Digest by: Hann Sevilla for 4-Manresa 2008 PUBLIC INTEREST CENTER VS. ROXAS JANUARY 31, 2007 Fx: On Feb.

1976, NPC entered into a contract with WESA to construct a nuclear power plant at Bataan and supply equipment, machineries and services therefor. Later, the Aquino administration filed a case against WESA. On Oct. 13, 1995, a settlement agreement was forged by the Republic and Westinghouse. In Nov. 1995, respondents, as taxpayers filed with the QC RTC, a complaint against petitioners for the declaration of nullity of the BNPP contract. The Sol Gen moved for the dismissal of the Complaint on the ground that there was forum-shopping since an earlier case was filed with RTC of Manila entilted "Anti Graft League of the Phil vs. Westinghouse" which sought to declare null and void the contract. In that case, the respondent's counsel was one of the petitioners. MTC of Manila dismissed the case. The legal standing of the respondents was also questioned. Respondents allege that there was no identity of parties since they were not petitioners in the case before the RTC of Manila nor is there identity in the cause of action since the case in RTC QC involves nullification of the Settlement of Agreement which was not raised before RTC Manila. Moreover, respondents allege that a taxpayer's suit is not a class suit therefore judgment in one case does not amount to res judicata in the other. Issue: W/N a taxpayer's suit can continue despite res judicata? HELD:NO. Issue on Legal Standing: “Legal standing” or locus standi has been defined as a personal and substantial interest in the case such that the party has sustained or will sustain direct injury as a result of the governmental act that is being challenged. In the case of taxpayers’ suits, the party suing as a taxpayer must prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation. Thus, taxpayers have been allowed to sue where there is a claim that public funds are illegally disbursed or that public money is being deflected to any improper purpose, or that public funds are wasted through the enforcement of an invalid or unconstitutional law. More particularly, the taxpayer must establish that he has a personal and substantial interest in the case and that he has sustained or will sustain direct injury as a result of its enforcement or that he stands to be benefited or injured by the judgment in the case, or is entitled to the avails of the suit. Petitioners’ allegations in their Amended Complaint that the loan contracts entered into by the Republic and NPC are serviced or paid through a disbursement of public funds are not disputed by respondents, hence, they are invested with personality to institute the same. BUT while respondents have the legal standing as taxpayers to sue, the doctrine of re judicata applies in the instant case. A taxpayer’s action has been defined as follows: A taxpayer's bill is essentially a class bill and can be filed only in the common interest of all the taxpayers of the municipality, to prevent the wrongful expenditure of the money of the municipality or the wasting of its assets. A class bill, as its name implies, is a bill by several members of a class, on behalf of themselves and all others in the class, and no relief can be granted upon it, except upon a ground which is common to all the members of the class. As to plaintiffs, both suits are brought by the plaintiff as a citizen and taxpayer, besides as an individual, and therefore they are taxpayer class actions. “Where a taxpayer or property owner brings an action against a county or its officers upon a matter of public or general interest to all other taxpayers of such political subdivision, and the action either expressly or by necessary implication is on their behalf, they are equally bound by the adjudication ,

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and a judgment is a bar to any subsequent proceeding by them or any of them seeking similar relief upon the same facts. The general principle of class actions that a judgment in favor of or against the parties representing the general class is, under the doctrine of res judicata, in favor of or against all who are thus represented applies to litigations instituted by taxpayers. Accordingly, in a suit brought by citizens and taxpayers to determine a public right or a matter of public interest, all citizens and taxpayers are regarded as parties to the proceedings by representation and are bound by the judgment rendered therein. A taxpayer attacking governmental action in which he has no peculiar personal or special interest is taken to be suing as a representative of all taxpayers as a class. The general rule is that in the absence of fraud or collusion a judgment for or against a governmental body in such an action is binding and conclusive on all residents, citizens and taxpayers with respect to matters adjudicated which are of general and public interest. Hence, it is to no avail that petitioners invoke lack of identity of parties. For petitioners in the first set of cases and in the instant case are suing under a common or general interest on a subject matter in a representative capacity, for the benefit of all taxpayers as a class. As this Court has repeatedly ruled, identity of parties needed to satisfy the requirement in lis pendens or res judicata requires only an identity of interest, not a literal identity of parties ABAYA vs. EBDANE (Feb. 14, 2007) Super summary of facts: Japan and Philippines entered into an agreement concerning loans extended by Japan to the Philippines. Pursuant to the agreement, Japan loaned Philippines more or less 15 Billion Yen, part of the proceeds of which were to be used for the improvement/rehabilitation of San Andres-Vira-Jct. Bago-Viga road in Catanduanes. The DPWH was tasked to implement the projects and pursuant thereto caused the publication of the invitation for to pre-qualify and to bid. The contract was subsequently recommended to be granted to China Road and Bridge Corporation. Hence this petition seeking to nullify the award by DPWH alleging grabe abuse of discretion since the bid of China Road and Bridge Corp was more than P200Million overpriced. Petitioners filed the suit as taxpayers. Issue: W/N petitioners have legal standing to question the award of the contract considering they were bidders thereto. HELD:YES. Petitioners, as taxpayers, posses’ locus standi to file the present suit. Briefly stated, locus standi is “a right of appearance in a court of justice on a given question.” More particularly, it is a party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged. It calls for more than just a generalized grievance. The term “interest” means a material interest, an interest in issue affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. Standing or locus standi is a peculiar concept in constitutional law and the rationale for requiring a party who challenges the constitutionality of a statute to allege such a personal stake in the outcome of the controversy is “to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.” Locus standi, however, is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government- owned or controlled corporations allegedly in contravention of law. A taxpayer is allowed to sue

Digest by: Hann Sevilla for 4-Manresa 2008 where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity. In the present case, the petitioners are suing as taxpayers. They have sufficiently demonstrated that, notwithstanding the fact that the CP I project is primarily financed from loans obtained by the government from the JBIC, nonetheless, taxpayers’ money would be or is being spent on the project considering that the Philippine Government is required to allocate a peso-counterpart therefor. The public respondents themselves admit that appropriations for these foreignassisted projects in the GAA are composed of the loan proceeds and the peso-counterpart. Hence, the petitioners correctly asserted their standing since a part of the funds being utilized in the implementation of the CP I project partakes of taxpayers’ money. Further, the serious legal questions raised by the petitioners, e.g., whether RA 9184 applies to the CP I project, in particular, and to foreign-funded government projects, in general, and the fact that public interest is indubitably involved considering the public expenditure of millions of pesos, warrant the Court to adopt in the present case its liberal policy on locus standi. Senior citizens’ discount not allowed anymore as a tax credit but as a deduction from gross income. It ought to be noted, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21, 2004, a new tax treatment for sales discount purchases of qualified senior citizens of medicines. The establishment may claim the discounts granted to senior citiznes as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. CARLOS SUPERDRUG VS. DSWD (JUNE 29, 2007) Petitioners are questioning the validity of of the tax deduction scheme as reimbursement mechanism for 20% discount they extend to senior citizens. The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction (under the Expanded Senior Citizens Act). The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent (20%) discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishment, restaurants and recreation centers and purchase of medicines anywhere in the country, the costs of which may be claimed by the private establishments concerned as tax credit. Effectively, a tax credit is a peso-for-peso deduction from a taxpayer's tax liability due to the government of the amount of discounts such establishment has granted to a senior citizen. The establishment recovers the full amount of discount given to a senior citizen and hence, the government shoulders 100% of the discounts granted. It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system, necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover this tax payment from his/her income tax due. The tax credit scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have previously occurred. The provision under R.A. No. 9257, on the other hand, provides that the establishment concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from gross income, based on the net cost of goods sold or services rendered.

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Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for its tax liability, the amount of discounts granted to senior citizens. Thus, the tax deduction scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by lawto reduce the income prior to the application of the tax rate to compute the amount of tax which is due.Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments concerned. The discounts given would have entered the coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit.This constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the taker's gain but the owner's loss. The word just is used to intensify the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation. ISSUE: Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private establishments the burden of partly subsidizing a government program. The Court believes so. The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society.The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. To implement the law's policy, it grants a 20% discount to senior citizens for medical and dental services, and diagnostic and laboratory fees; admission fees charged by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior citizens may claim the discount as a tax deduction. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. GEROCHI VS. DEP. OF ENERGY (DOE) JULY 17, 2007 Fx: Petitioners seek the declaration of unconstitutionality of the following provisions of Electric Power Industry Reform Act of 2001 (EPIRA) the SECTION 34. Universal Charge. Within one (1) year from effectivity of this Act, a universal charge to be

Digest by: Hann Sevilla for 4-Manresa 2008 determined, fixed and approved by the ERC, shall be imposed on all electricity end-users for the following purpose x x x (a) Payment for the stranded debts x x (b) Missionary electrification; (c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-Ã -vis imported energy fuels; (d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed rehabilitation and management. Said fund shall be managed by NPC under existing arrangements; and (e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years. x x x Petitioners allege that the universal charge provided under Sec. 34 is a tax which is tob e collected from all electric endusers and self-generating entitites. The power to tax is strictly a legislative function and as such, the delegation of said power to any executive or administrative agency like the ERC is unconstitutional, giving the same unlimited authority. The assailed provision clearly provides that the Universal Charge is to be determined, fixed and approved by the ERC, hence leaving to the latter complete discretionary legislative authority. Issues: 1. Whether or not the Universal charge under Sec. 34 of EPIRA is a tax; 2. W/N there is undue delegation of legislative power to tax; 3. W/N petitioners have locus standi. Issue on Locus Standi: Yes, petitioners have locus standi. Petitioners filed before us an original action particularly denominated as a Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they sustained a direct injury as a result of the imposition of the Universal Charge as reflected in their electric bills. Substantive issues: To resolve the first issue, it is necessary to distinguish the State's power of taxation from the police power. The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency that is to pay it. It is based on the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need.Thus, the theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. On the other hand, police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons. The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is made. If generation of revenue is the primary

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purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for which the Universal Charge is imposed and which can be amply discerned as regulatory in character. From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but an exaction in the exercise of the State's police power. Public welfare is surely promoted. Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police power. In Valmonte v. Energy Regulatory Board, et al. and in Gaston v. Republic Planters Bank,this Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the exercise of the police power. The doctrine was reiterated in Osmeà v. Orbos with respect to the OPSF. Thus, we disagree with petitioners that the instant case is different from the aforementioned cases. As to the second issue : There is no undue delegation of legislative power . All that is required for the valid exercise of this power of subordinate legislation is that the regulation be germane to the objects and purposes of the law and that the regulation be not in contradiction to, but in conformity with, the standards prescribed by the law. These requirements are denominated as the completeness test and the sufficient standard test. Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature such that when it reaches the delegate, the only thing he will have to do is to enforce it. The second test mandates adequate guidelines or limitations in the law to determine the boundaries of the delegate's authority and prevent the delegation from running riot. The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is complete in all its essential terms and conditions, and that it contains sufficient standards. Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users," and therefore, does not state the specific amount to be paid as Universal Charge, the amount nevertheless is made certain by the legislative parameters provided in the law itself. As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest of law and order;" "adequate and efficient instruction;" "public interest;""justice and equity;" "public convenience and welfare; "simplicity, economy and efficiency;" "standardization and regulation of medical education;" and "fair and equitable employment practices." Provisions of the EPIRA such as, among others, "to ensure the total electrification of the country and the quality, reliability, security and affordability of the supply of electric power" and "watershed rehabilitation and management" meet the requirements for valid delegation, as they provide the limitations on the ERC's power to formulate the IRR. These are sufficient standards. CHAVEZ VS. NHA (AUGUST 15, 2007) Fx: Petition for Prohibition and Mandamus with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction under Rule 65, petitioner, in his capacity as taxpayer, seeks: to declare NULL AND VOID the Joint Venture Agreement (JVA) dated March 9, 1993 between the National Housing Authority and R-II Builders, Inc. and the Smokey Mountain Development and Reclamation Project embodied therein––as well as all other transactions which emanated

Digest by: Hann Sevilla for 4-Manresa 2008 therefrom, for being UNCONSTITUTIONAL and INVALID. (Issues only which are related to tax payer's suit) Respondents argue that petitioner Chavez has no legal standing to file the petition. Only a person who stands to be benefited or injured by the judgment in the suit or entitled to the avails of the suit can file a complaint or petition. Respondents claim that petitioner is not a proper party-ininterest as he was unable to show that “he has sustained or is in immediate or imminent danger of sustaining some direct and personal injury as a result of the execution and enforcement of the assailed contracts or agreements.” Moreover, they assert that not all government contracts can justify a taxpayer’s suit especially when no public funds were utilized in contravention of the Constitution or a law. HELD:We explicated in Chavez v. PCGG that in cases where issues of transcendental public importance are presented, there is no necessity to show that petitioner has experienced or is in actual danger of suffering direct and personal injury as the requisite injury is assumed. We find our ruling in Chavez v. PEA as conclusive authority on locus standi in the case at bar since the issues raised in this petition are averred to be in breach of the fair diffusion of the country’s natural resources and the constitutional right of a citizen to information which have been declared to be matters of transcendental public importance. Moreover, the pleadings especially those of respondents readily reveal that public funds have been indirectly utilized in the Project by means of Smokey Mountain Project Participation Certificates (SMPPCs) bought by some government agencies. The instant petition challenges the constitutionality and legality of the SMDRP involving several hectares of government land and hundreds of millions of funds of several government agencies. Moreover, serious constitutional challenges are made on the different aspects of the Project which allegedly affect the right of Filipinos to the distribution of natural resources in the country and the right to information of a citizen—matters which have been considered to be of extraordinary significance and grave consequence to the public in general. Hence, petitioner, as a taxpayer, is a proper party to the instant petition before the court. REPUBLIC VS. CAGUIOA (OCTOBER 2007) Fx: In 1992, Congress enacted RA 7227 which envisioned the SBF to be developed into a "self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. In line with this, Sec. 12 provided for incentives such as tax and duty-free importations of raw materials, capital and equipment. Pursuant to the law, private respondents applied for and were granted Certificates of registrations and tax exemptions by SBMA. These certificates allowed them to engage in the business either of trading, retailing or wholesaling, import and export, warehousing, distribution and/or transshipment of general merchandise, including alcohol and tobacco products, and uniformly granted them tax exemptions for such importations. On January 1, 2005, Congress enacted RA 9334, Sec. 6 of which provides: "The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No. 7227;" On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a Memorandum declaring that effective January 1, 2005, all importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into the SBF, including those intended to be transshipped to other free ports in the Philippines, shall be treated as ordinary importations subject to all applicable taxes, duties and charges, including excise taxes.

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Private respondents assailed the validity of the new law as it violated the constitutional proscription against impairment of obligations of contracts. They also sought the issuance of a writ of preliminary injunction. HELD: For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1) there is a clear and unmistakable right to be protected, (2) the invasion of the right sought to be protected is material and substantial, and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local and national taxes, including excise taxes, on their importations of general merchandise, for which reason they enjoyed tax-exempt status until the effectivity of R.A. No. 9334. By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to withdraw private respondents? tax exemption privilege on their importations of cigars, cigarettes, distilled spirits, fermented liquors and wines. Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of private respondents, it behooves this Court to state certain basic principles and observations that should throw light on the propriety of the issuance of the writ of preliminary injunction in this case. First. Every presumption must be indulged in favor of the constitutionality of a statute. The burden of proving the unconstitutionality of a law rests on the party assailing the law. Second. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful. Being a mere statutory privilege, a tax exemption may be modified or withdrawn at will by the granting authority. To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions which rest on the discretion of the authority exercising it. Third. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption is favored. Fourth. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. Flowing from the basic precept of constitutional law that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the same. Fifth. The rights granted under the Certificates of Registration and Tax Exemption of private respondents are not absolute and unconditional as to constitute rights in esse those clearly founded on or granted by law or is enforceable as a matter of law. These certificates granting private respondents a "permit to operate" their respective businesses are in the nature of licenses, which the bulk of jurisprudence considers as neither a property nor a property right.40 The licensee takes his license subject to such conditions as the grantor sees fit to impose, including its revocation at pleasure. A license can thus be revoked at any time since it does not confer an absolute right. While the tax exemption contained in the Certificates of Registration of private respondents may have been part of the inducement for carrying on their businesses in the SBF, this exemption, nevertheless, is far from being contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked. Sixth. Whatever right may have been acquired on the basis of the Certificates of Registration and Tax Exemption must yield to the State's valid exercise of police power. It is well to

Digest by: Hann Sevilla for 4-Manresa 2008 remember that taxes may be made the implement of the police power.

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