G.R. No.

74457 March 20, 1987

RESTITUTO
YNOT,
petitioner,
vs.
INTERMEDIATE APPELLATE COURT, THE STATION COMMANDER, INTEGRATED
NATIONAL POLICE, BAROTAC NUEVO, ILOILO and THE REGIONAL DIRECTOR, BUREAU OF
ANIMAL INDUSTRY, REGION IV, ILOILO CITY, respondents.
Ramon A. Gonzales for petitioner.

CRUZ, J.:
The essence of due process is distilled in the immortal cry of Themistocles to Alcibiades "Strike but hear me
first!" It is this cry that the petitioner in effect repeats here as he challenges the constitutionality of Executive
Order No. 626-A.
The said executive order reads in full as follows:
WHEREAS, the President has given orders prohibiting the interprovincial movement of carabaos
and the slaughtering of carabaos not complying with the requirements of Executive Order No. 626
particularly with respect to age;
WHEREAS, it has been observed that despite such orders the violators still manage to circumvent
the prohibition against inter-provincial movement of carabaos by transporting carabeef instead;
and
WHEREAS, in order to achieve the purposes and objectives of Executive Order No. 626 and the
prohibition against interprovincial movement of carabaos, it is necessary to strengthen the said
Executive Order and provide for the disposition of the carabaos and carabeef subject of the
violation;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of
the powers vested in me by the Constitution, do hereby promulgate the following:
SECTION 1. Executive Order No. 626 is hereby amended such that henceforth, no carabao
regardless of age, sex, physical condition or purpose and no carabeef shall be transported from one
province to another. The carabao or carabeef transported in violation of this Executive Order as
amended shall be subject to confiscation and forfeiture by the government, to be distributed to
charitable institutions and other similar institutions as the Chairman of the National Meat
Inspection Commission may ay see fit, in the case of carabeef, and to deserving farmers through
dispersal as the Director of Animal Industry may see fit, in the case of carabaos.
SECTION 2. This Executive Order shall take effect immediately.
Done in the City of Manila, this 25th day of October, in the year of Our Lord, nineteen hundred
and eighty.
(SGD.) FERDINAND E. MARCOS
President
Republic of the Philippines
The petitioner had transported six carabaos in a pump boat from Masbate to Iloilo on January 13, 1984, when
they were confiscated by the police station commander of Barotac Nuevo, Iloilo, for violation of the above
measure. 1 The petitioner sued for recovery, and the Regional Trial Court of Iloilo City issued a writ of replevin
upon his filing of a supersedeas bond of P12,000.00. After considering the merits of the case, the court sustained
the confiscation of the carabaos and, since they could no longer be produced, ordered the confiscation of the bond.
The court also declined to rule on the constitutionality of the executive order, as raise by the petitioner, for lack
of authority and also for its presumed validity. 2
The petitioner appealed the decision to the Intermediate Appellate Court,* 3 which upheld the trial court, ** and
he has now come before us in this petition for review on certiorari.

The thrust of his petition is that the executive order is unconstitutional insofar as it authorizes outright confiscation
of the carabao or carabeef being transported across provincial boundaries. His claim is that the penalty is invalid
because it is imposed without according the owner a right to be heard before a competent and impartial court as
guaranteed by due process. He complains that the measure should not have been presumed, and so sustained, as
constitutional. There is also a challenge to the improper exercise of the legislative power by the former President
under Amendment No. 6 of the 1973 Constitution. 4
While also involving the same executive order, the case of Pesigan v. Angeles 5 is not applicable here. The
question raised there was the necessity of the previous publication of the measure in the Official Gazette before
it could be considered enforceable. We imposed the requirement then on the basis of due process of law. In doing
so, however, this Court did not, as contended by the Solicitor General, impliedly affirm the constitutionality of
Executive Order No. 626-A. That is an entirely different matter.
This Court has declared that while lower courts should observe a becoming modesty in examining constitutional
questions, they are nonetheless not prevented from resolving the same whenever warranted, subject only to review
by the highest tribunal. 6 We have jurisdiction under the Constitution to "review, revise, reverse, modify or affirm
on appeal or certiorari, as the law or rules of court may provide," final judgments and orders of lower courts in,
among others, all cases involving the constitutionality of certain measures. 7 This simply means that the resolution
of such cases may be made in the first instance by these lower courts.
And while it is true that laws are presumed to be constitutional, that presumption is not by any means conclusive
and in fact may be rebutted. Indeed, if there be a clear showing of their invalidity, and of the need to declare them
so, then "will be the time to make the hammer fall, and heavily," 8 to recall Justice Laurel's trenchant warning.
Stated otherwise, courts should not follow the path of least resistance by simply presuming the constitutionality
of a law when it is questioned. On the contrary, they should probe the issue more deeply, to relieve the abscess,
paraphrasing another distinguished jurist, 9 and so heal the wound or excise the affliction.
Judicial power authorizes this; and when the exercise is demanded, there should be no shirking of the task for fear
of retaliation, or loss of favor, or popular censure, or any other similar inhibition unworthy of the bench, especially
this Court.
The challenged measure is denominated an executive order but it is really presidential decree, promulgating a
new rule instead of merely implementing an existing law. It was issued by President Marcos not for the purpose
of taking care that the laws were faithfully executed but in the exercise of his legislative authority under
Amendment No. 6. It was provided thereunder that whenever in his judgment there existed a grave emergency or
a threat or imminence thereof or whenever the legislature failed or was unable to act adequately on any matter
that in his judgment required immediate action, he could, in order to meet the exigency, issue decrees, orders or
letters of instruction that were to have the force and effect of law. As there is no showing of any exigency to
justify the exercise of that extraordinary power then, the petitioner has reason, indeed, to question the validity of
the executive order. Nevertheless, since the determination of the grounds was supposed to have been made by the
President "in his judgment, " a phrase that will lead to protracted discussion not really necessary at this time, we
reserve resolution of this matter until a more appropriate occasion. For the nonce, we confine ourselves to the
more fundamental question of due process.
It is part of the art of constitution-making that the provisions of the charter be cast in precise and unmistakable
language to avoid controversies that might arise on their correct interpretation. That is the Ideal. In the case of the
due process clause, however, this rule was deliberately not followed and the wording was purposely kept
ambiguous. In fact, a proposal to delineate it more clearly was submitted in the Constitutional Convention of
1934, but it was rejected by Delegate Jose P. Laurel, Chairman of the Committee on the Bill of Rights, who
forcefully argued against it. He was sustained by the body. 10
The due process clause was kept intentionally vague so it would remain also conveniently resilient. This was felt
necessary because due process is not, like some provisions of the fundamental law, an "iron rule" laying down an
implacable and immutable command for all seasons and all persons. Flexibility must be the best virtue of the
guaranty. The very elasticity of the due process clause was meant to make it adapt easily to every situation,
enlarging or constricting its protection as the changing times and circumstances may require.
Aware of this, the courts have also hesitated to adopt their own specific description of due process lest they
confine themselves in a legal straitjacket that will deprive them of the elbow room they may need to vary the
meaning of the clause whenever indicated. Instead, they have preferred to leave the import of the protection openended, as it were, to be "gradually ascertained by the process of inclusion and exclusion in the course of the
decision of cases as they arise." 11 Thus, Justice Felix Frankfurter of the U.S. Supreme Court, for example, would
go no farther than to define due process and in so doing sums it all up as nothing more and nothing less
than "the embodiment of the sporting Idea of fair play." 12
When the barons of England extracted from their sovereign liege the reluctant promise that that Crown would
thenceforth not proceed against the life liberty or property of any of its subjects except by the lawful judgment of

his peers or the law of the land, they thereby won for themselves and their progeny that splendid guaranty of
fairness that is now the hallmark of the free society. The solemn vow that King John made at Runnymede in 1215
has since then resounded through the ages, as a ringing reminder to all rulers, benevolent or base, that every
person, when confronted by the stern visage of the law, is entitled to have his say in a fair and open hearing of his
cause.
The closed mind has no place in the open society. It is part of the sporting Idea of fair play to hear "the other side"
before an opinion is formed or a decision is made by those who sit in judgment. Obviously, one side is only onehalf of the question; the other half must also be considered if an impartial verdict is to be reached based on an
informed appreciation of the issues in contention. It is indispensable that the two sides complement each other,
as unto the bow the arrow, in leading to the correct ruling after examination of the problem not from one or the
other perspective only but in its totality. A judgment based on less that this full appraisal, on the pretext that a
hearing is unnecessary or useless, is tainted with the vice of bias or intolerance or ignorance, or worst of all, in
repressive regimes, the insolence of power.
The minimum requirements of due process are notice and hearing 13 which, generally speaking, may not be
dispensed with because they are intended as a safeguard against official arbitrariness. It is a gratifying
commentary on our judicial system that the jurisprudence of this country is rich with applications of this guaranty
as proof of our fealty to the rule of law and the ancient rudiments of fair play. We have consistently declared that
every person, faced by the awesome power of the State, is entitled to "the law of the land," which Daniel Webster
described almost two hundred years ago in the famous Dartmouth College Case, 14 as "the law which hears before
it condemns, which proceeds upon inquiry and renders judgment only after trial." It has to be so if the rights of
every person are to be secured beyond the reach of officials who, out of mistaken zeal or plain arrogance, would
degrade the due process clause into a worn and empty catchword.
This is not to say that notice and hearing are imperative in every case for, to be sure, there are a number of
admitted exceptions. The conclusive presumption, for example, bars the admission of contrary evidence as long
as such presumption is based on human experience or there is a rational connection between the fact proved and
the fact ultimately presumed therefrom. 15 There are instances when the need for expeditions action will justify
omission of these requisites, as in the summary abatement of a nuisance per se, like a mad dog on the loose, which
may be killed on sight because of the immediate danger it poses to the safety and lives of the people. Pornographic
materials, contaminated meat and narcotic drugs are inherently pernicious and may be summarily destroyed. The
passport of a person sought for a criminal offense may be cancelled without hearing, to compel his return to the
country he has fled. 16 Filthy restaurants may be summarily padlocked in the interest of the public health and
bawdy houses to protect the public morals. 17 In such instances, previous judicial hearing may be omitted without
violation of due process in view of the nature of the property involved or the urgency of the need to protect the
general welfare from a clear and present danger.
The protection of the general welfare is the particular function of the police power which both restraints and is
restrained by due process. The police power is simply defined as the power inherent in the State to regulate liberty
and property for the promotion of the general welfare. 18 By reason of its function, it extends to all the great
public needs and is described as the most pervasive, the least limitable and the most demanding of the three
inherent powers of the State, far outpacing taxation and eminent domain. The individual, as a member of society,
is hemmed in by the police power, which affects him even before he is born and follows him still after he is dead
from the womb to beyond the tomb in practically everything he does or owns. Its reach is virtually limitless.
It is a ubiquitous and often unwelcome intrusion. Even so, as long as the activity or the property has some
relevance to the public welfare, its regulation under the police power is not only proper but necessary. And the
justification is found in the venerable Latin maxims, Salus populi est suprema lex and Sic utere tuo ut alienum
non laedas, which call for the subordination of individual interests to the benefit of the greater number.
It is this power that is now invoked by the government to justify Executive Order No. 626-A, amending the basic
rule in Executive Order No. 626, prohibiting the slaughter of carabaos except under certain conditions. The
original measure was issued for the reason, as expressed in one of its Whereases, that "present conditions demand
that the carabaos and the buffaloes be conserved for the benefit of the small farmers who rely on them for energy
needs." We affirm at the outset the need for such a measure. In the face of the worsening energy crisis and the
increased dependence of our farms on these traditional beasts of burden, the government would have been remiss,
indeed, if it had not taken steps to protect and preserve them.
A similar prohibition was challenged in United States v. Toribio, 19 where a law regulating the registration,
branding and slaughter of large cattle was claimed to be a deprivation of property without due process of law.
The defendant had been convicted thereunder for having slaughtered his own carabao without the required permit,
and he appealed to the Supreme Court. The conviction was affirmed. The law was sustained as a valid police
measure to prevent the indiscriminate killing of carabaos, which were then badly needed by farmers. An epidemic
had stricken many of these animals and the reduction of their number had resulted in an acute decline in
agricultural output, which in turn had caused an incipient famine. Furthermore, because of the scarcity of the
animals and the consequent increase in their price, cattle-rustling had spread alarmingly, necessitating more

effective measures for the registration and branding of these animals. The Court held that the questioned statute
was a valid exercise of the police power and declared in part as follows:
To justify the State in thus interposing its authority in behalf of the public, it must appear, first,
that the interests of the public generally, as distinguished from those of a particular class, require
such interference; and second, that the means are reasonably necessary for the accomplishment of
the purpose, and not unduly oppressive upon individuals. ...
From what has been said, we think it is clear that the enactment of the provisions of the statute
under consideration was required by "the interests of the public generally, as distinguished from
those of a particular class" and that the prohibition of the slaughter of carabaos for human
consumption, so long as these animals are fit for agricultural work or draft purposes was a
"reasonably necessary" limitation on private ownership, to protect the community from the loss of
the services of such animals by their slaughter by improvident owners, tempted either by greed of
momentary gain, or by a desire to enjoy the luxury of animal food, even when by so doing the
productive power of the community may be measurably and dangerously affected.
In the light of the tests mentioned above, we hold with the Toribio Case that the carabao, as the poor man's tractor,
so to speak, has a direct relevance to the public welfare and so is a lawful subject of Executive Order No. 626.
The method chosen in the basic measure is also reasonably necessary for the purpose sought to be achieved and
not unduly oppressive upon individuals, again following the above-cited doctrine. There is no doubt that by
banning the slaughter of these animals except where they are at least seven years old if male and eleven years old
if female upon issuance of the necessary permit, the executive order will be conserving those still fit for farm
work or breeding and preventing their improvident depletion.
But while conceding that the amendatory measure has the same lawful subject as the original executive order, we
cannot say with equal certainty that it complies with the second requirement, viz., that there be a lawful method.
We note that to strengthen the original measure, Executive Order No. 626-A imposes an absolute ban not on the
slaughter of the carabaos but on their movement, providing that "no carabao regardless of age, sex, physical
condition or purpose (sic) and no carabeef shall be transported from one province to another." The object of the
prohibition escapes us. The reasonable connection between the means employed and the purpose sought to be
achieved by the questioned measure is missing
We do not see how the prohibition of the inter-provincial transport of carabaos can prevent their indiscriminate
slaughter, considering that they can be killed anywhere, with no less difficulty in one province than in another.
Obviously, retaining the carabaos in one province will not prevent their slaughter there, any more than moving
them to another province will make it easier to kill them there. As for the carabeef, the prohibition is made to
apply to it as otherwise, so says executive order, it could be easily circumvented by simply killing the animal.
Perhaps so. However, if the movement of the live animals for the purpose of preventing their slaughter cannot be
prohibited, it should follow that there is no reason either to prohibit their transfer as, not to be flippant dead meat.
Even if a reasonable relation between the means and the end were to be assumed, we would still have to reckon
with the sanction that the measure applies for violation of the prohibition. The penalty is outright confiscation of
the carabao or carabeef being transported, to be meted out by the executive authorities, usually the police only.
In the Toribio Case, the statute was sustained because the penalty prescribed was fine and imprisonment, to be
imposed by the court after trial and conviction of the accused. Under the challenged measure, significantly, no
such trial is prescribed, and the property being transported is immediately impounded by the police and declared,
by the measure itself, as forfeited to the government.
In the instant case, the carabaos were arbitrarily confiscated by the police station commander, were returned to
the petitioner only after he had filed a complaint for recovery and given a supersedeas bond of P12,000.00, which
was ordered confiscated upon his failure to produce the carabaos when ordered by the trial court. The executive
order defined the prohibition, convicted the petitioner and immediately imposed punishment, which was carried
out forthright. The measure struck at once and pounced upon the petitioner without giving him a chance to be
heard, thus denying him the centuries-old guaranty of elementary fair play.
It has already been remarked that there are occasions when notice and hearing may be validly dispensed with
notwithstanding the usual requirement for these minimum guarantees of due process. It is also conceded that
summary action may be validly taken in administrative proceedings as procedural due process is not necessarily
judicial only. 20 In the exceptional cases accepted, however. there is a justification for the omission of the right to
a previous hearing, to wit, the immediacy of the problem sought to be corrected and the urgency of the need to
correct it.
In the case before us, there was no such pressure of time or action calling for the petitioner's peremptory treatment.
The properties involved were not even inimical per se as to require their instant destruction. There certainly was
no reason why the offense prohibited by the executive order should not have been proved first in a court of justice,
with the accused being accorded all the rights safeguarded to him under the Constitution. Considering that, as we

held in Pesigan v. Angeles, 21 Executive Order No. 626-A is penal in nature, the violation thereof should have
been pronounced not by the police only but by a court of justice, which alone would have had the authority to
impose the prescribed penalty, and only after trial and conviction of the accused.
We also mark, on top of all this, the questionable manner of the disposition of the confiscated property as
prescribed in the questioned executive order. It is there authorized that the seized property shall "be distributed to
charitable institutions and other similar institutions as the Chairman of the National Meat Inspection Commission
may see fit, in the case of carabeef, and to deserving farmers through dispersal as the Director of Animal Industry
may see fit, in the case of carabaos." (Emphasis supplied.) The phrase "may see fit" is an extremely generous and
dangerous condition, if condition it is. It is laden with perilous opportunities for partiality and abuse, and even
corruption. One searches in vain for the usual standard and the reasonable guidelines, or better still, the limitations
that the said officers must observe when they make their distribution. There is none. Their options are apparently
boundless. Who shall be the fortunate beneficiaries of their generosity and by what criteria shall they be chosen?
Only the officers named can supply the answer, they and they alone may choose the grantee as they see fit, and
in their own exclusive discretion. Definitely, there is here a "roving commission," a wide and sweeping authority
that is not "canalized within banks that keep it from overflowing," in short, a clearly profligate and therefore
invalid delegation of legislative powers.
To sum up then, we find that the challenged measure is an invalid exercise of the police power because the method
employed to conserve the carabaos is not reasonably necessary to the purpose of the law and, worse, is unduly
oppressive. Due process is violated because the owner of the property confiscated is denied the right to be heard
in his defense and is immediately condemned and punished. The conferment on the administrative authorities of
the power to adjudge the guilt of the supposed offender is a clear encroachment on judicial functions and militates
against the doctrine of separation of powers. There is, finally, also an invalid delegation of legislative powers to
the officers mentioned therein who are granted unlimited discretion in the distribution of the properties arbitrarily
taken. For these reasons, we hereby declare Executive Order No. 626-A unconstitutional.
We agree with the respondent court, however, that the police station commander who confiscated the petitioner's
carabaos is not liable in damages for enforcing the executive order in accordance with its mandate. The law was
at that time presumptively valid, and it was his obligation, as a member of the police, to enforce it. It would have
been impertinent of him, being a mere subordinate of the President, to declare the executive order unconstitutional
and, on his own responsibility alone, refuse to execute it. Even the trial court, in fact, and the Court of Appeals
itself did not feel they had the competence, for all their superior authority, to question the order we now annul.
The Court notes that if the petitioner had not seen fit to assert and protect his rights as he saw them, this case
would never have reached us and the taking of his property under the challenged measure would have become a
fait accompli despite its invalidity. We commend him for his spirit. Without the present challenge, the matter
would have ended in that pump boat in Masbate and another violation of the Constitution, for all its obviousness,
would have been perpetrated, allowed without protest, and soon forgotten in the limbo of relinquished rights.
The strength of democracy lies not in the rights it guarantees but in the courage of the people to invoke them
whenever they are ignored or violated. Rights are but weapons on the wall if, like expensive tapestry, all they do
is embellish and impress. Rights, as weapons, must be a promise of protection. They become truly meaningful,
and fulfill the role assigned to them in the free society, if they are kept bright and sharp with use by those who
are not afraid to assert them.
WHEREFORE, Executive Order No. 626-A is hereby declared unconstitutional. Except as affirmed above, the
decision of the Court of Appeals is reversed. The supersedeas bond is cancelled and the amount thereof is ordered
restored to the petitioner. No costs.
SO ORDERED.
G.R. No. L-23825

December 24, 1965

EMMANUEL
vs.
THE AUDITOR GENERAL, respondent.
Zulueta,
Gonzales,
Paculdo
Office of the Solicitor General for respondent.

PELAEZ,

and

petitioner,

Associates

for

petitioner.

CONCEPCION, J.:
During the period from September 4 to October 29, 1964 the President of the Philippines, purporting to act
pursuant to Section 68 of the Revised Administrative Code, issued Executive Orders Nos. 93 to 121, 124 and 126
to 129; creating thirty-three (33) municipalities enumerated in the margin.1 Soon after the date last mentioned, or
on November 10, 1964 petitioner Emmanuel Pelaez, as Vice President of the Philippines and as taxpayer,

instituted the present special civil action, for a writ of prohibition with preliminary injunction, against the Auditor
General, to restrain him, as well as his representatives and agents, from passing in audit any expenditure of public
funds in implementation of said executive orders and/or any disbursement by said municipalities.
Petitioner alleges that said executive orders are null and void, upon the ground that said Section 68 has been
impliedly repealed by Republic Act No. 2370 and constitutes an undue delegation of legislative power.
Respondent maintains the contrary view and avers that the present action is premature and that not all proper
parties referring to the officials of the new political subdivisions in question have been impleaded.
Subsequently, the mayors of several municipalities adversely affected by the aforementioned executive orders
because the latter have taken away from the former the barrios composing the new political subdivisions
intervened in the case. Moreover, Attorneys Enrique M. Fernando and Emma Quisumbing-Fernando were
allowed to and did appear as amici curiae.
The third paragraph of Section 3 of Republic Act No. 2370, reads:
Barrios shall not be created or their boundaries altered nor their names changed except under the
provisions of this Act or by Act of Congress.
Pursuant to the first two (2) paragraphs of the same Section 3:
All barrios existing at the time of the passage of this Act shall come under the provisions hereof.
Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the name of
an existing one may be changed by the provincial board of the province, upon recommendation of the
council of the municipality or municipalities in which the proposed barrio is stipulated. The
recommendation of the municipal council shall be embodied in a resolution approved by at least twothirds of the entire membership of the said council: Provided, however, That no new barrio may be created
if its population is less than five hundred persons.
Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may "not be created or their
boundaries altered nor their names changed" except by Act of Congress or of the corresponding provincial board
"upon petition of a majority of the voters in the areas affected" and the "recommendation of the council of the
municipality or municipalities in which the proposed barrio is situated." Petitioner argues, accordingly: "If the
President, under this new law, cannot even create a barrio, can he create a municipality which is composed of
several barrios, since barrios are units of municipalities?"
Respondent answers in the affirmative, upon the theory that a new municipality can be created without creating
new barrios, such as, by placing old barrios under the jurisdiction of the new municipality. This theory overlooks,
however, the main import of the petitioner's argument, which is that the statutory denial of the presidential
authority to create a new barrio implies a negation of the bigger power to create municipalities, each of which
consists of several barrios. The cogency and force of this argument is too obvious to be denied or even questioned.
Founded upon logic and experience, it cannot be offset except by a clear manifestation of the intent of Congress
to the contrary, and no such manifestation, subsequent to the passage of Republic Act No. 2379, has been brought
to our attention.
Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive orders are based,
provides:
The (Governor-General) President of the Philippines may by executive order define the boundary, or
boundaries, of any province, subprovince, municipality, [township] municipal district, or other political
subdivision, and increase or diminish the territory comprised therein, may divide any province into one or
more subprovinces, separate any political division other than a province, into such portions as may be
required, merge any of such subdivisions or portions with another, name any new subdivision so created,
and may change the seat of government within any subdivision to such place therein as the public welfare
may require: Provided, That the authorization of the (Philippine Legislature) Congress of the Philippines
shall first be obtained whenever the boundary of any province or subprovince is to be defined or any
province is to be divided into one or more subprovinces. When action by the (Governor-General) President
of the Philippines in accordance herewith makes necessary a change of the territory under the jurisdiction
of any administrative officer or any judicial officer, the (Governor-General) President of the Philippines,
with the recommendation and advice of the head of the Department having executive control of such
officer, shall redistrict the territory of the several officers affected and assign such officers to the new
districts so formed.
Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an equitable
distribution of the funds and obligations of the divisions thereby affected shall be made in such manner as
may be recommended by the (Insular Auditor) Auditor General and approved by the (Governor-General)
President of the Philippines.

Respondent alleges that the power of the President to create municipalities under this section does not amount to
an undue delegation of legislative power, relying upon Municipality of Cardona vs. Municipality of Binagonan
(36 Phil. 547), which, he claims, has settled it. Such claim is untenable, for said case involved, not the creation of
a new municipality, but a mere transfer of territory from an already existing municipality (Cardona) to another
municipality (Binagonan), likewise, existing at the time of and prior to said transfer (See Gov't of the P.I. ex rel.
Municipality of Cardona vs. Municipality, of Binagonan [34 Phil. 518, 519-5201) in consequence of the
fixing and definition, pursuant to Act No. 1748, of the common boundaries of two municipalities.
It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid or settle conflicts
of jurisdiction between adjoining municipalities, may partake of an administrative nature involving, as it does,
the adoption of means and ways to carry into effect the law creating said municipalities the authority to create
municipal corporations is essentially legislative in nature. In the language of other courts, it is "strictly a legislative
function" (State ex rel. Higgins vs. Aicklen, 119 S. 425, January 2, 1959) or "solely and exclusively the exercise
of legislative power" (Udall vs. Severn, May 29, 1938, 79 P. 2d 347-349). As the Supreme Court of Washington
has put it (Territory ex rel. Kelly vs. Stewart, February 13, 1890, 23 Pac. 405, 409), "municipal corporations are
purely the creatures of statutes."
Although1a Congress may delegate to another branch of the Government the power to fill in the details in the
execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle of
separation of powers, that said law: (a) be complete in itself it must set forth therein the policy to be executed,
carried out or implemented by the delegate2 and (b) fix a standard the limits of which are sufficiently
determinate or determinable to which the delegate must conform in the performance of his functions.2a Indeed,
without a statutory declaration of policy, the delegate would in effect, make or formulate such policy, which is
the essence of every law; and, without the aforementioned standard, there would be no means to determine, with
reasonable certainty, whether the delegate has acted within or beyond the scope of his authority.2b Hence, he could
thereby arrogate upon himself the power, not only to make the law, but, also and this is worse to unmake
it, by adopting measures inconsistent with the end sought to be attained by the Act of Congress, thus nullifying
the principle of separation of powers and the system of checks and balances, and, consequently, undermining the
very foundation of our Republican system.
Section 68 of the Revised Administrative Code does not meet these well settled requirements for a valid
delegation of the power to fix the details in the enforcement of a law. It does not enunciate any policy to be carried
out or implemented by the President. Neither does it give a standard sufficiently precise to avoid the evil effects
above referred to. In this connection, we do not overlook the fact that, under the last clause of the first sentence
of Section 68, the President:
... may change the seat of the government within any subdivision to such place therein as the public
welfare may require.
It is apparent, however, from the language of this clause, that the phrase "as the public welfare may require"
qualified, not the clauses preceding the one just quoted, but only the place to which the seat of the government
may be transferred. This fact becomes more apparent when we consider that said Section 68 was originally Section
1 of Act No. 1748,3 which provided that, "whenever in the judgment of the Governor-General the public welfare
requires, he may, by executive order," effect the changes enumerated therein (as in said section 68), including the
change of the seat of the government "to such place ... as the public interest requires." The opening statement of
said Section 1 of Act No. 1748 which was not included in Section 68 of the Revised Administrative Code
governed the time at which, or the conditions under which, the powers therein conferred could be exercised;
whereas the last part of the first sentence of said section referred exclusively to the place to which the seat of the
government was to be transferred.
At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we assumed that
the phrase "as the public welfare may require," in said Section 68, qualifies all other clauses thereof. It is true that
in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil. 328), this Court had upheld "public
welfare" and "public interest," respectively, as sufficient standards for a valid delegation of the authority to
execute the law. But, the doctrine laid down in these cases as all judicial pronouncements must be construed
in relation to the specific facts and issues involved therein, outside of which they do not constitute precedents and
have no binding effect.4 The law construed in the Calalang case conferred upon the Director of Public Works,
with the approval of the Secretary of Public Works and Communications, the power to issue rules and regulations
to promote safe transit upon national roads and streets. Upon the other hand, the Rosenthal case referred to the
authority of the Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the sale of
speculative securities. Both cases involved grants to administrative officers of powers related to the exercise of
their administrative functions, calling for the determination of questions of fact.
Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of municipalities,
is not an administrative function, but one which is essentially and eminently legislative in character. The question
of whether or not "public interest" demands the exercise of such power is not one of fact. it is "purely a legislative
question "(Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310-313, 315-318), or

a political question (Udall vs. Severn, 79 P. 2d. 347-349). As the Supreme Court of Wisconsin has aptly
characterized it, "the question as to whether incorporation is for the best interest of the community in any case is
emphatically a question of public policy and statecraft" (In re Village of North Milwaukee, 67 N.W. 1033, 10351037).
For this reason, courts of justice have annulled, as constituting undue delegation of legislative powers, state laws
granting the judicial department, the power to determine whether certain territories should be annexed to a
particular municipality (Udall vs. Severn, supra, 258-359); or vesting in a Commission the right to determine the
plan and frame of government of proposed villages and what functions shall be exercised by the same, although
the powers and functions of the village are specifically limited by statute (In re Municipal Charters, 86 Atl. 307308); or conferring upon courts the authority to declare a given town or village incorporated, and designate its
metes and bounds, upon petition of a majority of the taxable inhabitants thereof, setting forth the area desired to
be included in such village (Territory ex rel Kelly vs. Stewart, 23 Pac. 405-409); or authorizing the territory of a
town, containing a given area and population, to be incorporated as a town, on certain steps being taken by the
inhabitants thereof and on certain determination by a court and subsequent vote of the inhabitants in favor thereof,
insofar as the court is allowed to determine whether the lands embraced in the petition "ought justly" to be
included in the village, and whether the interest of the inhabitants will be promoted by such incorporation, and to
enlarge and diminish the boundaries of the proposed village "as justice may require" (In re Villages of North
Milwaukee, 67 N.W. 1035-1037); or creating a Municipal Board of Control which shall determine whether or not
the laying out, construction or operation of a toll road is in the "public interest" and whether the requirements of
the law had been complied with, in which case the board shall enter an order creating a municipal corporation
and fixing the name of the same (Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d.
310).
Insofar as the validity of a delegation of power by Congress to the President is concerned, the case of Schechter
Poultry Corporation vs. U.S. (79 L. Ed. 1570) is quite relevant to the one at bar. The Schechter case involved the
constitutionality of Section 3 of the National Industrial Recovery Act authorizing the President of the United
States to approve "codes of fair competition" submitted to him by one or more trade or industrial associations or
corporations which "impose no inequitable restrictions on admission to membership therein and are truly
representative," provided that such codes are not designed "to promote monopolies or to eliminate or oppress
small enterprises and will not operate to discriminate against them, and will tend to effectuate the policy" of said
Act. The Federal Supreme Court held:
To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without precedent. It supplies
no standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be
applied to particular states of fact determined by appropriate administrative procedure. Instead of
prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative
undertaking, Sec. 3 sets up no standards, aside from the statement of the general aims of rehabilitation,
correction and expansion described in Sec. 1. In view of the scope of that broad declaration, and of the
nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing
codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually
unfettered. We think that the code making authority thus conferred is an unconstitutional delegation of
legislative power.
If the term "unfair competition" is so broad as to vest in the President a discretion that is "virtually unfettered."
and, consequently, tantamount to a delegation of legislative power, it is obvious that "public welfare," which has
even a broader connotation, leads to the same result. In fact, if the validity of the delegation of powers made in
Section 68 were upheld, there would no longer be any legal impediment to a statutory grant of authority to the
President to do anything which, in his opinion, may be required by public welfare or public interest. Such grant
of authority would be a virtual abdication of the powers of Congress in favor of the Executive, and would bring
about a total collapse of the democratic system established by our Constitution, which it is the special duty and
privilege of this Court to uphold.
It may not be amiss to note that the executive orders in question were issued after the legislative bills for the
creation of the municipalities involved in this case had failed to pass Congress. A better proof of the fact that the
issuance of said executive orders entails the exercise of purely legislative functions can hardly be given.
Again, Section 10 (1) of Article VII of our fundamental law ordains:
The President shall have control of all the executive departments, bureaus, or offices, exercise general
supervision over all local governments as may be provided by law, and take care that the laws be faithfully
executed.
The power of control under this provision implies the right of the President to interfere in the exercise of such
discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of the national
government, as well as to act in lieu of such officers. This power is denied by the Constitution to the Executive,
insofar as local governments are concerned. With respect to the latter, the fundamental law permits him to wield

no more authority than that of checking whether said local governments or the officers thereof perform their duties
as provided by statutory enactments. Hence, the President cannot interfere with local governments, so long as the
same or its officers act Within the scope of their authority. He may not enact an ordinance which the municipal
council has failed or refused to pass, even if it had thereby violated a duty imposed thereto by law, although he
may see to it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may
he vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no matter how
patently unwise it may be. He may not even suspend an elective official of a regular municipality or take any
disciplinary action against him, except on appeal from a decision of the corresponding provincial board.5
Upon the other hand if the President could create a municipality, he could, in effect, remove any of its officials,
by creating a new municipality and including therein the barrio in which the official concerned resides, for his
office would thereby become vacant.6 Thus, by merely brandishing the power to create a new municipality (if he
had it), without actually creating it, he could compel local officials to submit to his dictation, thereby, in effect,
exercising over them the power of control denied to him by the Constitution.
Then, also, the power of control of the President over executive departments, bureaus or offices implies no more
than the authority to assume directly the functions thereof or to interfere in the exercise of discretion by its
officials. Manifestly, such control does not include the authority either to abolish an executive department or
bureau, or to create a new one. As a consequence, the alleged power of the President to create municipal
corporations would necessarily connote the exercise by him of an authority even greater than that of control which
he has over the executive departments, bureaus or offices. In other words, Section 68 of the Revised
Administrative Code does not merely fail to comply with the constitutional mandate above quoted. Instead of
giving the President less power over local governments than that vested in him over the executive departments,
bureaus or offices, it reverses the process and does the exact opposite, by conferring upon him more power over
municipal corporations than that which he has over said executive departments, bureaus or offices.
In short, even if it did entail an undue delegation of legislative powers, as it certainly does, said Section 68, as
part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by the
subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with said
statutory enactment.7
There are only two (2) other points left for consideration, namely, respondent's claim (a) that "not all the proper
parties" referring to the officers of the newly created municipalities "have been impleaded in this case," and
(b) that "the present petition is premature."
As regards the first point, suffice it to say that the records do not show, and the parties do not claim, that the
officers of any of said municipalities have been appointed or elected and assumed office. At any rate, the Solicitor
General, who has appeared on behalf of respondent Auditor General, is the officer authorized by law "to act and
represent the Government of the Philippines, its offices and agents, in any official investigation, proceeding or
matter requiring the services of a lawyer" (Section 1661, Revised Administrative Code), and, in connection with
the creation of the aforementioned municipalities, which involves a political, not proprietary, function, said local
officials, if any, are mere agents or representatives of the national government. Their interest in the case at bar
has, accordingly, been, in effect, duly represented.8
With respect to the second point, respondent alleges that he has not as yet acted on any of the executive order &
in question and has not intimated how he would act in connection therewith. It is, however, a matter of common,
public knowledge, subject to judicial cognizance, that the President has, for many years, issued executive orders
creating municipal corporations and that the same have been organized and in actual operation, thus indicating,
without peradventure of doubt, that the expenditures incidental thereto have been sanctioned, approved or passed
in audit by the General Auditing Office and its officials. There is no reason to believe, therefore, that respondent
would adopt a different policy as regards the new municipalities involved in this case, in the absence of an
allegation to such effect, and none has been made by him.
WHEREFORE, the Executive Orders in question are hereby declared null and void ab initio and the respondent
permanently restrained from passing in audit any expenditure of public funds in implementation of said Executive
Orders or any disbursement by the municipalities above referred to. It is so ordered.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT
S.
ALBANO,
Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY
OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF
INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x

G.R. No. 168207

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF
FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO;
PETRON DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE
STATION"; LOURDES MARTINEZ doing business under the name and style of "SHELL GATE N.
DOMINGO"; BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL STATION";
REYNALDO P. MONTOYA doing business under the name and style of "NEW LAMUAN SHELL SERVICE
STATION"; EFREN SOTTO doing business under the name and style of "RED FIELD SHELL SERVICE
STATION"; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business
under the name and style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE
doing business under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of "STARCARGA ENTERPRISES"; ADORACION
MAEBO doing business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA
doing business under the name and style of "LEONAS GASOLINE STATION and SERVICE CENTER";
CARMELITA BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE
CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE
CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT GAS STATION";
MA. ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS HEART CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-President for Operations,
JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by
its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the
name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business under
the
name
and
style
of
"TRUE
SERVICE
STATION",
Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL,
MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III,
RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN
GOVERNOR
ENRIQUE
T.
GARCIA,
JR.
Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of
the Bureau of Customs, Respondent.

DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the more
man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments
for health workers, and wider coverage for full value-added tax benefits these are the reasons why Republic
Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate
Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina,
and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House
Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent
on February 8, 2005. The House of Representatives approved the bill on second and third reading on February
28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705."
Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the
bill on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee
conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No.
3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended the
approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing
thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from enforcing
and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1,
2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background.
You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 oclock in the afternoon.
But before that, there was a lot of complaints aired on television and on radio. Some people in a gas station were
complaining that the gas prices went up by 10%. Some people were complaining that their electric bill will go up
by 10%. Other times people riding in domestic air carrier were complaining that the prices that theyll have to

pay would have to go up by 10%. While all that was being aired, per your presentation and per our own
understanding of the law, thats not true. Its not true that the e-vat law necessarily increased prices by 10%
uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise
Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased
prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the EVat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the neighborhood
of 7%? We are not going into exact figures I am just trying to deliver a point that different industries, different
products, different services are hit differently. So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales
Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So,
therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And thats one reason among many others this Court had to issue TRO because of
the confusion in the implementation. Thats why we added as an issue in this case, even if its tangentially taken
up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were subjected
to the mercy of that confusion of an across the board increase of 10%, which you yourself now admit and I think
even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6%
depending on these mitigating measures and the location and situation of each product, of each service, of each
company, isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all these
and we wish the government will take time to clarify all these by means of a more detailed implementing rules,
in case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition
on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT
on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes
a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform
proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to
12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in
the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the
people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are
unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to
be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should
only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million
Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties)
and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested sections
impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of law.
Petitioners further contend that like any other property or property right, the input tax credit may be transferred
or disposed of, and that by limiting the same, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is
not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1)
of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer
the consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition for
certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article
VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present
in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148, 151,
236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House
of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further
claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have
already been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform
in the value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable
macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12
of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as
the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is intended
to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else.11 Examples are individual and corporate income taxes, transfer
taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode.
Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was payable
only by the original sellers. The single-stage system was subsequently modified, and a mixture of the "cost
deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under the "tax
credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system
was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax;
and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition
to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body
for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable
to transact the business of the nation, either at all, or at least with decency, deliberation, and order."19 Thus,

Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules of its
proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment
to any bill or joint resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the
House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit statement
of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it votes
on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill
or joint resolution, the differences shall be settled by a conference committee of both Houses which shall meet
within ten (10) days after their composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in,
or amendments to the subject measure, and shall be signed by a majority of the members of each House panel,
voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules
of both houses creating the bicameral conference committee are unconstitutional, but whether the bicameral
conference committee has strictly complied with the rules of both houses, thereby remaining within the
jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and
emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners plea for the Court to
go behind the enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of bicameral
conference committees, the lack of records of said committees proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Courts consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly involved
the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the
House. This Court is not the proper forum for the enforcement of these internal rules of Congress, whether
House or Senate. Parliamentary rules are merely procedural and with their observance the courts have no

concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in
its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in
the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmea v. Pendatun, it was held: "At any rate, courts have declared that the rules adopted by
deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting them.
And it has been said that "Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative body." Consequently, "mere
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when
the requisite number of members have agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
committed by the conference committee in introducing changes or deleting provisions in the House and Senate
bills. Akin to the Farias case,22 the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and
the discipline of its members. Congress is the best judge of how it should conduct its own business expeditiously
and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23 the
Court already made the pronouncement that "[i]f a change is desired in the practice [of the Bicameral
Conference Committee] it must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen it fit to
make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral
conference committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a
necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705
on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out
in the petitions, said disagreements were as follows:
House Bill No. 3555

House Bill No.3705

With regard to "Stand-By Authority" in favor of President

Provides for 12% VAT on every
Provides for 12% VAT in general on
sale of goods or properties
sales of goods or properties and
(amending Sec. 106 of NIRC);
reduced rates for sale of certain
12% VAT on importation of
locally manufactured goods and
goods (amending Sec. 107 of
petroleum products and raw
NIRC); and 12% VAT on sale of
materials to be used in the
services and use or lease of
manufacture thereof (amending Sec.
properties (amending Sec. 108
106 of NIRC); 12% VAT on
of NIRC)
importation of goods and reduced
rates for certain imported products
including
petroleum
products
(amending Sec. 107 of NIRC); and
12% VAT on sale of services and use
or lease of properties and a reduced
rate for certain services including
power generation (amending Sec.
108 of NIRC)
With regard to the "no pass-on" provision
No similar provision
Provides that the VAT imposed on
power generation and on the sale of
petroleum products shall be absorbed
by generation companies or sellers,
respectively, and shall not be passed
on to consumers

Senate Bill No. 1950

Provides for a single rate of 10%
VAT on sale of goods or
properties (amending Sec. 106 of
NIRC), 10% VAT on sale of
services including sale of
electricity
by
generation
companies, transmission and
distribution companies, and use
or lease of properties (amending
Sec. 108 of NIRC)

Provides that the VAT imposed

on sales of electricity by
generation
companies
and
services
of
transmission
companies
and
distribution
companies, as well as those of
franchise grantees of electric

utilities shall
residential

not

apply

to

end-users. VAT shall be absorbed

by generation, transmission, and
distribution companies.
With regard to 70% limit on input tax credit
Provides that the input tax credit
No similar provision
Provides that the input tax credit
for capital goods on which a
for capital goods on which a VAT
VAT has been paid shall be
has been paid shall be equally
equally distributed over 5 years
distributed over 5 years or the
or the depreciable life of such
depreciable life of such capital
capital goods; the input tax
goods; the input tax credit for
credit for goods and services
goods and services other than
other than capital goods shall
capital goods shall not exceed
not exceed 5% of the total
90% of the output VAT.
amount of such goods and
services; and for persons
engaged in retail trading of
goods, the allowable input tax
credit shall not exceed 11% of
the total amount of goods
purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision
No similar provision
Provided for amendments to
several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate
of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner input
tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage,
franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by
settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between the
10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by the
House, by striking a compromise whereby the present 10% VAT rate would be retained until certain conditions
arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year exceeds 1%, when
the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers or whether both the VAT imposed on electricity
generation, transmission and distribution companies and the VAT imposed on sale of petroleum products may be
passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement by altogether
deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference
Committee decided to adopt the position of the House by putting a limitation on the amount of input tax that may
be credited against the output tax, although it crafted its own language as to the amount of the limitation on input
tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .
...

Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and
the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated
useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT
shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage
and excise taxes, the conference committee decided to include such amendments and basically adopted the
provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the House bill
and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either
the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate
bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions
were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that
is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is
retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed,
appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should
be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect tax.
It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the bill and put a no pass-on provision.
Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a
no pass-though provision. So, the thinking of the Senate is basically simple, lets keep the VAT simple. 26
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the
support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a
cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives,
one of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it, the conference committee had to act on the same and
it basically adopted the version of the Senate.

Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects
of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of
Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the
long-standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one
or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills before
the committee. After all, its report was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the Conference Committee acted as
a third legislative chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
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.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete
provisions in the House bill and the Senate bill after these had passed three readings is in effect a circumvention
of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate
from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have undergone three
readings in each of the two houses. If that be the case, there would be no end to negotiation since each house may
seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each
house of Congress with regard to bills initiated in each of said respective houses, before said bill is
transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way
as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would
mean that the other house of Congress would be deprived of its constitutional power to amend or introduce
changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction
by the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that
have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue
Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income
taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
Section 27
28(A)(1)
28(B)(1)
34(B)(1)
116
117
119
121
148
151
236
237

Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation
Inter-corporate Dividends
Inter-corporate Dividends
Tax on Persons Exempt from VAT
Percentage Tax on domestic carriers and keepers of Garage
Tax on franchises
Tax on banks and Non-Bank Financial Intermediaries
Excise Tax on manufactured oils and other fuels
Excise Tax on mineral products
Registration requirements
Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House.
They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114
of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111
of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not
found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue that
since the proposed amendments did not originate from the House, such amendments are a violation of Article VI,
Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
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.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of
tax being amended in the House bills, still within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At
this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute and not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill would be to deny the Senates power
not only to "concur with amendments" but also to "propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact make the House superior to the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose its own version
even with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House
of Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate
was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of
the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the
House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory
Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later substituted by
House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the countrys
serious financial problems. To do this, government expenditures must be strictly monitored and controlled and
revenues must be significantly increased. This may be easier said than done, but our fiscal authorities are still

optimistic the government will be operating on a balanced budget by the year 2009. In fact, several measures that
will result to significant expenditure savings have been identified by the administration. It is supported with a
credible package of revenue measures that include measures to improve tax administration and control the
leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by
the year 2009, we need to seize windows of opportunities which might seem poignant in the beginning, but
in the long run prove effective and beneficial to the overall status of our economy. One such opportunity is
a review of existing tax rates, evaluating the relevance given our present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in
sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to the
Senate, the latter, approaching the measures from the point of national perspective, can introduce amendments
within the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on
the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of
the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation
were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues
annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should
the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up
to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back, not to its old rate of 32
percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that
will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry
date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a light at the end of the tunnel, this government will keep
on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share
the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in
the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for the
government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen
the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain,
we will however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.

...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the
right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion the
blow of higher prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house
bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted within its power
to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met,
constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:
provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer
prior to the release of such goods from customs custody: Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after
any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section
28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and 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.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the
sale or exchange of services, which cannot be included within the purview of tariffs under the exempted delegation
as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government and usually
imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They also
argue that the law also effectively nullified the Presidents power of control, which includes the authority to set
aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions
provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the
12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to give
a favorable recommendation and he may not even give his recommendation. Moreover, they allege that no guiding
standards are provided in the law on what basis and as to how he will make his recommendation. They claim,
nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the President
since the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to
impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the
Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through
the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives."
The powers which Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has been described as the
authority to make a complete law complete as to the time when it shall take effect and as to whom it shall
be applicable and to determine the expediency of its enactment.40 Thus, the rule is that in order that a court

may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the
power involved is purely legislative in nature that is, one appertaining exclusively to the legislative department.
It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the
validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only
if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by
the delegate;41 and (b) fixes a standard the limits of which are sufficiently determinate and determinable to
which the delegate must conform in the performance of his functions.42 A sufficient standard is one which 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. 43 Both tests are intended to prevent a
total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature
and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
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.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no
valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the executive
or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme Court of the
United States ruled that the legislature may delegate a power not legislative which it may itself rightfully exercise.
The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative
in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a
mental process common to all branches of the government. Notwithstanding the apparent tendency, however,
to relax the rule prohibiting delegation of legislative authority on account of the complexity arising from social
and economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in his
work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the
United States in the following language speaking of declaration of legislative power to administrative agencies:
The principle which permits the legislature to provide that the administrative agent may determine when
the circumstances are such as require the application of a law is defended upon the ground that at the time
this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined
by the legislature. In other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative official is
not the legislative determination of what public policy demands, but simply the ascertainment of what the
facts of the case require to be done according to the terms of the law by which he is governed. The efficiency
of an Act as a declaration of legislative will must, of course, come from Congress, but the ascertainment of
the contingency upon which the Act shall take effect may be left to such agencies as it may designate. The
legislature, then, may provide that a law shall take effect upon the happening of future specified
contingencies leaving to some other person or body the power to determine when the specified contingency
has arisen. (Emphasis supplied).46

In Edu vs. Ericta,47 the Court reiterated:

What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the
test is the completeness of the statute in all its terms and provisions when it leaves the hands of the legislature.
To determine whether or not there is an undue delegation of legislative power, the inquiry must be directed to the
scope and definiteness of the measure enacted. The legislative does not abdicate its functions when it describes
what job must be done, who is to do it, and what is the scope of his authority. For a complex economy, that
may be the only way in which the legislative process can go forward. A distinction has rightfully been made
between delegation of power to make the laws which necessarily involves a discretion as to what it shall be,
which constitutionally may not be done, and delegation of authority or discretion as to its execution to be
exercised under and in pursuance of the law, to which no valid objection can be made. The Constitution is
thus not to be regarded as denying the legislature the necessary resources of flexibility and practicability.
(Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend,
but the legislature must prescribe sufficient standards, policies or limitations on their authority.49 While the power
to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise
of such power may be left to them, including the power to determine the existence of facts on which its operation
depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not
of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and
making recommendations is the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.51 The Constitution as a continuously operative charter
of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which
it has declared to be prerequisite to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The legislature
has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition.
It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the
executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word
shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the
mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment
of certain facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the Presidents power of control over the Secretary of Finance by mandating the fixing of the

tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe
to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of petitioners
Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the President
since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and the
acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated in the
regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts
of the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence"
and, in the language of Attorney-General Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance,
he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take effect.56 The Secretary of
Finance becomes the means or tool by which legislative policy is determined and implemented, considering that
he possesses all the facilities to gather data and information and has a much broader perspective to properly
evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if
any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot
alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of
the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage
of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then
the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of
legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible.57
Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in
which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative
power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did
not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to
interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions precedent does not deserve any merit as this argument
is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not
exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax
burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set forth
in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to the
original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable,
as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein
are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not
provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to
12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1%.

Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be

introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds
none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating
VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided
in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it
is, devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than
2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is not effective
in the function of the tax collection. Therefore, there is no value to increase it to 12% because such action will
also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government
has reached a relatively sound position or is towards the direction of a balanced budget position. Therefore, there
is no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if
the ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly
to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in
his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as
possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral
Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys gloomy state of
economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90
percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to
debt service. Thats interest plus amortization of our debt. So clearly, this is not a sustainable situation. Thats the
first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that
shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global growth and
low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates

in the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least based
on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in a
position where we can then convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the market
for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that
amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying
to access last week and the market was not as favorable and up to now we have not accessed and we might pull
back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral.
The more debt you have, the more deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the states economic dilemma is not for the Court to judge. In the
Farias case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom of
Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and
the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given
that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is 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.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input
tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the
input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by
a VAT-registered person on the importation of goods or local purchase of good and services, including lease or
use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the valueadded tax due on the sale or lease of taxable goods or properties or services by any person registered or required
to register under the law.

Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed.
In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore,
the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of
the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable
in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the input tax
exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In addition, Section
112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any
unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused
input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be
paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the
output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayers option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no retention of any tax collection because the person/taxpayer
has already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the
BIR. The party directly liable for the payment of the tax is the seller.71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of
the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output
tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act

of 1997 (R.A. No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by
law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending
Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated useful
life of the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation,
rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase
or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners argument is without basis because the
taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts
to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its move by saying
that the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled the fear
that the provision will fend off foreign investments, saying that foreign investors have other tax incentives
provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments
were not deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves executive
economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on
gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by
public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted,
and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of
final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the payee on said income. Taxes withheld
on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations)
and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate,
which constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable of
the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual
input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently
taxable transactions with the government.80 This is supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which
are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the valueadded tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent
(6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be
creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the
case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall
be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in
control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss intention to
treat transactions with the government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners,
as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No.
14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the
actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual
input tax be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit
or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court
on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need not
take an astute businessman to know that it is a matter of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of
the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of

validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and substantial
differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners alleged distinctions are based on variables that bear different consequences.
While the implementation of the law may yield varying end results depending on ones profit margin and valueadded, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among
equals as determined according to a valid classification. By classification is meant the grouping of persons or
things similar to each other in certain particulars and different from all others in these same particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III and
Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to
say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis
for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class
everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide
for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or
lease of properties. These same sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress
of the power to classify subjects of taxation, and only demands uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000.00.88 Also, basic marine and agricultural food products in their original state are still not subject to
the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
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.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those
with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails,
the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,
transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because
in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. Percentage tax on
domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94

Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden
of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a
previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. 96 The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.97 Even the sale by
an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely
on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller
business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from
Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under
the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such that the higher the income or profit margin,
the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino
case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the 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)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure
to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the
masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance,
those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political
or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the

independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may be brought to account, either by impeachment,
trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered,
there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
G.R. No. 138810

September 29, 2004

BATANGAS
CATV,
INC.,
petitioner,
vs.
THE COURT OF APPEALS, THE BATANGAS CITY SANGGUNIANG PANLUNGSOD and
BATANGAS CITY MAYOR, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
In the late 1940s, John Walson, an appliance dealer in Pennsylvania, suffered a decline in the sale of television
(tv) sets because of poor reception of signals in his community. Troubled, he built an antenna on top of a nearby
mountain. Using coaxial cable lines, he distributed the tv signals from the antenna to the homes of his customers.
Walsons innovative idea improved his sales and at the same time gave birth to a new telecommunication system
-- the Community Antenna Television (CATV) or Cable Television.1
This technological breakthrough found its way in our shores and, like in its country of origin, it spawned legal
controversies, especially in the field of regulation. The case at bar is just another occasion to clarify a shady area.
Here, we are tasked to resolve the inquiry -- may a local government unit (LGU) regulate the subscriber rates
charged by CATV operators within its territorial jurisdiction?
This is a petition for review on certiorari filed by Batangas CATV, Inc. (petitioner herein) against the
Sangguniang Panlungsod and the Mayor of Batangas City (respondents herein) assailing the Court of Appeals
(1) Decision2 dated February 12, 1999 and (2) Resolution3 dated May 26, 1999, in CA-G.R. CV No. 52361.4 The
Appellate Court reversed and set aside the Judgment5 dated October 29, 1995 of the Regional Trial Court (RTC),
Branch 7, Batangas City in Civil Case No. 4254,6 holding that neither of the respondents has the power to fix the
subscriber rates of CATV operators, such being outside the scope of the LGUs power.
The antecedent facts are as follows:
On July 28, 1986, respondent Sangguniang Panlungsod enacted Resolution No. 2107 granting petitioner
a permit to construct, install, and operate a CATV system in Batangas City. Section 8 of the Resolution
provides that petitioner is authorized to charge its subscribers the maximum rates specified therein,
"provided, however, that any increase of rates shall be subject to the approval of the Sangguniang
Panlungsod."8
Sometime in November 1993, petitioner increased its subscriber rates from P88.00 to P180.00 per month. As a
result, respondent Mayor wrote petitioner a letter9 threatening to cancel its permit unless it secures the approval
of respondent Sangguniang Panlungsod, pursuant to Resolution No. 210.
Petitioner then filed with the RTC, Branch 7, Batangas City, a petition for injunction docketed as Civil Case No.
4254. It alleged that respondent Sangguniang Panlungsod has no authority to regulate the subscriber rates charged
by CATV operators because under Executive Order No. 205, the National Telecommunications Commission
(NTC) has the sole authority to regulate the CATV operation in the Philippines.
On October 29, 1995, the trial court decided in favor of petitioner, thus:
"WHEREFORE, as prayed for, the defendants, their representatives, agents, deputies or other persons
acting on their behalf or under their instructions, are hereby enjoined from canceling plaintiffs permit
to operate a Cable Antenna Television (CATV) system in the City of Batangas or its environs or in
any manner, from interfering with the authority and power of the National Telecommunications

Commission to grant franchises to operate CATV systems to qualified applicants, and the right of
plaintiff in fixing its service rates which needs no prior approval of the Sangguniang Panlungsod of
Batangas City.
The counterclaim of the plaintiff is hereby dismissed. No pronouncement as to costs.
IT IS SO ORDERED."10
The trial court held that the enactment of Resolution No. 210 by respondent violates the States deregulation
policy as set forth by then NTC Commissioner Jose Luis A. Alcuaz in his Memorandum dated August 25, 1989.
Also, it pointed out that the sole agency of the government which can regulate CATV operation is the NTC, and
that the LGUs cannot exercise regulatory power over it without appropriate legislation.
Unsatisfied, respondents elevated the case to the Court of Appeals, docketed as CA-G.R. CV No. 52361.
On February 12, 1999, the Appellate Court reversed and set aside the trial courts Decision, ratiocinating as
follows:
"Although the Certificate of Authority to operate a Cable Antenna Television (CATV) System is
granted by the National Telecommunications Commission pursuant to Executive Order No. 205,
this does not preclude the Sangguniang Panlungsod from regulating the operation of the CATV in
their locality under the powers vested upon it by Batas Pambansa Bilang 337, otherwise known as
the Local Government Code of 1983. Section 177 (now Section 457 paragraph 3 (ii) of Republic Act
7160) provides:
Section 177. Powers and Duties The Sangguniang Panlungsod shall:
a) Enact such ordinances as may be necessary to carry into effect and discharge the
responsibilities conferred upon it by law, and such as shall be necessary and proper to
provide for health and safety, comfort and convenience, maintain peace and order, improve
the morals, and promote the prosperity and general welfare of the community and the
inhabitants thereof, and the protection of property therein;
xxx
d) Regulate, fix the license fee for, and tax any business or profession being carried on and
exercised within the territorial jurisdiction of the city, except travel agencies, tourist guides,
tourist transports, hotels, resorts, de luxe restaurants, and tourist inns of international
standards which shall remain under the licensing and regulatory power of the Ministry of
Tourism which shall exercise such authority without infringement on the taxing and
regulatory powers of the city government;
Under cover of the General Welfare Clause as provided in this section, Local Government Units can
perform just about any power that will benefit their constituencies. Thus, local government units can
exercise powers that are: (1) expressly granted; (2) necessarily implied from the power that is expressly
granted; (3) necessary, appropriate or incidental for its efficient and effective governance; and (4) essential
to the promotion of the general welfare of their inhabitants. (Pimentel, The Local Government Code of
1991, p. 46)
Verily, the regulation of businesses in the locality is expressly provided in the Local Government
Code. The fixing of service rates is lawful under the General Welfare Clause.
Resolution No. 210 granting appellee a permit to construct, install and operate a community antenna
television (CATV) system in Batangas City as quoted earlier in this decision, authorized the grantee to
impose charges which cannot be increased except upon approval of the Sangguniang Bayan. It further
provided that in case of violation by the grantee of the terms and conditions/requirements specifically
provided therein, the City shall have the right to withdraw the franchise.
Appellee increased the service rates from EIGHTY EIGHT PESOS (P88.00) to ONE HUNDRED
EIGHTY PESOS (P180.00) (Records, p. 25) without the approval of appellant. Such act breached
Resolution No. 210 which gives appellant the right to withdraw the permit granted to appellee."11
Petitioner filed a motion for reconsideration but was denied.12
Hence, the instant petition for review on certiorari anchored on the following assignments of error:
"I

THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE

CLAUSE of the LOCAL GOVERNMENT CODE AUTHORIZES RESPONDENT
SANGGUNIANG PANLUNGSOD TO EXERCISE THE REGULATORY FUNCTION SOLELY
LODGED WITH THE NATIONAL TELECOMMUNICATIONS COMMISSION UNDER
EXECUTIVE ORDER NO. 205, INCLUDING THE AUTHORITY TO FIX AND/OR APPROVE
THE SERVICE RATES OF CATV OPERATORS; AND
II
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION APPEALED FROM AND
DISMISSING PETITIONERS COMPLAINT."13
Petitioner contends that while Republic Act No. 7160, the Local Government Code of 1991, extends to the LGUs
the general power to perform any act that will benefit their constituents, nonetheless, it does not authorize them
to regulate the CATV operation. Pursuant to E.O. No. 205, only the NTC has the authority to regulate the CATV
operation, including the fixing of subscriber rates.
Respondents counter that the Appellate Court did not commit any reversible error in rendering the assailed
Decision. First, Resolution No. 210 was enacted pursuant to Section 177(c) and (d) of Batas Pambansa Bilang
337, the Local Government Code of 1983, which authorizes LGUs to regulate businesses. The term "businesses"
necessarily includes the CATV industry. And second, Resolution No. 210 is in the nature of a contract between
petitioner and respondents, it being a grant to the former of a franchise to operate a CATV system. To hold that
E.O. No. 205 amended its terms would violate the constitutional prohibition against impairment of contracts.14
The petition is impressed with merit.
Earlier, we posed the question -- may a local government unit (LGU) regulate the subscriber rates charged by
CATV operators within its territorial jurisdiction? A review of pertinent laws and jurisprudence yields a negative
answer.
President Ferdinand E. Marcos was the first one to place the CATV industry under the regulatory power of the
national government.15 On June 11, 1978, he issued Presidential Decree (P.D.) No. 151216 establishing a
monopoly of the industry by granting Sining Makulay, Inc., an exclusive franchise to operate CATV system in
any place within the Philippines. Accordingly, it terminated all franchises, permits or certificates for the operation
of CATV system previously granted by local governments or by any instrumentality or agency of the national
government.17 Likewise, it prescribed the subscriber rates to be charged by Sining Makulay, Inc. to its customers.18
On July 21, 1979, President Marcos issued Letter of Instruction (LOI) No. 894 vesting upon the Chairman of the
Board of Communications direct supervision over the operations of Sining Makulay, Inc. Three days after, he
issued E.O. No. 54619 integrating the Board of Communications20 and the Telecommunications Control Bureau21
to form a single entity to be known as the "National Telecommunications Commission." Two of its assigned
functions are:
"a. Issue Certificate of Public Convenience for the operation of communications utilities and services,
radio communications systems, wire or wireless telephone or telegraph systems, radio and television
broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service
communications; and determine and prescribe charges or rates pertinent to the operation of such public
utility facilities and services except in cases where charges or rates are established by international bodies
or associations of which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;"
Although Sining Makulay Inc.s exclusive franchise had a life term of 25 years, it was cut short by the advent of
the 1986 Revolution. Upon President Corazon C. Aquinos assumption of power, she issued E.O. No. 20522
opening the CATV industry to all citizens of the Philippines. It mandated the NTC to grant Certificates of
Authority to CATV operators and to issue the necessary implementing rules and regulations.
On September 9, 1997, President Fidel V. Ramos issued E.O. No. 43623 prescribing policy guidelines to govern
CATV operation in the Philippines. Cast in more definitive terms, it restated the NTCs regulatory powers over
CATV operations, thus:
"SECTION 2. The regulation and supervision of the cable television industry in the Philippines shall
remain vested solely with the National Telecommunications Commission (NTC).

SECTION 3. Only persons, associations, partnerships, corporations or cooperatives, granted a Provisional

Authority or Certificate of Authority by the Commission may install, operate and maintain a cable
television system or render cable television service within a service area."
Clearly, it has been more than two decades now since our national government, through the NTC, assumed
regulatory power over the CATV industry. Changes in the political arena did not alter the trend. Instead,
subsequent presidential issuances further reinforced the NTCs power. Significantly, President Marcos and
President Aquino, in the exercise of their legislative power, issued P.D. No. 1512, E.O. No. 546 and E.O. No.
205. Hence, they have the force and effect of statutes or laws passed by Congress.24 That the regulatory power
stays with the NTC is also clear from President Ramos E.O. No. 436 mandating that the regulation and
supervision of the CATV industry shall remain vested "solely" in the NTC. Blacks Law Dictionary defines "sole"
as "without another or others."25 The logical conclusion, therefore, is that in light of the above laws and E.O.
No. 436, the NTC exercises regulatory power over CATV operators to the exclusion of other bodies.
But, lest we be misunderstood, nothing herein should be interpreted as to strip LGUs of their general power to
prescribe regulations under the general welfare clause of the Local Government Code. It must be emphasized that
when E.O. No. 436 decrees that the "regulatory power" shall be vested "solely" in the NTC, it pertains to the
"regulatory power" over those matters which are peculiarly within the NTCs competence, such as, the: (1)
determination of rates, (2) issuance of "certificates of authority, (3) establishment of areas of operation, (4)
examination and assessment of the legal, technical and financial qualifications of applicant operators, (5) granting
of permits for the use of frequencies, (6) regulation of ownership and operation, (7) adjudication of issues arising
from its functions, and (8) other similar matters.26 Within these areas, the NTC reigns supreme as it possesses the
exclusive power to regulate -- a power comprising varied acts, such as "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."27
Coincidentally, respondents justify their exercise of regulatory power over petitioners CATV operation under
the general welfare clause of the Local Government Code of 1983. The Court of Appeals sustained their stance.
There is no dispute that respondent Sangguniang Panlungsod, like other local legislative bodies, has been
empowered to enact ordinances and approve resolutions under the general welfare clause of B.P. Blg. 337, the
Local Government Code of 1983. That it continues to posses such power is clear under the new law, R.A. No.
7160 (the Local Government Code of 1991). Section 16 thereof provides:
"SECTION 16. General Welfare. Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for
its efficient and effective governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government units shall ensure and support,
among others, the preservation and enrichment of culture, promote health and safety, enhance the right of
the people to a balanced ecology, encourage and support the development of appropriate and self-reliant,
scientific and technological capabilities, improve public morals, enhance economic prosperity and social
justice, promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants."
In addition, Section 458 of the same Code specifically mandates:
"SECTION 458. Powers, Duties, Functions and Compensation. (a) The Sangguniang Panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper exercise
of the corporate powers of the city as provided for under Section 22 of this Code, x x x:"
The general welfare clause is the delegation in statutory form of the police power of the State to LGUs.28
Through this, LGUs may prescribe regulations to protect the lives, health, and property of their constituents and
maintain peace and order within their respective territorial jurisdictions. Accordingly, we have upheld enactments
providing, for instance, the regulation of gambling,29 the occupation of rig drivers,30 the installation and operation
of pinball machines,31 the maintenance and operation of cockpits,32 the exhumation and transfer of corpses from
public burial grounds,33 and the operation of hotels, motels, and lodging houses34 as valid exercises by local
legislatures of the police power under the general welfare clause.
Like any other enterprise, CATV operation maybe regulated by LGUs under the general welfare clause. This is
primarily because the CATV system commits the indiscretion of crossing public properties. (It uses public
properties in order to reach subscribers.) The physical realities of constructing CATV system the use of public
streets, rights of ways, the founding of structures, and the parceling of large regions allow an LGU a certain
degree of regulation over CATV operators.35 This is the same regulation that it exercises over all private
enterprises within its territory.
But, while we recognize the LGUs power under the general welfare clause, we cannot sustain Resolution No.
210. We are convinced that respondents strayed from the well recognized limits of its power. The flaws in

Resolution No. 210 are: (1) it violates the mandate of existing laws and (2) it violates the States deregulation
policy over the CATV industry.
I.
Resolution No. 210 is an enactment of an LGU acting only as agent of the national legislature. Necessarily, its
act must reflect and conform to the will of its principal. To test its validity, we must apply the particular requisites
of a valid ordinance as laid down by the accepted principles governing municipal corporations.36
Speaking for the Court in the leading case of United States vs. Abendan,37 Justice Moreland said: "An ordinance
enacted by virtue of the general welfare clause is valid, unless it contravenes the fundamental law of the Philippine
Islands, or an Act of the Philippine Legislature, or unless it is against public policy, or is unreasonable, oppressive,
partial, discriminating, or in derogation of common right." In De la Cruz vs. Paraz,38 we laid the general rule "that
ordinances passed by virtue of the implied power found in the general welfare clause must be reasonable,
consonant with the general powers and purposes of the corporation, and not inconsistent with the laws or policy
of the State."
The apparent defect in Resolution No. 210 is that it contravenes E.O. No. 205 and E.O. No. 436 insofar as it
permits respondent Sangguniang Panlungsod to usurp a power exclusively vested in the NTC, i.e., the power to
fix the subscriber rates charged by CATV operators. As earlier discussed, the fixing of subscriber rates is
definitely one of the matters within the NTCs exclusive domain.
In this regard, it is appropriate to stress that where the state legislature has made provision for the regulation of
conduct, it has manifested its intention that the subject matter shall be fully covered by the statute, and that a
municipality, under its general powers, cannot regulate the same conduct.39 In Keller vs. State,40 it was held that:
"Where there is no express power in the charter of a municipality authorizing it to adopt ordinances regulating
certain matters which are specifically covered by a general statute, a municipal ordinance, insofar as it attempts
to regulate the subject which is completely covered by a general statute of the legislature, may be rendered invalid.
x x x Where the subject is of statewide concern, and the legislature has appropriated the field and declared the
rule, its declaration is binding throughout the State." A reason advanced for this view is that such ordinances are
in excess of the powers granted to the municipal corporation.41
Since E.O. No. 205, a general law, mandates that the regulation of CATV operations shall be exercised by the
NTC, an LGU cannot enact an ordinance or approve a resolution in violation of the said law.
It is a fundamental principle that municipal ordinances are inferior in status and subordinate to the laws of the
state. An ordinance in conflict with a state law of general character and statewide application is universally held
to be invalid.42 The principle is frequently expressed in the declaration that municipal authorities, under a general
grant of power, cannot adopt ordinances which infringe the spirit of a state law or repugnant to the general policy
of the state.43 In every power to pass ordinances given to a municipality, there is an implied restriction that the
ordinances shall be consistent with the general law.44 In the language of Justice Isagani Cruz (ret.), this Court, in
Magtajas vs. Pryce Properties Corp., Inc.,45 ruled that:
"The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal
governments are only agents of the national government. Local councils exercise only delegated
legislative powers conferred on them by Congress as the national lawmaking body. The delegate cannot
be superior to the principal or exercise powers higher than those of the latter. It is a heresy to suggest that
the local government units can undo the acts of Congress, from which they have derived their power in
the first place, and negate by mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights wholly from the
legislature. It breathes into them the breath of life, without which they cannot exist. As it creates,
so it may destroy. As it may destroy, it may abridge and control. Unless there is some constitutional
limitation on the right, the legislature might, by a single act, and if we can suppose it capable of so
great a folly and so great a wrong, sweep from existence all of the municipal corporations in the
State, and the corporation could not prevent it. We know of no limitation on the right so far as to
the corporation themselves are concerned. They are, so to phrase it, the mere tenants at will of the
legislature.
This basic relationship between the national legislature and the local government units has not been
enfeebled by the new provisions in the Constitution strengthening the policy of local autonomy. Without
meaning to detract from that policy, we here confirm that Congress retains control of the local government
units although in significantly reduced degree now than under our previous Constitutions. The power to
create still includes the power to destroy. The power to grant still includes the power to withhold or recall.
True, there are certain notable innovations in the Constitution, like the direct conferment on the local
government units of the power to tax, which cannot now be withdrawn by mere statute. By and large,

however, the national legislature is still the principal of the local government units, which cannot
defy its will or modify or violate it."
Respondents have an ingenious retort against the above disquisition. Their theory is that the regulatory power of
the LGUs is granted by R.A. No. 7160 (the Local Government Code of 1991), a handiwork of the national
lawmaking authority. They contend that R.A. No. 7160 repealed E.O. No. 205 (issued by President Aquino).
Respondents argument espouses a bad precedent. To say that LGUs exercise the same regulatory power over
matters which are peculiarly within the NTCs competence is to promote a scenario of LGUs and the NTC locked
in constant clash over the appropriate regulatory measure on the same subject matter. LGUs must recognize that
technical matters concerning CATV operation are within the exclusive regulatory power of the NTC.
At any rate, we find no basis to conclude that R.A. No. 7160 repealed E.O. No. 205, either expressly or impliedly.
It is noteworthy that R.A. No. 7160 repealing clause, which painstakingly mentions the specific laws or the parts
thereof which are repealed, does not include E.O. No. 205, thus:
"SECTION 534. Repealing Clause. (a) Batas Pambansa Blg. 337, otherwise known as the Local
Government Code." Executive Order No. 112 (1987), and Executive Order No. 319 (1988) are hereby
repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders, instructions, memoranda and
issuances related to or concerning the barangay are hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding hospital fund; Section 3, a
(3) and b (2) of Republic Act. No. 5447 regarding the Special Education Fund; Presidential Decree No.
144 as amended by Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as amended;
Presidential Decree No. 436 as amended by Presidential Decree No. 558; and Presidential Decree Nos.
381, 436, 464, 477, 526, 632, 752, and 1136 are hereby repealed and rendered of no force and effect.
(d) Presidential Decree No. 1594 is hereby repealed insofar as it governs locally-funded projects.
(e) The following provisions are hereby repealed or amended insofar as they are inconsistent with the
provisions of this Code: Sections 2, 16, and 29 of Presidential Decree No. 704; Section 12 of Presidential
Decree No. 87, as amended; Sections 52, 53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential Decree
No. 463, as amended; and Section 16 of Presidential Decree No. 972, as amended, and
(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly."
Neither is there an indication that E.O. No. 205 was impliedly repealed by R.A. No. 7160. It is a settled rule that
implied repeals are not lightly presumed in the absence of a clear and unmistakable showing of such intentions.
In Mecano vs. Commission on Audit,46 we ruled:
"Repeal by implication proceeds on the premise that where a statute of later date clearly reveals an
intention on the part of the legislature to abrogate a prior act on the subject, that intention must be given
effect. Hence, before there can be a repeal, there must be a clear showing on the part of the lawmaker that
the intent in enacting the new law was to abrogate the old one. The intention to repeal must be clear and
manifest; otherwise, at least, as a general rule, the later act is to be construed as a continuation of, and not
a substitute for, the first act and will continue so far as the two acts are the same from the time of the first
enactment."
As previously stated, E.O. No. 436 (issued by President Ramos) vests upon the NTC the power to regulate the
CATV operation in this country. So also Memorandum Circular No. 8-9-95, the Implementing Rules and
Regulations of R.A. No. 7925 (the "Public Telecommunications Policy Act of the Philippines"). This shows that
the NTCs regulatory power over CATV operation is continuously recognized.
It is a canon of legal hermeneutics that instead of pitting one statute against another in an inevitably destructive
confrontation, courts must exert every effort to reconcile them, remembering that both laws deserve a becoming
respect as the handiwork of coordinate branches of the government.47 On the assumption of a conflict between
E.O. No. 205 and R.A. No. 7160, the proper action is not to uphold one and annul the other but to give effect to
both by harmonizing them if possible. This recourse finds application here. Thus, we hold that the NTC, under
E.O. No. 205, has exclusive jurisdiction over matters affecting CATV operation, including specifically the fixing
of subscriber rates, but nothing herein precludes LGUs from exercising its general power, under R.A. No. 7160,
to prescribe regulations to promote the health, morals, peace, education, good order or safety and general welfare
of their constituents. In effect, both laws become equally effective and mutually complementary.

The grant of regulatory power to the NTC is easily understandable. CATV system is not a mere local concern.
The complexities that characterize this new technology demand that it be regulated by a specialized agency. This
is particularly true in the area of rate-fixing. Rate fixing involves a series of technical operations.48 Consequently,
on the hands of the regulatory body lies the ample discretion in the choice of such rational processes as might be
appropriate to the solution of its highly complicated and technical problems. Considering that the CATV industry
is so technical a field, we believe that the NTC, a specialized agency, is in a better position than the LGU, to
regulate it. Notably, in United States vs. Southwestern Cable Co.,49 the US Supreme Court affirmed the Federal
Communications Commissions (FCCs) jurisdiction over CATV operation. The Court held that the FCCs
authority over cable systems assures the preservation of the local broadcast service and an equitable distribution
of broadcast services among the various regions of the country.
II.
Resolution No. 210 violated the States deregulation policy.
Deregulation is the reduction of government regulation of business to permit freer markets and competition.50
Oftentimes, the State, through its regulatory agencies, carries out a policy of deregulation to attain certain
objectives or to address certain problems. In the field of telecommunications, it is recognized that many areas in
the Philippines are still "unserved" or "underserved." Thus, to encourage private sectors to venture in this field
and be partners of the government in stimulating the growth and development of telecommunications, the State
promoted the policy of deregulation.
In the United States, the country where CATV originated, the Congress observed, when it adopted the
Telecommunications Act of 1996, that there was a need to provide a pro-competitive, deregulatory national policy
framework designed to accelerate rapidly private sector deployment of advanced telecommunications and
information technologies and services to all Americans by opening all telecommunications markets to
competition. The FCC has adopted regulations to implement the requirements of the 1996 Act and the intent of
the Congress.
Our country follows the same policy. The fifth Whereas Clause of E.O. No. 436 states:
"WHEREAS, professionalism and self-regulation among existing operators, through a nationally
recognized cable television operators association, have enhanced the growth of the cable television
industry and must therefore be maintained along with minimal reasonable government regulations;"
This policy reaffirms the NTCs mandate set forth in the Memorandum dated August 25, 1989 of Commissioner
Jose Luis A. Alcuaz, to wit:
"In line with the purpose and objective of MC 4-08-88, Cable Television System or Community Antenna
Television (CATV) is made part of the broadcast media to promote the orderly growth of the Cable
Television Industry it being in its developing stage. Being part of the Broadcast Media, the service rates
of CATV are likewise considered deregulated in accordance with MC 06-2-81 dated 25 February 1981,
the implementing guidelines for the authorization and operation of Radio and Television Broadcasting
stations/systems.
Further, the Commission will issue Provisional Authority to existing CATV operators to authorize their
operations for a period of ninety (90) days until such time that the Commission can issue the regular
Certificate of Authority."
When the State declared a policy of deregulation, the LGUs are bound to follow. To rule otherwise is to render
the States policy ineffective. Being mere creatures of the State, LGUs cannot defeat national policies through
enactments of contrary measures. Verily, in the case at bar, petitioner may increase its subscriber rates without
respondents approval.
At this juncture, it bears emphasizing that municipal corporations are bodies politic and corporate, created not
only as local units of local self-government, but as governmental agencies of the state.51 The legislature, by
establishing a municipal corporation, does not divest the State of any of its sovereignty; absolve itself from its
right and duty to administer the public affairs of the entire state; or divest itself of any power over the inhabitants
of the district which it possesses before the charter was granted.52
Respondents likewise argue that E.O. No. 205 violates the constitutional prohibition against impairment of
contracts, Resolution No. 210 of Batangas City Sangguniang Panlungsod being a grant of franchise to petitioner.
We are not convinced.
There is no law specifically authorizing the LGUs to grant franchises to operate CATV system. Whatever
authority the LGUs had before, the same had been withdrawn when President Marcos issued P.D. No. 1512

"terminating all franchises, permits or certificates for the operation of CATV system previously granted by local
governments." Today, pursuant to Section 3 of E.O. No. 436, "only persons, associations, partnerships,
corporations or cooperatives granted a Provisional Authority or Certificate of Authority by the NTC may install,
operate and maintain a cable television system or render cable television service within a service area." It is clear
that in the absence of constitutional or legislative authorization, municipalities have no power to grant
franchises.53 Consequently, the protection of the constitutional provision as to impairment of the obligation of a
contract does not extend to privileges, franchises and grants given by a municipality in excess of its powers, or
ultra vires.54
One last word. The devolution of powers to the LGUs, pursuant to the Constitutional mandate of ensuring their
autonomy, has bred jurisdictional tension between said LGUs and the State. LGUs must be reminded that they
merely form part of the whole. Thus, when the Drafters of the 1987 Constitution enunciated the policy of ensuring
the autonomy of local governments,55 it was never their intention to create an imperium in imperio and install an
intra-sovereign political subdivision independent of a single sovereign state.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated February 12,
1999 as well as its Resolution dated May 26, 1999 in CA-G.R. CV No. 52461, are hereby REVERSED. The
RTC Decision in Civil Case No. 4254 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 131082

June 19, 2000

ROMULO, MABANTA, BUENAVENTURA, SAYOC

vs.
HOME DEVELOPMENT MUTUAL FUND, respondent.

&

DE

LOS

ANGELES,

petitioner,

DAVIDE, JR., C.J.:

Once again, this Court is confronted with the issue of the validity of the Amendments to the Rules and Regulations
Implementing Republic Act No. 7742, which require the existence of a plan providing for both
provident/retirement and housing benefits for exemption from the Pag-IBIG Fund coverage under Presidential
Decree No. 1752, as amended.
Pursuant to Section 19 1 of P.D. No. 1752, as amended by R.A. No. 7742, petitioner Romulo, Mabanta,
Buenaventura, Sayoc and De Los Angeles (hereafter PETITIONER), a law firm, was exempted for the period 1
January to 31 December 1995 from the Pag-IBIG Fund coverage by respondent Home Development Mutual Fund
(hereafter HDMF) because of a superior retirement plan. 2
On 1 September 1995, the HDMF Board of Trustees, pursuant to Section 5 of Republic Act No. 7742, issued
Board Resolution No. 1011, Series of 1995, amending and modifying the Rules and Regulations Implementing
R.A. No. 7742. As amended, Section 1 of Rule VII provides that for a company to be entitled to a waiver or
suspension of Fund coverage, 3 it must have a plan providing for both provident/retirement and housing benefits
superior to those provided under the Pag-IBIG Fund.
On 16 November 1995, PETITIONER filed with the respondent an application for Waiver or Suspension of Fund
Coverage because of its superior retirement plan. 4 In support of said application, PETITIONER submitted to the
HDMF a letter explaining that the 1995 Amendments to the Rules are invalid. 5
In a letter dated 18 March 1996, the President and Chief Executive Officer of HDMF disapproved PETITIONER's
application on the ground that the requirement that there should be both a provident retirement fund and a housing
plan is clear in the use of the phrase "and/or," and that the Rules Implementing R.A. No. 7742 did not amend nor
repeal Section 19 of P.D. No. 1752 but merely implement the law. 6
PETITIONER's appeal 7 with the HDMF Board of Trustees was denied for having been rendered moot and
academic by Board Resolution No. 1208, Series of 1996, removing the availment of waiver of the mandatory
coverage of the Pag-IBIG Fund, except for distressed employers. 8
On 31 March 1997, PETITIONER filed a petition for review 9 before the Court of Appeals. On motion by HDMF,
the Court of Appeals dismissed 10 the petition on the ground that the coverage of employers and employees under
the Home Development Mutual Fund is mandatory in character as clearly worded in Section 4 of P.D. No. 1752,
as amended by R.A. No. 7742. There is no allegation that petitioner is a distressed employer to warrant its
exemption from the Fund coverage. As to the amendments to the Rules and Regulations Implementing R.A. No.
7742, the same are valid. Under P.D. No. 1752 and R.A. No. 7742 the Board of Trustees of the HDMF is
authorized to promulgate rules and regulations, as well as amendments thereto, concerning the extension, waiver

or suspension of coverage under the Pag-IBIG Fund. And the publication requirement was amply met, since the
questioned amendments were published in the 21 October 1995 issue of the Philippine Star, which is a newspaper
of general circulation.
PETITIONER's motion for reconsideration 11 was denied. 12 Hence, on 6 November 1997, PETITIONER filed a
petition before this Court assailing the 1995 and the 1996 Amendments to the Rules and Regulations
Implementing Republic Act No. 7742 for being contrary to law. In support thereof, PETITIONER contends that
the subject 1995 Amendments issued by HDMF are inconsistent with the enabling law, P.D. No. 1752, as
amended by R.A. No. 7742, which merely requires as a pre-condition for exemption from coverage the existence
of either a superior provident/retirement plan or a superior housing plan, and not the concurrence of both plans.
Hence, considering that PETITIONER has a provident plan superior to that offered by the HDMF, it is entitled
to exemption from the coverage in accordance with Section 19 of P.D. No. 1752. The 1996 Amendment are also
void insofar as they abolished the exemption granted by Section 19 of P.D. 1752, as amended. The repeal of such
exemption involves the exercise of legislative power, which cannot be delegated to HMDF.
PETITIONER also cites Section 9 (1), Chapter 2, Book VII of the Administrative Code of 1987, which provides:
Sec. 9. Public Participation (1) If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their
views prior to the adoption of any rule.
Since the Amendments to the Rules and Regulations Implementing Republic Act No. 7742 involve an imposition
of an additional burden, a public hearing should have first been conducted to give chance to the employers, like
PETITIONER, to be heard before the HDMF adopted the said Amendments. Absent such public hearing, the
amendments should be voided.
Finally, PETITIONER contends that HDMF did not comply with Section 3, Chapter 2, Book VII of the
Administrative Code of 1987, which provides that "[e]very agency shall file with the University of the Philippines
Law Center three (3) certified copies of every rule adopted by it."
On the other hand, the HDMF contends that in promulgating the amendments to the rules and regulations which
require the existence of a plan providing for both provident and housing benefits for exemption from the Fund
Coverage, the respondent Board was merely exercising its rule-making power under Section 13 of P.D. No. 1752.
It had the option to use "and" only instead of "or" in the rules on waiver in order to effectively implement the
Pag-IBIG Fund Law. By choosing "and," the Board has clarified the confusion brought about by the use of
"and/or" in Section 19 of P.D. No. 1752, as amended.
As to the public hearing, HDMF maintains that as can be clearly deduced from Section 9(1), Chapter 2, Book VII
of the Revised Administrative Code of 1987, public hearing is required only when the law so provides, and if not,
only if the same is practicable. It follows that public hearing is only optional or discretionary on the part of the
agency concerned, except when the same is required by law. P.D. No. 1752 does not require that pubic hearing
be first conducted before the rules and regulations implementing it would become valid and effective. What it
requires is the publication of said rules and regulations at least once in a newspaper of general circulation. Having
published said 1995 and 1996 Amendments through the Philippine Star on 21 October 1995 1 and 15 November
1996, 14 respectively, HDMF has complied with the publication requirement.
Finally, HDMF claims that as early as 18 October 1996, it had already filed certified true copies of the
Amendments to the Rules and Regulations with the University of the Philippines Law Center. This fact is
evidenced by certified true copies of the Certification from the Office of the National Administrative Register of
the U.P. Law Center. 15
We find for the PETITIONER.
The issue of the validity of the 1995 Amendments to the Rules and Regulations Implementing R.A. No. 7742,
specifically Section I, Rule VII on Waiver and Suspension, has been squarely resolved in the relatively recent
case of China Banking Corp. v. The Members of the Board of Trustees of the HDMF. 16 We held in that case that
Section 1 of Rule VII of the Amendments to the Rules and Regulations Implementing R.A. No. 7742, and HDMF
Circular No. 124-B prescribing the Revised Guidelines and Procedure for Filing Application for Waiver or
Suspension of Fund Coverage under P.D. No. 1752, as amended by R.A. No. 7742, are null and void insofar as
they require that an employer should have both a provident/retirement plan and a housing plan superior to the
benefits offered by the Fund in order to qualify for waiver or suspension of the Fund coverage. In arriving at said
conclusion, we ruled:
The controversy lies in the legal signification of the words "and/or."
In the instant case, the legal meaning of the words "and/or" should be taken in its ordinary signification,
i.e., "either and or; e.g. butter and/or eggs means butter and eggs or butter or eggs.

The term "and/or" means that the effect shall be given to both the conjunctive "and" and the
disjunctive "or"; or that one word or the other may be taken accordingly as one or the other will
best effectuate the purpose intended by the legislature as gathered from the whole statute. The term
is used to avoid a construction which by the use of the disjunctive "or" alone will exclude the
combination of several of the alternatives or by the use of the conjunctive "and" will exclude the
efficacy of any one of the alternatives standing alone.1avvphi1
It is accordingly ordinarily held that the intention of the legislature in using the term "and/or" is that the
word "and" and the word "or" are to be used interchangeably.
It . . . seems to us clear from the language of the enabling law that Section 19 of P.D. No. 1752 intended
that an employer with a provident plan or an employee housing plan superior to that of the fund may
obtain exemption from coverage. If the law had intended that the employee [sic] should have both a
superior provident plan and a housing plan in order to qualify for exemption, it would have used the words
"and" instead of "and/or." Notably, paragraph (a) of Section 19 requires for annual certification of waiver
or suspension, that the features of the plan or plans are superior to the fund or continue to be so. The law
obviously contemplates that the existence of either plan is considered as sufficient basis for the grant of
an exemption; needless to state, the concurrence of both plans is more than sufficient. To require the
existence of both plans would radically impose a more stringent condition for waiver which was not clearly
envisioned by the basic law. By removing the disjunctive word "or" in the implementing rules the
respondent Board has exceeded its authority.
It is without doubt that the HDMF Board has rule-making power as provided in Section 51 17 of R.A. No. 7742
and Section 13 18 of P.D. No. 1752. However, it is well-settled that rules and regulations, which are the product
of a delegated power to create new and additional legal provisions that have the effect of law, should be within
the scope of the statutory authority granted by the legislature to the administrative agency. 19 It is required that
the regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity
with, the standards prescribed by law. 20
In the present case, when the Board of Trustees of the HDMF required in Section 1, Rule VII of the 1995
Amendments to the Rules and Regulations Implementing R.A. No. 7742 that employers should have both
provident/retirement and housing benefits for all its employees in order to qualify for exemption from the Fund,
it effectively amended Section 19 of P.D. No. 1752. And when the Board subsequently abolished that exemption
through the 1996 Amendments, it repealed Section 19 of P.D. No. 1752. Such amendment and subsequent repeal
of Section 19 are both invalid, as they are not within the delegated power of the Board. The HDMF cannot, in the
exercise of its rule-making power, issue a regulation not consistent with the law it seeks to apply. Indeed,
administrative issuances must not override, supplant or modify the law, but must remain consistent with the law
they intend to carry out. 21 Only Congress can repeal or amend the law.
While it may be conceded that the requirement of having both plans to qualify for an exemption, as well as the
abolition of the exemption, would enhance the interest of the working group and further strengthen the Home
Development Mutual Fund in its pursuit of promoting public welfare through ample social services as mandated
by the Constitution, we are of the opinion that the basic law should prevail. A department zeal may not be
permitted to outrun the authority conferred by the statute. 22
Considering the foregoing conclusions, it is unnecessary to dwell on the other issues raised.
WHEREFORE, the petition is GRANTED. The assailed decision of 31 July 1997 of the Court of Appeals in CAG.R. No. SP-43668 and its Resolution of 15 October 1997 are hereby REVERSED and SET ASIDE. The
disapproval by the Home Development Mutual Fund of the application of the petitioner for waiver or suspension
of Fund coverage is SET ASIDE, and the Home Development Mutual Fund is hereby directed to refund to
petitioner all sums of money it collected from the latter.
SO ORDERED.
G.R. No. 94571

April 22, 1991

TEOFISTO T. GUINGONA, JR. and AQUILINO Q. PIMENTEL, JR., petitioners,

vs.
HON. GUILLERMO CARAGUE, in his capacity as Secretary, Budget & Management, HON. ROZALINA
S. CAJUCOM in her capacity as National Treasurer and COMMISSION ON AUDIT, respondents.
Ramon A. Gonzales for petitioners.

GANCAYCO, J.:

This is a case of first impression whereby petitioners question the constitutionality of the automatic appropriation
for debt service in the 1990 budget.
As alleged in the petition, the facts are as follows:
The 1990 budget consists of P98.4 Billion in automatic appropriation (with P86.8 Billion for debt service) and
P155.3 Billion appropriated under Republic Act No. 6831, otherwise known as the General Appropriations Act,
or a total of P233.5 Billion,1 while the appropriations for the Department of Education, Culture and Sports amount
to P27,017,813,000.00.2
The said automatic appropriation for debt service is authorized by P.D. No. 81, entitled "Amending Certain
Provisions of Republic Act Numbered Four Thousand Eight Hundred Sixty, as Amended (Re: Foreign Borrowing
Act)," by P.D. No. 1177, entitled "Revising the Budget Process in Order to Institutionalize the Budgetary
Innovations of the New Society," and by P.D. No. 1967, entitled "An Act Strenghthening the Guarantee and
Payment Positions of the Republic of the Philippines on Its Contingent Liabilities Arising out of Relent and
Guaranteed Loan by Appropriating Funds For The Purpose.
There can be no question that petitioners as Senators of the Republic of the Philippines may bring this suit where
a constitutional issue is raised.3 Indeed, even a taxpayer has personality to restrain unlawful expenditure of public
funds.
The petitioner seek the declaration of the unconstitutionality of P.D. No. 81, Sections 31 of P.D. 1177, and P.D.
No. 1967. The petition also seeks to restrain the disbursement for debt service under the 1990 budget pursuant to
said decrees.
Respondents contend that the petition involves a pure political question which is the repeal or amendment of said
laws addressed to the judgment, wisdom and patriotism of the legislative body and not this Court.
In Gonzales,5 the main issue was the unconstitutionality of the presidential veto of certain provision particularly
Section 16 of the General Appropriations Act of 1990, R.A. No. 6831. This Court, in disposing of the issue, stated

The political question doctrine neither interposes an obstacle to judicial determination of the rival claims.
The jurisdiction to delimit constitutional boundaries has been given to this Court. It cannot abdicate that
obligation mandated by the 1987 Constitution, although said provision by no means does away with the
applicability of the principle in appropriate cases.
Sec. 1. The judicial power shad be vested in one Supreme Court and in such lower courts as may
be established by law.
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.
With the Senate maintaining that the President's veto is unconstitutional and that charge being
controverted, there is an actual case or justiciable controversy between the Upper House of Congress and
the executive department that may be taken cognizance of by this Court.
The questions raised in the instant petition are
I. IS THE APPROPRIATION OF P86 BILLION IN THE P233 BILLION 1990 BUDGET VIOLATIVE
OF SECTION 5, ARTICLE XIV OF THE CONSTITUTION?
II. ARE PD No. 81, PD No. 1177 AND PD No. 1967 STILL OPERATIVE UNDER THE
CONSTITUTION?
III. ARE THEY VIOLATIVE OF SECTION 29(l), ARTICLE VI OF THE CONSTITUTION?6
There is thus a justiciable controversy raised in the petition which this Court may properly take cognizance of On
the first issue, the petitioners aver
According to Sec. 5, Art. XIV of the Constitution:
(5) The State shall assign the highest budgetary priority to education and ensure that teaching will
attract and retain its rightful share of the best available talents through adequate remuneration and
other means of job satisfaction and fulfillment.

The reason behind the said provision is stated, thus:

In explaining his proposed amendment, Mr. Ople stated that all the great and sincere piety
professed by every President and every Congress of the Philippines since the end of World War II
for the economic welfare of the public schoolteachers always ended up in failure and this failure,
he stated, had caused mass defection of the best and brightest teachers to other careers, including
menial jobs in overseas employment and concerted actions by them to project their grievances,
mainly over low pay and abject working conditions.
He pointed to the high expectations generated by the February Revolution, especially keen among
public schoolteachers, which at present exacerbate these long frustrated hopes.
Mr. Ople stated that despite the sincerity of all administrations that tried vainly to respond to the
needs of the teachers, the central problem that always defeated their pious intentions was really
the one budgetary priority in the sense that any proposed increase for public schoolteachers had to
be multiplied many times by the number of government employees in general and their equitable
claims to any pay standardization such that the pay rate of teachers is hopelessly pegged to the rate
of government workers in general. This, he stated, foredoomed the prospect of a significant pay
increase for teachers.
Mr. Ople pointed out that the recognition by the Constitution of the highest priority for public
schoolteachers, and by implication, for all teachers, would ensure that the President and Congress
would be strongly urged by a constitutional mandate to grant to them such a level of remuneration
and other incentives that would make teaching competitive again and attractive to the best
available talents in the nation.
Finally, Mr. Ople recalled that before World War II, teaching competed most successfully against
all other career choices for the best and the brightest of the younger generation. It is for this reason,
he stated, that his proposed amendment if approved, would ensure that teaching would be restored
to its lost glory as the career of choice for the most talented and most public-spirited of the younger
generation in the sense that it would become the countervailing measure against the continued
decline of teaching and the wholesale desertion of this noble profession presently taking place. He
further stated that this would ensure that the future and the quality of the population would be
asserted as a top priority against many clamorous and importunate but less important claims of
the present. (Journal of the Constitutional Commission, Vol. II, p. 1172)
However, as against this constitutional intention, P86 Billion is appropriated for debt service while only P27
Billion is appropriated for the Department of Education in the 1990 budget. It plain, therefore, that the said
appropriation for debt services is inconsistent with the Constitution, hence, viod (Art. 7, New Civil Code).7
While it is true that under Section 5(5), Article XIV of the Constitution Congress is mandated to "assign the
highest budgetary priority to education" in order to "insure that teaching will attract and retain its rightful share
of the best available talents through adequate remuneration and other means of job satisfaction and fulfillment,"
it does not thereby follow that the hands of Congress are so hamstrung as to deprive it the power to respond to
the imperatives of the national interest and for the attainment of other state policies or objectives.
As aptly observed by respondents, since 1985, the budget for education has tripled to upgrade and improve the
facility of the public school system. The compensation of teachers has been doubled. The amount of
P29,740,611,000.008 set aside for the Department of Education, Culture and Sports under the General
Appropriations Act (R.A. No. 6831), is the highest budgetary allocation among all department budgets. This is a
clear compliance with the aforesaid constitutional mandate according highest priority to education.
Having faithfully complied therewith, Congress is certainly not without any power, guided only by its good
judgment, to provide an appropriation, that can reasonably service our enormous debt, the greater portion of which
was inherited from the previous administration. It is not only a matter of honor and to protect the credit standing
of the country. More especially, the very survival of our economy is at stake. Thus, if in the process Congress
appropriated an amount for debt service bigger than the share allocated to education, the Court finds and so holds
that said appropriation cannot be thereby assailed as unconstitutional.
Now to the second issue. The petitioners made the following observations:
To begin with, Rep. Act 4860 entitled "AN ACT AUTHORIZING THE PRESIDENT OF THE
PHILIPPINES TO OBTAIN SUCH FOREIGN LOANS AND CREDITS, OR TO INCUR SUCH
FOREIGN INDEBTEDNESS, AS MAY BE NECESSARY TO FINANCE APPROVED ECONOMIC
DEVELOPMENT PURPOSES OR PROJECTS, AND TO GUARANTEE, IN BEHALF OF THE
REPUBLIC OF THE PHILIPPINES, FOREIGN LOANS OBTAINED OR BONDS ISSUED BY
CORPORATIONS OWNED OR CONTROLLED BY THE GOVERNMENT OF THE PHILIPPINES

FOR ECONOMIC DEVELOPMENT PURPOSES INCLUDING THOSE INCURRED FOR PURPOSES

OF RELENDING TO THE PRIVATE SECTOR, APPROPRIATING THE NECESSARY FUNDS
THEREFOR, AND FOR OTHER PURPOSES, provides:
Sec. 2. The total amount of loans, credits and indebtedness, excluding interests, which the
President of the Philippines is authorized to incur under this Act shall not exceed one billion United
States dollars or its equivalent in other foreign currencies at the exchange rate prevailing at the
time the loans, credits and indebtedness are incurred: Provided, however, That the total loans,
credits and indebtedness incurred under this Act shall not exceed two hundred fifty million in the
fiscal year of the approval of this Act, and two hundred fifty million every fiscal year thereafter,
all in United States dollars or its equivalent in other currencies.
Sec. 5. It shall be the duty of the President, within thirty days after the opening of every regular
session, to report to the Congress the amount of loans, credits and indebtedness contracted, as
well as the guarantees extended, and the purposes and projects for which the loans, credits and
indebtedness were incurred, and the guarantees extended, as well as such loans which may be
reloaned to Filipino owned or controlled corporations and similar purposes.
Sec. 6. The Congress shall appropriate the necessary amount out of any funds in the National
Treasury not otherwise appropriated, to cover the payment of the principal and interest on such
loans, credits or indebtedness as and when they shall become due.
However, after the declaration of martial law, President Marcos issued PD 81 amending Section 6, thus:
Sec. 7. Section six of the same Act is hereby further amended to read as follows:
Sec. 6. Any provision of law to the contrary notwithstanding, and in order to enable the Republic
of the Philippines to pay the principal, interest, taxes and other normal banking charges on the
loans, credits or indebtedness, or on the bonds, debentures, securities or other evidences of
indebtedness sold in international markets incurred under the authority of this Act, the proceeds
of which are deemed appropriated for the projects, all the revenue realized from the projects
financed by such loans, credits or indebtedness, or on the bonds, debentures, securities or other
evidences of indebtedness, shall be turned over in full, after deducting actual and necessary
expenses for the operation and maintenance of said projects, to the National Treasury by the
government office, agency or instrumentality, or government-owned or controlled corporation
concerned, which is hereby appropriated for the purpose as and when they shall become due. In
case the revenue realized is insufficient to cover the principal, interest and other charges, such
portion of the budgetary savings as may be necessary to cover the balance or deficiency shall be
set aside exclusively for the purpose by the government office, agency or instrumentality, or
government-owned or controlled corporation concerned: Provided, That, if there still remains a
deficiency, such amount necessary to cover the payment of the principal and interest on such loans,
credit or indebtedness as and when they shall become due is hereby appropriated out of any funds
in the national treasury not otherwise appropriated: . . .
President Marcos also issued PD 1177, which provides:
Sec. 31. Automatic appropriations. All expenditures for (a) personnel retirement premiums,
government service insurance, and other similar fixed expenditures, (b) principal and interest on
public debt, (c) national government guarantees of obligations which are drawn upon, are
automatically appropriated; Provided, that no obligations shall be incurred or payments made from
funds thus automatically appropriated except as issued in the form of regular budgetary allotments.
and PD 1967, which provides:
Sec. 1. There is hereby appropriated, out of any funds in the National Treasury not otherwise
appropriated, such amounts as may be necessary to effect payments on foreign or domestic loans,
or foreign or domestic loans whereon creditors make a call on the direct and indirect guarantee of
the Republic of the Philippines, obtained by:
a. The Republic of the Philippines the proceeds of which were relent to government-owned
or controlled corporations and/or government financial institutions;
b. government-owned or controlled corporations and/or government financial institutions
the proceeds of which were relent to public or private institutions;
c. government-owned or controlled corporations and/or financial institutions and
guaranteed by the Republic of the Philippines;

d. other public or private institutions and guaranteed by government-owned or controlled

corporations and/or government financial institutions.
Sec. 2. All repayments made by borrower institutions on the loans for whose account advances
were made by the National Treasury will revert to the General Fund.
Sec. 3. In the event that any borrower institution is unable to settle the advances made out of the
appropriation provided therein, the Treasurer of the Philippines shall make the proper
recommendation to the Minister of Finance on whether such advances shall be treated as equity
or subsidy of the National Government to the institution concerned, which shall be considered in
the budgetary program of the Government.
In the "Budget of Expenditures and Sources of Financing Fiscal Year 1990," which accompanied
her budget message to Congress, the President of the Philippines, Corazon C. Aquino, stated:
Sources Appropriation
The P233.5 billion budget proposed for fiscal year 1990 will require P132.1 billion of new programmed
appropriations out of a total P155.3 billion in new legislative authorization from Congress. The rest of the
budget, totalling P101.4 billion, will be sourced from existing appropriations: P98.4 billion from
Automatic Appropriations and P3.0 billion from Continuing Appropriations (Fig. 4).
And according to Figure 4, . . ., P86.8 billion out of the P98.4 Billion are programmed for debt service. In other
words, the President had, on her own, determined and set aside the said amount of P98.4 Billion with the rest of
the appropriations of P155.3 Billion to be determined and fixed by Congress, which is now Rep. Act 6831.9
Petitioners argue that the said automatic appropriations under the aforesaid decrees of then President Marcos
became functus oficio when he was ousted in February, 1986; that upon the expiration of the one-man legislature
in the person of President Marcos, the legislative power was restored to Congress on February 2, 1987 when the
Constitution was ratified by the people; that there is a need for a new legislation by Congress providing for
automatic appropriation, but Congress, up to the present, has not approved any such law; and thus the said P86.8
Billion automatic appropriation in the 1990 budget is an administrative act that rests on no law, and thus, it cannot
be enforced.
Moreover, petitioners contend that assuming arguendo that P.D. No. 81, P.D. No. 1177 and P.D. No. 1967 did
not expire with the ouster of President Marcos, after the adoption of the 1987 Constitution, the said decrees are
inoperative under Section 3, Article XVIII which provides
Sec. 3. All existing laws, decrees, executive orders, proclamations, letters of instructions, and other
executive issuances not inconsistent with this Constitution shall remain operative until amended, repealed,
or revoked." (Emphasis supplied.)
They then point out that since the said decrees are inconsistent with Section 24, Article VI of the Constitution,
i.e.,
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. (Emphasis supplied.)
whereby bills have to be approved by the President,10 then a law must be passed by Congress to authorize said
automatic appropriation. Further, petitioners state said decrees violate Section 29(l) of Article VI of the
Constitution which provides as follows
Sec. 29(l). No money shall be paid out of the Treasury except in pursuance of an appropriation made by
law.
They assert that there must be definiteness, certainty and exactness in an appropriation,11 otherwise it is an undue
delegation of legislative power to the President who determines in advance the amount appropriated for the debt
service.12
The Court is not persuaded.
Section 3, Article XVIII of the Constitution recognizes that "All existing laws, decrees, executive orders,
proclamations, letters of instructions and other executive issuances not inconsistent with the Constitution shall
remain operative until amended, repealed or revoked."

This transitory provision of the Constitution has precisely been adopted by its framers to preserve the social order
so that legislation by the then President Marcos may be recognized. Such laws are to remain in force and effect
unless they are inconsistent with the Constitution or, are otherwise amended, repealed or revoked.
An examination of the aforecited presidential decrees show the clear intent that the amounts needed to cover the
payment of the principal and interest on all foreign loans, including those guaranteed by the national government,
should be made available when they shall become due precisely without the necessity of periodic enactments of
separate laws appropriating funds therefor, since both the periods and necessities are incapable of determination
in advance.
The automatic appropriation provides the flexibility for the effective execution of debt management policies. Its
political wisdom has been convincingly discussed by the Solicitor General as he argues
. . . First, for example, it enables the Government to take advantage of a favorable turn of market conditions
by redeeming high-interest securities and borrowing at lower rates, or to shift from short-term to longterm instruments, or to enter into arrangements that could lighten our outstanding debt burden debt-toequity, debt to asset, debt-to-debt or other such schemes. Second, the automatic appropriation obviates the
serious difficulties in debt servicing arising from any deviation from what has been previously
programmed. The annual debt service estimates, which are usually made one year in advance, are based
on a mathematical set or matrix or, in layman's parlance, "basket" of foreign exchange and interest rate
assumptions which may significantly differ from actual rates not even in proportion to changes on the
basis of the assumptions. Absent an automatic appropriation clause, the Philippine Government has to
await and depend upon Congressional action, which by the time this comes, may no longer be responsive
to the intended conditions which in the meantime may have already drastically changed. In the meantime,
also, delayed payments and arrearages may have supervened, only to worsen our debt service-to-total
expenditure ratio in the budget due to penalties and/or demand for immediate payment even before due
dates.
Clearly, the claim that payment of the loans and indebtedness is conditioned upon the continuance of the
person of President Marcos and his legislative power goes against the intent and purpose of the law. The
purpose is foreseen to subsist with or without the person of Marcos.13
The argument of petitioners that the said presidential decrees did not meet the requirement and are therefore
inconsistent with Sections 24 and 27 of Article VI of the Constitution which requires, among others, that "all
appropriations, . . . bills authorizing increase of public debt" must be passed by Congress and approved by the
President is untenable. Certainly, the framers of the Constitution did not contemplate that existing laws in the
statute books including existing presidential decrees appropriating public money are reduced to mere "bills" that
must again go through the legislative million The only reasonable interpretation of said provisions of the
Constitution which refer to "bills" is that they mean appropriation measures still to be passed by Congress. If the
intention of the framers thereof were otherwise they should have expressed their decision in a more direct or
express manner.
Well-known is the rule that repeal or amendment by implication is frowned upon. Equally fundamental is the
principle that construction of the Constitution and law is generally applied prospectively and not retrospectively
unless it is so clearly stated.
On the third issue that there is undue delegation of legislative power, in Edu vs. Ericta,14 this Court had this to
say
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands of
the legislature. To determine whether or not there is an undue delegation of legislative power, the inequity
must be directed to the scope and definiteness of the measure enacted. The legislature does not abdicate
its function when it describes what job must be done, who is to do it, and what is the scope of his authority.
For a complex economy, that may indeed be the only way in which legislative process can go forward . .
.
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 . . .
The standard may be either express or implied . . . from the policy and purpose of the act considered as
whole . . .
In People vs. Vera,15 this Court said "the true distinction is between the delegation of power to make the law,
which necessarily involves discretion as to what the law shall be, and conferring authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made."

Ideally, the law must be complete in all its essential terms and conditions when it leaves the legislature so that
there will be nothing left for the delegate to do when it reaches him except enforce it. If there are gaps in the law
that will prevent its enforcement unless they are first filled, the delegate will then have been given the opportunity
to step in the shoes of the legislature and exercise a discretion essentially legislative in order to repair the
omissions. This is invalid delegation.16
The Court finds that in this case the questioned laws are complete in all their essential terms and conditions and
sufficient standards are indicated therein.
The legislative intention in R.A. No. 4860, as amended, Section 31 of P.D. No. 1177 and P.D. No. 1967 is that
the amount needed should be automatically set aside in order to enable the Republic of the Philippines to pay the
principal, interest, taxes and other normal banking charges on the loans, credits or indebtedness incurred as
guaranteed by it when they shall become due without the need to enact a separate law appropriating funds therefor
as the need arises. The purpose of these laws is to enable the government to make prompt payment and/or
advances for all loans to protect and maintain the credit standing of the country.
Although the subject presidential decrees do not state specific amounts to be paid, necessitated by the very nature
of the problem being addressed, the amounts nevertheless are made certain by the legislative parameters provided
in the decrees. The Executive is not of unlimited discretion as to the amounts to be disbursed for debt servicing.
The mandate is to pay only the principal, interest, taxes and other normal banking charges on the loans, credits or
indebtedness, or on the bonds, debentures or security or other evidences of indebtedness sold in international
markets incurred by virtue of the law, as and when they shall become due. No uncertainty arises in executive
implementation as the limit will be the exact amounts as shown by the books of the Treasury.
The Government budgetary process has been graphically described to consist of four major phases as aptly
discussed by the Solicitor General:
The Government budgeting process consists of four major phases:
1. Budget preparation. The first step is essentially tasked upon the Executive Branch and covers the
estimation of government revenues, the determination of budgetary priorities and activities within the
constraints imposed by available revenues and by borrowing limits, and the translation of desired priorities
and activities into expenditure levels.
Budget preparation starts with the budget call issued by the Department of Budget and Management. Each
agency is required to submit agency budget estimates in line with the requirements consistent with the
general ceilings set by the Development Budget Coordinating Council (DBCC).
With regard to debt servicing, the DBCC staff, based on the macro-economic projections of interest rates
(e.g. LIBOR rate) and estimated sources of domestic and foreign financing, estimates debt service levels.
Upon issuance of budget call, the Bureau of Treasury computes for the interest and principal payments
for the year for all direct national government borrowings and other liabilities assumed by the same.
2. Legislative authorization. At this stage, Congress enters the picture and deliberates or acts on the
budget proposals of the President, and Congress in the exercise of its own judgment and wisdom
formulates an appropriation act precisely following the process established by the Constitution, which
specifies that no money may be paid from the Treasury except in accordance with an appropriation made
by law.
Debt service is not included in the General Appropriation Act, since authorization therefor already exists
under RA No. 4860 and 245, as amended and PD 1967. Precisely in the fight of this subsisting
authorization as embodied in said Republic Acts and PD for debt service, Congress does not concern itself
with details for implementation by the Executive, but largely with annual levels and approval thereof upon
due deliberations as part of the whole obligation program for the year. Upon such approval, Congress has
spoken and cannot be said to have delegated its wisdom to the Executive, on whose part lies the
implementation or execution of the legislative wisdom.
3. Budget Execution. Tasked on the Executive, the third phase of the budget process covers the various
operational aspects of budgeting. The establishment of obligation authority ceilings, the evaluation of
work and financial plans for individual activities, the continuing review of government fiscal position, the
regulation of funds releases, the implementation of cash payment schedules, and other related activities
comprise this phase of the budget cycle.
Release from the debt service fired is triggered by a request of the Bureau of the Treasury for allotments
from the Department of Budget and Management, one quarter in advance of payment schedule, to ensure
prompt payments. The Bureau of Treasury, upon receiving official billings from the creditors, remits

payments to creditors through the Central Bank or to the Sinking Fund established for government security
issues (Annex F).
4. Budget accountability. The fourth phase refers to the evaluation of actual performance and initially
approved work targets, obligations incurred, personnel hired and work accomplished are compared with
the targets set at the time the agency budgets were approved.
There being no undue delegation of legislative power as clearly above shown, petitioners insist
nevertheless that subject presidential decrees constitute undue delegation of legislative power to the
executive on the alleged ground that the appropriations therein are not exact, certain or definite, invoking
in support therefor the Constitution of Nebraska, the constitution under which the case of State v. Moore,
69 NW 974, cited by petitioners, was decided. Unlike the Constitution of Nebraska, however, our
Constitution does not require a definite, certain, exact or "specific appropriation made by law." Section
29, Article VI of our 1987 Constitution omits any of these words and simply states:
Section 29(l). No money shall be paid out of the treasury except in pursuance of an appropriation
made by law.
More significantly, there is no provision in our Constitution that provides or prescribes any particular form
of words or religious recitals in which an authorization or appropriation by Congress shall be made, except
that it be "made by law," such as precisely the authorization or appropriation under the questioned
presidential decrees. In other words, in terms of time horizons, an appropriation may be made impliedly
(as by past but subsisting legislations) as well as expressly for the current fiscal year (as by enactment of
laws by the present Congress), just as said appropriation may be made in general as well as in specific
terms. The Congressional authorization may be embodied in annual laws, such as a general appropriations
act or in special provisions of laws of general or special application which appropriate public funds for
specific public purposes, such as the questioned decrees. An appropriation measure is sufficient if the
legislative intention clearly and certainly appears from the language employed (In re Continuing
Appropriations, 32 P. 272), whether in the past or in the present.17
Thus, in accordance with Section 22, Article VII of the 1987 Constitution, President Corazon C. Aquino submitted
to Congress the Budget of Expenditures and Sources of Financing for the Fiscal Year 1990. The proposed 1990
expenditure program covering the estimated obligation that will be incurred by the national government during
the fiscal year amounts to P233.5 Billion. Of the proposed budget, P86.8 is set aside for debt servicing as follows:
1wphi1
National Government Debt
Service Expenditures, 1990
(in million pesos)
Total
Domestic Foreign
RA 245, as RA
4860
amended
as amended,
PD 1967
Interest
Payments

P36,861

P18,570

P55,431

Principal
Amortization

16,310

15,077

31,387

Total

P53,171
P33,647
======== ========

18
P86,818
========

as authorized under P.D. 1967 and R.A. 4860 and 245, as amended.
The Court, therefor, finds that R.A. No. 4860, as amended by P.D. No. 81, Section 31 of P.D. 1177 and P.D. No.
1967 constitute lawful authorizations or appropriations, unless they are repealed or otherwise amended by
Congress. The Executive was thus merely complying with the duty to implement the same.
There can be no question as to the patriotism and good motive of petitioners in filing this petition. Unfortunately,
the petition must fail on the constitutional and legal issues raised. As to whether or not the country should honor

its international debt, more especially the enormous amount that had been incurred by the past administration,
which appears to be the ultimate objective of the petition, is not an issue that is presented or proposed to be
addressed by the Court. Indeed, it is more of a political decision for Congress and the Executive to determine in
the exercise of their wisdom and sound discretion.
WHEREFORE, the petition is DISMISSED, without pronouncement as to costs.
SO ORDERED.
G.R. No. 124360 November 5, 1997
FRANCISCO
S.
TATAD,
petitioner,
vs.
THE SECRETARY OF THE DEPARTMENT OF ENERGY AND THE SECRETARY OF THE
DEPARTMENT OF FINANCE, respondents.
G.R. No. 127867 November 5, 1997
EDCEL C. LAGMAN, JOKER P. ARROYO, ENRIQUE GARCIA, WIGBERTO TANADA, FLAG
HUMAN RIGHTS FOUNDATION, INC., FREEDOM FROM DEBT COALITION (FDC), SANLAKAS,
petitioners,
vs.
HON. RUBEN TORRES in his capacity as the Executive Secretary, HON. FRANCISCO VIRAY, in his
capacity as the Secretary of Energy, CALTEX Philippines, Inc., PETRON Corporation and PILIPINAS
SHELL Corporation, respondents.

PUNO, J.:
The petitions at bar challenge the constitutionality of Republic Act No. 8180 entitled "An Act Deregulating the
Downstream Oil Industry and For Other Purposes". 1 R.A. No. 8180 ends twenty six (26) years of government
regulation of the downstream oil industry. Few cases carry a surpassing importance on the life of every Filipino
as these petitions for the upswing and downswing of our economy materially depend on the oscillation of oil.
First, the facts without the fat. Prior to 1971, there was no government agency regulating the oil industry other
than those dealing with ordinary commodities. Oil companies were free to enter and exit the market without any
government interference. There were four (4) refining companies (Shell, Caltex, Bataan Refining Company and
Filoil Refining) and six (6) petroleum marketing companies (Esso, Filoil, Caltex, Getty, Mobil and Shell), then
operating in the country. 2
In 1971, the country was driven to its knees by a crippling oil crisis. The government, realizing that petroleum
and its products are vital to national security and that their continued supply at reasonable prices is essential to
the general welfare, enacted the Oil Industry Commission Act. 3 It created the Oil Industry Commission (OIC) to
regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining, storing,
distributing, marketing and selling crude oil, gasoline, kerosene, gas and other refined petroleum products. The
OIC was vested with the power to fix the market prices of petroleum products, to regulate the capacities of
refineries, to license new refineries and to regulate the operations and trade practices of the industry. 4
In addition to the creation of the OIC, the government saw the imperious need for a more active role of Filipinos
in the oil industry. Until the early seventies, the downstream oil industry was controlled by multinational
companies. All the oil refineries and marketing companies were owned by foreigners whose economic interests
did not always coincide with the interest of the Filipino. Crude oil was transported to the country by foreigncontrolled tankers. Crude processing was done locally by foreign-owned refineries and petroleum products were
marketed through foreign-owned retail outlets. On November 9, 1973, President Ferdinand E. Marcos boldly
created the Philippine National Oil Corporation (PNOC) to break the control by foreigners of our oil industry. 5
PNOC engaged in the business of refining, marketing, shipping, transporting, and storing petroleum. It acquired
ownership of ESSO Philippines and Filoil to serve as its marketing arm. It bought the controlling shares of Bataan
Refining Corporation, the largest refinery in the country. 6 PNOC later put up its own marketing subsidiary
Petrophil. PNOC operated under the business name PETRON Corporation. For the first time, there was a Filipino
presence in the Philippine oil market.
In 1984, President Marcos through Section 8 of Presidential Decree No. 1956, created the Oil Price Stabilization
Fund (OPSF) to cushion the effects of frequent changes in the price of oil caused by exchange rate adjustments
or increase in the world market prices of crude oil and imported petroleum products. The fund is used (1) to
reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from
exchange rate adjustment and/or increase in world market prices of crude oil, and (2) to reimburse oil companies

for cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products. Under the
law, the OPSF may be sourced from:
1. any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum
products subject to tax under P.D. No. 1956 arising from exchange rate adjustment,
2. any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of
Energy,
3. any additional amount to be imposed on petroleum products to augment the resources of the
fund through an appropriate order that may be issued by the Board of Energy requiring payment
of persons or companies engaged in the business of importing, manufacturing and/or marketing
petroleum products, or
4. any resulting peso costs differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy. 7
By 1985, only three (3) oil companies were operating in the country Caltex, Shell and the government-owned
PNOC.
In May, 1987, President Corazon C. Aquino signed Executive Order No. 172 creating the Energy Regulatory
Board to regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining,
marketing and distributing energy resources "when warranted and only when public necessity requires." The
Board had the following powers and functions:
1. Fix and regulate the prices of petroleum products;
2. Fix and regulate the rate schedule or prices of piped gas to be charged by
duly franchised gas companies which distribute gas by means of
underground pipe system;
3. Fix and regulate the rates of pipeline concessionaries under the provisions
of R.A. No. 387, as amended . . . ;
4. Regulate the capacities of new refineries or additional capacities of
existing refineries and license refineries that may be organized after the
issuance of (E.O. No. 172) under such terms and conditions as are consistent
with the national interest; and
5. Whenever the Board has determined that there is a shortage of any
petroleum product, or when public interest so requires, it may take such
steps as it may consider necessary, including the temporary adjustment of
the levels of prices of petroleum products and the payment to the Oil Price
Stabilization Fund . . . by persons or entities engaged in the petroleum
industry of such amounts as may be determined by the Board, which may
enable the importer to recover its cost of importation. 8
On December 9, 1992, Congress enacted R.A. No. 7638 which created the Department of Energy to prepare,
integrate, coordinate, supervise and control all plans, programs, projects, and activities of the government in
relation to energy exploration, development, utilization, distribution and conservation. 9 The thrust of the
Philippine energy program under the law was toward privatization of government agencies related to energy,
deregulation of the power and energy industry and reduction of dependency on oil-fired plants. 10 The law also
aimed to encourage free and active participation and investment by the private sector in all energy activities.
Section 5(e) of the law states that "at the end of four (4) years from the effectivity of this Act, the Department
shall, upon approval of the President, institute the programs and timetable of deregulation of appropriate energy
projects and activities of the energy industry."
Pursuant to the policies enunciated in R.A. No. 7638, the government approved the privatization of Petron
Corporation in 1993. On December 16, 1993, PNOC sold 40% of its equity in Petron Corporation to the Aramco
Overseas Company.
In March 1996, Congress took the audacious step of deregulating the downstream oil industry. It enacted R.A.
No. 8180, entitled the "Downstream Oil Industry Deregulation Act of 1996." Under the deregulated environment,
"any person or entity may import or purchase any quantity of crude oil and petroleum products from a foreign or
domestic source, lease or own and operate refineries and other downstream oil facilities and market such crude

oil or use the same for his own requirement," subject only to monitoring by the Department of
Energy. 11
The deregulation process has two phases: the transition phase and the full deregulation phase. During the
transition phase, controls of the non-pricing aspects of the oil industry were to be lifted. The following were to
be accomplished: (1) liberalization of oil importation, exportation, manufacturing, marketing and distribution, (2)
implementation of an automatic pricing mechanism, (3) implementation of an automatic formula to set margins
of dealers and rates of haulers, water transport operators and pipeline concessionaires, and (4) restructuring of oil
taxes. Upon full deregulation, controls on the price of oil and the foreign exchange cover were to be lifted and
the OPSF was to be abolished.
The first phase of deregulation commenced on August 12, 1996.
On February 8, 1997, the President implemented the full deregulation of the Downstream Oil Industry through
E.O. No. 372.
The petitions at bar assail the constitutionality of various provisions of R.A No. 8180 and E.O. No. 372.
In G.R. No. 124360, petitioner Francisco S. Tatad seeks the annulment of section 5(b) of R.A. No. 8180. Section
5(b) provides:
b) Any law to the contrary notwithstanding and starting with the effectivity of this Act, tariff duty shall be
imposed and collected on imported crude oil at the rate of three percent (3%) and imported refined
petroleum products at the rate of seven percent (7%), except fuel oil and LPG, the rate for which shall be
the same as that for imported crude oil: Provided, That beginning on January 1, 2004 the tariff rate on
imported crude oil and refined petroleum products shall be the same: Provided, further, That this provision
may be amended only by an Act of Congress.
The petition is anchored on three arguments:
First, that the imposition of different tariff rates on imported crude oil and imported refined petroleum products
violates the equal protection clause. Petitioner contends that the 3%-7% tariff differential unduly favors the three
existing oil refineries and discriminates against prospective investors in the downstream oil industry who do not
have their own refineries and will have to source refined petroleum products from abroad.
Second, that the imposition of different tariff rates does not deregulate the downstream oil industry but instead
controls the oil industry, contrary to the avowed policy of the law. Petitioner avers that the tariff differential
between imported crude oil and imported refined petroleum products bars the entry of other players in the oil
industry because it effectively protects the interest of oil companies with existing refineries. Thus, it runs counter
to the objective of the law "to foster a truly competitive market."
Third, that the inclusion of the tariff provision in section 5(b) of R.A. No. 8180 violates Section 26(1) Article VI
of the Constitution requiring every law to have only one subject which shall be expressed in its title. Petitioner
contends that the imposition of tariff rates in section 5(b) of R.A. No. 8180 is foreign to the subject of the law
which is the deregulation of the downstream oil industry.
In G.R. No. 127867, petitioners Edcel C. Lagman, Joker P. Arroyo, Enrique Garcia, Wigberto Tanada, Flag
Human Rights Foundation, Inc., Freedom from Debt Coalition (FDC) and Sanlakas contest the constitutionality
of section 15 of R.A. No. 8180 and E.O. No. 392. Section 15 provides:
Sec. 15. Implementation of Full Deregulation. Pursuant to Section 5(e) of Republic Act No. 7638, the
DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry
not later than March 1997. As far as practicable, the DOE shall time the full deregulation when the prices
of crude oil and petroleum products in the world market are declining and when the exchange rate of the
peso in relation to the US dollar is stable. Upon the implementation of the full deregulation as provided
herein, the transition phase is deemed terminated and the following laws are deemed repealed:
xxx xxx xxx
E.O. No. 372 states in full, viz.:
WHEREAS, Republic Act No. 7638, otherwise known as the "Department of Energy Act of 1992,"
provides that, at the end of four years from its effectivity last December 1992, "the Department (of Energy)
shall, upon approval of the President, institute the programs and time table of deregulation of appropriate
energy projects and activities of the energy sector;"

WHEREAS, Section 15 of Republic Act No. 8180, otherwise known as the "Downstream Oil Industry
Deregulation Act of 1996," provides that "the DOE shall, upon approval of the President, implement full
deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE
shall time the full deregulation when the prices of crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso in relation to the US dollar is stable;"
WHEREAS, pursuant to the recommendation of the Department of Energy, there is an imperative need to
implement the full deregulation of the downstream oil industry because of the following recent
developments: (i) depletion of the buffer fund on or about 7 February 1997 pursuant to the Energy
Regulatory Board's Order dated 16 January 1997; (ii) the prices of crude oil had been stable at $21-$23
per barrel since October 1996 while prices of petroleum products in the world market had been stable
since mid-December of last year. Moreover, crude oil prices are beginning to soften for the last few days
while prices of some petroleum products had already declined; and (iii) the exchange rate of the peso in
relation to the US dollar has been stable for the past twelve (12) months, averaging at around P26.20 to
one US dollar;
WHEREAS, Executive Order No. 377 dated 31 October 1996 provides for an institutional framework for
the administration of the deregulated industry by defining the functions and responsibilities of various
government agencies;
WHEREAS, pursuant to Republic Act No. 8180, the deregulation of the industry will foster a truly
competitive market which can better achieve the social policy objectives of fair prices and adequate,
continuous supply of environmentally-clean and high quality petroleum products;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by the powers
vested in me by law, do hereby declare the full deregulation of the downstream oil industry.
In assailing section 15 of R.A. No. 8180 and E.O. No. 392, petitioners offer the following submissions:
First, section 15 of R.A. No. 8180 constitutes an undue delegation of legislative power to the President and the
Secretary of Energy because it does not provide a determinate or determinable standard to guide the Executive
Branch in determining when to implement the full deregulation of the downstream oil industry. Petitioners
contend that the law does not define when it is practicable for the Secretary of Energy to recommend to the
President the full deregulation of the downstream oil industry or when the President may consider it practicable
to declare full deregulation. Also, the law does not provide any specific standard to determine when the prices of
crude oil in the world market are considered to be declining nor when the exchange rate of the peso to the US
dollar is considered stable.
Second, petitioners aver that E.O. No. 392 implementing the full deregulation of the downstream oil industry is
arbitrary and unreasonable because it was enacted due to the alleged depletion of the OPSF fund a condition
not found in R.A. No. 8180.
Third, section 15 of R.A. No. 8180 and E.O. No. 392 allow the formation of a de facto cartel among the three
existing oil companies Petron, Caltex and Shell in violation of the constitutional prohibition against
monopolies, combinations in restraint of trade and unfair competition.
Respondents, on the other hand, fervently defend the constitutionality of R.A. No. 8180 and E.O. No. 392. In
addition, respondents contend that the issues raised by the petitions are not justiciable as they pertain to the
wisdom of the law. Respondents further aver that petitioners have no locus standi as they did not sustain nor will
they sustain direct injury as a result of the implementation of R.A. No. 8180.
The petitions were heard by the Court on September 30, 1997. On October 7, 1997, the Court ordered the private
respondents oil companies "to maintain the status quo and to cease and desist from increasing the prices of
gasoline and other petroleum fuel products for a period of thirty (30) days . . . subject to further orders as
conditions may warrant."
We shall now resolve the petitions on the merit. The petitions raise procedural and substantive issues bearing on
the constitutionality of R.A. No. 8180 and E.O. No. 392. The procedural issues are: (1) whether or not the
petitions raise a justiciable controversy, and (2) whether or not the petitioners have the standing to assail the
validity of the subject law and executive order. The substantive issues are: (1) whether or not section 5 (b) violates
the one title one subject requirement of the Constitution; (2) whether or not the same section violates the equal
protection clause of the Constitution; (3) whether or not section 15 violates the constitutional prohibition on undue
delegation of power; (4) whether or not E.O. No. 392 is arbitrary and unreasonable; and (5) whether or not R.A.
No. 8180 violates the constitutional prohibition against monopolies, combinations in restraint of trade and unfair
competition.

We shall first tackle the procedural issues. Respondents claim that the avalanche of arguments of the petitioners
assail the wisdom of R.A. No. 8180. They aver that deregulation of the downstream oil industry is a policy
decision made by Congress and it cannot be reviewed, much less be reversed by this Court. In constitutional
parlance, respondents contend that the petitions failed to raise a justiciable controversy.
Respondents' joint stance is unnoteworthy. Judicial power includes not only the duty of the courts to settle actual
controversies involving rights which are legally demandable and enforceable, but also the duty to determine
whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government. 12 The courts, as guardians of the Constitution, have the inherent
authority to determine whether a statute enacted by the legislature transcends the limit imposed by the
fundamental law. Where a statute violates the Constitution, it is not only the right but the duty of the judiciary to
declare such act as unconstitutional and void. 13 We held in the recent case of Tanada v. Angara: 14
xxx xxx xxx
In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the
petition no doubt raises a justiciable controversy. Where an action of the legislative branch is seriously
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 the application
or interpretation of a constitutional provision is raised before this Court, it becomes a legal issue which
the Court is bound by constitutional mandate to decide.
Even a sideglance at the petitions will reveal that petitioners have raised constitutional issues which deserve the
resolution of this Court in view of their seriousness and their value as precedents. Our statement of facts and
definition of issues clearly show that petitioners are assailing R.A. No. 8180 because its provisions infringe the
Constitution and not because the law lacks wisdom. The principle of separation of power mandates that challenges
on the constitutionality of a law should be resolved in our courts of justice while doubts on the wisdom of a law
should be debated in the halls of Congress. Every now and then, a law may be denounced in court both as bereft
of wisdom and constitutionally infirmed. Such denunciation will not deny this Court of its jurisdiction to resolve
the constitutionality of the said law while prudentially refusing to pass on its wisdom.
The effort of respondents to question the locus standi of petitioners must also fall on barren ground. In language
too lucid to be misunderstood, this Court has brightlined its liberal stance on a petitioner's locus standi where the
petitioner is able to craft an issue of transcendental significance to the people. 15 In Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. v. Tan, 16 we stressed:
xxx xxx xxx
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 whether or not the other branches of
government have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
There is not a dot of disagreement between the petitioners and the respondents on the far reaching importance of
the validity of RA No. 8180 deregulating our downstream oil industry. Thus, there is no good sense in being
hypertechnical on the standing of petitioners for they pose issues which are significant to our people and which
deserve our forthright resolution.
We shall now track down the substantive issues. In G.R. No. 124360 where petitioner is Senator Tatad, it is
contended that section 5(b) of R.A. No. 8180 on tariff differential violates the provision 17 of the Constitution
requiring every law to have only one subject which should be expressed in its title. We do not concur with this
contention. As a policy, this Court has adopted a liberal construction of the one title one subject rule. We have
consistently ruled 18 that the title need not mirror, fully index or catalogue all contents and minute details of a law.
A law having a single general subject indicated in the title may contain any number of provisions, no matter how
diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and means of carrying out the general
subject. 19 We hold that section 5(b) providing for tariff differential is germane to the subject of R.A. No. 8180
which is the deregulation of the downstream oil industry. The section is supposed to sway prospective investors
to put up refineries in our country and make them rely less on imported petroleum. 20 We shall, however, return
to the validity of this provision when we examine its blocking effect on new entrants to the oil market.
We shall now slide to the substantive issues in G.R. No. 127867. Petitioners assail section 15 of R.A. No. 8180
which fixes the time frame for the full deregulation of the downstream oil industry. We restate its pertinent portion
for emphasis, viz.:

Sec. 15. Implementation of Full Deregulation Pursuant to section 5(e) of Republic Act No. 7638, the
DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry
not later than March 1997. As far as practicable, the DOE shall time the full deregulation when the prices
of crude oil and petroleum products in the world market are declining and when the exchange rate of the
peso in relation to the US dollar is stable . . .
Petitioners urge that the phrases "as far as practicable," "decline of crude oil prices in the world market" and
"stability of the peso exchange rate to the US dollar" are ambivalent, unclear and inconcrete in meaning. They
submit that they do not provide the "determinate or determinable standards" which can guide the President in his
decision to fully deregulate the downstream oil industry. In addition, they contend that E.O. No. 392 which
advanced the date of full deregulation is void for it illegally considered the depletion of the OPSF fund as a factor.
The power of Congress to delegate the execution of laws has long been settled by this Court. As early as 1916 in
Compania General de Tabacos de Filipinas vs. The Board of Public Utility Commissioners, 21 this Court thru,
Mr. Justice Moreland, held that "the true distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution,
to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be
made." Over the years, as the legal engineering of men's relationship became more difficult, Congress has to rely
more on the practice of delegating the execution of laws to the executive and other administrative agencies. Two
tests have been developed to determine whether the delegation of the power to execute laws does not involve the
abdication of the power to make law itself. We delineated the metes and bounds of these tests in Eastern Shipping
Lines, Inc. VS. POEA, 22 thus:
There are two accepted tests to determine whether or not there is a valid delegation of legislative power,
viz: 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 legislative such that when it reaches the delegate the only
thing he will have to do is to enforce it. Under the sufficient standard test, there must be adequate
guidelines or limitations in the law to map out the boundaries of the delegate's authority and prevent the
delegation from running riot. Both tests are intended to prevent a total transference of legislative authority
to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially
legislative.
The validity of delegating legislative power is now a quiet area in our constitutional landscape. As sagely
observed, delegation of legislative power has become an inevitability in light of the increasing complexity of the
task of government. Thus, courts bend as far back as possible to sustain the constitutionality of laws which are
assailed as unduly delegating legislative powers. Citing Hirabayashi v. United States 23 as authority, Mr. Justice
Isagani A. Cruz states "that even if the law does not expressly pinpoint the standard, the courts will bend over
backward to locate the same elsewhere in order to spare the statute, if it can, from constitutional infirmity." 24
Given the groove of the Court's rulings, the attempt of petitioners to strike down section 15 on the ground of
undue delegation of legislative power cannot prosper. Section 15 can hurdle both the completeness test and the
sufficient standard test. It will be noted that Congress expressly provided in R.A. No. 8180 that full deregulation
will start at the end of March 1997, regardless of the occurrence of any event. Full deregulation at the end of
March 1997 is mandatory and the Executive has no discretion to postpone it for any purported reason. Thus, the
law is complete on the question of the final date of full deregulation. The discretion given to the President is to
advance the date of full deregulation before the end of March 1997. Section 15 lays down the standard to guide
the judgment of the President he is to time it as far as practicable when the prices of crude oil and petroleum
products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is
stable.
Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been defined in
R.A. No. 8180 as they do not set determinate or determinable standards. The stubborn submission deserves scant
consideration. The dictionary meanings of these words are well settled and cannot confuse men of reasonable
intelligence. Webster defines "practicable" as meaning possible to practice or perform, "decline" as meaning to
take a downward direction, and "stable" as meaning firmly established. 25 The fear of petitioners that these words
will result in the exercise of executive discretion that will run riot is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more general standards in other cases. 26
It ought to follow that the argument that E.O. No. 392 is null and void as it was based on indeterminate standards
set by R.A. 8180 must likewise fail. If that were all to the attack against the validity of E.O. No. 392, the issue
need not further detain our discourse. But petitioners further posit the thesis that the Executive misapplied R.A.
No. 8180 when it considered the depletion of the OPSF fund as a factor in fully deregulating the downstream oil
industry in February 1997. A perusal of section 15 of R.A. No. 8180 will readily reveal that it only enumerated
two factors to be considered by the Department of Energy and the Office of the President, viz.: (1) the time when
the prices of crude oil and petroleum products in the world market are declining, and (2) the time when the
exchange rate of the peso in relation to the US dollar is stable. Section 15 did not mention the depletion of the
OPSF fund as a factor to be given weight by the Executive before ordering full deregulation. On the contrary, the

debates in Congress will show that some of our legislators wanted to impose as a pre-condition to deregulation a
showing that the OPSF fund must not be in deficit. 27 We therefore hold that the Executive department failed to
follow faithfully the standards set by R.A. No. 8180 when it considered the extraneous factor of depletion of the
OPSF fund. The misappreciation of this extra factor cannot be justified on the ground that the Executive
department considered anyway the stability of the prices of crude oil in the world market and the stability of the
exchange rate of the peso to the dollar. By considering another factor to hasten full deregulation, the Executive
department rewrote the standards set forth in R.A. 8180. The Executive is bereft of any right to alter either by
subtraction or addition the standards set in R.A. No. 8180 for it has no power to make laws. To cede to the
Executive the power to make law is to invite tyranny, indeed, to transgress the principle of separation of powers.
The exercise of delegated power is given a strict scrutiny by courts for the delegate is a mere agent whose action
cannot infringe the terms of agency. In the cases at bar, the Executive co-mingled the factor of depletion of the
OPSF fund with the factors of decline of the price of crude oil in the world market and the stability of the peso to
the US dollar. On the basis of the text of E.O. No. 392, it is impossible to determine the weight given by the
Executive department to the depletion of the OPSF fund. It could well be the principal consideration for the early
deregulation. It could have been accorded an equal significance. Or its importance could be nil. In light of this
uncertainty, we rule that the early deregulation under E.O. No. 392 constitutes a misapplication of R.A. No. 8180.
We now come to grips with the contention that some provisions of R.A. No. 8180 violate section 19 of Article
XII of the 1987 Constitution. These provisions are:
(1) Section 5 (b) which states "Any law to the contrary notwithstanding and starting with the effectivity
of this Act, tariff duty shall be imposed and collected on imported crude oil at the rate of three percent
(3%) and imported refined petroleum products at the rate of seven percent (7%) except fuel oil and LPG,
the rate for which shall be the same as that for imported crude oil. Provided, that beginning on January 1,
2004 the tariff rate on imported crude oil and refined petroleum products shall be the same. Provided,
further, that this provision may be amended only by an Act of Congress."
(2) Section 6 which states "To ensure the security and continuity of petroleum crude and products
supply, the DOE shall require the refiners and importers to maintain a minimum inventory equivalent to
ten percent (10%) of their respective annual sales volume or forty (40) days of supply, whichever is lower,"
and
(3) Section 9 (b) which states "To ensure fair competition and prevent cartels and monopolies in the
downstream oil industry, the following acts shall be prohibited:
xxx xxx xxx
(b) Predatory pricing which means selling or offering to sell any product at a price
unreasonably below the industry average cost so as to attract customers to the detriment of
competitors.
On the other hand, section 19 of Article XII of the Constitution allegedly violated by the aforestated provisions
of R.A. No. 8180 mandates: "The State shall regulate or prohibit monopolies when the public interest so requires.
No combinations in restraint of trade or unfair competition shall be allowed."
A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the
exclusive right or power to carry on a particular business or trade, manufacture a particular article, or control the
sale or the whole supply of a particular commodity. It is a form of market structure in which one or only a few
firms dominate the total sales of a product or service. 28 On the other hand, a combination in restraint of trade is
an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding
company, or other form of association, for the purpose of unduly restricting competition, monopolizing trade and
commerce in a certain commodity, controlling its, production, distribution and price, or otherwise interfering with
freedom of trade without statutory authority. 29 Combination in restraint of trade refers to the means while
monopoly refers to the end. 30
Article 186 of the Revised Penal Code and Article 28 of the New Civil Code breathe life to this constitutional
policy. Article 186 of the Revised Penal Code penalizes monopolization and creation of combinations in restraint
of
trade, 31 while Article 28 of the New Civil Code makes any person who shall engage in unfair competition liable
for damages. 32
Respondents aver that sections 5(b), 6 and 9(b) implement the policies and objectives of R.A. No. 8180. They
explain that the 4% tariff differential is designed to encourage new entrants to invest in refineries. They stress
that the inventory requirement is meant to guaranty continuous domestic supply of petroleum and to discourage
fly-by-night operators. They also submit that the prohibition against predatory pricing is intended to protect
prospective entrants. Respondents manifested to the Court that new players have entered the Philippines after
deregulation and have now captured 3% 5% of the oil market.

The validity of the assailed provisions of R.A. No. 8180 has to be decided in light of the letter and spirit of our
Constitution, especially section 19, Article XII. Beyond doubt, the Constitution committed us to the free enterprise
system but it is a system impressed with its own distinctness. Thus, while the Constitution embraced free
enterprise as an economic creed, it did not prohibit per se the operation of monopolies which can, however, be
regulated in the public interest. 33 Thus too, our free enterprise system is not based on a market of pure and
unadulterated competition where the State pursues a strict hands-off policy and follows the let-the-devil devour
the hindmost rule. Combinations in restraint of trade and unfair competitions are absolutely proscribed and the
proscription is directed both against the State as well as the private sector. 34 This distinct free enterprise system
is dictated by the need to achieve the goals of our national economy as defined by section 1, Article XII of the
Constitution which are: 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. It also calls for the State
to protect Filipino enterprises against unfair competition and trade practices.
Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The
desirability of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction
of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is thus the underlying
principle of section 19, Article XII of our Constitution which cannot be violated by R.A. No. 8180. We subscribe
to the observation of Prof. Gellhorn that the objective of anti-trust law is "to assure a competitive economy, based
upon the belief that through competition producers will strive to satisfy consumer wants at the lowest price with
the sacrifice of the fewest resources. Competition among producers allows consumers to bid for goods and
services, and thus matches their desires with society's opportunity costs." 35 He adds with appropriateness that
there is a reliance upon "the operation of the 'market' system (free enterprise) to decide what shall be produced,
how resources shall be allocated in the production process, and to whom the various products will be distributed.
The market system relies on the consumer to decide what and how much shall be produced, and on competition,
among producers to determine who will manufacture it."
Again, we underline in scarlet that the fundamental principle espoused by section 19, Article XII of the
Constitution is competition for it alone can release the creative forces of the market. But the competition that can
unleash these creative forces is competition that is fighting yet is fair. Ideally, this kind of competition requires
the presence of not one, not just a few but several players. A market controlled by one player (monopoly) or
dominated by a handful of players (oligopoly) is hardly the market where honest-to-goodness competition will
prevail. Monopolistic or oligopolistic markets deserve our careful scrutiny and laws which barricade the entry
points of new players in the market should be viewed with suspicion.
Prescinding from these baseline propositions, we shall proceed to examine whether the provisions of R.A. No.
8180 on tariff differential, inventory reserves, and predatory prices imposed substantial barriers to the entry and
exit of new players in our downstream oil industry. If they do, they have to be struck down for they will necessarily
inhibit the formation of a truly competitive market. Contrariwise, if they are insignificant impediments, they need
not be stricken down.
In the cases at bar, it cannot be denied that our downstream oil industry is operated and controlled by an oligopoly,
a foreign oligopoly at that. Petron, Shell and Caltex stand as the only major league players in the oil market. All
other players belong to the lilliputian league. As the dominant players, Petron, Shell and Caltex boast of existing
refineries of various capacities. The tariff differential of 4% therefore works to their immense benefit. Yet, this is
only one edge of the tariff differential. The other edge cuts and cuts deep in the heart of their competitors. It erects
a high barrier to the entry of new players. New players that intend to equalize the market power of Petron, Shell
and Caltex by building refineries of their own will have to spend billions of pesos. Those who will not build
refineries but compete with them will suffer the huge disadvantage of increasing their product cost by 4%. They
will be competing on an uneven field. The argument that the 4% tariff differential is desirable because it will
induce prospective players to invest in refineries puts the cart before the horse. The first need is to attract new
players and they cannot be attracted by burdening them with heavy disincentives. Without new players belonging
to the league of Petron, Shell and Caltex, competition in our downstream oil industry is an idle dream.
The provision on inventory widens the balance of advantage of Petron, Shell and Caltex against prospective new
players. Petron, Shell and Caltex can easily comply with the inventory requirement of R.A. No. 8180 in view of
their existing storage facilities. Prospective competitors again will find compliance with this requirement difficult
as it will entail a prohibitive cost. The construction cost of storage facilities and the cost of inventory can thus
scare prospective players. Their net effect is to further occlude the entry points of new players, dampen
competition and enhance the control of the market by the three (3) existing oil companies.
Finally, we come to the provision on predatory pricing which is defined as ". . . selling or offering to sell any
product at a price unreasonably below the industry average cost so as to attract customers to the detriment of
competitors." Respondents contend that this provision works against Petron, Shell and Caltex and protects new
entrants. The ban on predatory pricing cannot be analyzed in isolation. Its validity is interlocked with the barriers
imposed by R.A. No. 8180 on the entry of new players. The inquiry should be to determine whether predatory
pricing on the part of the dominant oil companies is encouraged by the provisions in the law blocking the entry

of
new
36
Hovenkamp, gives the authoritative answer and we quote:

players.

Text-writer

xxx xxx xxx

The rationale for predatory pricing is the sustaining of losses today that will give a firm monopoly profits
in the future. The monopoly profits will never materialize, however, if the market is flooded with new
entrants as soon as the successful predator attempts to raise its price. Predatory pricing will be profitable
only if the market contains significant barriers to new entry.
As aforediscsussed, the 4% tariff differential and the inventory requirement are significant barriers which
discourage new players to enter the market. Considering these significant barriers established by R.A. No. 8180
and the lack of players with the comparable clout of PETRON, SHELL and CALTEX, the temptation for a
dominant player to engage in predatory pricing and succeed is a chilling reality. Petitioners' charge that this
provision on predatory pricing is anti-competitive is not without reason.
Respondents belittle these barriers with the allegation that new players have entered the market since deregulation.
A scrutiny of the list of the alleged new players will, however, reveal that not one belongs to the class and category
of PETRON, SHELL and CALTEX. Indeed, there is no showing that any of these new players intends to install
any refinery and effectively compete with these dominant oil companies. In any event, it cannot be gainsaid that
the new players could have been more in number and more impressive in might if the illegal entry barriers in R.A.
No. 8180 were not erected.
We come to the final point. We now resolve the total effect of the untimely deregulation, the imposition of 4%
tariff differential on imported crude oil and refined petroleum products, the requirement of inventory and the
prohibition on predatory pricing on the constitutionality of R.A. No. 8180. The question is whether these
offending provisions can be individually struck down without invalidating the entire R.A. No. 8180. The ruling
case law is well stated by author Agpalo, 37 viz.:
xxx xxx xxx
The general rule is that where part of a statute is void as repugnant to the Constitution, while another part
is valid, the valid portion, if separable from the invalid, may stand and be enforced. The presence of a
separability clause in a statute creates the presumption that the legislature intended separability, rather
than complete nullity of the statute. To justify this result, the valid portion must be so far independent of
the invalid portion that it is fair to presume that the legislature would have enacted it by itself if it had
supposed that it could not constitutionally enact the other. Enough must remain to make a complete,
intelligible and valid statute, which carries out the legislative intent. . . .
The exception to the general rule is that when the parts of a statute are so mutually dependent and
connected, as conditions, considerations, inducements, or compensations for each other, as to warrant a
belief that the legislature intended them as a whole, the nullity of one part will vitiate the rest. In making
the parts of the statute dependent, conditional, or connected with one another, the legislature intended the
statute to be carried out as a whole and would not have enacted it if one part is void, in which case if some
parts are unconstitutional, all the other provisions thus dependent, conditional, or connected must fall with
them.
R.A. No. 8180 contains a separability clause. Section 23 provides that "if for any reason, any section or provision
of this Act is declared unconstitutional or invalid, such parts not affected thereby shall remain in full force and
effect." This separability clause notwithstanding, we hold that the offending provisions of R.A. No. 8180 so
permeate its essence that the entire law has to be struck down. The provisions on tariff differential, inventory and
predatory pricing are among the principal props of R.A. No. 8180. Congress could not have deregulated the
downstream oil industry without these provisions. Unfortunately, contrary to their intent, these provisions on
tariff differential, inventory and predatory pricing inhibit fair competition, encourage monopolistic power and
interfere with the free interaction of market forces. R.A. No. 8180 needs provisions to vouchsafe free and fair
competition. The need for these vouchsafing provisions cannot be overstated. Before deregulation, PETRON,
SHELL and CALTEX had no real competitors but did not have a free run of the market because government
controls both the pricing and non-pricing aspects of the oil industry. After deregulation, PETRON, SHELL and
CALTEX remain unthreatened by real competition yet are no longer subject to control by government with respect
to their pricing and non-pricing decisions. The aftermath of R.A. No. 8180 is a deregulated market where
competition can be corrupted and where market forces can be manipulated by oligopolies.
The fall out effects of the defects of R.A. No. 8180 on our people have not escaped Congress. A lot of our leading
legislators have come out openly with bills seeking the repeal of these odious and offensive provisions in R.A.
No. 8180. In the Senate, Senator Freddie Webb has filed S.B. No. 2133 which is the result of the hearings
conducted by the Senate Committee on Energy. The hearings revealed that (1) there was a need to level the
playing field for the new entrants in the downstream oil industry, and (2) there was no law punishing a person for

selling petroleum products at unreasonable prices. Senator Alberto G. Romulo also filed S.B. No. 2209 abolishing
the tariff differential beginning January 1, 1998. He declared that the amendment ". . . would mean that instead
of just three (3) big oil companies there will be other major oil companies to provide more competitive prices for
the market and the consuming public." Senator Heherson T . Alvarez, one of the principal proponents of R.A.
No. 8180, also filed S.B. No. 2290 increasing the penalty for violation of its section 9. It is his opinion as expressed
in the explanatory note of the bill that the present oil companies are engaged in cartelization despite R.A. No.
8180, viz,:
xxx xxx xxx
Since the downstream oil industry was fully deregulated in February 1997, there have been eight (8) fuel
price adjustments made by the three oil majors, namely: Caltex Philippines, Inc.; Petron Corporation; and
Pilipinas Shell Petroleum Corporation. Very noticeable in the price adjustments made, however, is the
uniformity in the pump prices of practically all petroleum products of the three oil companies. This, despite
the fact, that their selling rates should be determined by a combination of any of the following factors: the
prevailing peso-dollar exchange rate at the time payment is made for crude purchases, sources of crude,
and inventory levels of both crude and refined petroleum products. The abovestated factors should have
resulted in different, rather than identical prices.
The fact that the three (3) oil companies' petroleum products are uniformly priced suggests collusion,
amounting to cartelization, among Caltex Philippines, Inc., Petron Corporation and Pilipinas Shell
Petroleum Corporation to fix the prices of petroleum products in violation of paragraph (a), Section 9 of
R.A. No. 8180.
To deter this pernicious practice and to assure that present and prospective players in the downstream oil
industry conduct their business with conscience and propriety, cartel-like activities ought to be severely
penalized.
Senator Francisco S. Tatad also filed S.B. No. 2307 providing for a uniform tariff rate on imported crude oil and
refined petroleum products. In the explanatory note of the bill, he declared in no uncertain terms that ". . . the
present set-up has raised serious public concern over the way the three oil companies have uniformly adjusted
the prices of oil in the country, an indication of a possible existence of a cartel or a cartel-like situation within
the downstream oil industry. This situation is mostly attributed to the foregoing provision on tariff differential,
which has effectively discouraged the entry of new players in the downstream oil industry."
In the House of Representatives, the moves to rehabilitate R.A. No. 8180 are equally feverish. Representative
Leopoldo E. San Buenaventura has filed H.B. No. 9826 removing the tariff differential for imported crude oil and
imported refined petroleum products. In the explanatory note of the bill, Rep. Buenaventura explained:
xxx xxx xxx
As we now experience, this difference in tariff rates between imported crude oil and imported refined
petroleum products, unwittingly provided a built-in-advantage for the three existing oil refineries in the
country and eliminating competition which is a must in a free enterprise economy. Moreover, it created a
disincentive for other players to engage even initially in the importation and distribution of refined
petroleum products and ultimately in the putting up of refineries. This tariff differential virtually created
a monopoly of the downstream oil industry by the existing three oil companies as shown by their uniform
and capricious pricing of their products since this law took effect, to the great disadvantage of the
consuming public.
Thus, instead of achieving the desired effects of deregulation, that of free enterprise and a level playing
field in the downstream oil industry, R.A. 8180 has created an environment conducive to cartelization,
unfavorable, increased, unrealistic prices of petroleum products in the country by the three existing
refineries.
Representative Marcial C. Punzalan, Jr., filed H.B. No. 9981 to prevent collusion among the present oil
companies by strengthening the oversight function of the government, particularly its ability to subject to a review
any adjustment in the prices of gasoline and other petroleum products. In the explanatory note of the bill, Rep.
Punzalan, Jr., said:
xxx xxx xxx
To avoid this, the proposed bill seeks to strengthen the oversight function of government, particularly its
ability to review the prices set for gasoline and other petroleum products. It grants the Energy Regulatory
Board (ERB) the authority to review prices of oil and other petroleum products, as may be petitioned by
a person, group or any entity, and to subsequently compel any entity in the industry to submit any and all
documents relevant to the imposition of new prices. In cases where the Board determines that there exist

collusion, economic conspiracy, unfair trade practice, profiteering and/or overpricing, it may take any step
necessary to protect the public, including the readjustment of the prices of petroleum products. Further,
the Board may also impose the fine and penalty of imprisonment, as prescribed in Section 9 of R.A. 8180,
on any person or entity from the oil industry who is found guilty of such prohibited acts.
By doing all of the above, the measure will effectively provide Filipino consumers with a venue where
their grievances can be heard and immediately acted upon by government.
Thus, this bill stands to benefit the Filipino consumer by making the price-setting process more transparent
and making it easier to prosecute those who perpetrate such prohibited acts as collusion, overpricing,
economic conspiracy and unfair trade.
Representative Sergio A.F . Apostol filed H.B. No. 10039 to remedy an omission in R.A. No. 8180 where there
is no agency in government that determines what is "reasonable" increase in the prices of oil products.
Representative Dente O. Tinga, one of the principal sponsors of R.A. No. 8180, filed H.B. No. 10057 to
strengthen its anti-trust provisions. He elucidated in its explanatory note:
xxx xxx xxx
The definition of predatory pricing, however, needs to be tightened up particularly with respect to the
definitive benchmark price and the specific anti-competitive intent. The definition in the bill at hand which
was taken from the Areeda-Turner test in the United States on predatory pricing resolves the questions.
The definition reads, "Predatory pricing means selling or offering to sell any oil product at a price below
the average variable cost for the purpose of destroying competition, eliminating a competitor or
discouraging a competitor from entering the market."
The appropriate actions which may be resorted to under the Rules of Court in conjunction with the oil
deregulation law are adequate. But to stress their availability and dynamism, it is a good move to
incorporate all the remedies in the law itself. Thus, the present bill formalizes the concept of government
intervention and private suits to address the problem of antitrust violations. Specifically, the government
may file an action to prevent or restrain any act of cartelization or predatory pricing, and if it has suffered
any loss or damage by reason of the antitrust violation it may recover damages. Likewise, a private person
or entity may sue to prevent or restrain any such violation which will result in damage to his business or
property, and if he has already suffered damage he shall recover treble damages. A class suit may also be
allowed.
To make the DOE Secretary more effective in the enforcement of the law, he shall be given additional
powers to gather information and to require reports.
Representative Erasmo B. Damasing filed H.B. No. 7885 and has a more unforgiving view of R.A. No. 8180. He
wants it completely repealed. He explained:
xxx xxx xxx
Contrary to the projections at the time the bill on the Downstream Oil Industry Deregulation was discussed
and debated upon in the plenary session prior to its approval into law, there aren't any new players or
investors in the oil industry. Thus, resulting in practically a cartel or monopoly in the oil industry by the
three (3) big oil companies, Caltex, Shell and Petron. So much so, that with the deregulation now being
partially implemented, the said oil companies have succeeded in increasing the prices of most of their
petroleum products with little or no interference at all from the government. In the month of August, there
was an increase of Fifty centavos (50) per liter by subsidizing the same with the OPSF, this is only
temporary as in March 1997, or a few months from now, there will be full deregulation (Phase II) whereby
the increase in the prices of petroleum products will be fully absorbed by the consumers since OPSF will
already be abolished by then. Certainly, this would make the lives of our people, especially the
unemployed ones, doubly difficult and unbearable.
The much ballyhooed coming in of new players in the oil industry is quite remote considering that these
prospective investors cannot fight the existing and well established oil companies in the country today,
namely, Caltex, Shell and Petron. Even if these new players will come in, they will still have no chance
to compete with the said three (3) existing big oil companies considering that there is an imposition of oil
tariff differential of 4% between importation of crude oil by the said oil refineries paying only 3% tariff
rate for the said importation and 7% tariff rate to be paid by businessmen who have no oil refineries in the
Philippines but will import finished petroleum/oil products which is being taxed with 7% tariff rates.
So, if only to help the many who are poor from further suffering as a result of unmitigated increase in oil
products due to deregulation, it is a must that the Downstream Oil Industry Deregulation Act of 1996, or
R.A. 8180 be repealed completely.

Various resolutions have also been filed in the Senate calling for an immediate and comprehensive review of R.A.
No. 8180 to prevent the downpour of its ill effects on the people. Thus, S. Res. No. 574 was filed by Senator
Gloria M. Macapagal entitled Resolution "Directing the Committee on Energy to Inquire Into The Proper
Implementation of the Deregulation of the Downstream Oil Industry and Oil Tax Restructuring As Mandated
Under R.A. Nos. 8180 and 8184, In Order to Make The Necessary Corrections In the Apparent Misinterpretation
Of The Intent And Provision Of The Laws And Curb The Rising Tide Of Disenchantment Among The Filipino
Consumers And Bring About The Real Intentions And Benefits Of The Said Law." Senator Blas P. Ople filed S.
Res. No. 664 entitled resolution "Directing the Committee on Energy To Conduct An Inquiry In Aid Of
Legislation To Review The Government's Oil Deregulation Policy In Light Of The Successive Increases In
Transportation, Electricity And Power Rates, As well As Of Food And Other Prime Commodities And
Recommend Appropriate Amendments To Protect The Consuming Public." Senator Ople observed:
xxx xxx xxx
WHEREAS, since the passage of R.A. No. 8180, the Energy Regulatory Board (ERB) has imposed
successive increases in oil prices which has triggered increases in electricity and power rates,
transportation fares, as well as in prices of food and other prime commodities to the detriment of our
people, particularly the poor;
WHEREAS, the new players that were expected to compete with the oil cartel-Shell, Caltex and Petronhave not come in;
WHEREAS, it is imperative that a review of the oil deregulation policy be made to consider appropriate
amendments to the existing law such as an extension of the transition phase before full deregulation in
order to give the competitive market enough time to develop;
WHEREAS, the review can include the advisability of providing some incentives in order to attract the
entry of new oil companies to effect a dynamic competitive market;
WHEREAS, it may also be necessary to defer the setting up of the institutional framework for full
deregulation of the oil industry as mandated under Executive Order No. 377 issued by President Ramos
last October 31, 1996 . . .
Senator Alberto G. Romulo filed S. Res. No. 769 entitled resolution "Directing the Committees on Energy and
Public Services In Aid Of Legislation To Assess The Immediate Medium And Long Term Impact of Oil
Deregulation On Oil Prices And The Economy." Among the reasons for the resolution is the finding that "the
requirement of a 40-day stock inventory effectively limits the entry of other oil firms in the market with the
consequence that instead of going down oil prices will rise."
Parallel resolutions have been filed in the House of Representatives. Representative Dante O. Tinga filed H. Res.
No. 1311 "Directing The Committee on Energy To Conduct An Inquiry, In Aid of Legislation, Into The Pricing
Policies And Decisions Of The Oil Companies Since The Implementation of Full Deregulation Under the Oil
Deregulation Act (R.A. No. 8180) For the Purpose of Determining In the Context Of The Oversight Functions Of
Congress Whether The Conduct Of The Oil Companies, Whether Singly Or Collectively, Constitutes
Cartelization Which Is A Prohibited Act Under R.A. No. 8180, And What Measures Should Be Taken To Help
Ensure The Successful Implementation Of The Law In Accordance With Its Letter And Spirit, Including
Recommending Criminal Prosecution Of the Officers Concerned Of the Oil Companies If Warranted By The
Evidence, And For Other Purposes." Representatives Marcial C. Punzalan, Jr. Dante O. Tinga and Antonio E.
Bengzon III filed H.R. No. 894 directing the House Committee on Energy to inquire into the proper
implementation of the deregulation of the downstream oil industry. House Resolution No. 1013 was also filed by
Representatives Edcel C. Lagman, Enrique T . Garcia, Jr. and Joker P. Arroyo urging the President to
immediately suspend the implementation of E.O. No. 392.
In recent memory there is no law enacted by the legislature afflicted with so much constitutional deformities as
R.A. No. 8180. Yet, R.A. No. 8180 deals with oil, a commodity whose supply and price affect the ebb and flow
of the lifeblood of the nation. Its shortage of supply or a slight, upward spiral in its price shakes our economic
foundation. Studies show that the areas most impacted by the movement of oil are food manufacture, land
transport, trade, electricity and water. 38 At a time when our economy is in a dangerous downspin, the perpetuation
of R.A. No. 8180 threatens to multiply the number of our people with bent backs and begging bowls. R.A. No.
8180 with its anti-competition provisions cannot be allowed by this Court to stand even while Congress is working
to remedy its defects.
The Court, however, takes note of the plea of PETRON, SHELL and CALTEX to lift our restraining order to
enable them to adjust upward the price of petroleum and petroleum products in view of the plummeting value of
the peso. Their plea, however, will now have to be addressed to the Energy Regulatory Board as the effect of the
declaration of unconstitutionality of R.A. No. 8180 is to revive the former laws it repealed. 39 The length of our

return to the regime of regulation depends on Congress which can fasttrack the writing of a new law on oil
deregulation in accord with the Constitution.
With this Decision, some circles will chide the Court for interfering with an economic decision of Congress. Such
criticism is charmless for the Court is annulling R.A. No. 8180 not because it disagrees with deregulation as an
economic policy but because as cobbled by Congress in its present form, the law violates the Constitution. The
right call therefor should be for Congress to write a new oil deregulation law that conforms with the Constitution
and not for this Court to shirk its duty of striking down a law that offends the Constitution. Striking down R.A.
No. 8180 may cost losses in quantifiable terms to the oil oligopolists. But the loss in tolerating the tampering of
our Constitution is not quantifiable in pesos and centavos. More worthy of protection than the supra-normal profits
of private corporations is the sanctity of the fundamental principles of the Constitution. Indeed when confronted
by a law violating the Constitution, the Court has no option but to strike it down dead. Lest it is missed, the
Constitution is a covenant that grants and guarantees both the political and economic rights of the people. The
Constitution mandates this Court to be the guardian not only of the people's political rights but their economic
rights as well. The protection of the economic rights of the poor and the powerless is of greater importance to
them for they are concerned more with the exoterics of living and less with the esoterics of liberty. Hence, for as
long as the Constitution reigns supreme so long will this Court be vigilant in upholding the economic rights of
our people especially from the onslaught of the powerful. Our defense of the people's economic rights may appear
heartless because it cannot be half-hearted.
IN VIEW WHEREOF, the petitions are granted. R.A. No. 8180 is declared unconstitutional and E.O. No. 372
void.
SO ORDERED.
G.R. No. L-34674

October 26, 1931

MAURICIO
CRUZ,
petitioner-appellant,
vs.
STANTON YOUNGBERG, Director of the Bureau of Animal Industry, respondent-appellee.
Jose
Yulo
Office of the Solicitor-General Reyes for appellee.

for

appellant.

OSTRAND, J.:
This is a petition brought originally before the Court of First Instance of Manila for the issuance of a writ of
mandatory injunction against the respondent, Stanton Youngberg, as Director of the Bureau of Animal Industry,
requiring him to issue a permit for the landing of ten large cattle imported by the petitioner and for the slaughter
thereof. The petitioner attacked the constitutionality of Act No. 3155, which at present prohibits the importation
of cattle from foreign countries into the Philippine Islands.
Among other things in the allegation of the petition, it is asserted that "Act No. 3155 of the Philippine Legislature
was enacted for the sole purpose of preventing the introduction of cattle diseases into the Philippine Islands from
foreign countries, as shown by an explanatory note and text of Senate Bill No. 328 as introduced in the Philippine
Legislature, ... ." The Act in question reads as follows:
SECTION 1. After March thirty-first, nineteen hundred and twenty-five existing contracts for the
importation of cattle into this country to the contrary notwithstanding, it shall be strictly prohibited to
import, bring or introduce into the Philippine Islands any cattle from foreign countries: Provided, however,
That at any time after said date, the Governor-General, with the concurrence of the presiding officers of
both Houses, may raise such prohibition entirely or in part if the conditions of the country make this
advisable or if decease among foreign cattle has ceased to be a menace to the agriculture and live stock of
the lands.
SEC. 2. All acts or parts of acts inconsistent with this Act are hereby repealed.
SEC. 3. This Act shall take effect on its approval.
Approved, March 8, 1924.
The respondent demurred to the petition on the ground that it did not state facts sufficient to constitute a cause of
action. The demurrer was based on two reasons, namely, (1) that if Act No. 3155 were declared unconstitutional
and void, the petitioner would not be entitled to the relief demanded because Act No. 3052 would automatically

become effective and would prohibit the respondent from giving the permit prayed for; and (2) that Act No. 3155
was constitutional and, therefore, valid.
The court sustained the demurrer and the complaint was dismissed by reason of the failure of the petitioner to file
another complaint. From that order of dismissal, the petitioner appealed to this court.
The appellee contends that even if Act No. 3155 be declared unconstitutional by the fact alleged by the petitioner
in his complaint, still the petitioner can not be allowed to import cattle from Australia for the reason that, while
Act No. 3155 were declared unconstitutional, Act No. 3052 would automatically become effective. Act No. 3052
reads as follows:
SECTION 1. Section seventeen hundred and sixty-two of Act Numbered Twenty-seven hundred and
eleven, known as the Administrative Code, is hereby amended to read as follows:
"SEC. 1762. Bringing of animals imported from foreign countries into the Philippine Islands.
It shall be unlawful for any person or corporation to import, bring or introduce live cattle into the
Philippine Islands from any foreign country. The Director of Agriculture may, with the approval
of the head of the department first had, authorize the importation, bringing or introduction of
various classes of thoroughbred cattle from foreign countries for breeding the same to the native
cattle of these Islands, and such as may be necessary for the improvement of the breed, not to
exceed five hundred head per annum: Provided, however, That the Director of Agriculture shall in
all cases permit the importation, bringing or introduction of draft cattle and bovine cattle for the
manufacture of serum: Provided, further, That all live cattle from foreign countries the
importation, bringing or introduction of which into the Islands is authorized by this Act, shall be
submitted to regulations issued by the Director of Agriculture, with the approval of the head of the
department, prior to authorizing its transfer to other provinces.
"At the time of the approval of this Act, the Governor-General shall issue regulations and others
to provide against a raising of the price of both fresh and refrigerated meat. The Governor-General
also may, by executive order, suspend, this prohibition for a fixed period in case local conditions
require it."
SEC. 2. This Act shall take effect six months after approval.
Approved, March 14, 1922.
The petitioner does not present any allegations in regard to Act No. 3052 to show its nullity or unconstitutionality
though it appears clearly that in the absence of Act No. 3155 the former act would make it impossible for the
Director of the Bureau of Animal Industry to grant the petitioner a permit for the importation of the cattle without
the approval of the head of the corresponding department.
An unconstitutional statute can have no effect to repeal former laws or parts of laws by implication, since,
being void, it is not inconsistent with such former laws. (I Lewis Sutherland, Statutory Construction 2nd
ed., p. 458, citing McAllister vs. Hamlin, 83 Cal., 361; 23 Pac., 357; Orange Country vs. Harris, 97 Cal.,
600; 32 Pac., 594; Carr vs. State, 127 Ind., 204; 11 L.R.A., 370, etc.)
This court has several times declared that it will not pass upon the constitutionality of statutes unless it is necessary
to do so (McGirr vs. Hamilton and Abreu, 30 Phil., 563, 568; Walter E. Olsen & Co. vs. Aldanese and Trinidad,
43 Phil., 259) but in this case it is not necessary to pass upon the validity of the statute attacked by the petitioner
because even if it were declared unconstitutional, the petitioner would not be entitled to relief inasmuch as Act
No. 3052 is not in issue.
But aside from the provisions of Act No. 3052, we are of the opinion that Act No. 3155 is entirely valid. As shown
in paragraph 8 of the amended petition, the Legislature passed Act No. 3155 to protect the cattle industry of the
country and to prevent the introduction of cattle diseases through importation of foreign cattle. It is now generally
recognized that the promotion of industries affecting the public welfare and the development of the resources of
the country are objects within the scope of the police power (12 C.J., 927; 6 R.C.L., 203-206 and decisions cited
therein; Reid vs. Colorado, 187 U.S., 137, 147, 152; Yeazel vs. Alexander, 58 Ill., 254). In this connection it is
said in the case of Punzalan vs. Ferriols and Provincial Board of Batangas (19 Phil., 214), that the provisions of
the Act of Congress of July 1, 1902, did not have the effect of denying to the Government of the Philippine Islands
the right to the exercise of the sovereign police power in the promotion of the general welfare and the public
interest. The facts recited in paragraph 8 of the amended petition shows that at the time the Act No. 3155 was
promulgated there was reasonable necessity therefor and it cannot be said that the Legislature exceeded its power
in passing the Act. That being so, it is not for this court to avoid or vacate the Act upon constitutional grounds
nor will it assume to determine whether the measures are wise or the best that might have been adopted. (6 R.C.L.,
243 and decisions cited therein.)1awphil.net

In his third assignment of error the petitioner claims that "The lower court erred in not holding that the power
given by Act No. 3155 to the Governor-General to suspend or not, at his discretion, the prohibition provided in
the act constitutes an unlawful delegation of the legislative powers." We do not think that such is the case; as
Judge Ranney of the Ohio Supreme Court in Cincinnati, Wilmington and Zanesville Railroad Co. vs.
Commissioners of Clinton County (1 Ohio St., 77, 88) said in such case:
The true distinction, therefore, is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to
be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection
can be made.
Under his fourth assignment of error the appellant argues that Act No. 3155 amends section 3 of the Tariff Law,
but it will be noted that Act No. 3155 is not an absolute prohibition of the importation of cattle and it does not
add any provision to section 3 of the Tariff Law. As stated in the brief of the Attorney-General: "It is a complete
statute in itself. It does not make any reference to the Tariff Law. It does not permit the importation of articles,
whose importation is prohibited by the Tariff Law. It is not a tariff measure but a quarantine measure, a statute
adopted under the police power of the Philippine Government. It is at most a `supplement' or an `addition' to the
Tariff Law. (See MacLeary vs. Babcock, 82 N.E., 453, 455; 169 Ind., 228 for distinction between `supplemental'
and `amendatory' and O'Pry vs. U.S., 249 U.S., 323; 63 Law. ed., 626, for distinction between `addition' and
`amendment.')"
The decision appealed from is affirmed with the costs against the appellant. So ordered.

G.R. No. 179579

February 1, 2012

COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE PORT OF SUBIC,

Petitioners,
vs.
HYPERMIX FEEDS CORPORATION, Respondent.
DECISION
SERENO, J.:
Before us is a Petition for Review under Rule 45,1 assailing the Decision2 and the Resolution3 of the Court of
Appeals (CA), which nullified the Customs Memorandum Order (CMO) No. 27-20034 on the tariff classification
of wheat issued by petitioner Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003. Under the Memorandum, for
tariff purposes, wheat was classified according to the following: (1) importer or consignee; (2) country of origin;
and (3) port of discharge.5 The regulation provided an exclusive list of corporations, ports of discharge,
commodity descriptions and countries of origin. Depending on these factors, wheat would be classified either as
food grade or feed grade. The corresponding tariff for food grade wheat was 3%, for feed grade, 7%.
CMO 27-2003 further provided for the proper procedure for protest or Valuation and Classification Review
Committee (VCRC) cases. Under this procedure, the release of the articles that were the subject of protest required
the importer to post a cash bond to cover the tariff differential.6
A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed a Petition for Declaratory
Relief7 with the Regional Trial Court (RTC) of Las Pias City. It anticipated the implementation of the regulation
on its imported and perishable Chinese milling wheat in transit from China.8 Respondent contended that CMO
27-2003 was issued without following the mandate of the Revised Administrative Code on public participation,
prior notice, and publication or registration with the University of the Philippines Law Center.
Respondent also alleged that the regulation summarily adjudged it to be a feed grade supplier without the benefit
of prior assessment and examination; thus, despite having imported food grade wheat, it would be subjected to
the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was proper.
Furthermore, respondent claimed that the equal protection clause of the Constitution was violated when the
regulation treated non-flour millers differently from flour millers for no reason at all.
Lastly, respondent asserted that the retroactive application of the regulation was confiscatory in nature.

On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective for twenty (20) days from
notice.9
Petitioners thereafter filed a Motion to Dismiss.10 They alleged that: (1) the RTC did not have jurisdiction over
the subject matter of the case, because respondent was asking for a judicial determination of the classification of
wheat; (2) an action for declaratory relief was improper; (3) CMO 27-2003 was an internal administrative rule
and not legislative in nature; and (4) the claims of respondent were speculative and premature, because the Bureau
of Customs (BOC) had yet to examine respondents products. They likewise opposed the application for a writ
of preliminary injunction on the ground that they had not inflicted any injury through the issuance of the
regulation; and that the action would be contrary to the rule that administrative issuances are assumed valid until
declared otherwise.
On 28 February 2005, the parties agreed that the matters raised in the application for preliminary injunction and
the Motion to Dismiss would just be resolved together in the main case. Thus, on 10 March 2005, the RTC
rendered its Decision11 without having to resolve the application for preliminary injunction and the Motion to
Dismiss.
The trial court ruled in favor of respondent, to wit:
WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject Customs Memorandum Order
27-2003 is declared INVALID and OF NO FORCE AND EFFECT. Respondents Commissioner of Customs, the
District Collector of Subic or anyone acting in their behalf are to immediately cease and desist from enforcing the
said Customs Memorandum Order 27-2003.
SO ORDERED.12
The RTC held that it had jurisdiction over the subject matter, given that the issue raised by respondent concerned
the quasi-legislative powers of petitioners. It likewise stated that a petition for declaratory relief was the proper
remedy, and that respondent was the proper party to file it. The court considered that respondent was a regular
importer, and that the latter would be subjected to the application of the regulation in future transactions.
With regard to the validity of the regulation, the trial court found that petitioners had not followed the basic
requirements of hearing and publication in the issuance of CMO 27-2003. It likewise held that petitioners had
"substituted the quasi-judicial determination of the commodity by a quasi-legislative predetermination."13 The
lower court pointed out that a classification based on importers and ports of discharge were violative of the due
process rights of respondent.
Dissatisfied with the Decision of the lower court, petitioners appealed to the CA, raising the same allegations in
defense of CMO 27-2003.14 The appellate court, however, dismissed the appeal. It held that, since the regulation
affected substantial rights of petitioners and other importers, petitioners should have observed the requirements
of notice, hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for the consideration of this Court:
I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN
ACCORD WITH THE LAW AND PREVAILING JURISPRUDENCE.
II. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE TRIAL COURT
HAS JURISDICTION OVER THE CASE.
The Petition has no merit.
We shall first discuss the propriety of an action for declaratory relief.
Rule 63, Section 1 provides:
Who may file petition. Any person interested under a deed, will, contract or other written instrument, or whose
rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation
may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any
question of construction or validity arising, and for a declaration of his rights or duties, thereunder.
The requirements of an action for declaratory relief are as follows: (1) there must be a justiciable controversy; (2)
the controversy must be between persons whose interests are adverse; (3) the party seeking declaratory relief must
have a legal interest in the controversy; and (4) the issue involved must be ripe for judicial determination. 15 We
find that the Petition filed by respondent before the lower court meets these requirements.

First, the subject of the controversy is the constitutionality of CMO 27-2003 issued by petitioner Commissioner
of Customs. In Smart Communications v. NTC,16 we held:
The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the
law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the
scope of judicial power, which includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government. (Emphasis supplied)
Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary,17 we
said:
xxx [A] legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by
providing the details thereof. xxx
In addition such rule must be published. 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.
(Emphasis supplied)
Second, the controversy is between two parties that have adverse interests. Petitioners are summarily imposing a
tariff rate that respondent is refusing to pay.
Third, it is clear that respondent has a legal and substantive interest in the implementation of CMO 27-2003.
Respondent has adequately shown that, as a regular importer of wheat, on 14 August 2003, it has actually made
shipments of wheat from China to Subic. The shipment was set to arrive in December 2003. Upon its arrival, it
would be subjected to the conditions of CMO 27-2003. The regulation calls for the imposition of different tariff
rates, depending on the factors enumerated therein. Thus, respondent alleged that it would be made to pay the 7%
tariff applied to feed grade wheat, instead of the 3% tariff on food grade wheat. In addition, respondent would
have to go through the procedure under CMO 27-2003, which would undoubtedly toll its time and resources. The
lower court correctly pointed out as follows:
xxx As noted above, the fact that petitioner is precisely into the business of importing wheat, each and every
importation will be subjected to constant disputes which will result into (sic) delays in the delivery, setting aside
of funds as cash bond required in the CMO as well as the resulting expenses thereof. It is easy to see that business
uncertainty will be a constant occurrence for petitioner. That the sums involved are not minimal is shown by the
discussions during the hearings conducted as well as in the pleadings filed. It may be that the petitioner can later
on get a refund but such has been foreclosed because the Collector of Customs and the Commissioner of Customs
are bound by their own CMO. Petitioner cannot get its refund with the said agency. We believe and so find that
Petitioner has presented such a stake in the outcome of this controversy as to vest it with standing to file this
petition.18 (Emphasis supplied)
Finally, the issue raised by respondent is ripe for judicial determination, because litigation is inevitable19 for the
simple and uncontroverted reason that respondent is not included in the enumeration of flour millers classified as
food grade wheat importers. Thus, as the trial court stated, it would have to file a protest case each time it imports
food grade wheat and be subjected to the 7% tariff.
It is therefore clear that a petition for declaratory relief is the right remedy given the circumstances of the case.
Considering that the questioned regulation would affect the substantive rights of respondent as explained above,
it therefore follows that petitioners should have applied the pertinent provisions of Book VII, Chapter 2 of the
Revised Administrative Code, to wit:

Section 3. Filing. (1) Every agency shall file with the University of the Philippines Law Center three (3) certified
copies of every rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within
three (3) months from that date shall not thereafter be the bases of any sanction against any party of persons.
xxx

xxx

xxx

Section 9. Public Participation. - (1) If not otherwise required by law, an agency shall, as far as practicable, publish
or circulate notices of 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.
When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare
issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on the
other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves
the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of law.20
Likewise, in Taada v. Tuvera,21 we held:
The clear object of the above-quoted provision is to give the general public adequate notice of the various laws
which are to regulate their actions and conduct as citizens. Without such notice and publication, there would be
no basis for the application of the maxim "ignorantia legis non excusat." It would be the height of injustice to
punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not even
a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has the publication of laws taken so vital
significance that at this time when the people have bestowed upon the President a power heretofore enjoyed solely
by the legislature. While the people are kept abreast by the mass media of the debates and deliberations in the
Batasan Pambansa and for the diligent ones, ready access to the legislative records no such publicity
accompanies the law-making process of the President. Thus, without publication, the people have no means of
knowing what presidential decrees have actually been promulgated, much less a definite way of informing
themselves of the specific contents and texts of such decrees. (Emphasis supplied)
Because petitioners failed to follow the requirements enumerated by the Revised Administrative Code, the
assailed regulation must be struck down.
Going now to the content of CMO 27-3003, we likewise hold that it is unconstitutional for being violative of the
equal protection clause of the Constitution.
The equal protection clause means that no person or class of persons shall be deprived of the same protection of
laws enjoyed by other persons or other classes in the same place in like circumstances. Thus, the guarantee of the
equal protection of laws is not violated if there is a reasonable classification. For a classification to be reasonable,
it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is
not limited to existing conditions only; and (4) it applies equally to all members of the same class.22
Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat is
affected by who imports it, where it is discharged, or which country it came from.
Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade wheat, the
product would still be declared as feed grade wheat, a classification subjecting them to 7% tariff. On the other
hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat, they would only be made
to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not become
disadvantageous to respondent only, but even to the state.
It is also not clear how the regulation intends to "monitor more closely wheat importations and thus prevent their
misclassification." A careful study of CMO 27-2003 shows that it not only fails to achieve this end, but results in
the opposite. The application of the regulation forecloses the possibility that other corporations that are excluded
from the list import food grade wheat; at the same time, it creates an assumption that those who meet the criteria
do not import feed grade wheat. In the first case, importers are unnecessarily burdened to prove the classification
of their wheat imports; while in the second, the state carries that burden.

Petitioner Commissioner of Customs also went beyond his powers when the regulation limited the customs
officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. The law provides:
Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and Appraise Imported Articles. The
customs officer tasked to examine, classify, and appraise imported articles shall determine whether the packages
designated for examination and their contents are in accordance with the declaration in the entry, invoice and
other pertinent documents and shall make return in such a manner as to indicate whether the articles have been
truly and correctly declared in the entry as regard their quantity, measurement, weight, and tariff classification
and not imported contrary to law. He shall submit samples to the laboratory for analysis when feasible to do so
and when such analysis is necessary for the proper classification, appraisal, and/or admission into the Philippines
of imported articles.
Likewise, the customs officer shall determine the unit of quantity in which they are usually bought and sold, and
appraise the imported articles in accordance with Section 201 of this Code.
Failure on the part of the customs officer to comply with his duties shall subject him to the penalties prescribed
under Section 3604 of this Code.1wphi1
The provision mandates that the customs officer must first assess and determine the classification of the imported
article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article even before
the customs officer had the chance to examine it. In effect, petitioner Commissioner of Customs diminished the
powers granted by the Tariff and Customs Code with regard to wheat importation when it no longer required the
customs officers prior examination and assessment of the proper classification of the wheat.
It is well-settled that rules and regulations, which are the product of a delegated power to create new and additional
legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the
legislature to the administrative agency. It is required that the regulation be germane to the objects and purposes
of the law; and that it be not in contradiction to, but in conformity with, the standards prescribed by law.23
In summary, petitioners violated respondents right to due process in the issuance of CMO 27-2003 when they
failed to observe the requirements under the Revised Administrative Code. Petitioners likewise violated
respondents right to equal protection of laws when they provided for an unreasonable classification in the
application of the regulation. Finally, petitioner Commissioner of Customs went beyond his powers of delegated
authority when the regulation limited the powers of the customs officer to examine and assess imported articles.
WHEREFORE, in view of the foregoing, the Petition is DENIED.
SO ORDERED.