the
promulgation of this decision;

That the amount deposited by

the plaintaff him the sum of
P60,000.00 before the trial, be
confiscated to apply for the
G.R. No. L-39086 June 15, 1988 payment of the back taxes and
for the redemption of the
property in question, if the
ABRA VALLEY COLLEGE, INC., amount is less than P6,000.00,
represented by PEDRO V. the remainder must be
BORGONIA, petitioner, returned to the Director of
vs. Pedro Borgonia, who
HON. JUAN P. AQUINO, Judge, Court of represents the plaintiff herein;
First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V.
That the deposit of the
BOSQUE, Municipal Treasurer, Bangued,
Municipal Treasurer in the
Abra; HEIRS OF PATERNO
amount of P6,000.00 also
MILLARE, respondents.
before the trial must be
returned to said Municipal
Treasurer of Bangued, Abra;
PARAS, J.: And finally the case is hereby
ordered dismissed with costs
This is a petition for review on certiorari of the decision * of the
defunct Court of First Instance of Abra, Branch I, dated June 14, against the plaintiff.
1974, rendered in Civil Case No. 656, entitled "Abra Valley
Junior College, Inc., represented by Pedro V. Borgonia, plaintiff
vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. SO ORDERED. (Rollo, pp. 22-
Bosque as Municipal Treasurer of Bangued, Abra and Paterno 23)
Millare, defendants," the decretal portion of which reads:

Petitioner, an educational corporation and

IN VIEW OF ALL THE institution of higher learning duly incorporated
FOREGOING, the Court with the Securities and Exchange Commission
hereby declares: in 1948, filed a complaint (Annex "1" of
Answer by the respondents Heirs of Paterno
Millare; Rollo, pp. 95-97) on July 10, 1972 in

289
Jeremiah 29:11
the court a quo to annul and declare void the
"Notice of Seizure' and the "Notice of Sale" of
its lot and building located at Bangued, Abra,
for non-payment of real estate taxes and
penalties amounting to P5,140.31. Said
"Notice of Seizure" of the college lot and
building covered by Original Certificate of Title
No. Q-83 duly registered in the name of
petitioner, plaintiff below, on July 6, 1972, by
respondents Municipal Treasurer and
Provincial Treasurer, defendants below, was
issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to
be served upon the petitioner by the
respondent treasurers on July 8, 1972 for the
sale at public auction of said college lot and
building, which sale was held on the same
date. Dr. Paterno Millare, then Municipal
Mayor of Bangued, Abra, offered the highest
bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly
issued to him.
On August 10, 1972, the respondent Paterno
Millare (now deceased) filed through counstel
a motion to dismiss the complaint.
On August 23, 1972, the respondent
Provincial Treasurer and Municipal Treasurer,
through then Provincial Fiscal Loreto C.
Roldan, filed their answer (Annex "2" of
Answer by the respondents Heirs of Patemo
Millare; Rollo, pp. 98-100) to the complaint.
This was followed by an amended answer
(Annex "3," ibid, Rollo, pp. 101-103) on
August 31, 1972.
On September 1, 1972 the respondent
Paterno Millare filed his answer (Annex
"5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale
of the school premises at public auction, the
respondent Judge, Hon. Juan P. Aquino of the
Court of First Instance of Abra, Branch I,
ordered (Annex "6," ibid; Rollo, pp. 109-110)
the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the
proceeds of the auction sale. Hence, on
December 14, 1972, petitioner, through
Director Borgonia, deposited with the trial
court the sum of P6,000.00 evidenced by PNB
Check No. 904369.
Jeremiah 29:11
On April 12, 1973, the parties entered into a
stipulation of facts adopted and embodied by
the trial court in its questioned decision. Said
Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties,
assisted by counsels, and to
this Honorable Court
respectfully enter into the
following agreed stipulation of
facts:
1. That the personal
circumstances of the parties
as stated in paragraph 1 of the
complaint is admitted; but the
particular person of Mr. Armin
M. Cariaga is to be
substituted, however, by
anyone who is actually holding
the position of Provincial
Treasurer of the Province of
Abra;
2. That the plaintiff Abra Valley
Junior College, Inc. is the
owner of the lot and buildings
thereon located in Bangued,
Abra under Original Certificate
of Title No. 0-83;
3. That the defendant Gaspar
V. Bosque, as Municipal
treasurer of Bangued, Abra
caused to be served upon the
Abra Valley Junior College,
Inc. a Notice of Seizure on the
property of said school under
Original Certificate of Title No.
0-83 for the satisfaction of real
property taxes thereon,
amounting to P5,140.31; the
Notice of Seizure being the
one attached to the complaint
as Exhibit A;
4. That on June 8, 1972 the
above properties of the Abra
Valley Junior College, Inc. was
sold at public auction for the
290
 satisfaction of the unpaid real
property taxes thereon and the
same was sold to defendant
Paterno Millare who offered
the highest bid of P6,000.00
and a Certificate of Sale in his
favor was issued by the
defendant Municipal
Treasurer.
5. That all other matters not
particularly and specially
covered by this stipulation of
facts will be the subject of
evidence by the parties.
WHEREFORE, it is
respectfully prayed of the
Honorable Court to consider
and admit this stipulation of
facts on the point agreed upon
by the parties.
Bangued, Abra, April 12,
1973.)
Aside from the Stipulation of Facts, the trial
court among others, found the following: (a)
that the school is recognized by the
government and is offering Primary, High
School and College Courses, and has a
school population of more than one thousand
students all in all; (b) that it is located right in
the heart of the town of Bangued, a few
meters from the plaza and about 120 meters
from the Court of First Instance building; (c)
that the elementary pupils are housed in a
two-storey building across the street; (d) that
the high school and college students are
housed in the main building; (e) that the
Director with his family is in the second floor of
the main building; and (f) that the annual
gross income of the school reaches more than
one hundred thousand pesos.
From all the foregoing, the only issue left for
the Court to determine and as agreed by the
parties, is whether or not the lot and building
in question are used exclusively for
educational purposes. (Rollo, p. 20)
Jeremiah 29:11
The succeeding Provincial Fiscal, Hon. Jose
A. Solomon and his Assistant, Hon. Eustaquio
Z. Montero, filed a Memorandum for the
Government on March 25, 1974, and a
Supplemental Memorandum on May 7, 1974,
wherein they opined "that based on the
evidence, the laws applicable, court decisions
and jurisprudence, the school building and
school lot used for educational purposes of
the Abra Valley College, Inc., are exempted
from the payment of taxes." (Annexes "B," "B-
1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed
because of the use of the second floor by the
Director of petitioner school for residential
purposes. He thus ruled for the government
and rendered the assailed decision.
After having been granted by the trial court ten
(10) days from August 6, 1974 within which to
perfect its appeal (Per Order dated August 6,
1974; Annex "G" of Petition; Rollo, p. 57)
petitioner instead availed of the instant petition
for review on certiorari with prayer for
preliminary injunction before this Court, which
petition was filed on August 17, 1974 (Rollo,
p.2).
In the resolution dated August 16, 1974, this
Court resolved to give DUE COURSE to the
petition (Rollo, p. 58). Respondents were
required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of
error:
I
THE COURT A QUO ERRED IN
SUSTAINING AS VALID THE SEIZURE AND
SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL
PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING
THAT THE COLLEGE LOT AND BUILDING
OF THE PETITIONER ARE NOT USED
EXCLUSIVELY FOR EDUCATIONAL
PURPOSES MERELY BECAUSE THE
291
COLLEGE PRESIDENT RESIDES IN ONE
ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING
THAT THE COLLEGE LOT AND BUILDING
OF THE PETITIONER ARE NOT EXEMPT
FROM PROPERTY TAXES AND IN
ORDERING PETITIONER TO PAY P5,140.31
AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING
THE CONFISCATION OF THE P6,000.00
DEPOSIT MADE IN THE COURT BY
PETITIONER AS PAYMENT OF THE
P5,140.31 REALTY TAXES. (See Brief for the
Petitioner, pp. 1-2)
The main issue in this case is the proper
interpretation of the phrase "used exclusively
for educational purposes."
Petitioner contends that the primary use of the
lot and building for educational purposes, and
not the incidental use thereof, determines and
exemption from property taxes under Section
22 (3), Article VI of the 1935 Constitution.
Hence, the seizure and sale of subject college
lot and building, which are contrary thereto as
well as to the provision of Commonwealth Act
No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore
void.
On the other hand, private respondents
maintain that the college lot and building in
question which were subjected to seizure and
sale to answer for the unpaid tax are used: (1)
for the educational purposes of the college;
(2) as the permanent residence of the
President and Director thereof, Mr. Pedro V.
Borgonia, and his family including the in-laws
and grandchildren; and (3) for commercial
purposes because the ground floor of the
college building is being used and rented by a
commercial establishment, the Northern
Marketing Corporation (See photograph
attached as Annex "8" (Comment; Rollo, p.
90]).
Jeremiah 29:11
Due to its time frame, the constitutional
provision which finds application in the case at
bar is Section 22, paragraph 3, Article VI, of
the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes
for "Cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands,
buildings, and improvements used
exclusively for religious, charitable or
educational purposes ...
Relative thereto, Section 54, paragraph c,
Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the
Assessment Law, provides:
The following are exempted
from real property tax under
the Assessment Law:
xxx xxx xxx
(c) churches and parsonages
or convents appurtenant
thereto, and all lands,
buildings, and
improvements used
exclusively for religious,
charitable, scientific or
educational purposes.
xxx xxx xxx
In this regard petitioner argues that the
primary use of the school lot and building is
the basic and controlling guide, norm and
standard to determine tax exemption, and not
the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs.
Collector of lnternal Revenue, 33 Phil. 217
[1916], this Court ruled that while it may be
true that the YMCA keeps a lodging and a
boarding house and maintains a restaurant for
its members, still these do not constitute
business in the ordinary acceptance of the
word, but an institution used exclusively for
religious, charitable and educational
purposes, and as such, it is entitled to be
exempted from taxation.
292
In the case of Bishop of Nueva Segovia v.
Provincial Board of Ilocos Norte, 51 Phil. 352
[1972], this Court included in the exemption a
vegetable garden in an adjacent lot and
another lot formerly used as a cemetery. It
was clarified that the term "used exclusively"
considers incidental use also. Thus, the
exemption from payment of land tax in favor of
the convent includes, not only the land
actually occupied by the building but also the
adjacent garden devoted to the incidental use
of the parish priest. The lot which is not used
for commercial purposes but serves solely as
a sort of lodging place, also qualifies for
exemption because this constitutes incidental
use in religious functions.
The phrase "exclusively used for educational
purposes" was further clarified by this Court in
the cases of Herrera vs. Quezon City Board of
assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs.
Bishop of the Missionary District, 14 SCRA
991 [1965], thus —
Moreover, the exemption in
favor of property used
exclusively for charitable or
educational purposes is 'not
limited to property actually
indispensable' therefor
(Cooley on Taxation, Vol. 2, p.
1430), but extends to facilities
which are incidental to and
reasonably necessary for the
accomplishment of said
purposes, such as in the case
of hospitals, "a school for
training nurses, a nurses'
home, property use to provide
housing facilities for interns,
resident doctors,
superintendents, and other
members of the hospital staff,
and recreational facilities for
student nurses, interns, and
residents' (84 CJS 6621), such
as "Athletic fields" including "a
firm used for the inmates of
the institution. (Cooley on
Taxation, Vol. 2, p. 1430).
Jeremiah 29:11
The test of exemption from taxation is the use
of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City
Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this
Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used
for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable emphasis
has always been made that exemption
extends to facilities which are incidental to and
reasonably necessary for the accomplishment
of the main purposes. Otherwise stated, the
use of the school building or lot for
commercial purposes is neither contemplated
by law, nor by jurisprudence. Thus, while the
use of the second floor of the main building in
the case at bar for residential purposes of the
Director and his family, may find justification
under the concept of incidental use, which is
complimentary to the main or primary
purpose—educational, the lease of the first
floor thereof to the Northern Marketing
Corporation cannot by any stretch of the
imagination be considered incidental to the
purpose of education.
It will be noted however that the
aforementioned lease appears to have been
raised for the first time in this Court. That the
matter was not taken up in the to court is
really apparent in the decision of respondent
Judge. No mention thereof was made in the
stipulation of facts, not even in the description
of the school building by the trial judge, both
embodied in the decision nor as one of the
issues to resolve in order to determine
whether or not said properly may be
exempted from payment of real estate taxes
(Rollo, pp. 17-23). On the other hand, it is
noteworthy that such fact was not disputed
even after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in
the lower court cannot be taken up for the first
time on appeal. Nonetheless, as an exception
to the rule, this Court has held that although a
factual issue is not squarely raised below, still
in the interest of substantial justice, this Court
is not prevented from considering a pivotal
factual matter. "The Supreme Court is clothed
293
with ample authority to review palpable errors
not assigned as such if it finds that their
consideration is necessary in arriving at a just
decision." (Perez vs. Court of Appeals, 127
SCRA 645 [1984]).

Under the 1935 Constitution, the trial court

correctly arrived at the conclusion that the
school building as well as the lot where it is
built, should be taxed, not because the
second floor of the same is being used by the
Director and his family for residential
purposes, but because the first floor thereof is
being used for commercial purposes.
However, since only a portion is used for
purposes of commerce, it is only fair that half
of the assessed tax be returned to the school
involved.

PREMISES CONSIDERED, the decision of

the Court of First Instance of Abra, Branch I, is
hereby AFFIRMED subject to the modification
that half of the assessed tax be returned to
the petitioner.

SO ORDERED.

294
Jeremiah 29:11

G.R. No. L-14878 December 26, 1963
SURIGAO CONSOLIDATED MINING CO.,
INC., petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE and
COURT OF APPEALS, respondents.
Leido, Angeles and Valladolid for petitioner.
Office of the Solicitor General for respondents.
REGALA, J.:
This is a petition to review the decision of the
Court of Tax Appeals in Manila Civil Case No.
4770 dismissing for lack of merit the action of
the Surigao Consolidated Mining Company for
the refund of the total amount of P17,051.14
allegedly representing overpayment of ad
valorem tax for the fourth quarter of 1941.
The record shows that before the outbreak of
World War II, the Surigao Consolidated Mining
Company (called SURIGAO
CONSOLIDATED, for short), a domestic
corporation which then had its principal office
in the City of Iloilo, was operating its mining
concessions in Mainit, Surigao. Pursuant to
section 246 of the Internal Revenue Code,
which prescribes the time and manner of
payment of royalties or ad valorem taxes, it
Jeremiah 29:11
filed a bond and had been regularly filing its
returns for minerals removed from its mines
during each calendar quarter and paying ad
valoremtax thereon within 20 days after the
close of every quarter. In each case,
computation of the ad valorem tax was based
on the market value of the minerals set forth in
the returns, subject to adjustment upon the
receipt of the smelter showing the actual
market value of the minerals to the United
States.
Due to the interruption, of the communications
outbreak of the war, the principal office of
Surigao Consolidated lost contact with its
mines and never received the production
reports for the fourth quarter of 1941. In order
to avoid incurring any tax penalty, said
company, on January 19, 1942, deposited a
check amount of P27,000.00 payable to and
"indorsed in favor of the City Treasurer (of
Iloilo) in payment of the ad valorem taxes
(approximate adjustment to be made when
circumstances allow it) for the fourth quarter of
1941."
After the termination of the war,
Commonwealth Act No. 722 was enacted,
which provided for the filing of returns for
minerals removed during the last quarter of
1941 up to December 31, 1945 and the
payment of ad valorem tax on said minerals to
February 28, 1946.
Availing of the provisions of the
aforementioned Act, the Surigao
Consolidated, on December 28, 1945, ad
valoremtax returns for the fourth quarter
declaring as its tax liability the amount of
P43,486.54. Applying the amount of
P27,000.00 previously deposited with the City
Treasurer of Iloilo, the returns indicated an
unpaid balance of P16,486.54 as the " tax
subject to revision."
However, on February 26, 1946, the Surigao
Consolidated filed an amended ad
valorem tax returns under which amendment it
declared a reduced ad valorem tax in the
amount of P37,189.00. And crediting itself
with the amount of P27,000.00 previously
deposited with the City Treasurer of Iloilo, it
paid the remaining balance of P10,189.00.
295
On September 24, 1946, the Surigao
Consolidated again filed a statement of
adjustment allegedly containing figures and
data of the complete smelter returns for
minerals shipped to the United States. In the
accompanying letter, a request was made,
this time not only for the reduction of tax, but
for the refund of the amount of P18,107.87.
On October 19, 1946, another statement of
adjustment was filed reducing the claim for
refund to P17,158.01. Finally, on March 15,
1947, a third statement of adjustment was
submitted further reducing the claim for refund
to the amount of P 17,051.14.
As the Collector of Internal Revenue denied
the request for the refund of the said
P17,051.14 on the ground that the money
already paid as ad valorem tax was legally
due to the Government, the Surigao
Consolidated instituted with the Court of First
Instance of Manila civil action for its recovery.
However, upon the enactment of Republic Act
No. 1125 creating the Court of Tax Appeals,
the case was remanded to the latter court for
proper disposition.
After hearing, the Court of Tax Appeals, on
July 16, 1958, finding that the amount sought
to be refunded been lawfully collected,
rendered its decision denying the claim for
refund. The Surigao Consolidated in due time
filed a motion for new trial on the ground that
the decision was "not justified by the
overwhelming weight of evidence" and that it
was contrary to law. The tax court, however,
denied the motion. Hence, this petition for
review.lawphil.net
The question to be resolved is whether or not
Surigao Consolidated, petitioner herein, is
entitled to the refund of ad valorem tax in the
total amount of P17,051.14, itemized as
follows:
1. Ad valorem tax on minerals removed fromtax exemption.P1,191.46Being so, it should be
the mines but allegedly lost in transit on sustained only when expressed in explicit
account of war
2. Ad valorem tax on minerals extracted from
the mines but allegedly looted during the
Japanese occupation
Jeremiah 29:11
3. Alleged overpayment of ad valorem tax on
minerals shipped to the United States
P1
The first, item in petitioner's claim for refund in
the amount of P1,191.46 represents the
amount of ad valorem tax paid on minerals
removed from the mines but alleged to have
been lost in transit on account of the war. The
refund is sought under section 1 (d) of
Republic Act No. 81, which provides as
follows:
SECTION 1. Any provision of existing
law to the contrary notwithstanding:
xxx xxx xxx
(d) All unpaid royalties, ad valorem or
specific taxes on all minerals mined
from mining claims or concessions
existing and in force on January first,
nineteen hundred and forty-two, and
which minerals were lost by reason of
the war or circumstances arising
therefrom, are hereby
condoned: Provided, That if said
minerals had been or shall be
recovered by the miner or producer,
such royalties, ad valorem or specific
taxes on the same shall be
immediately due and demandable.
Petitioner argues that since the law condones
the taxes due from taxpayers who failed to
pay their taxes, it would be unfair to deny this
benefit to those taxpayers who had been
prompt in paying theirs. The argument merits
careful consideration. At first it would seem to
be sound and logical. But the aforequoted
section clearly refers to the condonation
of unpaid taxes only. The condonation of a tax
liability is equivalent and is in the nature of a
terms, and it can not be extended beyond the
plain meaning of those terms. It is the
15,609.73
universal rule that he who claims an
exemption from his share of the common
burden of taxation must justify his claim by
296
showing that the Legislature intended to
exempt him by words too plain to be mistaken.
(Statutory Construction by Francisco, citing
Government of P. I. v. Monte de Piedad, 25
Phil. 42.)
The application of a statute creating
an exemption for taxation to taxes
already assessed depends upon
whether it is retrospective in its
operation. Such a statute has no
retrospective operation, unless by the
terms thereof it clearly appears to be
the intention of the legislature that the
exemption shall relate back to taxes
which have already become fixed, as
a statute which releases a person or
corporation from a burden common to
the whole community should be strictly
(Louisville Water Co. v. Hamilton, 81
Ky. 517, ... cited 6 American and
English Ann. Cases, p. 438).
Petitioner having failed to point to Us any
portion of the law that explicitly provides for a
refund of those taxpayers who had paid their
taxes on the items and under circumstances
mentioned in the abovequoted provision, We
are constrained to hold that the benefits of
said provision does not extend to it.
Even assuming arguendo that the provisions
of Republic Act No. 81 authorizes the refund
of taxes already paid by petitioner, the latter
would not still be entitled to the refund sought
for under the first item. It is to be noted that
petitioner's evidence of the alleged loss in
transit as observed by the Court of Tax
Appeals, merely of testimony of witnesses
who did not have personal knowledge of the
circumstances which gave rise to the loss.
Such evidence cannot, of course be
considered sufficient to establish that the
minerals were in fact lost. Judge Luciano of
the Court of Tax Appeals during the trial,
would be to create a dangerous precendent.
Under the second item, petitioner seeks to
recover the amount of P15,609.73
representing the ad valorem tax paid on
minerals extracted from its mines but alleged
to have been looted during the enemy
occupation. In connection with the alleged
Jeremiah 29:11
looting of the minerals, the Tax Court has this
to say:
We are again confronted with the case
where plaintiff has, to our mind, failed
to present adequate evidence to prove
such loss. The evidence, if at all, is
merely limited to the general and
uncorroborated statements of
plaintiff's officers that the same were
lost in the mines. These testimonies
cannot be taken on their full face
value, especially because they had no
direct supervision over the handling of
such minerals at the time of the
alleged loss. Much less had these
officers have personal knowledge of
the loss. Under the circumstances, we
can not make the finding that the
minerals were in fact lost.
Going over the record, We find no reason to
disturb the above findings of the Court of Tax
Appeals, there being no showing that they are
not substantiated by the evidence. With this
observation, it would be useless ceremony to
delve into the issue of whether ad valorem tax
should be or should not be paid on minerals
extracted from the mines but not removed
therefrom.
One more item in petitioner's claim is the
alleged overpayment of ad valorem tax in the
amount of P249.95 on the minerals shipped to
the United States. It is that an ad valorem tax
in the amount of P20,387.81 was originally
paid on the minerals shipped to the United
States with a gross value of P410,299.49; that
the smelter returns from the United States
show that the actual market value of the
minerals shipped to the States was
P416,895.28; and that after deducting all
allowable deductions amounting in all to
P1,828,34, the true and correct amount of ad
valoremtax on said minerals was P20,137.86.
Petitioner, therefore, claims difference
between the amount of P20,387.81 and
P20,137.86 is an overpayment.
It is not disputed that, as indicated above, the
amount of ad valorem tax on the minerals
shipped to the United States is subject to
adjustment upon the receipt of the smelter
297
returns showing their actual market value
Petitioner contends that the statements of
adjustment alleged to contain the figures and
data set forth in the smelter returns are
adequate evidence of the actual market value
of the minerals shipped to the United States.

The best evidence of the actual market value

minerals shipped to the United States are the
smelter returns themselves. These returns are
admittedly petitioner's possession, but for
unknown reasons, petitioner failed to produce
them during the trial. As there is no credible
and satisfactory explanation for the non-
production of said returns, there arises the
presumption that if produced they would be
adverse to petitioner. Under the
circumstances, the Court of Tax Appeals
cannot be said to have committed error, much
less abused its discretion, in refusing to give
any probative value statements of adjustment.

It is a settled doctrine that in a suit for the

recovery of the payment of taxes or any
portion thereof as having been illegally or
erroneously collected, the burden is upon the
taxpayer to establish the facts which show the
illegality of the tax or that the determination
thereof is erroneous. In this case, petitioner
failed to show that the amount of taxes sought
to be refunded have been erroneously
collected.

Conformably to the above, We are of the

opinion that the Court of Tax Appeals did not
commit any error in denying petitioner's claim.

WHEREFORE, the decision appealed from is

hereby affirmed. Costs against petitioner.

298
Jeremiah 29:11
 This is a petition for Prohibition
under Rule 65 of the Rules of Court
with prayer for the issuance of a
temporary restraining order seeking
to annul as unconstitutional sections
193 and 234 of R.A. No. 7160
otherwise known as the Local
Government Code.
On May 23, 2000, a class suit
was filed by petitioners in their own
behalf and in behalf of other electric
cooperatives organized and existing
under P.D. No. 269 who are
[G.R. No. 143076. June 10, 2003] members of petitioner Philippine
Rural Electric Cooperatives
Association, Inc. (PHILRECA).
PHILIPPINE RURAL ELECTRIC Petitioner PHILRECA is an
COOPERATIVES association of 119 electric
ASSOCIATION, INC. cooperatives throughout the
(PHILRECA); AGUSAN DEL country. Petitioners Agusan del
NORTE ELECTRIC Norte Electric Cooperative, Inc.
COOPERATIVE, INC. (ANECO), Iloilo I Electric
(ANECO); ILOILO I Cooperative, Inc. (ILECO I) and
ELECTRIC COOPERATIVE, Isabela I Electric Cooperative, Inc.
INC. (ILECO I); and (ISELCO I) are non-stock, non-profit
ISABELA I ELECTRIC electric cooperatives organized and
COOPERATIVE, INC. existing under P.D. No. 269, as
amended, and registered with the
(ISELCO I), petitioners, vs.
National Electrification
THE SECRETARY,
Administration (NEA).
DEPARTMENT OF
INTERIOR AND LOCAL Under P.D. No. 269, as
GOVERNMENT, and THE amended, or the National
SECRETARY, DEPARTME Electrification Administration
NT OF Decree, it is the declared policy of
FINANCE, respondents. the State to provide the total
electrification of the Philippines on
DECISION an area coverage basis the same
being vital to the people and the
PUNO, J.:
sound development of the
nation. Pursuant to this policy, P.D.
[1]

299
Jeremiah 29:11
No. 269 aims to promote, encourage
and assist all public service entities
engaged in supplying electric
service, particularly electric
cooperatives by giving every tenable
support and assistance to the
electric cooperatives coming within
the purview of the law. Accordingly,
[2]
Section 39 of P.D. No. 269 provides
for the following tax incentives to
electric cooperatives:
SECTION 39. Assistance to
Cooperatives; Exemption from Taxes,
Imposts, Duties, Fees; Assistance from
the National Power Corporation.
Pursuant to the national policy declared
in Section 2, the Congress hereby finds
and declares that the following
assistance to cooperative is necessary
and appropriate:
(a) Provided that it operates in
conformity with the purposes and
provisions of this Decree, cooperatives
(1) shall be permanently exempt
from paying income taxes, and (2) for
a period ending on December 31 of the
thirtieth full calendar year after the date
of a cooperative's organization or
conversion hereunder, or until it shall
become completely free of
indebtedness incurred by borrowing,
whichever event first occurs, shall be
exempt from the payment (a) of all
National Government, local
government and municipal taxes and
fees, including franchise, filing,
recordation, license or permit fees or
taxes and any fees, charges, or costs
involved in any court or
Jeremiah 29:11
administrative proceeding in which it
may be a party, and (b) of all duties
or imposts on foreign goods acquired
for its operations, the period of such
exemption for a new cooperative
formed by consolidation, as provided
for in Section 29, to begin from as of
the date of the beginning of such period
for the constituent consolidating
cooperative which was most recently
organized or converted under this
Decree: Provided, That the Board of
Administrators shall, after consultation
with the Bureau of Internal Revenue,
promulgate rules and regulations for
the proper implementation of the tax
exemptions provided for in this Decree.
.
[3]
From 1971 to 1978, in order to
finance the electrification projects
envisioned by P.D. No. 269, as
amended, the Philippine
Government, acting through the
National Economic Council (now
National Economic Development
Authority) and the NEA, entered into
six (6) loan agreements with the
government of the United States of
America through the United States
Agency for International
Development (USAID) with electric
cooperatives, including petitioners
ANECO, ILECO I and ISELCO I, as
beneficiaries. The six (6) loan
agreements involved a total amount
of approximately
US$86,000,000.00. These loan
agreements are existing until today.
300
 The loan agreements contain
similarly worded provisions on the
tax application of the loan and any
property or commodity acquired
through the proceeds of the loan.
Thus, Section 6.5 of A.I.D. Loan No.
492-H-027 dated November 15,
1971 provides:
Section 6.5. Taxes and Duties. The
Borrower covenants and agrees that
this Loan Agreement and the Loan
provided for herein shall be free from,
and the Principal and interest shall be
paid to A.I.D. without deduction for
and free from, any taxation or fees
imposed under any laws or decrees in
effect within the Republic of the
Philippines or any such taxes or fees so
imposed or payable shall be reimbursed
by the Borrower with funds other than
those provided under the Loan. To the
extent that (a) any contractor, including
any consulting firm, any personnel of
such contractor financed hereunder, and
any property or transactions relating to
such contracts and (b) any commodity
procurement transactions financed
hereunder, are not exempt from
identifiable taxes, tariffs, duties and
other levies imposed under laws in
effect in the country of the Borrower,
the Borrower and/or Beneficiary shall
pay or reimburse the same with funds
other than those provided under the
Loan.[4]
Petitioners contend that
pursuant to the provisions of P.D.
No. 269, as amended, and the
above-mentioned provision in the
Jeremiah 29:11
loan agreements, they are exempt
from payment of local taxes,
including payment of real property
tax. With the passage of the Local
Government Code, however, they
allege that their tax exemptions have
been invalidly withdrawn. In
particular, petitioners assail Sections
193 and 234 of the Local
Government Code on the ground
that the said provisions discriminate
against them, in violation of the
equal protection clause. Further,
they submit that the said provisions
are unconstitutional because they
impair the obligation of contracts
between the Philippine Government
and the United States Government.
On July 25, 2000 we issued a
Temporary Restraining Order. [5]
We note that the instant action
was filed directly to this Court, in
disregard of the rule on hierarchy of
courts. However, we opt to take
primary jurisdiction over the present
petition and decide the same on its
merits in view of the significant
constitutional issues raised by the
parties dealing with the tax treatment
of cooperatives under existing laws
and in the interest of speedy justice
and prompt disposition of the matter.
I
There is No Violation of the
Equal Protection Clause
The pertinent parts of Sections
193 and 234 of the Local
Government Code provide:
301
Section 193. Withdrawal of Tax
Exemption Privileges.Unless otherwise
provided in this Code, tax exemptions
or incentives granted to, or presently
enjoyed by all persons, whether natural
or juridical, including government-
owned and controlled corporations,
except local water
districts, cooperatives duly registered
under R.A. No. 6938, non-stock and
non-profit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code.
. registered with the Cooperative
Section 234. Exemptions from real
property tax.The following are
exempted from payment of the real
property tax:
. CDA-registered
(d) All real property owned by duly
registered cooperatives as provided
for under R.A. No. 6938; and
.
Except as provided herein, any
exemption from payment of real
property tax previously granted to, or
presently enjoyed by, all persons
whether natural or juridical, including
all government-owned and controlled
corporations are hereby withdrawn
upon effectivity of this Code.[6]
Petitioners argue that the above
provisions of the Local Government
Code are unconstitutional for
violating the equal protection clause.
Jeremiah 29:11
Allegedly, said provisions unduly
discriminate against petitioners who
are duly registered cooperatives
under P.D. No. 269, as amended,
and not under R.A. No. 6938 or the
Cooperative Code of the Philippines.
They stress that cooperatives
registered under R.A. No. 6938 are
singled out for tax exemption
privileges under the Local
Government Code. They maintain
that electric cooperatives registered
with the NEA under P.D. No. 269, as
amended, and electric cooperatives
Development Authority (CDA) under
R.A. No. 6938 are similarly situated
for the following reasons: a)
petitioners are registered with the
NEA which is a government agency
like the CDA; b) petitioners, like
cooperatives,
operate for service to their member-
consumers; and c) prior to the
enactment of the Local Government
Code, petitioners, like CDA-
registered cooperatives, were
already tax-exempt. Thus,
[7]
petitioners contend that to grant tax
exemptions from local government
taxes, including real property tax
under Sections 193 and 234 of the
Local Government Code only to
registered cooperatives under R.A.
No. 6938 is a violation of the equal
protection clause.
We are not persuaded. The
equal protection clause under the
Constitution means that no person
or class of persons shall be deprived
of the same protection of laws which
302
is enjoyed by other persons or other
classes in the same place and in like
circumstances. Thus, the guaranty
[8]
of the equal protection of the laws is
not violated by a law based on
reasonable classification.
Classification, to be reasonable,
must (1) rest on substantial
distinctions; (2) be germane to the
purposes of the law; (3) not be
limited to existing conditions only;
and (4) apply equally to all members
of the same class. [9]
We hold that there is reasonable
classification under the Local
Government Code to justify the
different tax treatment between
electric cooperatives covered by
P.D. No. 269, as amended, and
electric cooperatives under R.A. No.
6938.
First, substantial distinctions
exist between cooperatives under
P.D. No. 269, as amended, and
cooperatives under R.A. No. 6938.
These distinctions are manifest in at
least two material respects which go
into the nature of cooperatives
envisioned by R.A. No. 6938 and
which characteristics are not present
in the type of cooperative
associations created under P.D. No.
269, as amended.
a. Capital Contributions by Members
A cooperative under R.A. No. 6938 is
defined as:
[A] duly registered association
of persons with a common
Jeremiah 29:11
bond of interest, who have
voluntarily joined together to
achieve a lawful common or
social economic end, making
equitable contributions to the
capital required and accepting
a fair share of the risks and
benefits of the undertaking in
accordance with universally
accepted cooperative
principles.[10]
The above definition provides for
the following elements of a
cooperative: a) association of
persons; b) common bond of
interest; c) voluntary association; d)
lawful common social or economic
end; e) capital contributions; f) fair
share of risks and benefits; g)
adherence to cooperative values;
and g) registration with the
appropriate government authority. [11]
The importance of capital
contributions by members of a
cooperative under R.A. No. 6938
was emphasized during the Senate
deliberations as one of the key
factors which distinguished electric
cooperatives under P.D. No. 269, as
amended, from electric cooperatives
under the Cooperative Code. Thus:
Senator Osmea. Will this Code, Mr.
President, cover electric cooperatives as
they exist in the country today and are
administered by the National
Electrification Administration?
Senator Aquino. That cannot be
answered with a simple yes or no, Mr.
303
President. The answer will depend on
what provisions we will eventually
come up with. Electric cooperatives as
they exist today would not fall under
the term cooperative as used in this
bill because the concept of a
cooperative is that which adheres
and practices certain cooperative
principles. .
. Senator Aquino. Yes, Mr. President.
Senator Aquino. To begin with, one of
the most important requirements, Mr.
President, is the principle where
members bind themselves to help
themselves. It is because of their
collectivity that they can have some
economic benefits. In this particular
case [cooperatives under P.D. No. 269],
the government is the one that funds
these so-called electric cooperatives.
. measure of their qualifying as a
Senator Aquino. That is why in
Article III we have the following
definition:
A cooperative is an association of
persons with a common bond of
interest who have voluntarily joined
together to achieve a common social or
economic end, making equitable
contributions to the capital required.
In this particular case [cooperatives
under P.D. No. 269], Mr. President,
the members do not make substantial
contribution to the capital required.
It is the government that puts in the
capital, in most cases.
Jeremiah 29:11
.
Senator Osmea. Under line 6, Mr.
President, making equitable
contributions to the capital required
would exclude electric cooperatives
[under P.D. No. 269]. Because the
membership does not make equitable
contributions.
This is precisely what I mean, that
electric cooperatives [under P.D. No.
269] do not qualify in the spirit of
cooperatives. That is the reason why
they should be eventually assessed
whether they intend to comply with the
cooperatives or not. Because, if after
giving them a second time, they do not
comply, then, they should not be
classified as cooperatives.
Senator Osmea. Mr. President, the
cooperative would be the
requirement that a member of the
electric cooperative must contribute
a pro rata share of the capital of the
cooperative in cash to be a
cooperative.[12]
Nowhere in P.D. No. 269, as
amended, does it require
cooperatives to make equitable
contributions to capital. Petitioners
themselves admit that to qualify as a
member of an electric cooperative
under P.D. No. 269, only the
payment of a P5.00 membership
fee is required which is even
refundable the moment the member
is no longer interested in getting
304
electric service from the cooperative
or will transfer to another place
outside the area covered by the
cooperative. However, under the
[13]
Cooperative Code, the articles of
cooperation of a cooperative
applying for registration must be
accompanied with the bonds of the
accountable officers and a sworn
statement of the treasurer elected by
the subscribers showing that at least
twenty-five per cent (25%) of the
authorized share capital has been
subscribed and at least twenty-five
per cent (25%) of the total
subscription has been paid and in no
case shall the paid-up share capital
be less than Two thousand pesos
(P2,000.00). [14]
b. Extent of Government Control
over Cooperatives
Another principle adhered to by
the Cooperative Code is
the principle of
subsidiarity. Pursuant to this
principle, the government may only
engage in development activities
where cooperatives do not posses
the capability nor the resources to do
so and only upon the request of such
cooperatives. Thus, Article 2 of the
[15]
Cooperative Code provides:
Art. 2. Declaration of Policy. It is the
declared policy of the State to foster the
creation and growth of cooperatives as
a practical vehicle for prompting self-
reliance and harnessing people power
towards the attainment of economic
development and social justice. The
Jeremiah 29:11
State shall encourage the private sector
to undertake the actual formation and
organization to cooperatives and shall
create an atmosphere that is conducive
to the growth and development of these
cooperatives.
Towards this end, the Government and
all its branches, subdivisions,
instrumentalities and agencies shall
ensure the provision of technical
guidance, financial assistance and other
services to enable said cooperatives to
develop into viable and responsive
economic enterprises and thereby bring
about a strong cooperative movement
that is free from any conditions that
might infringe upon the autonomy or
organizational integrity of cooperatives.
Further, the State recognizes the
principle of subsidiarity under which
the cooperative sector will initiate
and regulate within its own ranks the
promotion and organization, training
and research, audit and support
services relating to cooperatives with
government assistance where
necessary. [16]
Accordingly, under the charter of
the CDA, or the primary government
agency tasked to promote and
regulate the institutional
development of cooperatives, it is
the declared policy of the State that:
[g]overnment assistance to
cooperatives shall be free from any
restriction and conditionality that
may in any manner infringe upon the
objectives and character of
305
cooperatives as provided in this
Act. The State shall, except as
provided in this Act, maintain the
policy of noninterference in the
management and operation of
cooperatives.[17]
In contrast, P.D. No. 269, as
amended by P.D. No. 1645, is
replete with provisions which grant
the NEA, upon the happening of
certain events, the power to control
and take over the management and
operations of cooperatives
registered under it. Thus:
a) the NEA Administrator has
the power to designate,
subject to the confirmation of
the Board of Administrators,
an Acting General Manager
and/or Project Supervisor for a
cooperative where vacancies
in the said positions occur
and/or when the interest of the
cooperative or the program so
requires, and to prescribe
the functions of the said
Acting General Manager
and/or Project
Supervisor, which powers
shall not be nullified, altered
or diminished by any policy
or resolution of the Board of
Directors of the cooperative
concerned; [18]
b) the NEA is given the power
of supervision and
control over electric
cooperatives and pursuant to
such powers, NEA may issue
Jeremiah 29:11
orders, rules and
regulations motu propio or
upon petition of third parties to
conduct referenda and other
similar actions in all
matters affecting electric
cooperatives; [19]
c) No cooperative shall borrow
money from any source
without the approval of the
Board of Administrators of the
NEA; and
[20]
d) The management of a
cooperative shall be vested in
its Board, subject to the
supervision and control of
NEA which shall have the right
to be represented and to
participate in all Board
meetings and deliberations
and to approve all policies and
resolutions. [21]
The extent of government control
over electric cooperatives covered
by P.D. No. 269, as amended, is
largely a function of the role of the
NEA as a primary source of
funds of these electric cooperatives.
It is crystal clear that NEA incurred
loans from various sources to
finance the development and
operations of the electric
cooperatives. Consequently,
amendments to P.D. No. 269 were
primarily geared to expand the
powers of the NEA over the electric
cooperatives to ensure that loans
granted to them would be repaid to
the government. In contrast,
cooperatives under R.A. No. 6938
306
are envisioned to be self-sufficient
and
independent organizations with
minimal government intervention
or regulation.
To be sure, the transitory
provisions of R.A. No. 6938 are
indicative of the recognition by
Congress of the fundamental
distinctions between electric
cooperatives organized under P.D
No. 269, as amended, and
cooperatives under the new
Cooperative Code. Article 128 of the
Cooperative Code provides that all
cooperatives registered under
previous laws shall be deemed
registered with the CDA upon
submission of certain requirements
within one year. However,
cooperatives created under P.D. No.
269, as amended, are given three
years within which to qualify and
register with the CDA, after which,
provisions of P.D. No. 1645 which
expand the powers of the NEA over
electric cooperatives, would no
longer apply.[22]
Second, the classification of tax-
exempt entities in the Local
Government Code is germane to the
purpose of the law. The
Constitutional mandate that every
local government unit shall enjoy
local autonomy, does not mean that
the exercise of power by local
governments is beyond regulation
by Congress. Thus, while each
government unit is granted the
power to create its own sources of
Jeremiah 29:11
revenue, Congress, in light of its
broad power to tax, has the
discretion to determine the extent of
the taxing powers of local
government units consistent with the
policy of local autonomy. [23]
Section 193 of the Local
Government Code is indicative of
the legislative intent to vest broad
taxing powers upon local
government units and to limit
exemptions from local taxation to
entities specifically provided therein.
Section 193 provides:
Section 193. Withdrawal of Tax
Exemption Privileges.Unless otherwise
provided in this Code, tax exemptions
or incentives granted to, or presently
enjoyed by all persons, whether natural
or juridical, including government-
owned and controlled corporations,
except local water
districts, cooperatives duly registered
under R.A. No. 6938, non-stock and
non-profit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code.
[24]
The above provision effectively
withdraws exemptions from local
taxation enjoyed by various entities
and organizations upon effectivity of
the Local Government Code except
for a) local water districts; b)
cooperatives duly registered
under R.A. No. 6938; and c) non-
stock and non-profit hospitals
and educational
institutions. Further, with respect to
real property taxes, the Local
307
Government Code again specifically
enumerates entities which are
exempt therefrom and withdraws
exemptions enjoyed by all other
entities upon the effectivity of the
code. Thus, Section 234 provides:
SEC. 234. Exemptions from Real
Property Tax. The following are
exempted from payment of the real
property tax:
(a) Real property owned by the
Republic of the Philippines or any of its
political subdivisions except when the
beneficial use thereof had been granted
for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings and
improvements actually, directly, and
exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that
are actually, directly and exclusively
used by local water districts and
government-owned or controlled
corporations engaged in the supply and
distribution of water and/or generation
and transmission of electric power;
(d) All real property owned by duly
registered cooperatives as provided
for under R.A. No. 6938; and
(e) Machinery and equipment used for
pollution control and environmental
protection.
Jeremiah 29:11
Except as provided herein, any
exemption from payment of real
property tax previously granted to, or
presently enjoyed by, all persons,
whether natural or juridical, including
all government-owned or controlled
corporations are hereby withdrawn
upon the effectivity of this Code.
[25]
In Mactan Cebu International
Airport Authority v. Marcos, this [26]
Court held that the limited and
restrictive nature of the tax
exemption privileges under the Local
Government Code is consistent with
the State policy to ensure autonomy
of local governments and the
objective of the Local Government
Code to grant genuine and
meaningful autonomy to enable local
government units to attain their
fullest development as self-reliant
communities and make them
effective partners in the attainment
of national goals. The obvious
intention of the law is to broaden the
tax base of local government units to
assure them of substantial sources
of revenue.
While we understand petitioners
predicament brought about by the
withdrawal of their local tax
exemption privileges under the Local
Government Code, it is not the
province of this Court to go into
the wisdom of legislative
enactments. Courts can only
interpret laws. The principle of
separation of powers prevents them
from re-inventing the laws.
308
 Finally, Sections 193 and 234 of
the Local Government Code permit
reasonable classification as these
exemptions are not limited to
existing conditions and apply equally
to all members of the same class.
Exemptions from local taxation,
including real property tax, are
granted to all cooperatives covered
by R.A. No. 6938 and such
exemptions exist for as long as the
Local Government Code and the
provisions therein on local taxation
remain good law.
II
There is No Violation of the
Non-Impairment Clause
It is ingrained in jurisprudence
that the constitutional prohibition on
the impairment of the obligation of
contracts does not prohibit every
change in existing laws. To fall
within the prohibition, the change
must not only impair the obligation of
the existing contract, but the
impairment must be
substantial. What
[27]
constitutes
substantial impairment was
explained by this Court in Clemons
v. Nolting: [28]
A law which changes the terms of a
legal contract between parties, either in
the time or mode of performance, or
imposes new conditions, or dispenses
with those expressed, or authorizes for
its satisfaction something different
from that provided in its terms, is law
which impairs the obligation of a
contract and is therefore null and void.
Jeremiah 29:11
Moreover, to constitute impairment,
the law must affect a change in the
rights of the parties with reference to
each other and not with respect to
non-parties.[29]
Petitioners insist that Sections
193 and 234 of the Local
Government Code impair the
obligations imposed under the six (6)
loan agreements executed by the
NEA as borrower and USAID as
lender. All six agreements contain
similarly worded provisions on the
tax treatment of the proceeds of the
loan and properties and
commodities acquired through the
loan. Thus:
Section 6.5. Taxes and Duties. The
Borrower covenants and agrees that
this Loan Agreement and the Loan
provided for herein shall be free
from, and the Principal and interest
shall be paid to A.I.D. without
deduction for and free from, any
taxation or fees imposed under any
laws or decrees in effect within the
Republic of the Philippines or any such
taxes or fees so imposed or payable
shall be reimbursed by the Borrower
with funds other than those provided
under the Loan. To the extent that (a)
any contractor, including any
consulting firm, any personnel of
such contractor financed hereunder,
and any property or transactions
relating to such contracts and (b) any
commodity procurement
transactions financed hereunder, are
not exempt from identifiable taxes,
tariffs, duties and other levies
309
imposed under laws in effect in the
country of the Borrower, the
Borrower and/or Beneficiary shall
pay or reimburse the same with
funds other than those provided
under the Loan. [30]
Petitioners contend that the
withdrawal by the Local Government
Code of the tax exemptions of
cooperatives under P.D. No. 269, as
amended, is an impairment of the
tax exemptions provided under the
loan agreements. Petitioners argue
that as beneficiaries of the loan
proceeds, pursuant to the above
provision, [a]ll the assets
of petitioners, such as lands,
buildings, distribution lines acquired
through the proceeds of the Loan
Agreements are tax exempt. [31]
We hold otherwise.
A plain reading of the provision
quoted above readily shows that it
does not grant any tax exemption in
favor of the borrower or the
beneficiary either on the proceeds of
the loan itself or the properties
acquired through the said loan. It
simply states that the loan proceeds
and the principal and interest of the
loan, upon repayment by the
borrower, shall be without
deduction of any tax or fee that
may be payable under Philippine
law as such tax or fee will be
absorbed by the borrower with
funds other than the loan
proceeds. Further, the provision
states that with respect to any
Jeremiah 29:11
payment made by the borrower to
(1) any contractor or any personnel
of such contractor or any property
transaction and (2) any commodity
transaction using the proceeds of
the loan, the tax to be paid, if any,
on such transactions shall be
absorbed by the borrower and/or
beneficiary through funds other
than the loan proceeds.
Beyond doubt, the import of the
tax provision in the loan agreements
cited by petitioners is twofold: (1) the
borrower is entitled to receive from
and is obliged to pay the lender the
principal amount of the loan and the
interest thereon in full, without any
deduction of the tax component
thereof imposed under applicable
Philippine law and any tax
imposed shall be paid by the
borrower with funds other than
the loan proceeds and (2) with
respect to payments made to any
contractor, its personnel or any
property or commodity transaction
entered into pursuant to the loan
agreement and with the use of the
proceeds thereof, taxes payable
under the said transactions shall be
paid by the borrower and/or
beneficiary with the use of funds
other than the loan proceeds. The
quoted provision does not purport to
grant any tax exemption in favor of
any party to the contract, including
the beneficiaries thereof. The
provisions simply shift the tax
burden, if any, on the transactions
under the loan agreements to the
borrower and/or beneficiary of the
310
loan. Thus, the withdrawal by the
Local Government Code under
Sections 193 and 234 of the tax
exemptions previously enjoyed by
petitioners does not impair the
obligation of the borrower, the lender
or the beneficiary under the loan
agreements as in fact, no tax
exemption is granted therein.
III
Conclusion
Petitioners lament the difficulties
they face in complying with the
implementing rules and regulations
issued by the CDA for the
conversion of electric cooperatives
under P.D. No. 269, as amended, to
cooperatives under R.A. No. 6938.
They allege that because of the
cumbersome legal and technical
requirements imposed by the
Omnibus Rules and Regulations on
the Registration of Electric
Cooperatives under R.A. No. 6938,
petitioners cannot register and
convert as stock cooperatives under
the Cooperative Code. [32]
intention of its framers are clear and
unequivocal and courts have no
other duty except to uphold the law.
The task to re-examine the rules and
guidelines on the conversion of
electric cooperatives to cooperatives
under R.A. No. 6938 and provide
every assistance available to them
should be addressed by the proper
authorities of government. This is
necessary to encourage the growth
and viability of cooperatives as
instruments of social justice and
economic development.
WHEREFORE, the instant
petition is DENIED and the
temporary restraining order
heretofore issued is LIFTED.
SO ORDERED.

The Court understands the plight

of the petitioners. Their remedy,
however, is not judicial. Striking
down Sections 193 and 234 of the
Local Government Code as
unconstitutional or declaring them
inapplicable to petitioners is not the
proper course of action for them to
obtain their previous tax exemptions.
The language of the law and the

311
Jeremiah 29:11

EN BANC
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
LINGAYEN GULF ELECTRIC POWER CO.,
INC. and THE COURT OF TAX
APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power
Co., Inc.
SARMIENTO, J.:
This is an appeal from the decision * of the Court
of Tax Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard upon
agreement of the parties, absolving the respondent taxpayer
from liability for the deficiency percentage, franchise, and fixed
taxes and surcharge assessed against it in the sums of
P19,293.41 and P3,616.86 for the years 1946 to 1954 and 1959
to 1961, respectively.
The respondent taxpayer, Lingayen Gulf
Electric Power Co., Inc., operates an electric
power plant serving the adjoining
municipalities of Lingayen and Binmaley, both
in the province of Pangasinan, pursuant to the
municipal franchise granted it by their
respective municipal councils, under
Resolution Nos. 14 and 25 of June 29 and
Jeremiah 29:11
July 2, 1946, respectively. Section 10 of these
franchises provide that:
...The said grantee in consideration of the
franchise hereby granted, shall pay quarterly
into the Provincial Treasury of Pangasinan,
one per centum of the gross earnings
obtained thru this privilege during the first
twenty years and two per centum during the
remaining fifteen years of the life of said
franchise.
On February 24, 1948, the President of the
Philippines approved the franchises granted to
the private respondent.
On November 21, 1955, the Bureau of Internal
Revenue (BIR) assessed against and
demanded from the private respondent the
total amount of P19,293.41 representing
deficiency franchise taxes and surcharges for
the years 1946 to 1954 applying the franchise
tax rate of 5% on gross receipts from March 1,
1948 to December 31, 1954 as prescribed in
Section 259 of the National Internal Revenue
Code, instead of the lower rates as provided
in the municipal franchises. On September 29,
1956, the private respondent requested for a
reinvestigation of the case on the ground that
instead of incurring a deficiency liability, it
made an overpayment of the franchise tax. On
April 30, 1957, the BIR through its regional
director, denied the private respondent's
request for reinvestigation and reiterated the
demand for payment of the same. In its letters
dated July 2, and August 9, 1958 to the
petitioner Commissioner, the private
respondent protested the said assessment
and requested for a conference with a view to
settling the liability amicably. In his letters
dated July 25 and August 28, 1958, the
Commissioner denied the request of the
private respondent. Thus, the appeal to the
respondent Court of Tax Appeals on
September 19, 1958, docketed as C.T.A.
Case No. 581.
In a letter dated August 21, 1962, the
Commissioner demanded from the private
respondent the payment of P3,616.86
representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again
applying the franchise tax rate of 5% on gross
312
receipts as prescribed in Section 259 of the
National Internal Revenue Code. In a letter
dated October 5, 1962, the private respondent
protested the assessment and requested
reconsideration thereof The same was denied
on November 9, 1962. Thus, the appeal to the
respondent Court of Appeals on November
29, 1962, docketed as C.T.A. No. 1302.
Pending the hearing of the said cases,
Republic Act (R.A.) No. 3843 was passed on
June 22, 1 963, granting to the private
respondent a legislative franchise for the
operation of the electric light, heat, and power
system in the same municipalities of
Pangasinan. Section 4 thereof provides that:
In consideration of the franchise and rights
hereby granted, the grantee shall pay into the
Internal Revenue office of each Municipality in
which it is supplying electric current to the
public under this franchise, a tax equal to two
per centum of the gross receipts from electric
current sold or supplied under this franchise.
Said tax shall be due and payable quarterly
and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description
levied, established, or collected by any
authority whatsoever, municipal, provincial or
national, now or in the future, on its poles,
wires, insulator ... and on its franchise, rights,
privileges, receipts, revenues and profits, from
which taxes and/or licenses, the grantee is
hereby expressly exempted and effective
further upon the date the original franchise
was granted, no other tax and/or licenses
other than the franchise tax of two per centum
on the gross receipts as provided for in the
original franchise shall be collected, any
provision of law to the contrary
notwithstanding.
On September 15, 1964, the respondent court
ruled that the provisions of R.A. No. 3843
should apply and accordingly dismissed the
claim of the Commissioner of Internal
Revenue. The said ruling is now the subject of
the petition at bar.
The issues raised for resolution are:
Jeremiah 29:11
1. Whether or not the 5% franchise tax
prescribed in Section 259 of the National
Internal Revenue Code assessed against the
private respondent on its gross receipts
realized before the effectivity of R.A- No. 3843
is collectible.
2. Whether or not Section 4 of R.A. No. 3843
is unconstitutional for being violative of the
"uniformity and equality of taxation" clause of
the Constitution.
3. If the abovementioned Section 4 of R.A.
No. 3843 is valid, whether or not it could be
given retroactive effect so as to render
uncollectible the taxes in question which were
assessed before its enactment.
4. Whether or not the respondent taxpayer is
liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 for the
period from January 1, 1946 to February 29,
1948, the period before the approval of its
municipal franchises.
The first issue raised by the petitioner before
us is whether or not the five percent (5%)
franchise tax prescribed in Section 259 of the
National Internal Revenue Code
(Commonwealth Act No. 466 as amended by
R.A. No. 39) assessed against the private
respondent on its gross receipts realized
before the effectivity of R.A- No. 3843 is
collectible. It is the contention of the petitioner
Commissioner of Internal Revenue that the
private respondent should have been held
liable for the 5% franchise tax on gross
receipts prescribed in Section 259 of the Tax
Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of
gross earnings for the first twenty years and
2% for the remaining fifteen years of the life of
the franchises) because Section 259 of the
Tax Code, as amended by RA No. 39 of
October 1, 1946, applied to existing and future
franchises. The franchises of the private
respondent were already in existence at the
time of the adoption of the said amendment,
since the franchises were accepted on March
1, 1948 after approval by the President of the
Philippines on February 24, 1948. The private
respondent's original franchises did not
contain the proviso that the tax provided
313
therein "shall be in lieu of all taxes;" moreover,
the franchises contained a reservation clause
that they shag be subject to amendment,
alteration, or repeal, but even in the absence
of such cause, the power of the Legislature to
alter, amend, or repeal any franchise is
always deemed reserved. The franchise of the
private respondent have been modified or
amended by Section 259 of the Tax Code, the
petitioner submits.
We find no merit in petitioner's contention.
R.A. No. 3843 granted the private respondent
a legislative franchise in June, 1963,
amending, altering, or even repealing the
original municipal franchises, and providing
that the private respondent should pay only a
2% franchise tax on its gross receipts, "in lieu
of any and all taxes and/or licenses of any
kind, nature or description levied, established,
or collected by any authority whatsoever,
municipal, provincial, or national, now or in the
future ... and effective further upon the date
the original franchise was granted, no other
tax and/or licenses other than the franchise
tax of two per centum on the gross receipts ...
shall be collected, any provision of law to the
contrary notwithstanding." Thus, by virtue of
R.A- No. 3843, the private respondent was
liable to pay only the 2% franchise tax,
effective from the date the original municipal
franchise was granted.
On the question as to whether or not Section
4 of R.A. No. 3843 is unconstitutional for
being violative of the "uniformity and equality
of taxation" clause of the Constitution, and, if
adjudged valid, whether or not it should be
given retroactive effect, the petitioner submits
that the said law is unconstitutional insofar as
it provides for the payment by the private
respondent of a franchise tax of 2% of its
gross receipts, while other taxpayers similarly
situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code,
thereby discriminatory and violative of the rule
on uniformity and equality of taxation.
A tax is uniform when it operates with the
same force and effect in every place where
the subject of it is found. Uniformity means
that all property belonging to the same class
shall be taxed alike The Legislature has the
Jeremiah 29:11
inherent power not only to select the subjects
of taxation but to grant exemptions. Tax
exemptions have never been deemed
violative of the equal protection clause. 1 It is
true that the private respondents municipal
franchises were obtained under Act No.
667 2 of the Philippine Commission, but these
original franchises have been replaced by a
new legislative franchise, i.e. R.A. No. 3843.
As correctly held by the respondent court, the
latter was granted subject to the terms and
conditions established in Act No. 3636, 3 as
amended by C.A. No. 132. These conditions
Identify the private respondent's power plant
as falling within that class of power plants
created by Act No. 3636, as amended. The
benefits of the tax reduction provided by law
(Act No. 3636 as amended by C.A. No. 132
and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within
this class. R.A-No. 3843 merely transferred
the petitioner's power plant from that class
provided for in Act No. 667, as amended, to
which it belonged until the approval of R.A-
No. 3843, and placed it within the class falling
under Act No. 3636, as amended. Thus, it
only effected the transfer of a taxable property
from one class to another.
We do not have the authority to inquire into
the wisdom of such act. Furthermore, the 5%
franchise tax rate provided in Section 259 of
the Tax Code was never intended to have a
universal application. 4 We note that the said
Section 259 of the Tax Code expressly allows
the payment of taxes at rates lower than 5%
when the charter granting the franchise of a
grantee, like the one granted to the private
respondent under Section 4 of R.A. No. 3843,
precludes the imposition of a higher tax. R.A.
No. 3843 did not only fix and specify a
franchise tax of 2% on its gross receipts, but
made it "in lieu of any and all taxes, all laws to
the contrary notwithstanding," thus, leaving no
room for doubt regarding the legislative intent.
"Charters or special laws granted and enacted
by the Legislature are in the nature of private
contracts. They do not constitute a part of the
machinery of the general government. They
are usually adopted after careful consideration
of the private rights in relation with resultant
benefits to the State ... in passing a special
charter the attention of the Legislature is
314
directed to the facts and circumstances which
the act or charter is intended to meet. The
Legislature consider (sic) and make (sic)
provision for all the circumstances of a
particular case." 5 In view of the foregoing, we
find no reason to disturb the respondent
court's ruling upholding the constitutionality of
the law in question.
P3,025.98 for the period from January 1, 1946
to February 29, 1948.
WHEREFORE, the appealed decision of the
respondent Court of Tax Appeals is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Given its validity, should the said law be

applied retroactively so as to render
uncollectible the taxes in question which were
assessed before its enactment? The question
of whether a statute operates retrospectively
or only prospectively depends on the
legislative intent. In the instant case, Act No.
3843 provides that "effective ... upon the date
the original franchise was granted, no other
tax and/or licenses other than the franchise
tax of two per centum on the gross receipts ...
shall be collected, any provision to the
contrary notwithstanding." Republic Act No.
3843 therefore specifically provided for the
retroactive effect of the law.

The last issue to be resolved is whether or not

the private respondent is liable for the fixed
and deficiency percentage taxes in the
amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As
aforestated, the franchises were approved by
the President only on February 24, 1948.
Therefore, before the said date, the private
respondent was liable for the payment of
percentage and fixed taxes as seller of light,
heat, and power — which as the petitioner
claims, amounted to P3,025.96. The
legislative franchise (R.A. No. 3843)
exempted the grantee from all kinds of taxes
other than the 2% tax from the date the
original franchise was granted. The
exemption, therefore, did not cover the period
before the franchise was granted, i.e. before
February 24, 1948. However, as pointed out
by the respondent court in its findings, during
the period covered by the instant case, that is
from January 1, 1946 to December 31, 1961,
the private respondent paid the amount of
P34,184.36, which was very much more than
the amount rightfully due from it. Hence, the
private respondent should no longer be made
to pay for the deficiency tax in the amount of

315
Jeremiah 29:11